<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 1998
REGISTRATION NO. 333-50739
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
DELAWARE 4832 75-2451687
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
---------------------
<TABLE>
<S> <C>
(FOR CO-REGISTRANTS, PLEASE SEE "TABLE OF CO-REGISTRANTS" ON THE FOLLOWING PAGE)
MATTHEW E. DEVINE
CHIEF FINANCIAL OFFICER
433 EAST LAS COLINAS BOULEVARD 433 EAST LAS COLINAS BOULEVARD
IRVING, TEXAS 75039 IRVING, TEXAS 75039
(972) 869-9020 (972) 869-9020
(Address, including zip code, and telephone number, (Name, address, including zip code, telephone
including area code, of registrant's principal executive offices) number, including area code, of agent for service)
</TABLE>
---------------------
Copies to
JOHN D. WATSON, JR., ESQ.
MARK D. SPOTO, ESQ.
MONETTE P. DAWSON, ESQ.
LATHAM & WATKINS
1001 PENNSYLVANIA AVENUE, N.W., SUITE 1300
WASHINGTON, D.C. 20004-2505
(202) 637-2200
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
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 this form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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. [ ]
- ------------------
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
================================================================================
<PAGE> 2
TABLE OF CO-REGISTRANTS
<TABLE>
<CAPTION>
PRIMARY STANDARD IRS
STATE OR OTHER INDUSTRIAL EMPLOYER
JURISDICTION OF CLASSIFICATION IDENTIFICATION
NAME INCORPORATION CODE NUMBER NUMBER
---- --------------- ---------------- --------------
<S> <C> <C> <C>
Chancellor Media Corporation of the Lone Star
State........................................... Delaware 4832 99-0248294
KZPS/KDGE License Corp............................ Delaware 4832 75-2449662
Chancellor Media Corporation of the Bay Area...... Delaware 4832 59-2312787
KIOI License Corp................................. Delaware 4832 75-2449654
Chancellor Media Corporation of Illinois.......... Delaware 4832 75-2490925
WRCX License Corp................................. Delaware 4832 75-2528716
Chancellor Media Corporation of Chicago AM........ Delaware 4832 59-2412802
WMVP-AM License Corp.............................. Delaware 4832 75-2449660
Chancellor Media Corporation of Dade County....... Delaware 4832 59-2312792
WVCG License Corp................................. Delaware 4832 75-2449668
Chancellor Media/Pyramid Corporation.............. Delaware 4832 04-3221315
Chancellor Media/Pyramid Holdings Corporation..... Delaware 4832 04-3221316
Broadcast Architecture, Inc....................... Massachusetts 4832 04-3096275
Chancellor Media Corporation of Massachusetts..... Delaware 4832 04-3216274
WJMN License Corp................................. Delaware 4832 04-3216272
Chancellor Media Corporation of the Nation's
Capital......................................... Delaware 4832 75-2699485
WWRC License Corp................................. Delaware 4832 75-2697127
Chancellor Media Partners Corporation............. Delaware 4832 13-3467127
Chancellor Media Corporation of Gotham............ Delaware 4832 36-3905992
Chancellor Media Corporation of New York.......... Delaware 4832 54-1475267
WYNY License Corp................................. Delaware 4832 36-3906005
Chancellor Media Corporation of Detroit........... Delaware 4832 36-2826680
WKQI/WDOZ/WNIC License Corp....................... Delaware 4832 36-3906004
Chancellor Media Corporation of Chicagoland....... Delaware 4832 36-3604824
WEJM/WEJM-FM/WVAZ License Corp.................... Delaware 4832 36-3905998
Chancellor Media Corporation of Charlotte......... Delaware 4832 62-1364794
WIOQ License Corp................................. Delaware 4832 36-3906002
Chancellor Media Corporation of Dallas............ Delaware 4832 75-2245927
KSKY License Corp................................. Delaware 4832 36-3906008
Chancellor Media Corporation of San Francisco..... Delaware 4832 75-2449639
KMEL License Corp................................. Delaware 4832 75-2449650
Chancellor Media Corporation of Houston........... Delaware 4832 75-2486583
Chancellor Media of Houston Limited Partnership... Delaware 4832 75-2486577
KLOL License Limited Partnership.................. Delaware 4832 75-2486580
Chancellor Media Corporation of Tiburon........... Delaware 4832 75-2674715
KKSF License Corp................................. Delaware 4832 75-2674717
Chancellor Media Corporation of Washington,
D.C............................................. Delaware 4832 75-243256
Chancellor Media Corporation of St. Louis......... Delaware 4832 75-2449637
WTOP License Limited Partnership.................. Delaware 4832 75-2528718
Chancellor Media Corporation of the Motor City.... Delaware 4832 75-2666019
WJLB License Corp................................. Delaware 4832 75-2666024
Chancellor Media Corporation of Michigan.......... Delaware 4832 75-2666017
WMXD License Corp................................. Delaware 4832 75-2666023
Chancellor Media/WAXQ Inc......................... Delaware 4832 13-3387794
WAXQ License Corp................................. Delaware 4832 N/A
Chancellor Media/WMZQ Inc......................... Delaware 4832 04-2981015
WMZQ License Corp................................. Delaware 4832 N/A
</TABLE>
<PAGE> 3
TABLE OF CO-REGISTRANTS -- (CONTINUED)
<TABLE>
<CAPTION>
PRIMARY STANDARD IRS
STATE OR OTHER INDUSTRIAL EMPLOYER
JURISDICTION OF CLASSIFICATION IDENTIFICATION
NAME INCORPORATION CODE NUMBER NUMBER
---- --------------- ---------------- --------------
<S> <C> <C> <C>
Chancellor Media Corporation of the Liberty
City............................................ Delaware 4832 75-2674728
WDAS (FM) License Corp............................ Delaware 4832 75-2674731
WDAS (AM) License Corp............................ Delaware 4832 75-2674729
Chancellor Media/Riverside Broadcasting Co.
Inc............................................. Delaware 4832 13-2688382
WLTW License Corp................................. Delaware 4832 N/A
Chancellor Media Corporation of the Great Lakes... Delaware 4832 75-2674722
WWWW/WDFN License Corp............................ Delaware 4832 75-2674723
Chancellor Media Corporation of the Capital
City............................................ Delaware 4832 75-2647157
WGAY License Corp................................. Delaware 4832 75-2647158
Chancellor Media Licensee Company................. Delaware 4832 75-2544625
Chancellor Media/Trefoil Communications, Inc...... Delaware 4832 95-3278846
Chancellor Media/Shamrock Broadcasting, Inc....... Delaware 4832 95-4068583
Chancellor Media/Shamrock Radio Licenses, Inc..... Delaware 4832 95-4501833
Chancellor Media/Shamrock Broadcasting of Texas,
Inc............................................. Texas 4832 71-0527506
Chancellor Media/Shamrock Broadcasting Licenses of
Denver, Inc..................................... Delaware 4832 75-2688376
Chancellor Media/KCMG Inc......................... Delaware 4832 13-3930133
Chancellor Media/KYSR Inc......................... Delaware 4832 13-3547704
Chancellor Media/WLIT Inc......................... Delaware 4832 13-3930134
Radio 100 L.L.C................................... Delaware 4832 N/A
Chancellor Media Corporation of Pennsylvania...... Delaware 4832 04-3216281
WJJZ License Corp................................. Delaware 4832 04-3216283
Chancellor Media Corporation of Miami............. Delaware 4832 04-3216285
WEDR License Corp................................. Delaware 4832 04-3216278
Chancellor Media Corporation of Boston............ Delaware 4832 04-3221317
WXKS (AM) License Corp............................ Delaware 4832 04-3221319
WXKS (FM) License Corp............................ Delaware 4832 04-3221318
Chancellor Media Corporation of the Windy City.... Delaware 4832 04-3221712
WNUA License Corp................................. Delaware 4832 04-3221714
Chancellor Media Corporation of Philadelphia...... Delaware 4832 04-3221716
Chancellor Media Corporation of the Keystone
State........................................... Delaware 4832 04-3221374
WYXR License Corp................................. Delaware 4832 04-3221718
WUSL License Corp................................. Delaware 4832 04-3221375
KKBT License Corp................................. Delaware 4832 75-2449648
Katz Media Corporation............................ Delaware 7319 13-3779266
Katz Cable Corporation............................ Delaware 7319 13-3814104
Seltel Inc........................................ Delaware 7319 06-0963166
The National Payroll Company, Inc................. Delaware 7319 13-3744365
Katz Communications, Inc.......................... Delaware 7319 13-0904500
Eastman Radio Sales, Inc.......................... Delaware 7319 13-3581043
Christal Radio Sales, Inc......................... Delaware 7319 13-2618663
Amcast Radio Sales, Inc........................... Delaware 7319 13-3406436
Katz Millennium Marketing, Inc.................... Delaware 7319 13-3894491
</TABLE>
<PAGE> 4
PROSPECTUS
OFFER TO EXCHANGE
8 1/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B FOR ALL OUTSTANDING
8 1/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A
OF
CHANCELLOR MEDIA CORPORATION
OF LOS ANGELES
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON JUNE 8, 1998, UNLESS EXTENDED
------------------------------
Chancellor Media Corporation of Los Angeles ("CMCLA", and together with its
subsidiaries, the "Company") hereby offers (the "Exchange Offer"), upon the
terms and subject to the conditions set forth in this Prospectus and the
accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange
its outstanding 8 1/8% Senior Subordinated Notes due 2007, Series A (the
"Original Notes"), of which an aggregate of $500,000,000 in principal amount is
outstanding as of the date hereof, for an equal principal amount of newly issued
8 1/8% Senior Subordinated Notes due 2007, Series B (the "Exchange Notes"). The
Original Notes were issued on December 22, 1997 (the "Offering") by the Company.
The form and terms of the Exchange Notes will be the same as the form and terms
of the Original Notes except that (i) the Exchange Notes will be registered
under the Securities Act of 1933, as amended (the "Securities Act") and hence
will not bear legends restricting the transfer thereof; and (ii) the holders of
the Exchange Notes will not be entitled to certain rights of the holders of
Original Notes under the Registration Rights Agreement, which rights will
terminate upon the consummation of the Exchange Offer. The Exchange Notes will
evidence the same debt as the Original Notes and will be entitled to the
benefits of an indenture dated as of December 22, 1997, governing the Original
Notes and the Exchange Notes (the "Indenture"). The Indenture provides for the
issuance of both the Exchange Notes and the Original Notes. The Exchange Notes
and the Original Notes are sometimes referred to herein collectively as the
"Notes".
The Exchange Notes will mature on December 15, 2007. Interest on the
Exchange Notes will be payable semi-annually on each June 15 and December 15
commencing June 15, 1998, at the rate of 8 1/8% per annum. The Exchange Notes
will be redeemable, in whole or in part, at the option of the Company, on or
after December 15, 2002 at the redemption prices set forth herein, plus accrued
and unpaid interest, if any, to the date of redemption. In addition, on or prior
to December 15, 2000, the Company may, at its option, redeem the Exchange Notes,
in part, with the net cash proceeds of one or more Public Equity Offerings (as
defined), at the redemption price set forth herein, plus accrued and unpaid
interest, if any, to the date of redemption; provided, however, that after any
such redemption the aggregate principal amount of the Notes outstanding must
equal at least 65% of the aggregate principal amount of the Notes originally
issued in the Offering.
The Exchange Notes will be general unsecured obligations of the Company and
will rank pari passu in right of payment to the Company's 9 3/8% Senior
Subordinated Notes due 2004 (the "9 3/8% Notes"), the Company's 8 3/4% Senior
Subordinated Notes due 2007 (the "8 3/4% Notes") and the Company's 10 1/2%
Senior Subordinated Notes due 2007 (the "10 1/2% Notes"), and will be
subordinated in right of payment to all existing and future Senior Debt (as
defined) of the Company. As of December 31, 1997, on a pro forma basis after
giving effect to the Completed Transactions (as defined) completed after such
date, the offering (the "1998 Equity Offering") on March 13, 1998 by Chancellor
Media Corporation ("Chancellor Media") of 21,850,000 shares of its common stock
and the contribution of the net proceeds therefrom to the Company and the
proposed Preferred Stock Repurchase (as defined), but without giving effect to
the Company's Pending Transactions (as defined), approximately $1.08 billion of
Senior Debt and $500.0 million of debt ranking pari passu to the Exchange Notes
would have been outstanding. The Exchange Notes will be fully and
unconditionally guaranteed on a senior subordinated basis by substantially all
of the Company's direct and indirect subsidiaries (the "Guarantors").
Upon a Change of Control (as defined), (i) the Company will have the option,
at any time on or prior to December 15, 2000, to redeem the Exchange Notes, in
whole but not in part, at a redemption price equal to 100% of the principal
amount thereof plus the Applicable Premium (as defined), together with accrued
and unpaid interest, if any, to the date of redemption, and (ii) if the Company
does not so redeem the Exchange Notes or if such Change of Control occurs after
December 15, 2000, each holder will have the right to require the Company to
repurchase such holder's Exchange Notes at a price equal to 101% of their
principal amount, plus accrued and unpaid interest to the date of repurchase. In
addition, the Company will be obligated to offer to repurchase the Exchange
Notes at 100% of their principal amount, plus accrued and unpaid interest, if
any, to the date of repurchase, in the event of certain asset sales. See
"Description of the Exchange Notes."
(Continued on next page)
------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN
FACTORS WHICH HOLDERS OF ORIGINAL NOTES AND PROSPECTIVE PURCHASERS OF EXCHANGE
NOTES SHOULD CONSIDER IN CONNECTION WITH THIS EXCHANGE OFFER.
------------------------------
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.
------------------------------
THE DATE OF THIS PROSPECTUS IS MAY 8, 1998
<PAGE> 5
(Continued from previous page)
The Original Notes are eligible for trading in the Private Offerings,
Resales and Trading through Automatic Linkages market (the "PORTAL" Market) of
the National Association of Securities Dealers, Inc. Prior to this Exchange
Offer, there has been no public market for the Exchange Notes. If a market for
the Exchange Notes develops, the Exchange Notes could trade at a discount from
their principal amount. The Company does not intend to list the Exchange Notes
on any securities exchange or to seek approval for quotation on any automated
quotation system. There can be no assurance that an active public market for the
Exchange Notes will develop. See "Risk Factors -- Absence of Public Market for
the Exchange Notes."
The Company will accept for exchange any and all validly tendered Original
Notes on or prior to 5:00 p.m., New York City time, on June 8, 1998 (if and as
extended, the "Expiration Date"). Tenders of Original Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date. The
Exchange Offer is not conditioned upon any minimum principal amount of notes
being tendered for exchange. The Original Notes may be tendered only in integral
multiples of $1,000. In the event the Company terminates the Exchange Offer and
does not accept for exchange any Original Notes, the Company will promptly
return all previously tendered Original Notes to the holders thereof.
The Original Notes were originally issued and sold on December 22, 1997 in
a transaction not registered under the Securities Act in reliance upon the
exemptions provided by Rule 144A and Regulation S of the Securities Act (the
"Offering"). Accordingly, the Original Notes may not be reoffered, resold or
otherwise pledged, hypothecated or transferred in the United States unless so
registered or unless an applicable exemption from the registration requirements
of the Securities Act is available. Based upon interpretations by the staff (the
"Staff") of the Securities and Exchange Commission (the "Commission") set forth
in no-action letters issued to third parties, the Company believes that the
Exchange Notes issued pursuant to the Exchange Offer in exchange for the
Original Notes may be offered for resale, resold and otherwise transferred by
holders thereof (other than any such holder which is (i) an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act, (ii) a
broker-dealer who acquired the Original Notes directly from the Company or (iii)
a broker-dealer who acquired the Original Notes as a result of market making or
other trading activities) without compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business and
such holder is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a distribution
of such Exchange Notes. Each broker-dealer that receives the Exchange Notes for
its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. Broker-dealers who
acquired Original Notes as a result of market making or other trading activities
may use this Prospectus, as supplemented or amended, in connection with resales
of the Exchange Notes. The Company has agreed that, for a period not to exceed
180 days after the Expiration Date, it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution." Any holder that cannot rely upon such interpretations must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction.
Any Original Notes not tendered and accepted in the Exchange Offer will
remain outstanding. To the extent that Original Notes are tendered and accepted
in the Exchange Offer, a holder's ability to sell untendered, or tendered but
unaccepted, Original Notes could be adversely affected. Following consummation
of the Exchange Offer, the holders of Original Notes will continue to be subject
to the existing restrictions on transfer thereof and the Company will have no
further obligation to such holders to provide for the registration under the
Securities Act of the Original Notes except under certain limited circumstances.
No assurance can be given as to the liquidity of the trading market for either
the Original Notes or the Exchange Notes.
The Company will not receive any proceeds from, and has agreed to bear the
expense of, this Exchange Offer. No underwriter is being used in connection with
this Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF THE ORIGINAL NOTES IN ANY JURISDICTION
IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
---------------------
ii
<PAGE> 6
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THIS EXCHANGE OFFER COVERED BY THIS PROSPECTUS OR THE
ACCOMPANYING LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
THIS PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL DO NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE
ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF.
THIS PROSPECTUS (THIS "PROSPECTUS") IS BEING FURNISHED BY THE COMPANY IN
CONNECTION WITH AN EXCHANGE OFFER SOLELY FOR THE PURPOSE OF ENABLING A
PROSPECTIVE INVESTOR TO CONSIDER PARTICIPATING IN THE EXCHANGE OF THE ORIGINAL
NOTES FOR EXCHANGE NOTES. THE INFORMATION CONTAINED HEREIN HAS BEEN PROVIDED BY
THE COMPANY AND OTHER SOURCES IDENTIFIED HEREIN. NO REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, IS MADE AS TO THE ACCURACY OR COMPLETENESS OF SUCH
INFORMATION, AND NOTHING CONTAINED HEREIN IS, OR SHALL BE RELIED UPON AS, A
PROMISE OR REPRESENTATION.
EACH PROSPECTIVE INVESTOR MUST COMPLY WITH ALL APPLICABLE LAWS AND
REGULATIONS IN FORCE IN ANY JURISDICTION IN CONNECTION WITH THE DISTRIBUTION OF
THIS PROSPECTUS AND THE OFFER OR SALE OF THE EXCHANGE NOTES. IN MAKING AN
INVESTMENT DECISION, PROSPECTIVE INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF
THE COMPANY AND THE TERMS OF THIS EXCHANGE OFFER, INCLUDING THE MERITS AND RISKS
INVOLVED. THE CONTENTS OF THIS PROSPECTUS ARE NOT TO BE CONSTRUED AS LEGAL,
BUSINESS OR TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT HIS, HER OR
THEIR OWN ATTORNEY, BUSINESS ADVISOR AND/OR TAX ADVISOR FOR LEGAL, BUSINESS OR
TAX ADVICE.
ALL APPLICABLE PROVISIONS OF THE FINANCIAL SERVICES ACT OF 1986 MUST BE
COMPLIED WITH IN RESPECT TO ANYTHING DONE IN RELATION TO THE EXCHANGE NOTES IN,
FROM OR OTHERWISE INVOLVING THE UNITED KINGDOM.
THE EXCHANGE NOTES OFFERED HEREBY HAVE NOT BEEN RECOMMENDED BY ANY UNITED
STATES FEDERAL OR STATE SECURITIES COMMISSION OR ANY FOREIGN SECURITIES
COMMISSION OR ANY REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES
HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------------
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES
("RSA 421-B") WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS
EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE
CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER
RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE
FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION
MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR
QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR
TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE
PURCHASER,
iii
<PAGE> 7
CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS
PARAGRAPH.
NOTICE TO CANADIAN RESIDENTS
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Prospective Canadian holders of Exchange Notes should consult their own
legal and tax advisers with respect to the tax consequences of an investment in
the Exchange Notes in their particular circumstances and with respect to the
eligibility of the Exchange Notes for investment by the purchaser under relevant
Canadian legislation.
---------------------------
iv
<PAGE> 8
AVAILABLE INFORMATION
The Company and the Guarantors have filed with the Commission a
Registration Statement on Form S-4 (the "Registration Statement") under the
Securities Act with respect to the Exchange Offer. As permitted by the rules and
regulations of the Commission, this Prospectus omits certain information,
exhibits and undertakings contained in the Registration Statement. For further
information with respect to the Company, the Guarantors and this Exchange Offer,
reference is made to the Registration Statement, including the exhibits thereto
and the financial statements, notes and schedules filed as a part thereof.
The Company and Chancellor Media Corporation, the Company's indirect parent
corporation ("Chancellor Media"), are each subject to the informational
requirements of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), and in accordance therewith, file reports, proxy materials and
other information with the Commission. The reports, proxy materials and other
information filed by each of the Company and Chancellor Media with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Regional Offices of the Commission at Seven World Trade Center, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials also can be obtained from the
Public Reference Section of the Commission, Washington, D.C. 20549 at prescribed
rates. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
http://www.sec.gov. The Indenture requires the Company to file with the
Commission and provide to holders of the Exchange Notes copies of the reports
and other information filed by the Company with the Commission pursuant to
Sections 13 or 15(d) under the Exchange Act. In the event that the Company is no
longer required to furnish such reports to its securityholders pursuant to the
Exchange Act, the Company will cause its consolidated financial statements,
comparable to those which would have been required to appear in annual or
quarterly reports, to be delivered to the holders of the Exchange Notes. See
"Description of the Exchange Notes -- Reports."
v
<PAGE> 9
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 and in documents incorporated by reference herein.
As used herein, unless the context otherwise requires, the term "Company" refers
to Chancellor Media Corporation of Los Angeles and its subsidiaries. All share
and per share data in this Prospectus give effect to the Company's two-for-one
common stock split effected in the form of a stock dividend, paid on January 12,
1998 to stockholders of record at the close of business on December 29, 1997.
THE COMPANY
The Company is one of the largest radio broadcasting companies in the
United States. Upon consummation of the Pending Transactions (as defined), the
Company will own and operate 108 radio stations (79 FM and 29 AM) in 22 large
markets, including each of the nation's 12 largest radio revenue markets. Based
on the most recent industry data available to the Company, the Company's
portfolio will include the first or second ranked station cluster in terms of
revenue share in 15 markets. On a pro forma basis after giving effect to the
Completed Transactions (as defined), financing transactions undertaken by the
Company and Chancellor Radio Broadcasting Company ("CRBC") during 1997
(including the Offering), the contribution to the Company from Chancellor Media
of the net proceeds from the 1998 Equity Offering and the proposed Preferred
Stock Repurchase (as defined), but without giving effect to the Pending
Transactions, the Company would have had net revenue and broadcast cash flow (as
defined) of approximately $1.0 billion and $431.6 million, respectively, for the
year ended December 31, 1997, its pro forma broadcast cash flow margin for such
period would have been 43%, and approximately 64% of pro forma net revenue for
such period would have been generated by markets in which the Company owns four
or five FM stations ("superduopolies").
The Company's strategy is to secure leading clusters of radio stations in
the markets in which it operates. The Company's current station portfolio
consists of 97 stations (70 FM and 27 AM), including a total of 11
superduopolies in seven of the nation's 12 largest radio markets -- Los Angeles,
New York, Chicago, San Francisco, Philadelphia, Washington, D.C. and
Detroit -- and in four other large markets -- Denver, Minneapolis/St. Paul,
Phoenix and Orlando. Consummation of the Pending Transactions will result in a
net increase of nine FM stations and two AM stations and will add the San Diego
market to the Company's portfolio. In addition, consummation of the Pending
Transactions will increase the number of superduopolies in the Company's station
portfolio to 14, including two new superduopolies in the nation's 12 largest
radio markets -- Dallas/Ft. Worth and Houston -- and one in another large
market -- Pittsburgh. See "Recent Developments -- Pending Transactions."
As a complement to its radio broadcasting operations, the Company has
recently formed a national radio network, The AMFM Radio Networks, which began
broadcasting advertising over the Company's portfolio of stations and stations
owned by Capstar Broadcasting Corporation ("Capstar") in January 1998.
Management believes that The AMFM Radio Networks will allow the Company to
further leverage this broad station base, personalities and advertising
inventory by delivering a national base of approximately 62 million listeners
(including approximately 45 million listeners from the Company's portfolio of
stations) to network advertisers.
The Company's portfolio is geographically diversified and employs a wide
variety of programming formats, including adult contemporary, contemporary hit
radio, urban, jazz, country, oldies, news/talk, rock and sports. Each of the
Company's stations targets a specific demographic audience within a market, with
the majority of the stations appealing primarily to 18 to 34 or 25 to 54 year
old men and/or women, the demographic groups most sought after by advertisers.
Management believes that, because of the size and diversity of its station
portfolio, the Company is not unduly reliant on the performance of any one
station or market. No single market to be served by the Company represented more
than 12% of the Company's pro forma broadcast cash flow for the year ended
December 31, 1997 (giving effect to the Completed Transactions, but without
giving effect to the Pending Transactions).
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The Company also owns Katz Media Group, Inc. ("KMG" and, together with its
operating subsidiaries, "Katz"), a full-service media representation firm
serving multiple types of electronic media, with a leading market share in the
representation of radio and television stations and cable television systems in
over 200 designated market areas throughout the United States, including at
least one radio or television station in each of the 50 largest designated
market areas, to sell national spot advertising air time.
The Company, formerly known as "Evergreen Media Corporation of Los Angeles"
("EMCLA"), was renamed Chancellor Media Corporation of Los Angeles in connection
with the merger on September 5, 1997 of Evergreen and Chancellor Broadcasting
Company ("Chancellor") and certain of their respective subsidiaries (the
"Chancellor Merger"). The Company's principal executive office is located at 433
East Las Colinas Boulevard, Suite 1130, Irving, Texas 75039, and its telephone
number is (972) 869-9020.
BUSINESS STRATEGY
The Company's senior management team has extensive experience in acquiring
and operating large radio station groups. The Company's business strategy
historically has been to assemble and operate radio station clusters in order to
maximize broadcast cash flow generated in each market. This strategy relies on
the following six key elements.
Create Large Market Superduopolies. The Company seeks to be the owner and
operator of the leading superduopoly in the largest markets in the United
States. Management believes that the large revenue base in these markets, in
conjunction with operating synergies achievable through the operation of
multiple stations, enable it to appeal to a wider universe of national and local
advertisers and to achieve a greater degree of profitability. The Pending
Transactions, if consummated, will complement the Company's existing stations in
the Dallas, Houston, Washington, D.C. and Pittsburgh markets as well as allow
the Company to expand into a new large market -- San Diego. The Company expects
to continue to selectively pursue acquisition opportunities in the major markets
in which it competes as well as in other markets.
Maximize Superduopoly Revenue and Expense Synergies. The Company seeks to
capitalize on the revenue growth and expense savings opportunities of
superduopolies. Superduopolies have only been permissible since the passage of
the Telecommunications Act of 1996 (the "1996 Act"). Management believes that
substantial benefits can be derived from the successful integration of these
station cluster groups. Management also believes that radio station clusters can
attract increased revenues in a market by delivering larger combined audiences
to advertisers and by engaging in joint marketing and promotional activities. In
addition, management expects to realize significant expense savings through the
consolidation of facilities and through the economies of scale created in areas
such as national representation commissions, employee benefits, insurance
premiums and other operating costs.
Establish Strong Listener Loyalty. Management believes that strong
listener familiarity with a given radio station produces listener loyalty.
Management seeks to establish this familiarity through a variety of programming
and marketing techniques, including the development of high-profile on-air
personalities and creative station-sponsored promotional events, all of which
are designed to secure heightened listener awareness. The Company also conducts
extensive market research to help identify programming format opportunities and
attract new listeners, as has been the case with WKTU-FM in New York. After
operating WKTU-FM for nine months under the call letters and country music
format inherited from a prior operator, in February 1996 the Company began to
operate WKTU-FM as a rhythmic contemporary hits station. According to Arbitron,
WKTU-FM was ranked eleventh in its target demographic group as a country
station, and was ranked first in several key demographic groups (including its
target demographic group) in the first full ranking period after the station
changed its format. The station has continued to rank among the top five
stations in its target demographic group in subsequent periods. Management
believes that institutionalizing its radio stations in their markets through
programming, marketing and research ensures steady long-term audience share
ratings.
Maintain Strict Cost Controls. Management maintains a company-wide focus
on cost controls in an effort to maximize broadcast cash flow margins.
Management reviews station spending on a monthly basis. In
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addition, corporate level employees maintain weekly sales reporting systems
designed to enable management to evaluate station performance on a current
basis. The Company's focus on maximizing superduopoly revenues and maintaining
cost controls is reflected by the fact that, during 1995, 1996 and 1997, the
Company has achieved broadcast cash flow margins of 40% or more. The Company
also carefully monitors capital expenditures.
Develop Experienced, Incentivized Management Team. The Company believes
that management depth is critical to achieving superior operating performance in
a portfolio as large as the Company's. The Company's senior management team
collectively has an aggregate of more than 45 years of radio industry operating
experience. This senior management team is supported by an experienced team of
veteran group operators and station general managers. At the station level, the
Company seeks to incentivize its individual radio station managers and sales
forces to outperform revenue and broadcast cash flow budget expectations by
granting quarterly and annual performance measurement-based bonuses. The Company
believes that the incentives it offers to its employees, as well as its stature
in the radio industry, will enable it to continue to be successful in recruiting
top industry employees.
Maximize After Tax Cash Flow. By emphasizing the revenue and expense
synergies achievable through the assembly and operation of superduopolies and by
carefully monitoring operating costs, the Company seeks to maximize broadcast
cash flow and, ultimately, after tax cash flow (broadcast cash flow less
corporate general and administrative expenses, debt service, tax payments and
dividend requirements). This focus on after tax cash flow should facilitate
reduction of leverage without undue dependence on capital markets and position
the Company to pursue attractive acquisitions.
Related Business Expansion. In addition to the foregoing six key elements,
the Company seeks to further leverage its radio expertise and expand into
industries related to the operation of radio stations. In this regard, the
Company formed a national radio network, The AMFM Radio Networks, in September
1997 and acquired Katz, a full-service media representation firm in October
1997. The Company has also recently begun exploring the acquisition of
additional complementary media businesses, particularly businesses with
significant after tax cash flow generating potential, including radio stations
in medium-sized markets, television, outdoor advertising, and similar
international media opportunities.
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RECENT DEVELOPMENTS
For a further discussion of the transactions described below, see
"Business" and "Pro Forma Financial Information."
THE AMFM RADIO NETWORKS
- - In September 1997, the Company announced the formation of a national radio
network, The AMFM Radio Networks, and the appointment of David Kantor to the
position of Senior Vice President with responsibility for all of the
Company's radio network operations. Prior to joining the Company, Mr. Kantor
served as President of ABC Radio Networks, the largest commercial radio
network in the United States. The AMFM Radio Networks began broadcasting
advertising over the Company's portfolio of stations and stations by Capstar
in January 1998. Management believes that the network will allow the Company
to further leverage this broad station base, personalities and advertising
inventory by delivering a national base of approximately 62 million
listeners (including approximately 45 million listeners from the Company's
portfolio of stations) to network advertisers. See "Risk Factors --
Integration of Operations; Operation of Katz and Radio Network."
COMPLETED TRANSACTIONS
- - Since January 1, 1997, the Company has completed (i) the Chancellor Merger
(as defined), which added 52 radio stations (36 FM and 16 AM) to the
Company's portfolio of stations, for a net purchase price of approximately
$2.0 billion, (ii) the acquisition of 23 radio stations for a net purchase
price of approximately $1.5 billion, (iii) the exchange of ten stations and
$66.5 million in cash for eight stations and $9.5 million in cash, (iv) the
sale or other disposition of 10 radio stations for $269.3 million in cash
and a promissory note for $18.0 million and (v) the acquisition of Katz, a
full service media representation firm, for a net purchase price of
approximately $379.1 million. These transactions, together with the
acquisitions and dispositions completed by the Company during 1996 and
acquisitions and dispositions completed by Chancellor during 1996 and 1997,
are referred to herein as the "Completed Transactions."
PENDING TRANSACTIONS
- - CAPITOL BROADCASTING ACQUISITION. On February 17, 1998, the Company entered
into an agreement to acquire WWDC-FM/AM in Washington, D.C. from Capitol
Broadcasting Company and its affiliates for $72.0 million in cash (including
$4.0 million paid by the Company in escrow), plus an amount equal to the
value assigned to certain accounts receivable for the stations (the "Capitol
Broadcasting Acquisition"). Although there can be no assurance, the Company
expects that the Capitol Broadcasting Acquisition will be consummated in the
second quarter of 1998.
- - CAPSTAR TRANSACTION. On February 20, 1998, the Company entered into an
agreement to acquire from Capstar 11 radio stations in Dallas/Ft. Worth,
Houston, San Diego and Pittsburgh (the "Capstar/SFX Stations") for an
aggregate purchase price of approximately $637.5 million (the "Capstar
Transaction"). The Capstar/SFX Stations are presently owned by SFX
Broadcasting, Inc. ("SFX"), and are expected to be acquired by Capstar as
part of Capstar's pending acquisition of SFX (the "Capstar/SFX
Acquisition"). The Capstar/SFX Stations would be acquired by the Company in
a series of purchases and exchanges over a period of three years, and would
be operated by the Company under time brokerage agreements immediately upon
the consummation of the Capstar/SFX Acquisition until acquired by the
Company. As part of the Capstar Transaction, the Company would exchange its
two Jacksonville stations (valued for purposes of the Capstar Transaction at
$53.0 million) plus $90.3 million in cash for one of the Capstar/SFX
Stations in Houston. The Company would pay approximately $494.3 million for
the remaining ten Capstar/SFX stations. As part of the Capstar Transaction,
the Company would, at the consummation of the Capstar/SFX Acquisition,
provide a subordinated loan to Capstar in the principal amount of $250.0
million (the "Capstar Loan"). The Capstar Loan would bear interest at the
rate of 12% per annum (subject to increase in certain circumstances), and
would be secured by a senior pledge of
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<PAGE> 13
common stock of Capstar's direct subsidiaries and SFX and a senior guarantee
by one of Capstar's direct subsidiaries. A portion of the Capstar Loan would
be prepaid by Capstar in connection with the Company's acquisition of, and
the proceeds of such prepayment would be used by the Company as a portion of
the purchase price for, each Capstar/SFX Station. The Company's obligation
to provide the Capstar Loan is conditioned, among other things, on Capstar's
receipt of at least $650.0 million in equity investments that are
subordinate to the Capstar Loan between January 1, 1998 and the consummation
of the Capstar/SFX Acquisition. Hicks, Muse, Tate & Furst, Incorporated
("Hicks Muse"), which is a substantial shareholder of the Company, controls
Capstar, and certain directors of the Company are directors and/or executive
officers of Capstar and/or Hicks Muse. Capstar has informed the Company that
Capstar expects that the Capstar/SFX Acquisition will be consummated in the
second quarter of 1998.
- - PETRY ACQUISITION. On April 8, 1998, the Company entered into an agreement
to acquire Petry Media Corporation ("Petry"), a leading independent
television representation firm, for approximately $150.0 million in cash
(the "Petry Acquisition"). Although there can be no assurance, the Company
expects that the Petry Acquisition will be consummated in the third or
fourth quarter of 1998.
The foregoing transactions are referred to herein as the "Pending
Transactions." Upon the consummation of the Pending Transactions, the Company's
portfolio will consist of 108 radio stations (79 FM and 29 AM).
CHANGES IN EXECUTIVE MANAGEMENT
On April 14, 1998, Scott K. Ginsburg resigned as President and Chief
Executive Officer of Chancellor Media, Chancellor Mezzanine Holdings Corporation
("CMHC") and the Company, and on April 20, 1998, Mr. Ginsburg resigned as a
director of Chancellor Media, CMHC and the Company and from all positions held
with their respective subsidiaries. On April 29, 1998, Jeffrey A. Marcus was
named President and Chief Executive Officer of Chancellor Media, CMHC and the
Company, to be effective on June 1, 1998. Thomas O. Hicks, Chairman of the Board
of Chancellor Media, CMHC and the Company, is serving as Chief Executive Officer
of Chancellor Media, CMHC and the Company on an interim basis until June 1,
1998.
CONSENT SOLICITATION AND TENDER OFFER
On April 29, 1998, the Company commenced a consent solicitation (the
"Preferred Stock Consent Solicitation") regarding its shares of 12% Exchangeable
Preferred Stock (the "12% Preferred Stock") to modify certain timing
restrictions on the Company's ability to exchange the shares of 12% Preferred
Stock for its 12% Subordinated Exchange Debentures due 2009 (the "12% Exchange
Debentures"). Assuming the Preferred Stock Consent Solicitation is successful
and the Company exchanges all shares of 12% Preferred Stock for 12% Exchange
Debentures, the Company simultaneously commenced a cash tender offer (the
"Debenture Tender Offer") to repurchase any and all 12% Exchange Debentures. The
Preferred Stock Consent Solicitation and the Debenture Tender Offer are being
made solely by the Company's Consent Solicitation Statement and the Company's
Offer to Purchase and Consent Solicitation Statement, each dated April 29, 1998.
There can be no assurance that the Preferred Stock Consent Solicitation and the
Debenture Tender Offer will be successful.
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<PAGE> 14
THE EXCHANGE OFFER
The Exchange Offer......... The Company is offering to exchange up to $500.0
million aggregate principal amount of Exchange
Notes for a like principal amount of Original
Notes. The Exchange Notes may be exchanged only in
multiples of $1,000 principal amount. The Company
will issue the Exchange Notes on or promptly after
the Expiration Date. See "The Exchange Offer."
Based on interpretations by the Staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that the
Exchange Notes issued pursuant to the Exchange
Offer in exchange for the Original Notes may be
offered for resale, resold and otherwise
transferred by any holder thereof (other than any
such holder which is (i) an "affiliate" of the
Company within the meaning of Rule 405 under the
Securities Act, (ii) a broker-dealer who acquired
the Original Notes directly from the Company or
(iii) a broker-dealer who acquired the Original
Notes as a result of market making or other trading
activities) without compliance with the
registration and prospectus delivery requirements
of the Securities Act, provided that such Exchange
Notes are acquired in the ordinary course of such
holder's business and such holder is not engaged
in, and does not intend to engage in, and has no
arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes. Each broker-dealer that receives the
Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale
of such Exchange Notes. See "Plan of Distribution."
To comply with the securities laws of certain
jurisdictions, it may be necessary to qualify for
sale or register the Exchange Notes prior to
offering or selling such Exchange Notes. If a
holder of Original Notes does not exchange such
Original Notes pursuant to the Exchange Offer, such
Original Notes will continue to be subject to the
restrictions on transfer contained in the legend
thereon. In general, the Original Notes may not be
offered or sold, unless registered under the
Securities Act, except pursuant to an exemption
from, or in a transaction not subject to the
Securities Act and applicable state securities
laws. See "The Exchange Offer -- Consequences of
Failure to Exchange" and "Description of Exchange
Notes".
Expiration Date............ The Exchange Offer will expire at 5:00 p.m., New
York City time, on June 8, 1998 unless extended in
which case the term "Expiration Date" shall mean
the latest date and time to which the Exchange
Offer is so extended.
Conditions to the Exchange
Offer.................... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company in
whole or in part and from time to time in its sole
discretion. See "The Exchange Offer -- Certain
Conditions to the Exchange Offer." The Exchange
Offer is not conditioned upon any minimum aggregate
principal amount of Original Notes being tendered
for exchange.
Procedures for Tendering
the Original Notes......... Each registered holder of Original Notes (a
"Registered Holder") wishing to tender such
Original Notes in the Exchange Offer must complete,
sign and date the Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and
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<PAGE> 15
mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with such
Original Notes and any other required
documentation, to the Exchange Agent at the address
set forth herein. By executing the Letter of
Transmittal, each holder of the Original Notes
(other than Participating Broker-Dealers (as
defined)) must represent to the Company that, among
other things, (i) the Exchange Notes to be acquired
pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person
receiving such Exchange Notes, whether or not the
holder of the Original Notes, (ii) neither the
holder of the Original Notes nor any such other
person has an arrangement or understanding with any
person to participate in the distribution of such
Original Notes and (iii) neither the holder nor any
such person is an "affiliate," as defined in Rule
405 under the Securities Act, of the Company. Each
Registered Holder whose Original Notes are held
through DTC (as defined) and wishes to participate
in the Exchange Offer may do so through DTC's
Automated Tender Offer Program ("ATOP") by which
each tendering participant will agree to be bound
by the Letter of Transmittal. Any Original Notes
not accepted for exchange for any reason will be
returned without expense to the tendering holder
thereof as promptly as practicable after the
expiration or termination of the Exchange Offer.
See "The Exchange Offer -- Procedures for
Tendering Original Notes."
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Original Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender such Original Notes should
contact such Registered Holder promptly and
instruct such Registered Holder to tender on such
beneficial owner's behalf. If such beneficial owner
wishes to tender on its own behalf, such beneficial
owner must, prior to completing and executing the
Letter of Transmittal and delivering its Original
Notes, either make appropriate arrangements to
register ownership of the Original Notes in such
owner's name or obtain a properly completed bond
power from the Registered Holder. The transfer of
registered ownership may take considerable time and
may not be able to be completed prior to the
Expiration Date. See "The Exchange Offer --
Procedures for Tendering Original Notes."
Guaranteed Delivery
Procedures................. Holders of Original Notes who wish to tender their
Original Notes and whose Original Notes are not
immediately available or who cannot deliver their
Original Notes or any other documents required by
the Letter of Transmittal to the Exchange Agent
prior to the Expiration Date, must tender their
Original Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer --
Guaranteed Delivery Procedures."
Withdrawal Rights.......... Tenders of Original Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the
Expiration Date. For a withdrawal to be effective,
a written or facsimile notice of withdrawal must be
received by the Exchange Agent at its address set
forth herein. Such notice must (i) specify the name
of the person having tendered the Original Notes to
be withdrawn; (ii) identify the Original Notes to
be withdrawn (including the certificate number or
numbers and principal amount of Original Notes to
be withdrawn); (iii) be signed by the holder
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<PAGE> 16
in the same manner as the original signature on the
Letter of Transmittal by which such Original Notes
were tendered; and (iv) specify the name in which
the Original Notes are to be registered; if
different from that of the withdrawing holder. See
"The Exchange Offer -- Withdrawal Rights."
Acceptance of Original
Notes and Delivery of
Exchange Notes........... Subject to the satisfaction or waiver of the
conditions to the Exchange Offer, the Company will
accept for exchange any and all Original Notes
which are properly tendered in the Exchange Offer
prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Notes issued pursuant
to the Exchange Offer will be delivered promptly
following the Expiration Date. See "The Exchange
Offer -- Terms of the Exchange Offer."
Consequences of Failure to
Exchange................. Holders of Original Notes who do not exchange their
Original Notes for the Exchange Notes pursuant to
the Exchange Offer will continue to be subject to
the restrictions on transfer of such Original Notes
as set forth in the legend thereon. In general,
Original Notes that are not exchanged pursuant to
the Exchange Offer may not be offered or sold
except pursuant to a registration statement filed
under the Securities Act or an exemption from
registration thereunder and in compliance with
applicable state securities laws. In the event the
Company completes the Exchange Offer, the interest
rate on Original Notes will remain as stated
thereon and holders of Original Notes will have no
further rights under the Registration Rights
Agreements (as defined below).
Certain Tax
Considerations............. Latham & Watkins, counsel to the Company, has
advised the Company that because the Exchange Notes
should not be considered to differ materially from
the Original Notes, the exchange of Original Notes
for Exchange Notes should not result in any
material federal income tax consequences to holders
exchanging Original Notes for Exchange Notes. For a
full description of the basis of, and limitations
on, this opinion, see "Material United States
Federal Income Tax Considerations."
Registration Rights
Agreement.................. Pursuant to a registration rights agreement (the
"Registration Rights Agreement") among the Company
and the initial purchasers of the Original Notes
(the "Initial Purchasers"), the Company agreed (i)
to file a registration statement within 120 days
after the Issue Date with respect to an offer to
exchange the Original Notes for a like amount of
Exchange Notes and (ii) to use its reasonable best
efforts to cause such registration statement to
become effective under the Securities Act within
180 days after the Issue Date. The Exchange Offer
is intended to satisfy the rights of holders of
Original Notes under the Registration Rights
Agreement, which rights terminate upon consummation
of the Exchange Offer. The holders of the Exchange
Notes are not entitled to any exchange or
registration rights with respect to the Exchange
Notes.
Exchange Agent............. The Bank of New York is the Exchange Agent for the
Exchange Offer. The address and telephone number of
the Exchange Agent are set forth in the "The
Exchange Offer -- Exchange Agent."
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<PAGE> 17
SUMMARY OF TERMS OF THE EXCHANGE NOTES
The Exchange Offer applies to $500.0 million aggregate principal amount of
the Original Notes. The form and terms of the Exchange Notes will be the same as
the form and terms of the Original Notes except that (i) the Exchange Notes will
be registered under the Securities Act, and, therefore, will not bear legends
restricting the transfer thereof and (ii) the holders of the Exchange Notes will
not be entitled to certain rights of the holders of the Original Notes under the
Registration Rights Agreement, which rights will terminate upon consummation of
the Exchange Offer. The Exchange Notes will evidence the same debt as the
Original Notes and both series of Notes will be entitled to the benefits of the
Indenture and treated as a single class of debt securities.
Issuer..................... Chancellor Media Corporation of Los Angeles.
Securities Offered......... $500,000,000 aggregate principal amount of 8 1/8%
Senior Subordinated Notes due 2007, Series B.
Maturity Date.............. December 15, 2007.
Interest Rate and Payment
Dates.................... The Exchange Notes will bear interest at a rate of
8 1/8% per annum. Interest on the Exchange Notes
will accrue from the date of issuance and will be
payable semi-annually on each June 15 and December
15, commencing June 15, 1998.
Optional Redemption........ The Exchange Notes will be redeemable, in whole or
in part, at the option of the Company on or after
December 15, 2002 at the redemption prices set
forth herein, plus accrued and unpaid interest to
the date of redemption. In addition, on or prior to
December 15, 2000, the Company may, at its option,
redeem the Exchange Notes, in part, with the net
cash proceeds of one or more Public Equity
Offerings (as defined), at the redemption price set
forth herein, plus accrued and unpaid interest, if
any, to the date of redemption; provided, however,
that after any such redemption the aggregate
principal amount of Exchange Notes outstanding must
equal at least 65% of the aggregate principal
amount of Original Notes originally issued on
December 22, 1997. See "Description of the Exchange
Notes -- Optional Redemption."
Change of Control.......... If a Change of Control (as defined) occurs, (i) the
Company will have the option, at any time on or
prior to December 15, 2000, to redeem the Exchange
Notes in whole but not in part at a redemption
price equal to 100% of the principal amount thereof
plus the Applicable Premium, plus accrued and
unpaid interest, if any, to the date of redemption,
and (ii) if the Company does not so redeem the
Exchange Notes or if such Change of Control occurs
after December 15, 2000, the Company will be
required to offer to repurchase all outstanding
Exchange Notes at a price equal to 101% of their
principal amount, plus accrued and unpaid interest,
if any, to the date of repurchase. There can be no
assurance that the Company will have sufficient
funds to purchase all the Exchange Notes in the
event of a Change of Control or that the Company
would be able to obtain financing for such purpose
on favorable terms, if at all. In addition, the
Senior Credit Facility (as defined) will restrict
the Company's ability to repurchase the Exchange
Notes, including pursuant to a Change of Control
Offer (as defined). The Senior Credit Facility also
contains certain other provisions relating to a
change of control of the Company. These provisions
are generally broader than the Change of Control
provisions of the Indenture. Consequently, certain
events that may give rise to a change of control
under the Senior Credit Facility may not give rise
to a Change of Control under the Indenture. See
"Risk Factors -- Change of Control," "Description
of the Exchange Notes --
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<PAGE> 18
Change of Control" and "Description of Certain
Indebtedness -- Senior Credit Facility -- Events of
Default."
Offers to Purchase......... In the event of certain asset sales, the Company
will be required to offer to repurchase the
Exchange Notes (to the extent of any net proceeds
remaining following the Company's offer to purchase
the 9 3/8% Notes, the 8 3/4% Notes and the 10 1/2%
Notes) at a price equal to 100% of their principal
amount, plus accrued and unpaid interest, if any,
to the date of repurchase. See "Description of the
Exchange Notes -- Certain Covenants -- Limitation
on Asset Sales."
Ranking.................... The Exchange Notes will be general unsecured
obligations of the Company and will rank pari passu
in right of payment to the Company's 9 3/8% Notes,
the 8 3/4% Notes and the 10 1/2% Notes, and will be
subordinated in right of payment to all existing
and future Senior Debt. As of December 31, 1997, on
a pro forma basis after giving effect to the
Completed Transactions completed after such date,
the 1998 Equity Offering and the application of the
net proceeds therefrom, and the proposed Preferred
Stock Repurchase (as defined), but without giving
effect to the Pending Transactions, approximately
$1.08 billion of Senior Debt (represented by
borrowings under the Senior Credit Facility) would
have been outstanding and approximately $500.0
million of debt ranking pari passu to the Exchange
Notes would have been outstanding. See "Description
of the Exchange Notes -- Subordination."
Guarantees................. The Exchange Notes will be fully and
unconditionally guaranteed (the "Guarantees") on a
senior subordinated basis by the Guarantors. The
obligation of the Guarantors with respect to the
Guarantees will be subordinated in right of
payment, to the same extent as the obligations of
the Company in respect of the Exchange Notes are
subordinated to all existing and future Senior
Debt, to all existing and future Guarantor Senior
Debt (as defined)(which includes the guarantee by
the Guarantors of the Company's borrowings under
the Senior Credit Facility), and will rank pari
passu to the Guarantors' guarantees of the 9 3/8%
Notes, the 8 3/4% Notes and the 10 1/2% Notes. See
"Description of the Exchange Notes -- Guarantees."
Certain Covenants.......... The Indenture imposes certain limitations on the
ability of the Company and its subsidiaries to,
among other things, incur additional indebtedness,
incur liens, pay dividends or make certain other
restricted payments, consummate certain asset
sales, enter into certain transactions with
affiliates, engage in certain asset swaps, incur
indebtedness that is subordinate in right of
payment to any Senior Debt and senior in right of
payment to the Exchange Notes, impose restrictions
on the ability of a subsidiary to pay dividends or
make certain payments to the Company, enter into
sale and leaseback transactions, conduct business
other than the ownership and operation of radio
broadcast stations and businesses related thereto,
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 "Description of the Exchange
Notes -- Certain Covenants.
10
<PAGE> 19
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes pursuant to this Prospectus.
RISK FACTORS
See "Risk Factors", which begin on page 14, for a discussion of certain
factors that should be considered in evaluating an investment in the Exchange
Notes.
11
<PAGE> 20
SUMMARY PRO FORMA FINANCIAL INFORMATION
The following table presents summary unaudited combined pro forma financial
information of the Company for the year ended December 31, 1997 and should be
read in conjunction with the unaudited pro forma condensed combined financial
statements, a complete set of which are included on pages P-1 through P-16 of
this Prospectus.
The summary pro forma financial information set forth below under Company
As Adjusted for the Completed Transactions presents adjustments for (i) in the
case of the Operating Data and Other Data, the Completed Transactions, financing
transactions undertaken by the Company and CRBC during 1997 (including the
Offering), and the contribution to the Company from Chancellor Media of the net
proceeds from the 1998 Equity Offering as if such transactions had occurred on
January 1, 1997 and (ii) in the case of the Balance Sheet Data, the Completed
Transactions consummated after December 31, 1997 and the contribution to the
Company from Chancellor Media of the net proceeds from the 1998 Equity Offering,
as if such transactions had occurred on December 31, 1997.
The summary pro forma financial information set forth below under Company
Pro Forma presents the adjustments as described under Company As Adjusted for
the Completed Transactions and further assumes that all of the outstanding
shares of the Company's 12 1/4% Series A Senior Cumulative Exchangeable
Preferred Stock (the "12 1/4% Preferred Stock") and the Company's 12% Preferred
Stock (or, if the Preferred Stock Consent Solicitation is successful, the 12%
Exchange Debentures issuable upon exchange of the 12% Preferred Stock) will be
repurchased by the Company and retired pursuant to a tender offer, certain
permitted redemptions, negotiated purchases or open-market transactions (the
"Preferred Stock Repurchase"). In this regard, the Company has commenced the
Preferred Stock Consent Solicitation and the Debenture Tender Offer for the 12%
Preferred Stock and the 12% Exchange Debentures issuable upon exchange of the
12% Preferred Stock. See "Recent Developments -- Consent Solicitation and Tender
Offer." The pro forma data is based on assumed premiums plus accrued and unpaid
dividends to be paid to holders of 12 1/4% Preferred Stock and 12% Preferred
Stock (or, if the Preferred Stock Consent Solicitation is successful, accrued
and unpaid dividends on the 12% Preferred Stock prior to exchange and premiums
and accrued and unpaid interest on the proposed repurchase of the 12% Exchange
Debentures) in the proposed Preferred Stock Repurchase, and other assumptions
relating to such repurchases. No assurance can be given that the actual premiums
paid in connection with any such repurchases made by the Company will not be
greater, perhaps by a substantial amount, than the amounts assumed in the pro
forma data. In addition, there can be no assurance that any shares of 12 1/4%
Preferred Stock and 12% Preferred Stock (or, if the Preferred Stock Consent
Solicitation is successful, the 12% Exchange Debentures issuable upon exchange
of the 12% Preferred Stock) will be repurchased by the Company. See "Risk
Factors -- Possible Non-Consummation of, or Increased Cost of, Proposed
Repurchase of 12 1/4% Preferred Stock and 12% Preferred Stock."
The summary pro forma financial information does not give effect to the
Pending Transactions. See "Business -- Recent Developments -- Pending
Transactions" for a description of these transactions.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
--------------------------------------
COMPANY
AS ADJUSTED
FOR THE
COMPANY COMPLETED COMPANY
HISTORICAL TRANSACTIONS PRO FORMA
---------- ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OPERATING DATA:
Net revenues............................ $ 582,078 $1,004,205 $1,004,205
Station operating expenses excluding
depreciation and amortization......... 316,248 572,613 572,613
Operating income........................ 58,406 35,038 35,038
Interest expense........................ 85,017 150,375 163,288
Net loss................................ (18,844) (71,296) (78,785)
Preferred stock dividends............... 12,901 40,222 --
Net loss attributable to common stock... (31,745) (111,518) (78,785)
</TABLE>
12
<PAGE> 21
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
--------------------------------------------
COMPANY
AS ADJUSTED
FOR THE
COMPANY COMPLETED COMPANY
HISTORICAL TRANSACTIONS PRO FORMA
------------ -------------- ------------
(DOLLARS IN THOUSANDS, EXCEPT MARGIN DATA)
<S> <C> <C> <C>
OTHER DATA:
Broadcast cash flow(1).................. $ 265,830 $ 431,592 $ 431,592
Broadcast cash flow margin.............. 46% 43% 43%
EBITDA(1)............................... $ 244,388 $ 395,754 $ 395,754
Ratio of earnings to fixed charges(2)... -- -- --
BALANCE SHEET DATA (END OF PERIOD):
Working capital......................... $ 112,644 $ 349,936 $ 126,229
Intangible assets, net.................. 4,404,443 4,491,569 4,491,569
Total assets............................ 4,961,477 5,283,119 5,045,827
Long-term debt.......................... 2,573,000 1,900,000 2,084,466
Redeemable preferred stock.............. 331,208 331,208 --
Stockholder's equity.................... 1,480,207 2,474,849 2,397,884
</TABLE>
- ---------------
(1) Broadcast cash flow consists of operating income excluding depreciation,
amortization, corporate general and administrative expense, and other
non-cash and non-recurring charges. EBITDA consists of operating income
before depreciation and amortization, and other non-cash and non-recurring
charges. Although broadcast cash flow and EBITDA are not calculated in
accordance with generally accepted accounting principles, the Company
believes that broadcast cash flow and EBITDA are widely used as a measure of
operating performance. Nevertheless, these measures should not be considered
in isolation or as a substitute for operating income, cash flows from
operating activities or any other measure for determining the Company's
operating performance or liquidity that is calculated in accordance with
generally accepted accounting principles. Broadcast cash flow and EBITDA do
not take into account the Company's debt service requirements and other
commitments and, accordingly, broadcast cash flow and EBITDA are not
necessarily indicative of amounts that may be available for reinvestment in
the Company's business or other discretionary uses.
(2) For purposes of this calculation, "earnings" consist of income (loss) before
income taxes and fixed charges. "Fixed charges" consist of interest,
amortization of debt issuance costs and the component of rental expense
believed by management to be representative of the interest factor thereon.
Earnings were insufficient to cover fixed charges by $6,692 for the year
ended December 31, 1997. On a pro forma basis after giving effect to the
Completed Transactions, financing transactions undertaken by the Company and
CRBC during 1997 and the contribution to the Company from Chancellor Media
of the net proceeds from the 1998 Equity Offering, earnings were
insufficient to cover fixed charges by $94,875 for the year ended December
31, 1997. On a pro forma basis after giving effect to the Completed
Transactions, financing transactions undertaken by the Company and CRBC
during 1997, the contribution to the Company from Chancellor Media of the
net proceeds from the 1998 Equity Offering and the Preferred Stock
Repurchase, earnings were insufficient to cover fixed charges by $107,788
for the year ended December 31, 1997.
13
<PAGE> 22
RISK FACTORS
Holders of Original Notes considering participating in this Exchange Offer
should carefully consider, in addition to the other information contained in
this Prospectus, the following factors regarding an investment in the Exchange
Notes.
SUBSTANTIAL LEVERAGE; HISTORY OF NET LOSSES AND INSUFFICIENCY OF EARNINGS TO
COVER FIXED CHARGES
The Company has consolidated indebtedness that is substantial in relation
to its stockholders equity. The Company is subject to the terms of a senior loan
agreement dated April 25, 1997 (as amended, the "Senior Credit Facility"), the
indenture governing the 9 3/8% Notes (the "9 3/8% Indenture"), the indenture
governing the 8 3/4% Notes (the "8 3/4% Indenture), the indenture governing the
10 1/2% Notes (the "10 1/2% Indenture"), the Indenture and the certificates of
designation governing two series of preferred stock, the 12 1/4% Series A Senior
Cumulative Exchangeable Preferred Stock (the "12 1/4% Preferred Stock") and the
12% Exchangeable Preferred Stock (the "12% Preferred Stock"). The Senior Credit
Facility, the 9 3/8% Indenture, the 8 3/4% Indenture, the 10 1/2% Indenture, the
Indenture and such certificates of designation limit, but do not prohibit, the
incurrence of additional indebtedness by the Company. As of December 31, 1997,
the Company had outstanding long-term indebtedness of approximately $2.57
billion and redeemable preferred stock of $331.2 million, an accumulated deficit
of $157.4 million and stockholder's equity of $1.48 billion. As of December 31,
1997, on a pro forma basis after giving effect to the Completed Transactions
consummated after such date, the contribution to the Company from Chancellor
Media of the net proceeds from the 1998 Equity Offering and the proposed
Preferred Stock Repurchase, but without giving effect to the Pending
Transactions, the Company would have had outstanding long-term indebtedness of
approximately $2.08 billion, an accumulated deficit of $234.4 million and
stockholder's equity of $2.40 billion. See "Summary Pro Forma Financial
Information," "Risk Factors -- Possible Non-Consummation of, or Increased Cost
of, Proposed Repurchase of 12 1/4% Preferred Stock and 12% Preferred Stock,"
"Capitalization" and "Use of Proceeds." In addition to the foregoing long-term
indebtedness, it is expected that the Company will finance the Pending
Transactions through the incurrence of as much as approximately $806.5 million
in additional long-term indebtedness. Of the amount required to finance the
Capstar Transaction, the Company expects that $340.3 million will be required
immediately upon consummation of the Capstar/SFX Acquisition (which amount
includes the Capstar Loan) and $244.2 million will be required over the three
year period in which the Capstar/SFX Stations will be acquired.
The degree to which the Company is leveraged could have material
consequences to the Company and the holders of the Exchange Notes, including,
but not limited to the following: (i) its ability to obtain additional financing
in the future for acquisitions, working capital, capital expenditures, and
general corporate or other purposes may be impaired, (ii) a substantial portion
of its cash flow will be required for debt service under the Senior Credit
Facility, the 9 3/8% Notes, the 8 3/4% Notes, the 10 1/2% Notes, the Original
Notes, and, assuming consummation of the Exchange Offer, the Exchange Notes,
and, as a result, will not be available for other purposes, (iii) to the extent
the Company is not successful in repurchasing the 12% Preferred Stock and the
12 1/4% Preferred Stock, commencing in February 2001, the Company will have
substantial cash dividend requirements on the 12 1/4% Preferred Stock and,
commencing in January 2002, on the 12% Preferred Stock (the Company is
permitted, but not required to pay cash dividends on such securities prior to
such debt, and has made the most recent dividend payments on both securities in
cash), (iv) 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, (v) certain of the Company's borrowings are and will continue to be
at variable rates of interest, which causes the Company to be vulnerable to
increases in interest rates and (vi) the agreements governing its long-term debt
(and, to a lesser extent, the 12 1/4% Preferred Stock and the 12% Preferred
Stock) contain numerous restrictive operating and financial covenants with which
it must comply. The failure by the Company to comply with such covenants could
result in an event of default thereunder, which could permit acceleration of the
obligations under such instruments and in some cases acceleration of obligations
under other instruments that contain cross-default or cross-acceleration
provisions.
14
<PAGE> 23
The ability of the Company to satisfy its obligations under the Senior
Credit Facility, the 9 3/8% Indenture, the 8 3/4% Indenture, the 10 1/2%
Indenture, the Indenture, and the certificates of designation governing the
12 1/4% Preferred Stock and the 12% Preferred Stock will depend upon the
Company's future operating performance. Such operating performance will be
affected by prevailing economic conditions and financial, business and other
factors, certain of which are beyond the Company's control. The Company
anticipates that its operating cash flow, together with borrowings under the
Senior Credit Facility, will be sufficient to meet its operating expenses and to
service its debt and preferred stock dividend requirements as they become due.
However, if the Company is unable to service its indebtedness, whether upon
acceleration of such indebtedness or in the ordinary course of business, it will
be forced to pursue one or more alternative strategies such as selling assets,
restructuring or refinancing its indebtedness, or seeking additional equity
capital. There can be no assurance that any of these strategies could be
effected on satisfactory terms, if at all, or that the approval of the Federal
Communications Commission (the "FCC") could be obtained on a timely basis, or at
all, for the transfer of any of the stations' licenses in connection with a
proposed sale of assets.
The Company has historically experienced, on a consolidated basis, net
losses, principally as a result of significant interest charges, certain
non-recurring expenses and depreciation and amortization charges relating to the
acquisition of radio broadcasting stations. The Company's net loss attributable
to common stock for the years ended December 31, 1995, 1996 and 1997 was $5.9
million, $16.2 million and $31.7 million, respectively. On a pro forma basis,
after giving effect to the Completed Transactions, financing transactions
undertaken by the Company and CRBC during 1997, the contribution to CMCLA from
Chancellor Media of the net proceeds from the 1998 Equity Offering and the
proposed Preferred Stock Repurchase, but without giving effect to the Pending
Transactions, the Company's net loss attributable to common stock for the year
ended December 31, 1997 would have been $78.8 million. The acquisition of radio
broadcasting stations and business related thereto has been and will continue to
be an important part of the Company's operating strategy, and the Company
expects that amortization charges and interest expenses relating to past and
possible future acquisitions will continue to have a significant adverse effect
on the Company's reported results.
POSSIBLE NON-CONSUMMATION OF, OR INCREASED COST OF, PROPOSED REPURCHASE OF
12 1/4% PREFERRED STOCK AND 12% PREFERRED STOCK
Except under certain circumstances applicable to a portion of each issue,
neither the 12 1/4% Preferred Stock nor the 12% Preferred Stock (or the 12%
Exchange Debentures issuable upon exchange of the 12% Preferred Stock) is
currently redeemable at the option of the Company. The Company has recently
commenced the Preferred Stock Consent Solicitation and the Debenture Tender
Offer, under which the Company has proposed certain amendments to the instrument
governing the 12 1/4% Preferred Stock. Assuming that the Preferred Stock Consent
Solicitation is successful and the Company exchanges all shares of 12% Preferred
Stock for 12% Exchange Debentures, the Company has also commenced the Debenture
Tender Offer to repurchase any and all 12% Exchange Debentures. See "Recent
Developments -- Consent Solicitation and Tender Offer." The Company also
anticipates that it will attempt to repurchase any and all shares of the 12 1/4%
Preferred Stock in the near future. However, the decision whether to sell shares
of 12% Preferred Stock (or 12% Exchange Debentures issuable upon exchange of the
12% Preferred Stock) or the 12 1/4% Preferred Stock will be entirely within the
discretion of the holders thereof, based on the price offered by the Company,
the terms and conditions of the offer and other factors deemed relevant by a
holder. There can be no assurance that the Company will be able to repurchase
all shares of 12% Preferred Stock (or 12% Exchange Debentures issuable upon
exchange of the 12% Preferred Stock) or 12 1/4% Preferred Stock, as to the
amount of any such securities that may be repurchased or as to the prices at
which any repurchase will be made. In addition, the Company reserves the right
not to repurchase or seek to repurchase any of the 12% Preferred Stock, the 12%
Exchange Debentures issuable upon exchange of the 12% Preferred Stock, or the
12 1/4% Preferred Stock based on prevailing market prices for such securities
and other factors which the Company deems relevant.
15
<PAGE> 24
NECESSITY OF GOVERNMENTAL REVIEWS AND APPROVALS PRIOR TO CONSUMMATION OF THE
PENDING TRANSACTIONS
Approval of the FCC is required for the issuance, renewal or transfer of
radio broadcast station operating licenses. In addition, the consummation of the
Pending Transactions (other than the Capitol Broadcasting Acquisition) are, and
any future transactions undertaken by the Company likely will be, conditioned
upon the expiration or termination of the applicable waiting periods under the
HSR Act. To date, (i) the FCC has approved the Capitol Broadcasting Acquisition,
(ii) the FCC has not yet approved the Capstar Transaction, (iii) the waiting
period required under the HSR Act for the Capstar Transaction has been
terminated and (iv) the waiting period required under the HSR Act for the Petry
Acquisition has not expired or been terminated. No waiting period under the HSR
Act was required for the Capitol Broadcasting Acquisition and the approval of
the FCC is not required for the Petry Acquisition.
INTEGRATION OF ACQUISITIONS; OPERATION OF KATZ AND RADIO NETWORK
As a result of the Completed Transactions, the Company holds, and if the
Pending Transactions are consummated, the Company will hold, a significantly
larger portfolio of radio stations than the Company has held in the past. In
addition, management is regularly involved in discussions with third parties
regarding potential acquisitions, and the Company may pursue an active
acquisition strategy that could result in additional expansion in the future. As
a result of the Company's acquisition strategy, the Company's management is
required to manage a substantially larger radio station group than historically
has been the case. The Company's future operations and earnings will be largely
dependent on the Company's ability to integrate the stations recently acquired
and proposed to be acquired. The Company must, among other things, integrate
management and employee personnel and combine certain administrative procedures.
There can be no assurance that the Company will successfully integrate the
stations recently acquired and proposed to be acquired, and the failure to do so
could have a material adverse effect on the Company's results of operations and
financial condition. In addition, the need to focus management's attention on
the integration of these stations may limit the ability of the Company to
successfully pursue other opportunities for a period of time.
The acquisition strategy of the Company involves numerous other risks,
including increasing leverage and debt service requirements, the diversion of
management's attention from other business concerns and the potential loss of
key employees of acquired stations. The availability of additional acquisition
financing cannot be assured, and depending on the terms of the proposed
acquisitions and financings, could be restricted by the terms of the Senior
Credit Facility, the 9 3/8% Indenture, the 8 3/4% Indenture, the 10 1/2%
Indenture, the Indenture, the certificates of designation for the 12 1/4%
Preferred Stock and the 12% Preferred Stock, and, to a lesser extent, the
certificates of designation for Chancellor Media's 7% Convertible Preferred
Stock (the "7% Convertible Preferred Stock") and $3.00 Convertible Exchangeable
Preferred Stock (the "$3.00 Convertible Preferred Stock"). There can be no
assurance that any future acquisitions will not have a material adverse effect
on the Company's financial condition and results of operations.
With the Company's acquisition of Katz (and its proposed acquisition of
Petry), the Company has entered into a line of business not previously
undertaken by the Company on a national basis. Although the media representation
business is related to the radio broadcasting business and the Company's
subsidiaries have experience in certain aspects of the media representation
business at the local radio station level, the Company, through its Katz
subsidiaries, must operate the business of Katz and manage a significantly
larger base of management and employee personnel performing national media
representation functions. There can be no assurance that the Company will be
able to successfully operate Katz or Petry (if the Petry Acquisition is
consummated). In addition, the need to focus management's attention on the
operation of this business may limit the ability of the Company to successfully
pursue other opportunities for a period of time.
The Company, through The AMFM Radio Networks, is operating a new national
radio network. Although certain of the Company's radio stations have syndicated
programs created locally in the past, the Company has not previously undertaken,
at the national level, a radio network. The Company will compete with a number
of established state and national radio network operators in this regard. There
can be no assurance that the Company will be successful in its efforts to create
a new national radio network.
16
<PAGE> 25
COMPETITIVE NATURE OF RADIO BROADCASTING AND MEDIA REPRESENTATION
The radio broadcasting industry is a highly competitive business. The
success of each of the Company's stations is dependent, to a significant degree,
upon its audience ratings and share of the overall advertising revenue within
its market. The Company's stations compete for listeners and advertising revenue
directly with other radio stations, as well as with other media, within their
respective markets. The Company also competes with other broadcasting operators
for acquisition opportunities, and prices for radio stations in major markets
have increased significantly in recent periods. To the extent that the
consolidation in the radio broadcasting industry continues, certain competitors
may emerge with larger portfolios of major market radio stations, greater
ability to deliver large audiences to advertisers and more access to capital
resources than the Company. The audience ratings and market share for the
Company are and will be subject to change and any adverse change in a particular
market could have a material and adverse effect on the revenue of their stations
located in that market. There can be no assurance that any one of the Company's
stations will be able to maintain or increase its current audience ratings or
advertising revenue market share.
The radio broadcasting industry 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, direct broadcast satellite
("DBS") systems and other digital audio broadcasting formats to local and
national audiences. In addition, the FCC has auctioned spectrum for a new
satellite-delivered Digital Audio Radio Service ("DARS"). These actions may
result in the introduction of several new national or regional multi-channel and
multi-format satellite radio services with sound quality equivalent to compact
discs. Another possible competitor to traditional radio is In Band On Channel
("IBOC") digital radio. IBOC could provide multi-channel, multi-format digital
radio services in the same band width currently occupied by traditional AM and
FM radio services. The Company cannot predict at this time the effect, if any,
that any such new technologies may have on the radio broadcasting industry.
The success of the Company's media representation operations depends on the
Company's ability to maintain and acquire representation contracts with radio
and television stations and cable systems, the inventory of time the Company
represents and the experience of executive management and sales personnel. The
media representation business is highly competitive, both in terms of
competition to gain client stations and to sell air time to advertisers. The
Company competes not only with other independent and network media
representatives but also with direct national advertising. The Company also
competes on behalf of its clients for advertising dollars with other media such
as newspapers and magazines, outdoor advertising, transit advertising, direct
response advertising, yellow page directories and point of sale advertising.
ANTITRUST MATTERS
As a result of the recent consolidation of ownership in the radio broadcast
industry, the DOJ has been giving closer scrutiny to acquisitions in the
industry, including certain transactions involving the Company. The consummation
of each of the Pending Transactions (other than the Capitol Broadcasting
Acquisition) is, and any future transactions undertaken by the Company likely
will be, subject to notification filing requirements, applicable waiting periods
and possible review by the DOJ or the United States Federal Trade Commission
(the "FTC") under the HSR Act. DOJ review of certain transactions has caused,
and may continue to cause, delays in anticipated consummations of certain
transactions and, in some cases, may result in attempts by DOJ to enjoin such
transactions or negotiate modifications of the proposed transactions. Such
delays, injunctions and modifications could have an adverse effect on the
Company and may result in the abandonment of some otherwise attractive
transactions.
The DOJ has stated publicly that it has established certain revenue and
audience share concentration benchmarks with respect to radio station
acquisitions, above which a transaction may receive additional antitrust
scrutiny. However, to date, the DOJ has also investigated transactions that do
not meet or exceed these benchmarks and has cleared transactions that do exceed
the benchmarks. Although the Company does not believe that its acquisition
strategy as a whole will be adversely affected in any material respect by
antitrust review (including review under the HSR Act) or by additional
divestitures that the Company may have to make as a result of antitrust review,
there can be no assurance that this will be the case.
17
<PAGE> 26
RADIO BROADCASTING INDUSTRY SUBJECT TO FEDERAL REGULATION
The radio broadcasting industry is subject to extensive regulation by the
FCC under the Communications Act of 1934, as amended (as amended by the 1996
Act, the "Communications Act"). Approval of the FCC is required for the
issuance, renewal or transfer of radio broadcast station operating licenses. See
"-- Necessity of Governmental Reviews and Approvals Prior to Consummation of the
Pending Transactions" above. In particular, the Company's business is dependent
upon its continuing to hold radio broadcasting licenses from the FCC that are
issued for terms of up to eight years. While in the vast majority of cases such
licenses are renewed by the FCC, there can be no assurance that any of the
stations' licenses will be renewed at their expiration dates, or that renewals,
if granted, will not include conditions or qualifications that could adversely
affect the Company's operations. In addition, the Communications Act and FCC
rules restrict alien ownership and voting of capital stock of, and
participations in the affairs of the Company. Moreover, laws, regulations and
policies may be changed significantly over time and there can be no assurance
that such changes will not have a material adverse effect on the business,
financial condition and results of operations of the Company.
The 1996 Act, which amended the Communications Act in a number of important
respects, has created significant new opportunities for radio broadcasters, but
also has created uncertainties as to how the FCC and the courts will enforce and
interpret the 1996 Act. Although the 1996 Act eliminated the national ownership
ceiling previously applicable to radio broadcasters and also loosened
restrictions previously applicable to ownership within single markets,
significant restrictions remain on permitted levels of local ownership. In
markets with 45 or more stations, ownership is limited to eight stations, no
more than five of which can be FM or AM; in markets with 30-44 stations,
ownership is limited to seven stations, no more than four of which can be FM or
AM; in markets with 15-29 stations, ownership is limited to six stations, no
more than four of which can be FM or AM; and in markets with 14 or fewer
stations, ownership is limited to no more than 50% of the market's total and no
more than three AM or FM. Compliance with the FCC's multiple ownership rules is
expected to cause the Company and other radio broadcasters to forego acquisition
opportunities that they might otherwise wish to pursue. Compliance with these
rules by third parties may also have a significant impact on the Company as, for
example, in precluding the consummation of swap transactions that would cause
such third parties to violate multiple ownership rules.
Hicks Muse, through its ownership of a majority of the outstanding capital
stock of Capstar, has an attributable interest in Capstar. In addition, three of
the Company's directors -- Thomas O. Hicks, Lawrence D. Stuart, Jr. and Eric C.
Neuman -- are directors of Capstar and therefore have attributable interests in
Capstar, and Messrs. Hicks, Stuart and Neuman are officers of Hicks Muse.
Capstar presently owns or proposes to acquire over 300 radio stations in
numerous markets (mainly mid-size and small) throughout the United States. Hicks
Muse and Messrs. Hicks and Neuman also have attributable interests in Sunrise
Broadcasting, Inc. ("Sunrise"), which owns or proposes to acquire six television
stations in six markets, and in LIN Television Corporation ("LIN"), which owns
or operates 11 television stations in eight markets. Under the FCC's rules,
these broadcast interests are attributed to the Company. If any such radio
broadcast interests overlap with the Company's directly-held radio broadcast
interests in the Company's markets, such interests are combined with the
Company's interests in such markets when determining compliance with the
multiple ownership rules. In addition, under the FCC's one-to-a-market rules, a
party may not have attributable interests in radio stations and a television
station in the same market unless a waiver is granted by the FCC. Although none
of the television stations owned through Sunrise and LIN overlap with any of the
stations owned or to be acquired by the Company in any of its markets, there can
be no assurance that, in the future, such overlaps will not occur. As a result
of these attributable interests, the Company's future acquisition strategy may
be adversely affected. There can be no assurance that these additional
attributable interests will not have a material adverse effect on the Company's
future acquisition strategy or on the business, financial condition and results
of operations of the Company.
CONFLICT OF INTEREST
As described above (see "-- Radio Broadcasting Industry Subject to Federal
Regulation"), Hicks Muse and certain of the Company's directors have interests
in Capstar, which owns or proposes to acquire over 300 radio stations in a
number of states, in Sunrise, which owns or proposes to acquire six television
stations in
18
<PAGE> 27
six markets, and in LIN, which owns or operates 11 television stations in eight
markets. Hicks Muse and these directors may in the future acquire interests in,
manage or otherwise control other radio or television stations or other
entertainment and communications media.
Directors of the Company who are also directors and/or executive officers
of Capstar, Sunrise or LIN may have conflicts of interest with respect to
matters potentially or actually involving or affecting the Company and Capstar,
Sunrise or LIN, such as acquisitions, operations, financings and other corporate
opportunities that may be suitable for both the Company and Capstar, Sunrise or
LIN. To the extent that such opportunities arise, these directors may consult
with their legal advisors and make determinations with respect to such
opportunities after consideration of a number of factors, including whether such
opportunities are consistent with the Company's strategic objectives and whether
the Company will be able to undertake or benefit from such opportunities. In
addition, determinations may be made by the Company's Board of Directors, when
appropriate, by a vote of some or all of the disinterested directors only.
However, no assurances can be given that such disinterested director approval
will be sought or that any such conflicts will be resolved in favor of the
Company.
SUBORDINATION
The payment of principal, premium, if any, and interest on, and any other
amounts owing in respect of, the Exchange Notes will be subordinated to the
prior payment in full of all existing and future Senior Debt of the Company. The
Guarantors' Guarantees also will be subordinated in right of payment to
Guarantor Senior Debt (as defined) of any Guarantor. Guarantor Senior Debt will
include all existing and future indebtedness of the Guarantors not expressly
subordinated to other indebtedness of the Guarantors, including indebtedness
represented by the guarantee of the Guarantors under the Senior Credit Facility.
As of December 31, 1997, on a pro forma basis after giving effect to the
Completed Transactions consummated after such date, the 1998 Equity Offering and
the application of the net proceeds therefrom, and the proposed Preferred Stock
Repurchase, but without giving effect to the Pending Transactions, approximately
$1.08 billion of Senior Debt would have been outstanding (represented by
borrowings under the Senior Credit Facility) and approximately $1.42 billion
would have been available for additional borrowing under the Revolving Loan
Facility. In addition, it is expected that the Company will finance the Pending
Transactions through the incurrence of as much as approximately $806.5 million
in additional Senior Debt (represented by additional borrowings under the Senior
Credit Facility). The 9 3/8% Indenture, the 8 3/4% Indenture, the 10 1/2%
Indenture and the Indenture limit the incurrence by the Company and the
Guarantors of additional Senior Debt and Guarantor Senior Debt, respectively. In
the event of the bankruptcy, liquidation, dissolution, reorganization or other
winding up of the Company, the assets of the Company will be available to pay
obligations on the Exchange Notes only after all Senior Debt has been paid in
full, and there may not be sufficient assets remaining to pay amounts due on any
or all of the Exchange Notes. In addition, under certain circumstances, the
Company may not pay principal of, premium, if any, or interest on, or any other
amounts owing in respect of, the Exchange Notes, or purchase, redeem or
otherwise retire the Exchange Notes, if a payment default or a non-payment
default exists with respect to certain Senior Debt, including Senior Debt under
the Senior Credit Facility and, in the case of non-payment default, if a payment
blockage notice has been received by the Trustee (as defined). See "Description
of the Exchange Notes -- Subordination" and "Description of Certain
Indebtedness -- Senior Credit Facility."
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Senior Credit Facility, the 9 3/8% Indenture, the 8 3/4% Indenture, the
10 1/2% Indenture, the Indenture and the certificates of designations for the
Company's preferred stock and the Senior Credit Facility each contain certain
covenants that restrict, among other things, the Company's ability to incur
additional indebtedness, incur liens, pay dividends or make certain other
restricted payments, consummate certain asset sales, enter into certain
transactions with affiliates, incur indebtedness that is subordinate in right of
payment to any Senior Debt and senior in right of payment to the Exchange Notes,
impose restrictions on the ability of a subsidiary to pay dividends or make
certain payments to the Company, enter into sale and leaseback transactions,
conduct business other than the ownership and operation of radio broadcast
stations and
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businesses related thereto, 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. The Senior Credit Facility 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 Senior Credit Facility, the 9 3/8%
Indenture, the 8 3/4% Indenture, the 10 1/2% Indenture and the Indenture, and
other financial documents. In the event of an event of default under the Senior
Credit Facility, the 9 3/8% Indenture, the 8 3/4% Indenture, or the 10 1/2%
Indenture the lenders thereunder could elect to declare all amounts outstanding
thereunder, together with accrued interest, to be immediately due and payable.
In the case of the Senior Credit Facility, if the Company were unable to repay
those amounts, the lenders thereunder could, subject to compliance with
applicable FCC rules, proceed against the collateral granted to them to secure
that indebtedness. If the indebtedness under the Senior Credit Facility were to
be accelerated, there can be no assurance that the assets of the Company would
be sufficient to repay in full that indebtedness and the other indebtedness of
the Company, including the Exchange Notes. See "Description of the Exchange
Notes -- Certain Covenants" and "Description of Certain Indebtedness."
CONTROL OF THE COMPANY
Thomas O. Hicks and affiliates of Hicks Muse hold approximately 13% of the
outstanding primary shares of the Common Stock of Chancellor Media.
Additionally, three directors of Chancellor Media are also principals or
executive officers of Hicks Muse. Accordingly, Mr. Hicks and Hicks Muse will
have substantial influence over the management and policies of Chancellor Media
and the Company and on all matters submitted to a vote of the holders of Common
Stock of Chancellor Media, and the combined voting power of Mr. Hicks and Hicks
Muse may have the effect of discouraging certain types of transactions involving
an actual or potential change of control of Chancellor Media or the Company.
FRAUDULENT CONVEYANCE
Various fraudulent conveyance laws have been enacted for the protection of
creditors and may be utilized by a court to subordinate or avoid the Original
Notes or the Exchange Notes or the Guarantees in favor of other existing or
future creditors of the Company or the Guarantors.
If a court in a lawsuit on behalf of any unpaid creditor of the Company or
a representative of the Company's creditors were to find that, at the time the
Company issued the Original Notes, the Company (x) intended to hinder, delay or
defraud any existing or future creditor or contemplated insolvency with a design
to prefer one or more creditors to the exclusion in whole or in part of others
or (y) did not receive fair consideration or reasonably equivalent value for
issuing such Original Notes and the Company (i) was insolvent, (ii) was rendered
insolvent by reason of such issuance, (iii) was engaged or about to engage in a
business or transaction for which its remaining assets constituted unreasonably
small capital to carry on its business or (iv) intended to incur, or believed
that it would incur, debts beyond its ability to pay such debts as they matured,
such court could void the Company's obligations under the Original Notes or the
Exchange Notes and void such transactions. Alternatively, in such event, claims
of the holders of such Original Notes or the Exchange Notes could be
subordinated to claims of the other creditors of the Company.
The Company's obligations under the Exchange Notes will be guaranteed by
each of the Guarantors. To the extent that a court were to find that (x) the
Guarantee was incurred by the Guarantor with intent to hinder, delay or defraud
any present or future creditor or the Guarantor contemplated insolvency with a
design to prefer one or more creditors to the exclusion in whole or in part of
others or (y) the Guarantor did not receive fair consideration or reasonably
equivalent value for issuing the Guarantee and the Guarantor (i) was insolvent,
(ii) was rendered insolvent by reason of the issuance of the Guarantee, (iii)
was engaged or about to engage in a business or transaction for which the
remaining assets of the Guarantor constituted unreasonably small capital to
carry on its business or (iv) intended to incur, or believed that it would
incur, debts beyond its ability to pay such debts as they matured, the court
could void or subordinate the Guarantee in favor of such Guarantor's creditors.
Among other things, a legal challenge of any Guarantee on fraudulent conveyance
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grounds may focus on the benefits, if any, realized by a Guarantor as a result
of the issuance by the Company of the Original Notes.
To the extent that any Guarantee is avoided as a fraudulent conveyance or
held unenforceable for any other reason, holders of the Original Notes or the
Exchange Notes would cease to have any claim in respect of such Guarantor and
would be creditors solely of the Company and the other Guarantors, if any. In
such event, the claims of the holders of the Original Notes or the Exchange
Notes against such Guarantor would be subject to the prior payment of all
liabilities and preferred stock claims of the Guarantor. There can be no
assurance that, after providing for all prior claims and preferred stock
interests, if any, there would be sufficient assets to satisfy the claims of the
holders of the Original Notes or the Exchange Notes relating to any voided
portion of a guarantee.
Based upon financial and other information currently available to it,
management of the Company believes that the Exchange Notes and the Guarantees
are being incurred for proper purposes and in good faith and that the Company
and each of the Guarantors (i) are solvent and will continue to be solvent after
giving effect to the issuance of the Exchange Notes or Guarantee, as the case
may be, (ii) will have sufficient capital for carrying on its business after
such issuance, and (iii) will be able to pay its debts as they mature. See
"Management's Discussions and Analysis of Results of Operations and Financial
Condition -- Liquidity and Capital Resources."
CHANGE OF CONTROL
Upon a Change of Control, the Company may be required to offer to purchase
all of the Exchange Notes then outstanding at 101% of their principal amount,
plus accrued interest to the date of repurchase. If a Change of Control were to
occur, there can be no assurance that the Company would have sufficient funds to
pay the purchase price for all the Exchange Notes that the Company might be
required to purchase. In the event that the Company were required to purchase
Exchange Notes pursuant to a Change of Control Offer, the Company expects that
it would need to seek third-party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that the Company would be able to obtain such financing on favorable
terms, if at all. In addition, the various financing arrangements of the Company
will restrict the Company's ability to repurchase the Exchange Notes, including
pursuant to a Change of Control Offer. Also, a Change of Control will result in
an event of default under the Senior Credit Facility and may cause the
acceleration of other Senior Debt, if any, in which case the subordination
provisions of the Exchange Notes would require payment in full of the Senior
Credit Facility and any such Senior Debt before repurchase of the Exchange
Notes. In addition, a Change of Control may result in the Company being required
to offer to redeem the 12 1/4% Preferred Stock and 12% Preferred Stock, and may
result in Chancellor Media being required to offer to redeem the 7% Convertible
Preferred Stock and the $3.00 Convertible Preferred Stock. See "Description of
the Exchange Notes -- Change of Control," "Description of the Exchange
Notes -- Subordination" and "Description of Certain Indebtedness -- Senior
Credit Facility -- Change of Control." The inability to repay Senior Debt, if
accelerated, and to purchase all of the tendered Exchange Notes, would
constitute an event of default under the Indenture.
CONSEQUENCES OF FAILURE TO EXCHANGE ORIGINAL NOTES
The Exchange Notes will be issued in exchange for Original Notes only after
timely receipt by the Exchange Agent of such Original Notes, a properly
completed and duly executed Letter of Transmittal and all other required
documents. Therefore, holders of Original Notes desiring to tender such Original
Notes in exchange for the Exchange Notes should allow sufficient time to ensure
timely delivery. Neither the Exchange Agent nor the Company is under any duty to
give notification of defects or irregularities with respect to tenders of
Original Notes for exchange. Original Notes that are not tendered or are
tendered but not accepted will, following consummation of the Exchange Offer,
continue to be subject to the existing restrictions upon transfer thereof. In
addition, any holder of Original Notes who tenders in the Exchange Offer for the
purpose of participating in a distribution of the Exchange Notes will be
required to comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each broker-
dealer that receives Exchange Notes for its own account in exchange for Original
Notes, where such Original
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Notes were acquired by such broker-dealer as a result of market-making
activities or any other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. See
"Plan of Distribution." To the extent that Original Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Original Notes could be adversely affected. See "Exchange Offer."
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Original Notes have not been registered under the Securities Act and
are subject to significant transfer restrictions. The Exchange Notes will
constitute a new issue of securities with no established trading market. The
Company does not intend to list the Exchange Notes on any national securities
exchange or to seek the admission thereof to trading in the National Association
of Securities Dealers Automated Quotation system. The Company has been advised
by the Initial Purchasers (as defined) that they intend to make a market in the
Exchange Notes. However, the Initial Purchasers are not obligated to do so, and
any market-making activity with respect to the Exchange Notes may be
discontinued at any time without notice. In addition, such market-making
activity will be subject to the limits imposed by the Exchange Act, and may be
limited during the Exchange Offer. If a trading market does not develop or is
not maintained, holders of the Exchange Notes may experience difficulty in
reselling the Exchange Notes or may be unable to sell them at all. If a trading
market does not develop or is not maintained, holders of the Exchange Notes may
experience difficulty in reselling the Exchange Notes or may be unable to sell
them at all. If a market for the Exchange Notes develops, any such market may be
discontinued at any time. If a public trading market develops for the Exchange
Notes, future trading prices of the Exchange Notes will depend on many factors,
including, among other things, prevailing interest rates, the Company's results
of operations and the market for similar securities. Depending on prevailing
interest rates, the market for similar securities and other factors, including
the financial condition of the Company, the Exchange Notes may trade at a
discount from their principal amount.
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THE EXCHANGE OFFER
PURPOSE AND EFFECTS OF THE EXCHANGE OFFER
The Original Notes were sold by the Company on December 22, 1997 (the
"Issue Date") to the Initial Purchasers. The Initial Purchasers subsequently
placed the Original Notes with qualified institutional buyers in transactions
not requiring registration under the Securities Act or applicable state
securities laws, including sales pursuant to Rule 144A and Regulation S under
the Securities Act. As a condition to the sale of the Original Notes, the
Company and the Initial Purchasers entered into the Registration Rights
Agreement on December 22, 1997. Pursuant to the Registration Rights Agreement,
the Company agreed that unless the Exchange Offer is not permitted by applicable
law or Commission policy, it would (i) use its reasonable best efforts, within
120 days after the Issue Date, to file with the Commission a registration
statement (the "Registration Statement") with respect to a registered offer to
exchange the Original Notes for Exchange Notes, (ii) use its reasonable best
efforts to cause such Registration Statement to be declared effective under the
Securities Act within 180 days after the Issue Date and (iii) use its reasonable
best efforts to consummate the Exchange Offer within 225 days after the Issue
Date. A copy of the Registration Rights Agreement has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part. The
Registration Statement of which this Prospectus is a part is intended to satisfy
certain of the Company's obligations under the Registration Rights Agreement.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company, upon the Registration Statement
being declared effective, will accept any and all Original Notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on the
Expiration Date and exchange them for Exchange Notes. The Company will issue
$1,000 principal amount of Exchange Notes in exchange for each $1,000 principal
amount of outstanding Original Notes accepted in the Exchange Offer. Holders may
tender some or all of their Original Notes pursuant to the Exchange Offer.
However, the Original Notes may be tendered only in integral multiples of
$1,000.
The Company will keep the Exchange Offer open for not less than 20 business
days or longer if required by applicable law, after the date notice of the
Exchange Offer is mailed to holders of the Original Notes.
The Exchange Notes will evidence the same debt as the Original Notes for
which they are exchanged, and are entitled to the benefits of the Indenture. The
form and terms of the Exchange Notes are the same as the form and terms of the
Original Notes except that the Exchange Notes have been registered under the
Securities Act and hence will not bear legends restricting the transfer thereof.
Holders do not have appraisal or dissenters' rights under the Delaware
General Corporation Law or under the Indenture in connection with the Exchange
Offer. The Company intends to conduct the Exchange Offer in accordance with the
applicable requirements of Regulation 14E under the Exchange Act.
The Company shall be deemed to have accepted validly tendered Exchange
Notes when, as and if, the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
Holders for the purpose of receiving the Exchange Notes from the Company.
If any tendered Original Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Original Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders whose Original Notes are not tendered or are tendered but not
accepted in the Exchange Offer will continue to hold such Original Notes and
will be entitled to all the rights and preferences and subject to the
limitations applicable thereto under the Indenture. Following consummation of
the Exchange Offer, the holders will continue to be subject to the existing
restrictions upon transfer thereof and the Company will have no further
obligation to such holders to provide for the registration under the Securities
Act of the Original
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Notes held by them. To the extent that Original Notes are tendered and accepted
in the Exchange Offer, the trading market for untendered and tendered but
unaccepted Original Notes could be adversely affected.
Holders who tender Original Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of the
Original Notes pursuant to the Exchange Offer. The Company will pay all charges
and expenses, other than certain applicable taxes, in connection with the
Exchange Offer. See "-- Fees and Expenses; Solicitation of Tenders."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean June 8, 1998 unless the Company, in
its sole discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date to which the Exchange Offer is so
extended.
In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
Registered Holders an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date. Such announcement may state that the Company is extending the Exchange
Offer for a specified period of time or on a daily basis until 5:00 p.m., New
York City time, on the date on which a specified percentage of Original Notes
are tendered.
The Company reserves the right (i) to delay accepting any Original Notes,
to extend the Exchange Offer or to terminate the Exchange Offer and not accept
Original Notes not previously accepted if any of the conditions set forth below
under "-- Certain Conditions to the Exchange Offer" shall have occurred and
shall not have been waived by the Company, by giving oral or written notice of
such delay, extension or termination to the Exchange Agent, or (ii) to amend the
terms of the Exchange Offer in any manner deemed by it to be advantageous to the
holders. Any such delay in acceptance, extension, termination or amendment will
be followed as promptly as practicable by oral or written notice thereof to the
holders. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to all
Registered Holders, and the Company will extend the Exchange Offer for a period
of five to ten business days, depending upon the significance of the amendment
and the manner of disclosure to Registered Holders, if the Exchange Offer would
otherwise expire during such five to ten business day period. During any
extension of the Expiration Date, all Original Notes previously tendered will
remain subject to the Exchange Offer and may be accepted for exchange by the
Company.
Without limiting the manner in which the Company may choose to make public
announcement of any extension, amendment or termination of the Exchange Offer,
the Company shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
Interest accrues on the Original Notes, and will accrue on the Exchange
Notes, in each case, from December 22, 1997, at the rate of 8 1/8% per annum and
will be payable in cash semiannually in arrears on each June 15 and December 15,
commencing on June 15, 1998. No interest will be payable on the Original Notes
on the date of the exchange for the Exchange Notes and therefore no interest
will be paid thereon to the holders at such time.
PROCEDURES FOR TENDERING ORIGINAL NOTES
The tender to the Company of the Original Notes by a holder thereof as set
forth below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to tender
the Original Notes for
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<PAGE> 33
exchange pursuant to the Exchange Offer must transmit a properly completed and
duly executed Letter of Transmittal, including all other documents required by
such Letter of Transmittal, to the Exchange Agent at one of the addresses set
forth below under "-- Exchange Agent" on or prior to the Exchange Date or, in
the alternative, comply with The Depository Trust Company's ("DTC") ATOP
procedures described below. In addition, either (i) certificates for such
Original Notes must be received by the Exchange Agent along with the Letter of
Transmittal, (ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Original Notes, if such procedure is available, into the
Exchange Agent's account at DTC pursuant to the procedure for book-entry
transfer described below, or properly transmitted Agent's Message (as defined
below), must be received by the Exchange Agent prior to the Expiration Date, or
(iii) the holder must comply with the guaranteed delivery procedures described
below. THE METHOD OF DELIVERY OF THE ORIGINAL NOTES, LETTERS OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO INSURE TIMELY DELIVERY. NO LETTER OF TRANSMITTAL OR ORIGINAL NOTES
SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Original Notes surrendered for
exchange pursuant thereto are tendered (i) by a Registered Holder of the
Original Notes who has not completed the boxes entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution (as defined below). In the event
that signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantees must be by a firm
(an "Eligible Institution") that is a member of a recognized signature guarantee
medallion program (an "Eligible Program") within the meaning of Rule 17Ad-15
under the Exchange Act. If the Exchange Notes and/or Original Notes not
exchanged are to be delivered to an address other than that of the Registered
Holder appearing on the note register for the Original Notes, the signature on
the Letter of Transmittal must be guaranteed by an Eligible Institution. If the
Original Notes are registered in the name of a person other than the person
signing the Letter of Transmittal, the Original Notes surrendered for exchange
must be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Company in its
sole discretion, duly executed by the Registered Holder with the signature
thereon guaranteed by an Eligible Institution.
Any beneficial owner whose Original Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender Original Notes should contact the Registered Holder promptly and
instruct such Registered Holder to tender Original Notes on such beneficial
owner's behalf. If such beneficial owner wishes to tender such Original Notes
himself, such beneficial owner must, prior to completing and executing the
Letter of Transmittal and delivering such Original Notes in such beneficial
owner's name, either make appropriate arrangements to register ownership of the
Original Notes in such beneficial owner's name or obtain a properly completed
bond power from the Registered Holder of the Original Notes. The transfer of
registered ownership may take considerable time and may not be able to be
completed prior to the Expiration Date.
The Exchange Agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may utilize DTC's ATOP to tender.
Accordingly, participants in DTC's ATOP may, in lieu of physically completing
and signing the Letter of Transmittal and delivering it to the Exchange Agent,
electronically transmit their acceptance of the Exchange Offer by causing DTC to
transfer the Original Notes to the Exchange Agent in accordance with DTC's ATOP
procedures for transfer. DTC will then send an Agent's Message to the Exchange
Agent.
The term "Agent's Message" means a message transmitted by DTC received by
the Exchange Agent and forming part of the Book-Entry Confirmation, which states
that DTC has received an express acknowledgement from a participant in DTC's
ATOP that is tendering Original Notes which are the subject of such book entry
confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal (or, in the case of an Agent's Message
relating to guaranteed delivery, that such participant has
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<PAGE> 34
received and agrees to be bound by the applicable Notice of Guaranteed
Delivery), and that the agreement may be enforced against such participant.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of the Original Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
tenders of any particular Original Note not properly tendered or to not accept
any particular Original Note which acceptance might, in the judgment of the
Company or its counsel, be unlawful. The Company also reserves the absolute
right in its sole discretion to waive any defects or irregularities or
conditions of the Exchange Offer as to any particular Original Note either
before or after the Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender the Original Notes in the
Exchange Offer). The interpretation of the terms and conditions of the Exchange
Offer as to any particular Original Note either before or after the Expiration
Date (including the Letter of Transmittal and instructions thereto) by the
Company shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with the tenders of Original Notes for exchange
must be cured within such reasonable period of time as the Company shall
determine. Neither the Company, the Exchange Agent nor any other person shall be
under any duty to give notification of any defect or irregularity with respect
to any tender of the Original Notes for exchange, nor shall any of them incur
any liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than
the Registered Holder or holders of Original Notes, such Original Notes must be
endorsed or accompanied by a properly completed bond power, in either case
signed exactly as the names of the Registered Holder or holders that appear on
the Original Notes with the signature thereon guaranteed by an Eligible
Institution.
If the Letter of Transmittal or any Original Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such person should so indicate when signing and, unless waived by the
Company, proper evidence satisfactory to the Company of their authority to so
act must be submitted with the Letter of Transmittal.
By tendering, each holder will represent to the Company that, among other
things, either (a) such holder is not an "affiliate" of the Company, within the
meaning of Rule 405 under the Securities Act, that it is not a broker-dealer
that owns Original Notes acquired directly from the Company, that it is
acquiring the Exchange Notes in the ordinary course of such holder's business
and that such holder has no arrangement with any person to participate in the
distribution of such Exchange Notes, or (b) such holder is an "affiliate" of the
Company and that it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable to it.
ACCEPTANCE OF ORIGINAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Original Notes
properly tendered and will issue the Exchange Notes promptly after acceptance of
the Original Notes. See "-- Certain Conditions to the Exchange Offer" below. For
purposes of the Exchange Offer, the Company shall be deemed to have accepted
properly tendered Original Notes for exchange when, and if, the Company has
given oral or written notice thereof to the Exchange Agent.
In all cases, issuance of Exchange Notes for Original Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Original Notes or
a timely Book-Entry Confirmation of such Original Notes into the Exchange
Agent's account at DTC, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Original Notes are
not accepted for any reason set forth in the terms and conditions of the
Exchange Offer or if certificates representing the Original Notes are submitted
for a greater principal amount than the holder desires to exchange, such
unaccepted or non-exchanged Original Notes will be returned without expense to
the tendering holder thereof (or, in the case of Original Notes tendered by
book-entry transfer into the Exchange Agent's account at DTC pursuant to the
book-entry transfer procedures
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<PAGE> 35
described below, such non-exchanged Original Notes will be credited to an
account maintained with DTC) as promptly as practicable after the expiration or
termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Original Notes at DTC for purposes of the Exchange Offer within two
business days after the date of this Prospectus, and any financial institution
that is a participant in DTC's systems may make book-entry delivery of the
Original Notes by causing DTC to transfer such Original Notes into the Exchange
Agent's account at DTC in accordance with DTC's procedure for transfer. However,
although delivery of the Original Notes may be effected through book-entry
transfer at DTC, the Letter of Transmittal or a facsimile thereof, with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "-- Exchange Agent" on or prior to the
Expiration Date or the guaranteed delivery procedures described below must be
complied with. Delivery of documents to the book-entry transfer facility does
not constitute delivery to the Exchange Agent.
THE METHOD OF DELIVERY OF THE ORIGINAL NOTES, LETTERS OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO INSURE TIMELY DELIVERY. NO LETTER OF TRANSMITTAL OR ORIGINAL NOTES
SHOULD BE SENT TO THE COMPANY.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Original Notes desires to tender such
Original Notes and the Original Notes are not immediately available, or time
will not permit such holder's Original Notes or other required documents to
reach the Exchange Agent before the Expiration Date, or the procedure for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if (i) the tender is made through an Eligible Institution, (ii) prior
to the Expiration Date, the Exchange Agent receives from such Eligible
Institution a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof) and Notice of Guaranteed Delivery (be telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of the Original Notes and the principal amount of Original
Notes tendered, stating that the tender is being made thereby and guaranteeing
that within three business days after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically tendered Original
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent, and (iii) the
certificates for all physically tendered Original Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and all other
documents required by the Letter of Transmittal, are received by the Exchange
Agent within three business days after the date of execution of the Notice and
Guaranteed Delivery. Unless Original Notes being tendered by the above-described
method (or a timely Book-Entry Confirmation) are deposited with the Exchange
Agent within the time period set forth above (accompanied or preceded by a
properly completed Letter of Transmittal and any other required documents), the
Company may, at its option, reject the tender. Copies of a Notice of Guaranteed
Delivery which may be used by Eligible Institutions for the purposes described
in this paragraph are being delivered with this Prospectus and the related
Letter of Transmittal.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Original Notes (or a timely Book-Entry Confirmation) is
received by the Exchange Agent. Issuances of Exchange Notes in exchange for
Original Notes tendered pursuant to a Notice of Guaranteed Delivery or letter,
telegram or facsimile transmissions to similar effect (as provided above) by an
Eligible Institution will be made only against deposit of the Letter of
Transmittal (and any other required documents) and the tendered Original Notes
(or a timely book-Entry Confirmation).
27
<PAGE> 36
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
Subject to, and effective upon, the acceptance for exchange of the
principal amount of Original Notes tendered in accordance with the Letter of
Transmittal, the party tendering Original Notes for exchange (the "Transferor")
sells, assigns and transfers to, or upon the order of, the Company all right,
title and interest in and to the Original Notes, tendered thereby. The
Transferor, irrevocably constitutes and appoints the Exchange Agent as the
Transferor's agent and attorney-in-fact (with full knowledge that the Exchange
Agent also acts as the agent of the Company) with respect to the tendered
Original Notes, with full power of substitution to (i) deliver certificates for
such Original Notes, (ii) deliver Original Notes and all accompanying evidence
of transfer and authenticity to or upon the order of the Company upon receipt by
the Exchange Agent, or the Transferor's agent, of the Exchange Notes to which
the Transferor is entitled upon the acceptance by the Company of the Original
Notes tendered under the Exchange Offer and (iii) receive all benefits and
otherwise exercise all rights of beneficial ownership of such Original Notes,
all in accordance with the terms of the Exchange Offer. The Transferor
represents and warrants that he or she has full power and authority to tender,
exchange, assign and transfer the Original Notes and that, when the same are
accepted for exchange, the Company will acquire good and unencumbered title to
the tendered Original Notes, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim. The Transferor also
warrants that it will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
exchange, assignment and transfer of tendered Original Notes. The Transferor
further agrees that acceptance of any tendered Original Notes by the Company and
the issuance of Exchange Notes in exchange therefor shall constitute performance
in full by the Company of its obligations under the Registration Rights
Agreement and that the company shall have no further obligations or liabilities
thereunder (except in certain limited circumstances). All authority conferred by
the Transferor will survive the death or incapacity or dissolution of the
Transferor, and every obligation of the Transferor shall be binding upon the
heirs, legal representatives, successors, assigns, executors and administrators
of such Transferor.
By tendering Original Notes, the Transferor certifies (a) that it is not an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act, that it is not a broker-dealer that owns Original Notes acquired directly
from the Company, that it is acquiring the Exchange Notes offered hereby in the
ordinary course of such Transferor's business and that such Transferor has no
arrangement with any person to participate in the distribution of such Exchange
Notes or (b) that it is an "affiliate" (as so defined) of the Company or of the
Initial Purchasers, and that it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable to it.
WITHDRAWAL RIGHTS
Tenders of Original Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date.
For a withdrawal to be effective, (i) a written or facsimile notice of
withdrawal must be received by the Exchange Agent at its address set forth below
under "-- Exchange Agent" or (ii) holders must comply with the appropriate
procedures of DTC's ATOP. Any such notice of withdrawal must (i) specify the
name of the person having tendered the Original Notes to be withdrawn, (ii)
identify the Original Notes to be withdrawn (including the serial number or
numbers and the principal amount of Original Notes to be withdrawn), (iii) be
signed by the holder in the same manner as the original signature on the Letter
of Transmittal by which such Original Notes were tendered and (iv) specify the
name in which such Original Notes are to be registered, if different from that
of the withdrawing holder. If Original Notes have been tendered pursuant to the
procedure for book-entry described above, any notice of withdrawal must specify,
in lieu of certificate numbers, the name and number of the account at DTC to be
credited with the withdrawn Original Notes and otherwise comply with the
procedures of such facility. Any questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties. Any
Original Notes so withdrawn will be deemed not to have been validly
28
<PAGE> 37
tendered for exchange for purposes of the Exchange Offer. Any Original Notes
which have been tendered for exchange but which are not exchanged for any reason
will be returned to the holder thereof without cost to such holder (or, in the
case of Original Notes tendered by book-entry transfer into the Exchange Agent's
account at DTC pursuant to the book-entry transfer procedures described above,
such Original Notes will be credited to an account maintained with DTC for the
Original Notes) as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Original Notes may be
retendered by following one of the procedures described under "-- Procedures for
Tendering Original Notes" above at any time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company's
obligation to accept for exchange, or exchange Exchange Notes for, any Original
Notes not theretofore accepted for exchange is subject to the following
conditions:
(a) no action or proceeding having been instituted or threatened in
any court or by or before any governmental agency with respect to the
Exchange Offer which, in the judgment of the Company, might impair the
ability of the Company to proceed with the Exchange Offer or have a
material adverse effect on the Company or there shall not have occurred any
material adverse development in any existing action or proceeding with
respect to the Company or any of its subsidiaries;
(b) there shall not have been any material change, or development
involving a prospective change, in the business or financial affairs of the
Company or any of its subsidiaries which, in the judgment of the Company,
would materially impair the Company's ability to consummate the Exchange
Offer or have a material adverse impact on the Company if the Exchange
Offer is consummated;
(c) there shall not have been proposed, adopted or enacted any law,
statute, rule or regulation which, in the judgment of the Company, might
materially impair the ability of the Company to proceed with the Exchange
Offer or have a material adverse effect on the Company if the Exchange
Offer is consummated; or
(d) all governmental approvals which the Company shall deem necessary
for the consummation of the Exchange Offer as contemplated hereby shall
have been obtained.
If the Company determines in good faith that any of the conditions are not
met, the Company may (i) refuse to accept any Original Notes and return all
tendered Original Notes to exchanging Holders, (ii) extend the Exchange Offer
and retain all Original Notes tendered prior to the expiration of the Exchange
Offer, subject, however, to the rights of holders to withdraw such Original
Notes (see "-- Withdrawal Rights") or (iii) waive certain of such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Original Notes which have not been withdrawn or revoked. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to all Registered Holders.
Holders have certain rights and remedies against the Company under the
Registration Rights Agreement. If, notwithstanding a failure of the conditions
stated above, (i) a registration statement concerning the Exchange Offer has not
been filed on or prior to the 120th day after the Closing Date, (ii) such
registration statement is not declared effective by the Commission on or prior
to the 180th day after the Closing Date, (iii) such registration statement is
declared effective by the Commission and the Company does not exchange the
Exchange Notes for all Original Notes validly tendered on or prior to the 225th
day after the Closing Date or (iv) a registration statement for an offering to
be made on a continuous basis pursuant to Rule 415 under the Securities Act has
been declared effective by the Commission and ceases to be effective or usable
during the 24 months after the Closing Date without being cured on the same day
(each, a "Registration Default"), then with respect to the first 90-day period
following the date on which such Registration Default occurs, Holders have the
right to receive, as liquidated damages, additional interest of 0.5% per annum
until the Registration Default has been cured. The amount of such additional
interest shall increase by 0.5% per annum at the beginning of each subsequent
90-day period until all Registration Defaults are cured; provided, that
29
<PAGE> 38
such additional interest shall not exceed 1.0% per annum at any one time. Such
conditions are not intended to modify those rights or remedies in any respect.
In this regard, the Company originally filed a registration statement concerning
the Exchange Offer on the 121st day after the Closing Date. Accordingly, the
Company will pay additional interest of 0.5% per annum, prorated for the one day
of Registration Default. Such amount, which equates to $0.01389 per $1,000
principal amount, will be paid on June 15, 1998, the next scheduled interest
payment date on the Notes, to holders of record of the Notes on June 1, 1998
pursuant to the Registration Rights Agreement.
The foregoing conditions are for the benefit of the Company and may be
asserted by the Company in good faith regardless of the circumstances giving
rise to such conditions or may be waived by the Company in whole or in part at
any time and from time to time in its discretion. The failure by the Company at
any time to exercise the foregoing rights shall not be deemed a waiver of any
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time. In addition, the Company has
reserved the right, notwithstanding the satisfaction of each of the foregoing,
to terminate or amend the Exchange Offer.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
<TABLE>
<S> <C> <C>
By Certified or Registered Mail: By Facsimile Transmission: By Hand or Overnight Delivery:
The Bank of New York (212) 815-6339 The Bank of New York
101 Barclay Street, 7E 101 Barclay Street
New York, New York 10286 Confirm by Telephone: Corporate Trust Services Window
Attention: Ground Level
Santino Ginocchietti (212) 815-2963 New York, New York 10286
Attention:
Santino Ginocchietti
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES; SOLICITATION OF TENDERS
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$0.7 million and include fees and expenses of the Exchange Agent and accounting
and legal fees.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Original Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes, or the Original Notes not tendered or tendered but
not accepted for exchange, are to be delivered to, or are to be registered or
issued in the name of, any person other than the Registered Holder of the
Original Notes tendered, or if tendered Original Notes are registered in the
name of any person other than the person signing the Letter of Transmittal, or
if a transfer tax is imposed for any reason other than the exchange of the
Original Notes pursuant to the Exchange Offer, then the amount of any such
transfer taxes (whether imposed on the original
30
<PAGE> 39
Registered Holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus or the accompanying Letter of Transmittal. If given or made,
such information or representations must not be relied upon as having been
authorized by the Company. This Prospectus and the accompanying Letter of
Transmittal does not constitute an offer to sell, or a solicitation of an offer
to buy, the Exchange Notes in any jurisdiction where, or to any person to whom,
it is unlawful to make such an offer or a solicitation. Neither the delivery of
the Prospectus or the accompanying Letter of Transmittal, nor any sale made
thereunder shall, under any circumstances, create any implication that there has
not been any change in the facts set forth in this Prospectus or in the affairs
of the Company since the date hereof.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Original Notes, which is face value, as reflected in the Company's accounting
records on the date of the exchange. Accordingly, no gain or loss for accounting
purposes will be recognized. The costs of the Exchange Offer will be expensed
over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Original Notes who do not exchange their Original Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Original Notes as set forth in the legend
thereon. In general, the Original Notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to an exemption from, or in
a transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not intend to register the Original Notes under the
Securities Act. The Company believes that, based upon interpretations contained
in no-action letters issued to third parties by the Staff, the Exchange Notes
issued pursuant to the Exchange Offer in exchange for Original Notes may be
offered for resale, resold or otherwise transferred by holders thereof (other
than any such holder which is (i) an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act, (ii) a broker-dealer who acquired
the Original Notes directly from the Company or (iii) a broker-dealer who
acquired the Original Notes as a result of market making or other trading
activities) without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's business and such holder is not
engaged in, and does not intend to engage in, and has no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes. Each broker-dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. See "Plan of
Distribution." If any Holder (other than a broker-dealer described in the
preceding sentence) has any arrangement or understanding with respect to the
distribution of the Exchange Notes to be acquired pursuant to the Exchange
Offer, such Holder (i) may not rely on the applicable interpretations of the
Staff and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction. In
addition, to comply with the securities laws of certain jurisdictions, if
applicable, the Exchange Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with.
FEDERAL INCOME TAX CONSEQUENCES
The exchange of Original Notes for Exchange Notes by holders should not be
a taxable exchange for federal income tax purposes, and holders should not
recognize any taxable gain or loss or any interest income as a result of such
exchange. See "Material United States Federal Income Tax Considerations."
31
<PAGE> 40
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Original Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take.
To the extent that Original Notes are tendered and accepted in the Exchange
Offer, the trading market, if any, for the Original Notes could be adversely
affected. See "Risk Factors -- Consequences of Failure to Exchange Original
Notes." The Company may in the future seek to acquire untendered Original Notes
in open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Company has no present plan to acquire any Original
Notes which are not tendered in the Exchange Offer.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes. In consideration for issuing the Exchange Notes as contemplated
in this Prospectus, the Company will receive in exchange Original Notes in like
principal amount, which will be cancelled and as such will not result in any
increase in indebtedness of the Company.
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
at December 31, 1997, (ii) such pro forma capitalization as adjusted to give
effect to the Completed Transactions consummated after December 31, 1997 and the
contribution to the Company from Chancellor Media of the net proceeds from the
1998 Equity Offering, but without giving effect to the Pending Transactions and
(iii) such pro forma capitalization as further adjusted to give effect to the
proposed Preferred Stock Repurchase. See "Pro Forma Financial Statements."
<TABLE>
<CAPTION>
COMPANY
AS ADJUSTED
FOR THE
COMPANY COMPLETED COMPANY
HISTORICAL TRANSACTIONS PRO FORMA
---------- ------------ -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Long-term Debt:
Senior Credit Facility(1)...................... $1,573,000 $ 900,000(2) $1,084,466 (2)
9 3/8% Senior Subordinated Notes due 2004...... 200,000 200,000 200,000
8 3/4% Senior Subordinated Notes due 2007...... 200,000 200,000 200,000
10 1/2% Senior Subordinated Notes due 2007..... 100,000 100,000 100,000
8 1/8% Senior Subordinated Notes due 2007...... 500,000 500,000 500,000
---------- ---------- ----------
Total Long-term Debt................... 2,573,000 1,900,000(2) 2,084,466 (2)
Redeemable Preferred Stock:
12 1/4% Series A Senior Cumulative Exchangeable
Preferred Stock............................. 119,445 119,445 -- (3)
12% Exchangeable Preferred Stock............... 211,763 211,763 -- (3)
Stockholder's equity:
Common Stock................................... 1 1 1
Additional Paid-in Capital..................... 1,637,628 2,632,270 2,632,270
Accumulated Deficit............................ (157,422) (157,422) (234,387)(3)
---------- ---------- ----------
Total Stockholder's Equity.................. 1,480,207 2,474,849 2,397,884
---------- ---------- ----------
Total Capitalization................... $4,384,415 $4,706,057(2) $4,482,350 (2)
========== ========== ==========
</TABLE>
- ---------------
(1) The Senior Credit Facility provides for a total commitment of $2.50 billion,
consisting of a $1.60 billion reducing revolving credit facility and a
$900.0 million term loan facility.
32
<PAGE> 41
(2) Does not give effect to borrowings that the Company expects to make in order
to finance the Pending Transactions. The Company expects that it will
finance the Pending Transactions through borrowings of as much as
approximately $806.5 million under the Senior Credit Facility. Of the amount
required to finance the Capstar Transaction, the Company expects that $340.3
million will be required immediately upon consummation of the Capstar/SFX
Acquisition (which amount includes the Capstar Loan) and $244.2 million will
be required over the three year period in which the Capstar/SFX Stations
will be acquired.
(3) Reflects the use of a portion of the net proceeds of Chancellor Media's 1998
Equity Offering, which were contributed to CMCLA by Chancellor Media, to pay
premiums and accrued and unpaid dividends on the proposed repurchase of all
of the outstanding shares of 12 1/4% Preferred Stock and 12% Preferred Stock
(or, if the Preferred Stock Consent Solicitation is successful, accrued and
unpaid dividends on the 12% Preferred Stock prior to exchange and premiums
and accrued and unpaid interest on the proposed repurchase of the 12%
Exchange Debentures). No assurance can be given that the actual premiums
paid in connection with any repurchase by the Company will not be greater,
perhaps by a substantial amount, than the amounts assumed in the pro forma
data. In addition, there can be no assurance that any shares of 12 1/4%
Preferred Stock and 12% Preferred Stock (or 12% Exchange Debentures issuable
upon exchange of the 12% Preferred Stock) will be repurchased by the
Company. See "Risk Factors -- Possible Non-Consummation of, or Increased
Cost of, Proposed Repurchase of 12 1/4% Preferred Stock and 12% Preferred
Stock."
33
<PAGE> 42
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The selected consolidated historical financial data presented below as of
and for each of the five years in the period ended December 31, 1997 have been
derived from the annual audited consolidated financial statements of the Company
and its subsidiaries. The consolidated historical financial results of the
Company and its subsidiaries are not comparable from period to period because of
the acquisition and disposition of various radio stations and assets by the
Company and its subsidiaries during the periods covered (See "Pro Forma
Financial Information"). The following data should be read in conjunction with
the historical consolidated financial statements of the Company and its
subsidiaries and the related notes thereto, the unaudited pro forma condensed
consolidated financial statements of the Company and the related notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Gross revenues...................... $106,813 $125,478 $186,365 $ 337,405 $ 663,804
Net revenues........................ 93,504 109,516 162,931 293,850 582,078
Station operating expenses excluding
depreciation and amortization.... 60,656 68,852 97,674 174,344 316,248
Depreciation and amortization....... 33,524 30,596 47,005 93,749 185,982
Corporate general and administrative
expense.......................... 2,378 2,672 4,475 7,797 21,442
Other nonrecurring costs(1)......... 7,002 -- -- -- --
-------- -------- -------- ---------- ----------
Operating income (loss)............. (10,056) 7,396 13,777 17,960 58,406
Interest expense.................... 13,878 13,809 19,199 37,527 85,017
Other (income) expense, net(2)...... (3,185) (6,452) 236 (477) (19,919)
-------- -------- -------- ---------- ----------
Income (loss) before income taxes
and extraordinary item........... (20,749) 39 (5,658) (19,090) (6,692)
Income tax expense (benefit)........ -- -- 192 (2,896) 7,802
-------- -------- -------- ---------- ----------
Income (loss) before extraordinary
item............................. (20,749) 39 (5,850) (16,194) (14,494)
Extraordinary loss on early
extinguishment of debt(3)........ -- 3,585 -- -- 4,350
-------- -------- -------- ---------- ----------
Net loss............................ (20,749) (3,546) (5,850) (16,194) (18,844)
Preferred stock dividends(4)........ -- -- -- -- 12,901
-------- -------- -------- ---------- ----------
Net loss attributable to common
stock............................ $(20,749) $ (3,546) $ (5,850) $ (16,194) $ (31,745)
======== ======== ======== ========== ==========
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- ---------- ----------
CONSOLIDATED BALANCE SHEET DATA AT
YEAR-END:
Working capital..................... $ 7,873 $ 15,952 $ 30,556 $ 41,421 $ 112,644
Intangible assets (net of
accumulated amortization)........ 212,517 233,494 458,787 853,643 4,404,443
Total assets........................ 283,505 297,990 552,347 1,020,959 4,961,477
Long-term debt (including current
portion)(5)...................... 152,000 174,000 201,000 358,000 2,573,000
Redeemable preferred stock.......... -- -- -- -- 331,208
Stockholder's equity................ 120,968 112,353 304,577 549,411 1,480,207
OTHER FINANCIAL DATA:
Broadcast cash flow(6)........... 32,848 40,664 65,257 119,506 265,830
Ratio of earning to fixed
charges(7)..................... -- 1.0 -- -- --
</TABLE>
See accompanying notes to Selected Consolidated Financial Data
34
<PAGE> 43
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(1) Consists of a non-cash charge resulting from the grant of employee stock
options prior to Chancellor Media's initial public offering.
(2) Includes gain on disposition of assets of $3,392, $6,991 and $18,380 in
1993, 1994 and 1997, respectively.
(3) In connection with its debt refinancing in 1994 and 1997, the Company wrote
off the unamortized balance of deferred debt issuance costs of $3,585 and
$4,350, respectively, as an extraordinary charge.
(4) Represents preferred stock dividends on the 12% Preferred Stock and the
12 1/4% Preferred Stock for the period September 5, 1997 to December 31,
1997. Such preferred stock was issued by the Company on September 5, 1997
in connection with the Chancellor Merger in exchange for substantially
identical securities originally issued by CRBC.
(5) The current portion of the Company's long-term debt was $10,625, $4,000,
$4,000, $26,500 and $0 at December 31, 1993, 1994, 1995, 1996 and 1997,
respectively.
(6) Broadcast cash flow consists of operating income excluding depreciation and
amortization, corporate general and administrative expense and other
non-cash and non-recurring charges. Although broadcast cash flow is not
calculated in accordance with generally accepted accounting principles, the
Company believes that broadcast cash flow is widely used as a measure of
operating performance. Nevertheless, this measure should not be considered
in isolation or as a substitute for operating income, cash flows from
operating activities or any other measure for determining the Company's
operating performance or liquidity that is calculated in accordance with
generally accepted accounting principles. Broadcast cash flow does not take
into account the Company's debt service requirements and other commitments
and, accordingly, broadcast cash flow is not necessarily indicative of
amounts that may be available for reinvestment in the Company's business or
other discretionary uses.
(7) For purposes of this calculation, "earnings" consist of income (loss)
before income taxes and fixed charges. "Fixed charges" consist of interest,
amortization of debt issuance costs and the component of rental expense
believed by management to be representative of the interest factor thereon.
Earnings were insufficient to cover fixed charges by $20,749, $5,658,
$19,090 and $6,692 for the years ended December 31, 1993, 1995, 1996 and
1997, respectively.
35
<PAGE> 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Since 1995, the Company has engaged in an acquisition strategy
concentrating on expanding the Company's presence in the nation's largest radio
markets. Implementation of this acquisition strategy was significantly
accelerated in 1996 to date in 1998 due to passage of the 1996 Act and the
associated relaxation of national and local ownership limits. See
"Business -- Federal Regulation of Radio Broadcasting Industry -- Ownership
Matters." For a discussion of the various transactions completed and agreements
entered into since January 1, 1997 as part of the Company's acquisition
strategy, see "Business -- Recent Developments." For a discussion of the
Company's operating strategy, see "Business -- Company Strategy."
The Company's current station portfolio consists of 97 stations (70 FM and
27 AM), including a total of 11 superduopolies in seven of the nation's 12
largest radio markets -- Los Angeles, New York, Chicago, San Francisco,
Philadelphia, Washington, D.C. and Detroit -- and in four other large
markets -- Denver, Minneapolis/St. Paul, Phoenix and Orlando. Consummation of
the Pending Transactions will result in a net increase of nine FM stations and
two AM stations and will add the San Diego market to the Company's portfolio. In
addition, consummation of the Pending Transactions will increase the number of
superduopolies in the Company's station portfolio to 14, including two new
superduopolies in the nation's 12 largest radio markets -- Dallas/Ft. Worth and
Houston and one other large market -- Pittsburgh.
The Company's results of operations from period to period have not
historically been comparable because of the impact of the various acquisitions
and dispositions that the Company has completed. For a description of the
transactions completed by the Company during 1997 and to date in 1998, see
"Business -- Recent Developments -- Transactions Completed Since January 1,
1997."
In the following analysis, management discusses the Company's broadcast
cash flow. The performance of a radio station group is customarily measured by
its ability to generate broadcast cash flow. The two components of broadcast
cash flow are gross revenues (net of agency commissions) and operating expenses
(excluding depreciation and amortization, corporate general and administrative
expense and non-cash and non-recurring charges). The primary source of revenues
is the sale of broadcasting time for advertising. The Company's most significant
operating expenses for purposes of the computation of broadcast cash flow are
employee salaries and commissions, programming expenses, and advertising and
promotion expenses. The Company strives to control these expenses by working
closely with local station management. The Company's revenues vary throughout
the year. As is typical in the radio broadcasting industry, the Company's first
calendar quarter generally produces the lowest revenues, and the fourth quarter
generally produces the highest revenues.
Although broadcast cash flow is not calculated in accordance with generally
accepted accounting principles, the Company believes that it is widely used as a
measure of operating performance. Nevertheless, this measure should not be
considered in isolation or as a substitute for operating income, cash flows from
operating activities or any other measure for determining the Company's
operating performance or liquidity that is calculated in accordance with
generally accepted accounting principles. Broadcast cash flow does not take into
account the Company's debt service requirements and other commitments and,
accordingly, broadcast cash flow is not necessarily indicative of amounts that
may be available for dividends, reinvestment in the Company's business or other
discretionary uses.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
The Company's results of operations for the year ended December 31, 1997
are not comparable to the results of operations for the year ended December 31,
1996 due to the impact of the Chancellor Merger, the Viacom Acquisition (as
defined), the Katz Acquisition (as defined) and various other station
acquisitions and dispositions discussed in "Business -- Recent Developments."
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Net revenues for the year ended December 31, 1997 increased 98.1% to $582.1
million compared to $293.9 million for the year ended December 31, 1996.
Operating expenses excluding depreciation and amortization for 1997 increased
81.4% to $316.2 million compared to $174.3 million in 1996. Operating income
excluding depreciation and amortization, corporate general and administrative
expense and other non-cash and non-recurring charges (broadcast cash flow) for
1997 increased 122.4% or $146.3 million to $265.8 million compared to $119.5
million in 1996. The increase in net revenues, operating expenses, and broadcast
cash flow was primarily attributable to the net impact of the various
acquisitions and dispositions discussed elsewhere herein, in addition to the
overall net operational improvements realized by the Company.
Depreciation and amortization for 1997 increased 98.4% to $186.0 million
compared to $93.7 million in 1996. The increase is primarily due to the impact
of the Viacom Acquisition and the Chancellor Merger, as well as other
acquisitions completed during 1997.
Corporate general and administrative expenses for 1997 increased 175.0% to
$21.4 million compared to $7.8 million in 1996. The increase is due to the
growth of the Company, and related increase in properties and staff, primarily
due to recent acquisitions.
As a result of the above factors, operating income for 1997 increased
225.2% to $58.4 million compared to $18.0 million in 1996.
Interest expense for 1997 increased 126.6% to $85.0 million compared to
$37.5 million in 1996. The net increase in interest expense was primarily due to
(i) additional bank borrowings under the Senior Credit Facility (as defined
below) required to finance the various acquisitions discussed elsewhere herein
offset by repayment of borrowings from the net proceeds of the Company's various
radio station dispositions, (ii) the assumption of the 9 3/8% Notes and the
8 3/4% Notes upon consummation of the Chancellor Merger on September 5, 1997 and
(iii) the assumption of the 10 1/2% Notes upon consummation of the Katz
Acquisition on October 28, 1997.
The Company recorded a gain on disposition of assets of $18.4 million in
1997 related to the dispositions of WNKS-FM in Charlotte ($3.5 million), WPNT-FM
in Chicago ($0.5 million), WEJM-FM in Chicago ($9.3 million), WEJM-AM in Chicago
($3.4 million) and the FCC authorizations and certain transmission equipment
previously used in the operation of KYLD-FM in San Francisco ($1.7 million).
The provision for income tax expense of $7.8 million for the year ended
December 31, 1997 is comprised of current federal and state income taxes of $6.8
million and $4.8 million, respectively, and a deferred federal income tax
benefit of $3.8 million.
The Company recorded an extraordinary charge of $4.4 million (net of a tax
benefit of $2.3 million) in 1997, consisting of the write-off of the unamortized
balance of deferred debt issuance costs related to the amendment and restatement
of the Company's Senior Credit Facility on April 25, 1997.
Dividends on preferred stock were $12.9 million in 1997, representing
dividends on the 12 1/4% Preferred Stock and 12% Preferred Stock issued in
September 1997 as part of the Chancellor Merger.
As a result of the above factors, the Company incurred a $31.7 million net
loss attributable to common stock in 1997 compared to a $16.2 million net loss
in 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
The Company's results of operations for the year ended December 31, 1996
are not comparable to the results of operations for the year ended December 31,
1995 due to the impact of the Company's acquisition of Pyramid Communications,
Inc. on January 17, 1996 (the "Pyramid Acquisition") and various other station
acquisitions and dispositions.
Net revenues for the year ended December 31, 1996 increased 80.4% to $293.9
million compared to $162.9 million for the year ended December 31, 1995.
Operating expenses excluding depreciation and amortization for 1996 increased
78.5% to $174.3 million compared to $97.7 million in 1995. Operating income
excluding depreciation and amortization, corporate general and administrative
expense and other non-cash
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and non-recurring charges (broadcast cash flow) for 1996 increased 83.1% or
$54.2 million to $119.5 million compared to $65.3 million in 1995. The increase
in net revenues, operating expenses, and broadcast cash flow was primarily
attributable to the impact of various station acquisitions and dispositions, in
addition to the overall net operational improvements realized by the Company's
radio stations.
Depreciation and amortization for 1996 increased 99.4% to $93.7 million
compared to $47.0 million in 1995. The increase represents additional
depreciation and amortization expenses due to the impact of recent acquisitions,
offset by decreases due to certain intangibles which became fully amortized in
1995 and 1996.
Corporate general and administrative expenses for 1996 increased 74.2% to
$7.8 million compared to $4.5 million in 1995. The increase is due to the growth
of the Company, and related increase in properties and staff, primarily due to
recent acquisitions.
As a result of the above factors, operating income for 1996 increased 30.4%
to $18.0 million compared to $13.8 million in 1995.
Interest expense for 1996 increased 95.4% to $37.5 million compared to
$19.2 million in 1995. The net increase in interest expense was primarily due to
additional bank borrowings required to finance the Pyramid Acquisition as well
as the other station acquisitions, offset by repayment of borrowings under the
Company's prior senior credit facility from the net proceeds of the offering in
October 1996 by Chancellor Media of 18,000,000 shares of its Common Stock, the
net proceeds of which Chancellor Media contributed to the Company, and an
overall decrease in the Company's borrowing rates.
The provision for income tax expense for the year ended December 31, 1996
is comprised of current federal and state taxes of $.5 million and $1.0 million,
respectively, and a deferred federal income tax benefit of $4.4 million.
As a result of the above factors, the Company incurred a $16.2 million net
loss attributable to common stockholders in 1996 compared to a $5.9 million net
loss in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Overview. The Company historically has generated sufficient cash flow from
operations to finance its existing operational requirements and debt service
requirements, and the Company anticipates that this will continue to be the
case. The Company historically has used the proceeds of bank debt and private
and public debt and equity offerings, supplemented by cash flow from operations
not required to fund operational requirements and debt service, to fund
implementation of the Company's acquisition strategy.
On December 22, 1997, the Company completed the Offering, pursuant to Rule
144A under the Securities Act of 1933, as amended, of $500.0 million aggregate
principal amount of Original Notes. The net proceeds of the Offering of
approximately $485.0 million were used to reduce borrowings under the revolving
credit portion of the Company's Senior Credit Facility.
On March 13, 1998, Chancellor Media completed a secondary public offering
of 21,850,000 shares of its Common Stock (the "1998 Equity Offering"). The net
proceeds from the 1998 Equity Offering of approximately $994.6 million were
contributed to the Company and will be used for general corporate purposes,
including the possible repurchase of the outstanding shares of 12 1/4% Preferred
Stock and 12% Preferred Stock (or, if the Preferred Stock Consent Solicitation
is successful, the 12% Exchange Debentures issuable upon exchange of the 12%
Preferred Stock). In this regard, the Company has commenced the Preferred Stock
Consent Solicitation and the Debenture Tender Offer for the 12% Preferred Stock
and the 12% Exchange Debentures issuable upon exchange of the shares of 12%
Preferred Stock. See "Recent Developments -- Consent Solicitation and Tender
Offer." Pending any such use, net proceeds were used to reduce borrowings under
the revolving credit portion of the Company's Senior Credit Facility, and any
excess was invested in short-term investment grade securities. Amounts not used
in connection with the proposed repurchase of the 12% Preferred Stock and the
12 1/4% Preferred Stock (or the 12% Exchange Debentures issuable upon exchange
of the 12% Preferred Stock) will be available for general corporate purposes
(including financing of the Pending Transactions), subject to compliance with
certain conditions.
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The total cash financing required to consummate the Pending Transactions is
expected to be $806.5 million. Of this amount, approximately $4.0 million has
already been advanced by the Company in the form of escrow deposits or other
upfront payments. Accordingly, the Company will require approximately $802.5
million in additional financing to consummate the Pending Transactions. Of such
amount, a total of $584.5 million in cash will be required to finance the
Capstar Transaction. The Company expects that $340.3 million will be required
for the Capstar Transaction immediately upon the consummation of the Capstar/SFX
Acquisition and $244.2 million will be required for the Capstar Transaction over
the three year period in which the Capstar/SFX Stations will be acquired. The
Company anticipates that it will obtain any additional financing needed to
complete the Pending Transactions through borrowings under the Senior Credit
Facility and excess net proceeds resulting from the 1998 Equity Offering. The
Company from time to time may explore other financing alternatives to supplement
the financing available under the Senior Credit Facility, including the public
or private issuance of debt, common equity or preferred equity securities.
Senior Credit Facility. On April 25, 1997, the Company entered into a loan
agreement which amended and restated its prior senior credit facility. Under the
amended and restated agreement, as amended on June 26, 1997, August 7, 1997,
October 28, 1997 and February 10, 1998 (as amended, the "Senior Credit
Facility"), the Company established a $1.25 billion revolving facility (the
"Revolving Loan Facility") and a $500.0 million term loan facility (the "Term
Loan Facility"). Upon consummation of the Chancellor Merger, the aggregate
commitments under the Revolving Loan Facility and the Term Loan Facility were
increased to $1.6 billion and $900.0 million, respectively. At March 1, 1998,
the Company had drawn $900.0 million of the Term Loan Facility and $698.0
million of the Revolving Loan Facility. Upon consummation of the 1998 Equity
Offering, on March 13, 1998, all amounts outstanding under the Revolving Loan
Facility on such date were repaid. The aggregate commitment under the Revolving
Loan Facility remains available for reborrowing, subject to compliance with the
conditions contained in the Senior Credit Facility. In connection with the
amendment and restatement of the Senior Credit Facility, the Company wrote off
the unamortized balance of deferred debt issuance costs of $4.4 million (net of
a tax benefit of $2.3 million) as an extraordinary charge. The capital stock of
the Company's subsidiaries is pledged to secure the performance of the Company's
obligations under the Senior Credit Facility, and each of the Company and its
subsidiaries have guaranteed those obligations.
Notes. The Company is required to pay interest on the 9 3/8% Notes, the
8 3/4% Notes, the 10 1/2% Notes and the Original Notes (collectively, the
"Senior Subordinated Notes"). Interest payment requirements of the Company on
the Senior Subordinated Notes are $87.4 million per year.
Redeemable Preferred Stock. The Company is not required to pay cash
dividends on its 12 1/4% Preferred Stock and 12% Preferred Stock through
February 14, 2001 and January 14, 2002, respectively, although the Company must
incur accretion or issue additional shares of such preferred stock,
respectively, in lieu of cash dividends until such times. Although it is not
obligated to continue doing so, the Company has paid the most recent dividends
on the 12% Preferred Stock and the 12 1/4% Preferred Stock in cash. Dividend
requirements of the Company on its 12 1/4% Preferred Stock and its 12% Preferred
Stock are $40.0 million per year (assuming continued payment of dividends in
cash).
RECENTLY-ISSUED ACCOUNTING PRINCIPLES
The Company adopted the provisions of SFAS No. 128, Earnings Per Share,
effective for the year ended December 31, 1997. This Statement establishes new
standards for computing and presenting earnings per share and requires
restatement of all prior period earnings per share data. The adoption of this
Statement resulted in the dual presentation of basic and diluted earnings per
share on the Company's income statement. In accordance with this statement, the
Company has applied these provisions on a retroactive basis. Basic and diluted
loss per common share does not differ from previously reported primary loss per
share information for the years ended December 31, 1993, 1994, 1995 and 1996 due
to the Company's loss position.
The Company adopted the provisions of SFAS No. 129, Disclosures of
Information about Capital Structure, effective for the year ended December 31,
1997. This Statement consolidates existing pronouncements on required
disclosures about a company's capital structure including a brief discussion of
rights and
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privileges for securities outstanding. The adoption of this Statement had no
material effect on the Company's consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income. This Statement requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS No. 130 is effective for
financial statement periods beginning after December 15, 1997. Management does
not anticipate that this Statement will have a significant effect on the
Company's consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. This
Statement establishes standards for reporting information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997. Management does
not anticipate that this Statement will have a significant effect on the
Company's consolidated financial statements.
YEAR 2000 ISSUE
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the Year 2000 Issue (as defined)
and has developed an implementation plan. The "Year 2000 Issue" is whether the
Company's computer systems will properly recognize date sensitive information
when the year changes to 2000, or "00." Systems that do not properly recognize
such information could generate erroneous data or cause a system to fail. The
Company uses purchased software programs for a variety of functions, including
general ledger, accounts payable and accounts receivable accounting packages.
The companies providing these software programs are Year 2000 compliant, and the
Company has received Year 2000 compliance certificates from these software
vendors. The Company's Year 2000 implementation plan also includes ensuring that
all individual work stations are Year 2000 compliant. Costs associated with
ensuring the Company's systems are Year 2000 compliant are expected to be
minimal. The Company believes that the Year 2000 Issue will not pose significant
operational problems for the Company's computer systems and, therefore, will not
have an impact on the operations of the Company.
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BUSINESS
The Company is one of the largest radio broadcasting companies in the
United States. Upon consummation of the Pending Transactions, the Company will
own and operate 108 radio stations (79 FM and 29 AM) in 22 large markets,
including each of the nation's 12 largest radio revenue markets. Based on the
most recent industry data available to the Company, the Company's portfolio will
include the first or second ranked station cluster in terms of revenue share in
15 markets. On a pro forma basis after giving effect to the Completed
Transactions, the financing transactions undertaken by the Company and CRBC
during 1997 (including the Offering), the contribution to the Company from
Chancellor Media of the net proceeds from the 1998 Equity Offering and the
proposed Preferred Stock Repurchase, but without giving effect to the Pending
Transactions, the Company would have had net revenue and broadcast cash flow of
approximately $1.0 billion and $431.6 million, respectively, for the year ended
December 31, 1997, its pro forma broadcast cash flow margin for such period
would have been 43%, and approximately 64% of pro forma net revenue for such
period would have been generated by markets in which the Company owns
superduopolies.
The Company's strategy has been to secure leading clusters of radio
stations in the markets in which it operates. The Company's current station
portfolio consists of 97 stations (70 FM and 27 AM), including a total of 11
superduopolies in seven of the nation's 12 largest radio markets -- Los Angeles,
New York, Chicago, San Francisco, Philadelphia, Washington, D.C. and
Detroit -- and in four other large markets -- Denver, Minneapolis/St. Paul,
Phoenix and Orlando. Consummation of the Pending Transactions will result in a
net increase of nine FM stations and two AM stations and will add the San Diego
market to the Company's portfolio. In addition, consummation of the Pending
Transactions will increase the number of superduopolies in the Company's station
portfolio to 14, including two new superduopolies in the nation's 12 largest
radio markets -- Dallas/Ft. Worth and Houston -- and one in another large
market -- Pittsburgh. See "Recent Developments -- Pending Transactions."
As a complement to its radio broadcasting operations, the Company has
recently formed a national radio network, The AMFM Radio Networks, which began
broadcasting advertising over the Company's portfolio of stations and stations
owned by Capstar in January 1998. Management believes that The AMFM Radio
Networks will allow the Company to further leverage this broad station base,
personalities and advertising inventory by delivering a national base of
approximately 62 million listeners (including approximately 45 million listeners
from the Company's portfolio of stations) to network advertisers.
The Company's portfolio is geographically diversified and employs a wide
variety of programming formats, including adult contemporary, contemporary hit
radio, urban, jazz, country, oldies, news/talk, rock and sports. Each of the
Company's stations targets a specific demographic audience within a market, with
the majority of the stations appealing primarily to 18 to 34 or 25 to 54 year
old men and/or women, the demographic groups most sought after by advertisers.
Management believes that, because of the size and diversity of its station
portfolio, the Company is not unduly reliant on the performance of any one
station or market. No single market to be served by the Company represented more
than 12% of the Company's pro forma broadcast cash flow for the year ended
December 31, 1997 (giving effect to the Completed Transactions, but without
giving effect to the Pending Transactions).
The Company also owns Katz, a full-service media representation firm
serving multiple types of electronic media, with a leading market share in the
representation of radio and television stations and cable television systems in
over 200 designated market areas throughout the United States, including at
least one radio or television station in each of the 50 largest designated
market areas, to sell national spot advertising air time.
The Company's principal executive office is located at 433 East Las Colinas
Boulevard, Suite 1130, Irving, Texas 75039, and its telephone number is (972)
869-9020.
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RECENT DEVELOPMENTS
The AMFM Radio Networks
In September 1997, the Company announced the formation of a national radio
network, The AMFM Radio Networks, and the appointment of David Kantor to the
position of Senior Vice President with responsibility for all of the Company's
radio network operations. Prior to joining the Company, Mr. Kantor served as
President of ABC Radio Networks, the largest commercial radio network in the
United States. The AMFM Radio Networks began broadcasting advertising over the
Company's portfolio of stations and stations owned by Capstar in January 1998.
Management believes that the network will allow the Company to further leverage
this broad station base, personalities and advertising inventory by delivering a
national base of approximately 62 million listeners (including approximately 45
million listeners from the Company's portfolio of stations) to network
advertisers.
Summary of Acquisitions and Dispositions Since January 1, 1997
Since January 1, 1997, the Company has completed (i) the Chancellor Merger
(as defined), which added 52 radio stations (36 FM and 16 AM) to the Company's
portfolio of stations, for a net purchase price of approximately $2.0 billion,
(ii) the acquisition of 23 radio stations for a net purchase price of
approximately $1.5 billion, (iii) the exchange of ten stations and $66.5 million
in cash for eight stations and $9.5 million in cash, (iv) the sale or other
disposition of 10 radio stations for $269.3 million in cash and a promissory
note for $18.0 million and (v) the acquisition of Katz, a full service media
representation firm, for a net purchase price of approximately $379.1 million.
In addition, the Company has entered into agreements to purchase an additional
13 radio stations in exchange for two stations and $656.5 million in cash and a
leading independent television representation firm, Petry, for $150.0 million in
cash (collectively, the "Pending Transactions"). There can be no assurance that
the Pending Transactions will be consummated.
Transactions Completed Since January 1, 1997
On January 31, 1997, the Company acquired WWWW-FM and WDFN-AM in Detroit
from affiliates of Chancellor Broadcasting Company ("Chancellor") for $30.0
million in cash plus various other direct acquisition costs. The Company had
previously provided certain sales and promotional functions to WWWW-FM and
WDFN-AM under a joint sales agreement since February 14, 1996 and subsequently
operated the stations under a time brokerage agreement since April 1, 1996.
On January 31, 1997, the Company acquired KKSF-FM and KDFC-FM/AM in San
Francisco from affiliates of the Brown Organization for $115.0 million in cash
plus various other direct acquisition costs. The Company had previously been
operating KKSF-FM and KDFC-FM/AM under a time brokerage agreement since November
1, 1996. On July 21, 1997, the Company sold KDFC-FM to Bonneville International
Corporation ("Bonneville") for $50.0 million in cash. The assets of KDFC-FM were
classified as assets held for sale in connection with the purchase price
allocation of the acquisition of KKSF-FM and KDFC-FM/AM and no gain or loss was
recognized by the Company upon consummation of the sale.
On April 1, 1997, the Company acquired WJLB-FM and WMXD-FM in Detroit from
Secret Communications, L.P. ("Secret") for $168.0 million in cash plus various
other direct acquisition costs. The Company had previously been operating
WJLB-FM and WMXD-FM under time brokerage agreements since September 1, 1996.
On April 3, 1997, the Company exchanged WQRS-FM in Detroit (which the
Company acquired on April 3, 1997 from Secret for $32.0 million in cash plus
various other direct acquisition costs), to affiliates of Greater Media Radio,
Inc. in return for WWRC-AM in Washington, D.C. and $9.5 million in cash. The net
purchase price to the Company of WWRC-AM was therefore $22.5 million. The
Company had previously been operating WWRC-AM under a time brokerage agreement
since June 17, 1996.
On May 1, 1997, the Company acquired WDAS-FM/AM in Philadelphia from
affiliates of Beasley FM Acquisition Corporation for $103.0 million in cash plus
various other direct acquisition costs.
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On May 15, 1997, the Company exchanged five of its six stations in
Charlotte, North Carolina (WPEG-FM, WBAV-FM/AM, WRFX-FM and WFNZ-AM) for two FM
stations in Philadelphia (WIOQ-FM and WUSL-FM) owned by EZ Communications, Inc.
("EZ") in Philadelphia, and also sold the Company's sixth radio station in
Charlotte, WNKS-FM, to EZ for $10.0 million in cash and recognized a gain of
$3.5 million.
On May 30, 1997, the Company acquired WPNT-FM in Chicago from affiliates of
Century Broadcasting Company for $75.7 million in cash (including $2.0 million
for the purchase of the station's accounts receivable) plus various other direct
acquisition costs. On June 19, 1997, the Company sold WPNT-FM in Chicago to
Bonneville for $75.0 million in cash and recognized a gain of $0.5 million.
On June 3, 1997, the Company sold WEJM-FM in Chicago to affiliates of
Crawford Broadcasting for $14.8 million in cash and recognized a gain of $9.3
million.
On July 2, 1997, the Company acquired WLTW-FM and WAXQ-FM in New York and
WMZQ-FM, WJZW-FM, WZHF-AM and WBZS-AM in Washington, D.C. from Viacom
International, Inc. ("Viacom") for approximately $612.4 million in cash
including various other direct acquisition costs (the "Viacom Acquisition"). The
Viacom Acquisition was financed with (i) bank borrowings under the Senior Credit
Facility (as defined) of $552.6 million; (ii) $53.8 million in escrow funds paid
by the Company on February 19, 1997 and (iii) $6.1 million financed through
working capital. In June 1997, the Company issued 5,990,000 shares of $3.00
Convertible Exchangeable Preferred Stock (the "$3.00 Convertible Preferred
Stock") for net proceeds of $287.8 million which were used to repay borrowings
under the Senior Credit Facility and subsequently were reborrowed on July 2,
1997 as part of the financing of the Viacom Acquisition. On July 7, 1997, the
Company sold WJZW-FM in Washington, D.C. to affiliates of Capital Cities/ABC
Radio for $68.0 million in cash. The assets of WJZW-FM, as well as the assets of
WZHF-AM and WBZS-AM, which were sold on August 13, 1997, were accounted for as
assets held for sale in connection with the purchase price allocation of the
Viacom Acquisition and no gain or loss was recognized by the Company upon
consummation of the sales.
On July 7, 1997, the Company sold the Federal Communications Commission
("FCC") authorizations and certain transmission equipment previously used in the
operation of KYLD-FM in San Francisco to Susquehanna Radio Corporation
("Susquehanna") for $44.0 million in cash and recognized a gain of $1.7 million.
Simultaneously therewith, Chancellor sold the call letters "KSAN-FM" (which
Chancellor previously used in San Francisco) to Susquehanna. On July 7, 1997,
the Company and Chancellor entered into a time brokerage agreement to enable the
Company to operate KYLD-FM on the frequency previously assigned to KSAN-FM, and
on July 7, 1997, Chancellor changed the call letters of KSAN-FM to KYLD-FM. Upon
the consummation of the Chancellor Merger (as defined herein), the Company
changed the format of the new KYLD-FM to the format previously operated on the
old KYLD-FM.
On July 14, 1997, the Company completed the disposition of WLUP-FM in
Chicago to Bonneville for net proceeds of $80.0 million which were held by a
qualified intermediary pending the completion of the deferred exchange of
WLUP-FM for KZPS-FM and KDGE-FM in Dallas. On October 7, 1997, the Company
applied the net proceeds from the disposition of WLUP-FM of $80.0 million in
cash, plus an additional $3.5 million and various other direct acquisition
costs, in a deferred exchange of WLUP-FM for KZPS-FM and KDGE-FM in Dallas. The
Company had previously operated KZPS-FM and KDGE-FM under time brokerage
agreements effective August 1, 1997.
On July 21, 1997, the Company entered into a time brokerage agreement with
Chancellor whereby the Company began managing certain limited functions of
Chancellor's stations KBGG-FM, KNEW-AM and KABL-FM in San Francisco pending the
consummation of the Chancellor Merger (as defined herein), which occurred on
September 5, 1997.
On August 13, 1997, the Company sold WBZS-AM and WZHF-AM in Washington,
D.C. (acquired as part of the Viacom Acquisition) and KDFC-AM in San Francisco
to affiliates of Douglas Broadcasting ("Douglas") for $18.0 million in the form
of a promissory note. The promissory note bears interest at 7 3/4%, with a
balloon principal payment due four years after closing. At closing, Douglas was
required to post a
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$1.0 million letter of credit for the benefit of the Company that will remain
outstanding until all amounts due under the promissory note are paid.
On August 27, 1997, the Company sold WEJM-AM in Chicago to Douglas for $7.5
million in cash and recognized a gain of $3.3 million.
On September 5, 1997, pursuant to an Amended and Restated Agreement and
Plan of Merger, dated as of February 19, 1997 and amended and restated on July
31, 1997 (the "Chancellor Merger Agreement"), among Chancellor, Chancellor Radio
Broadcasting Company ("CRBC"), Evergreen Media Corporation ("Evergreen"),
Evergreen Mezzanine Holdings Corporation ("EMHC") and Evergreen Media
Corporation of Los Angeles ("EMCLA"), (i) Chancellor was merged (the "Parent
Merger") with and into EMHC, a direct, wholly-owned subsidiary of Evergreen,
with EMHC remaining as the surviving corporation and (ii) CRBC was merged (the
"Subsidiary Merger") with and into EMCLA, a direct, wholly-owned subsidiary of
EMHC, with EMCLA remaining as the surviving corporation (collectively, the
"Chancellor Merger"). Upon consummation of the Parent Merger, Evergreen was
renamed Chancellor Media Corporation and EMHC was renamed Chancellor Mezzanine
Holdings Corporation ("CMHC"). Upon consummation of the Subsidiary Merger, EMCLA
was renamed Chancellor Media Corporation of Los Angeles ("CMCLA"). Consummation
of the Chancellor Merger added 52 radio stations (36 FM and 16 AM) to the
Company's portfolio of stations, including 13 stations in markets in which the
Company previously operated. The total purchase price allocated to net assets
acquired was approximately $2.0 billion which included (i) the conversion of
each outstanding share of Chancellor Common Stock into 0.9091 shares of the
Company's Common Stock, resulting in the issuance of 34,617,460 shares of the
Company's Common Stock at $15.50 per share, (ii) the assumption of long-term
debt of CRBC of $949.0 million which included $549.0 million of borrowings
outstanding under the CRBC senior credit facility, $200.0 million of CRBC's
9 3/8% Senior Subordinated Notes due 2004 and $200.0 million of CRBC's 8 3/4%
Senior Subordinated Notes due 2007 (iii) the issuance of 2,117,629 shares of
CMCLA's 12% Exchangeable Preferred Stock (the "12% Preferred Stock") in exchange
for CRBC's substantially identical securities with a fair value of $215.6
million including accrued and unpaid dividends of $3.8 million, (iv) the
issuance of 1,000,000 shares of CMCLA's 12 1/4% Series A Senior Cumulative
Exchangeable Preferred Stock (the "12 1/4% Preferred Stock") in exchange for
CRBC's substantially identical securities with a fair value of $120.2 million
including accrued and unpaid dividends of $0.8 million, (v) the issuance of
2,200,000 shares of Chancellor Media's 7% Convertible Preferred Stock (the "7%
Convertible Preferred Stock") in exchange for Chancellor's substantially
identical securities with a fair value of $111.1 million including accrued and
unpaid dividends of $1.1 million, (vi) the assumption of stock options issued to
Chancellor stock option holders with a fair value of $35.0 million and (vii)
estimated acquisition costs of $31.0 million.
On October 28, 1997, the Company acquired Katz, a full-service media
representation firm, in a tender offer transaction for a total purchase price of
approximately $379.1 million (the "Katz Acquisition") which included (i) the
conversion of each outstanding share of KMG Common Stock into the right to
receive $11.00 in cash, resulting in total cash payments of $149.6 million, (ii)
the assumption of long-term debt of KMG and its subsidiaries of $222.0 million
which included $122.0 million of borrowings outstanding under the KMG senior
credit facility and $100.0 million of 10 1/2% Senior Subordinated Notes due 2007
of Katz Media Corporation (a subsidiary of KMG) and (iii) estimated acquisition
costs of $7.5 million.
On December 29, 1997, the Company acquired five radio stations from Pacific
and Southern Company, Inc., a subsidiary of Gannett Co., Inc., consisting of
WGCI-FM/AM in Chicago for $140.0 million, KKBQ-FM/AM in Houston for $110.0
million and KHKS-FM in Dallas for $90.0 million, for an aggregate purchase price
of $340.0 million in cash plus various other direct acquisition costs.
On January 30, 1998, the Company acquired KXPK-FM in Denver from Ever Green
Wireless LLC (which is unrelated to the Company) for $26.0 million in cash plus
various other direct acquisition costs, of which $1.7 million was previously
paid by Chancellor as escrow funds and are classified as other assets at
December 31, 1997. The Company had previously been operating KXPK-FM under a
time brokerage agreement since September 1, 1997.
On April 3, 1998, the Company completed its exchange of WTOP-AM in
Washington, KZLA-FM in Los Angeles and WGMS-FM in Washington plus $63.0 million
in cash to Bonneville in return for WBIX-FM
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<PAGE> 53
in New York, KLDE-FM in Houston and KBIG-FM in Los Angeles. The Company had
previously been operating KLDE-FM and KBIG-FM under time brokerage agreements
since October 1, 1997 and WBIX-FM since October 10, 1997, and had sold
substantially all of the broadcast time of WTOP-AM, KZLA-FM and WGMS-FM to
Bonneville since October 1, 1997.
Pending Transactions
On February 17, 1998, the Company entered into an agreement to acquire
WWDC-FM/AM in Washington, D.C. from Capitol Broadcasting Company and its
affiliates for $72.0 million in cash (including $4.0 million paid by the Company
in escrow), plus an amount equal to the value assigned to certain accounts
receivable for the stations (the "Capitol Broadcasting Acquisition"). Although
there can be no assurance, the Company expects that the Capitol Broadcasting
Acquisition will be consummated in the second quarter of 1998.
On February 20, 1998, the Company entered into an agreement to acquire from
Capstar KTXQ-FM and KBFB-FM in Dallas/Ft. Worth, KODA-FM, KKRW-FM and KQUE-AM in
Houston, KPLN-FM and KYXY-FM in San Diego and WVTY-FM, WJJJ-FM, WXDX-FM and
WDVE-FM in Pittsburgh (collectively, the "Capstar/SFX Stations") for an
aggregate purchase price of approximately $637.5 million (the "Capstar
Transaction"). The Capstar/SFX Stations are presently owned by SFX, and are
expected to be acquired by Capstar as part of Capstar's pending acquisition of
SFX (the "Capstar/SFX Acquisition"). The Capstar/SFX Stations would be acquired
by the Company in a series of purchases and exchanges over a period of three
years, and would be operated by the Company under time brokerage agreements
immediately upon the consummation of the Capstar/SFX Acquisition until acquired
by the Company. As part of the Capstar Transaction, the Company would exchange
WAPE-FM and WFYV-FM in Jacksonville (valued for purposes of the Capstar
Transaction at $53.0 million) plus $90.3 million in cash for Capstar/SFX Station
KODA-FM in Houston. The Company would pay approximately $494.3 million for the
remaining ten Capstar/SFX stations. As part of the Capstar Transaction, the
Company would, at the consummation of the Capstar/SFX Acquisition, provide a
subordinated loan to Capstar in the principal amount of $250.0 million (the
"Capstar Loan"). The Capstar Loan would bear interest at the rate of 12% per
annum (subject to increase in certain circumstances), and would be secured by a
senior pledge of common stock of Capstar's direct subsidiaries and SFX and a
senior guarantee by one of Capstar's direct subsidiaries. A portion of the
Capstar Loan would be prepaid by Capstar in connection with the Company's
acquisition of, and the proceeds of such prepayment would be used by the Company
as a portion of the purchase price for, each Capstar/SFX Station. The Company's
obligation to provide the Capstar Loan is conditioned, among other things, on
Capstar's receipt of at least $650.0 million in equity investments that are
subordinate to the Capstar Loan between January 1, 1998 and the consummation of
the Capstar/SFX Acquisition. Hicks Muse, which is a substantial shareholder of
the Company, controls Capstar, and certain directors of the Company are
directors and/or executive officers of Capstar and/or Hicks Muse. The Capstar
Transaction was approved by the disinterested directors of the Company's Board
of Directors. Capstar has informed the Company that Capstar expects that the
Capstar/SFX Acquisition will be consummated in the second quarter of 1998.
On April 8, 1998, the Company entered into an agreement to acquire Petry, a
leading independent television representation firm, for approximately $150.0
million in cash (the "Petry Acquisition"). Although there can be no assurance,
the Company expects that the Petry Acquisition will be consummated in the third
or fourth quarter of 1998.
Consummation of each of the transactions discussed above is subject to
various conditions, including approval from the FCC and the expiration or early
termination of any waiting period required under the HSR Act. The Company
believes that such conditions will be satisfied in the ordinary course, but
there can be no assurance that this will be the case.
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<PAGE> 54
BROADCAST PROPERTIES
The following table sets forth selected information with respect to the
portfolio of radio stations that are owned by the Company as of May 1, 1998 or
would be owned upon consummation of the Pending Transactions.
<TABLE>
<CAPTION>
RANKING OF
STATION STATION RANKING
MARKET BY AUDIENCE TARGET IN TARGET
MARKET(1) REVENUE(2) STATION SHARE(%)(3) STATION FORMAT DEMOGRAPHICS DEMOGRAPHICS(4)
--------- ---------- ------- ----------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Los Angeles, CA..... 1 KKBT-FM 4.5 Urban Contemporary Women 18-34 2
KYSR-FM 2.8 Hot Adult Contemporary Persons 25-54 12
KBIG-FM 2.7 Adult Contemporary Persons 25-54 13
KLAC-AM 2.3 Adult Standards/Sports Persons 35-64 21
KCMG-FM(5) 1.4 Adult Contemporary Women 25-54 22
New York, NY........ 2 WLTW-FM 6.2 Soft Adult Contemporary Persons 25-54 1
WKTU-FM 4.6 Rhythmic Contemporary Persons 25-54 5
Hits
WHTZ-FM 3.9 Contemporary Hit Radio Persons 18-34 5
WBIX-FM(6) 1.5 Hot Adult Contemporary Women 25-49 13
WAXQ-FM 1.4 Classic Rock Persons 25-54 17
Chicago, IL......... 3 WGCI-FM 7.2 Urban Oldies Persons 25-54 1
WNUA-FM 4.8 Contemporary Jazz Persons 25-54 4
WLIT-FM 4.5 Soft Adult Contemporary Persons 25-54 2
WVAZ-FM 4.3 Black Adult Women 25-54 3
WRCX-FM 3.0 Mainstream Rock Men 18-34 2
WGCI-AM 1.7 Urban/R&B Persons 18-34 20
WMVP-AM 1.1 Personality/Sports Men 25-54 22
San Francisco, CA... 4 KYLD-FM 4.2 Contemporary Hits Persons 18-34 1
KMEL-FM 3.4 Contemporary Hits Persons 18-34 2
KKSF-FM 3.3 Contemporary Jazz Persons 25-54 2
KABL-AM 3.2 Adult Standards Persons 35-64 13
KISQ-FM 3.0 70's Oldies Persons 25-54 4
KIOI-FM 2.9 Adult Contemporary Women 25-54 1
KNEW-AM 1.4 Country/Sports Persons 25-54 37
Dallas, TX.......... 5 KHKS-FM 7.5 Contemporary Hits Women 18-34 1
KZPS-FM 3.9 Classic Rock Persons 25-54 4
KDGE-FM 2.7 Alternative Rock Persons 18-34 6
KSKY-AM N/M Inspirational N/M N/M
KBFB-FM* 2.6 Adult Contemporary Persons 25-54 14
KTXQ-FM* 2.4 Album Rock Persons 18-49 13
Philadelphia, PA.... 6 WDAS-FM 5.5 Urban Contemporary Persons 25-54 2
WUSL-FM 4.7 Urban Contemporary Women 18-34 4
WJJZ-FM 4.2 Contemporary Jazz Persons 35-54 7
WIOQ-FM 3.2 Contemporary Hit Radio/ Women 18-34 6
Dance
WYXR-FM 3.0 Adult Contemporary Women 18-49 3
WDAS-AM 1.2 Gospel N/M N/M
Washington, D.C..... 7 WMZQ-FM 5.1 Country Persons 25-54 3
WASH-FM 4.2 Adult Contemporary Women 25-54 2
WBIG-FM 4.1 Oldies Persons 25-54 6
WGAY-FM 3.7 Adult Contemporary Persons 35-64 8
WTEM-AM 1.1 Sports/Talk Men 18-49 17
WWRC-AM 0.9 News/Talk Persons 35-64 20
WWDC-FM* 4.0 Adult Rock Persons 18-34 4
WWDC-AM* 0.5 Nostalgia Persons 55+ 11
</TABLE>
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<PAGE> 55
<TABLE>
<CAPTION>
RANKING OF
STATION STATION RANKING
MARKET BY AUDIENCE TARGET IN TARGET
MARKET(1) REVENUE(2) STATION SHARE(%)(3) STATION FORMAT DEMOGRAPHICS DEMOGRAPHICS(4)
--------- ---------- ------- ----------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Houston, TX......... 8 KKBQ-FM 4.5 Fresh Country Persons 25-54 6
KLDE-FM 4.5 Oldies Persons 25-54 4
KLOL-FM 4.1 Album Rock Men 18-34 2
KTRH-AM 3.9 News/Sports Men 25-54 17
KBME-AM(7) 0.2 Popular Standards Persons 35-64 34
KODA-FM* 7.1 Adult Contemporary Persons 25-54 1
KKRW-FM* 3.6 Classic Rock Persons 25-54 7
KQUE-AM* 1.8 Nostalgia Persons 35-64 19
Atlanta, GA......... 9 WFOX-FM 4.2 Oldies Persons 25-54 7
Boston, MA.......... 10 WJMN-FM 6.2 Contemporary Hits Women 18-24 1
WXKS-FM 5.9 Contemporary Hits Women 25-34 1
WXKS-AM 2.5 Nostalgia Women 45-54 14
Detroit, MI......... 11 WJLB-FM 7.9 Urban Contemporary Persons 18-34 1
WNIC-FM 7.4 Adult Contemporary Women 25-54 1
WKQI-FM 4.1 Adult Contemporary Women 25-54 5
WMXD-FM 3.9 Black Adult Persons 25-54 4
WWWW-FM 3.4 Country Women 25-54 9
WDFN-AM 1.8 Sports/Talk Men 25-49 7
WYUR-AM N/M Brokered(8) N/M N/M
Miami/Ft.
Lauderdale, FL..... 12 WEDR-FM 4.9 Urban Contemporary Persons 25-54 4
WVCG-AM N/M Brokered(9) N/M N/M
Denver, CO.......... 14 KXKL-FM 4.7 Oldies Persons 25-54 7
KALC-FM 4.7 Hot Adult Contemporary Persons 18-34 3
KIMN-FM 3.4 70's Oldies Persons 25-54 11
KXPK-FM 3.0 Alternative Rock Persons 18-49 10
KVOD-FM 2.2 Classical Persons 25-54 19
KRRF-AM 0.4 Talk Men 25-54 21
Minneapolis/St.
Paul, MN........... 15 KEEY-FM 8.0 Country Persons 25-54 2
KDWB-FM 7.8 Contemporary Hit Radio Persons 18-34 2
KQQL-FM 4.5 Oldies Persons 25-54 6
KTCZ-FM 4.0 Progressive Album Rock Men 25-49 4
WRQC-FM 3.8 Album Rock Men 18-34 2
KFAN-AM 2.6 Sports Men 18-49 4
KXBR-AM 0.5 Classic Country Persons 35-64 16
Phoenix, AZ......... 16 KOY-AM 5.3 Adult Standards Persons 35-64 10
KMLE-FM 5.2 Country Persons 25-54 4
KOOL-FM 5.1 Oldies Persons 25-54 2
KYOT-FM 3.6 Contemporary Jazz Persons 25-54 8
KZON-FM 3.0 Alternative Rock Persons 18-34 3
KISO-AM N/M Urban Adult Contemporary Persons 25-54 N/M
San Diego, CA....... 17 KYXY-FM* 5.1 Adult Contemporary Persons 25-54 3
KPLN-FM* 1.8 Classic Rock Persons 25-54 13
Cincinnati, OH...... 19 WUBE-FM(10) 9.4 Country Persons 25-54 1
WYGY-FM(10) 4.0 Young Country Men 18-34 8
WBOB-AM 0.9 Sports/Talk Men 18-49 15
WUBE-AM N/M Nostalgia Persons 35-64 N/M
Pittsburgh, PA...... 24 WWSW-FM 5.1 Oldies Persons 25-54 3
WWSW-AM(11) 0.4 Oldies Persons 25-54 26
WDVE-FM* 9.2 Rock Persons 25-54 1
WXDX-FM* 5.0 Alternative Rock Persons 18-34 2
WJJJ-FM* 3.5 Smooth Jazz Persons 25-54 10
WVTY-FM* 3.2 Adult Contemporary Persons 25-54 11
</TABLE>
47
<PAGE> 56
<TABLE>
<CAPTION>
RANKING OF
STATION STATION RANKING
MARKET BY AUDIENCE TARGET IN TARGET
MARKET(1) REVENUE(2) STATION SHARE(%)(3) STATION FORMAT DEMOGRAPHICS DEMOGRAPHICS(4)
--------- ---------- ------- ----------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Orlando, FL......... 26 WJHM-FM 6.6 Urban Contemporary Persons 18-34 3
WOCL-FM 6.4 Oldies Persons 25-54 7
WXXL-FM 6.1 Contemporary Hit Radio Persons 18-34 2
WOMX-FM 5.0 Adult Contemporary Persons 25-54 8
Sacramento, CA...... 28 KFBK-AM 9.6 News/Talk Persons 25-54 2
KHYL-FM 4.2 Oldies Persons 25-54 5
KGBY-FM 4.0 Adult Contemporary Women 25-54 2
KSTE-AM 2.3 Talk Persons 25-54 15
Jacksonville, FL.... 44 WFYV-FM+ 9.4 Album Oriented Rock Men 25-54 1
WAPE-FM+ 7.7 Contemporary Hit Radio Women 18-34 1
Nassau/Suffolk
(Long Island) 45 WALK-FM 5.3 Adult Contemporary Persons 25-54 2
NY(12)...........
WALK-AM N/M Adult Contemporary Persons 35-64 N/M
Riverside/San 64 KGGI-FM 7.0 Contemporary Hit Radio Persons 18-34 1
Bernardino, CA.....
KMRZ-AM 0.5 Oldies Men 25-54 44
</TABLE>
- ---------------
N/M: Not meaningful
+ Indicates station to be disposed in a pending transaction.
* Indicates station to be acquired in a pending transaction.
(1) Actual city of license may differ from metropolitan market served in
certain cases.
(2) Ranking of principal radio market served by the station among all U.S.
radio broadcast markets by aggregate 1997 gross radio broadcasting revenue
as reported by James H. Duncan, Duncan's Radio Market Guide (1998 ed.).
(3) Information derived from The Arbitron Company, Fall 1997, Local Market
Reports in the specified markets for listeners age 12+, Monday to Sunday,
6:00 a.m. to Midnight. Copyright, The Arbitron Company.
(4) Information derived from The Arbitron Company, Fall 1997, Local Market
Reports in the specified markets for the Target Demographics specified for
listening Monday to Sunday, 6:00 a.m. to Midnight. Copyright, The Arbitron
Company.
(5) The format of KCMG-FM (formerly KIBB-FM) was changed from Rhythmic Adult
Contemporary with a target demographic of Persons 25-54 to Adult
Contemporary with a target demographic of Women 25-54 effective November
19, 1997. The station ranking in the target demographic for KCMG-FM for
Fall 1997 is based on the new target demographic of Women 25-54.
(6) The format of WBIX-FM (formerly WNSR-FM) was changed from Modern Adult
Contemporary with a target demographic of Women 25-44 to Hot Adult
Contemporary with a target demographic of Women 25-49 effective January 21,
1998. The station ranking in the target demographic for WBIX-FM for Fall
1997 is based on the prior target demographic of Women 25-44.
(7) The format of KBME-AM (formerly KKBQ-AM) was changed from Country with a
target demographic of Persons 25-54 to Popular Standards with a target
demographic of Persons 35-64 effective January 15, 1998. The station
ranking in the target demographic for KBME-AM for Fall 1997 is based on the
prior target demographic of Persons 25-54.
(8) The Company has historically brokered WYUR-AM to third parties.
(9) The Company sells airtime on WVCG-AM to third parties for broadcast of
specialty programming on a variety of topics.
(10) WUBE-FM and WYGY-FM are sold in combination.
(11) Programming provided to WWSW-AM via simulcast of programming broadcast on
WWSW-FM.
(12) Nassau/Suffolk (Long Island) may be considered part of the greater New York
market, although it is reported separately as a matter of convention.
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<PAGE> 57
COMPANY STRATEGY
The Company's senior management team has extensive experience in acquiring
and operating large radio station groups. The Company's business strategy
historically has been to assemble and operate radio station clusters in order to
maximize broadcast cash flow generated in each market. This strategy relies on
the following six key elements.
Create Large Market Superduopolies. The Company seeks to be the owner and
operator of the leading superduopoly in the largest markets in the United
States. Management believes that the large revenue base in these markets, in
conjunction with operating synergies achievable through the operation of
multiple stations, enable it to appeal to a wider universe of national and local
advertisers and to achieve a greater degree of profitability. The Pending
Transactions, if consummated, will complement the Company's existing stations in
the Dallas, Houston, Washington, D.C. and Pittsburgh markets as well as allow
the Company to expand into a new large market -- San Diego. The Company expects
to continue to selectively pursue acquisition opportunities in the major markets
in which it competes as well as in other markets.
Maximize Superduopoly Revenue and Expense Synergies. The Company seeks to
capitalize on the revenue growth and expense savings opportunities of
superduopolies that have been created or that will be created. Superduopolies
have only been permissible since the passage of the 1996 Act in January 1996.
Management believes that substantial benefits can be derived from the successful
integration of these station cluster groups. Management also believes that radio
station clusters can attract increased revenues in a market by delivering larger
combined audiences to advertisers and by engaging in joint marketing and
promotional activities. In addition, management expects to realize significant
expense savings through the consolidation of facilities and through the
economies of scale created in areas such as national representation commissions,
employee benefits, insurance premiums and other operating costs.
Establish Strong Listener Loyalty. Management believes that strong listener
familiarity with a given radio station produces listener loyalty. Management
seeks to establish this familiarity through a variety of programming and
marketing techniques, including the development of high-profile on-air
personalities and creative station-sponsored promotional events, all of which
are designed to secure heightened listener awareness. The Company also conducts
extensive market research to help identify programming format opportunities and
attract new listeners, as has been the case with WKTU-FM in New York. After
operating WKTU-FM for nine months under the call letters and country music
format inherited from a prior operator, in February 1996 the Company began to
operate WKTU-FM as a rhythmic contemporary hits station. According to Arbitron,
WKTU-FM was ranked eleventh in its target demographic group as a country
station, and was ranked first in several key demographic groups (including its
target demographic group) in the first full ranking period after the station
changed its format. The station has continued to rank among the top five
stations in its target demographic group in subsequent periods. Management
believes that institutionalizing its radio stations in their markets through
programming, marketing and research ensures steady long-term audience share
ratings.
Maintain Strict Cost Controls. Management maintains a company-wide focus on
cost controls in an effort to maximize broadcast cash flow margins. Management
reviews station spending on a monthly basis. In addition, corporate level
employees maintain weekly sales reporting systems designed to enable management
to evaluate station performance on a current basis. The Company's focus on
maximizing superduopoly revenues and maintaining cost controls is reflected by
the fact that, during 1995, 1996 and 1997, the Company has achieved broadcast
cash flow margins of 40% or more. The Company also carefully monitors capital
expenditures.
Develop Experienced, Incentivized Management Team. The Company believes
that management depth is critical to achieving superior operating performance in
a portfolio as large as the Company's. The Company's senior management team
collectively has an aggregate of more than 45 years of radio industry operating
experience. This senior management team is supported by an experienced team of
veteran group operators and station general managers. At the station level, the
Company seeks to incentivize its individual radio station managers and sales
forces to outperform revenue and broadcast cash flow budget expectations by
granting quarterly and annual performance measurement-based bonuses. The Company
believes that the
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<PAGE> 58
incentives it offers to its employees, as well as its stature in the radio
industry, will enable it to continue to be successful in recruiting top industry
employees.
Maximize After Tax Cash Flow. By emphasizing the revenue and expense
synergies achievable through the assembly and operation of superduopolies and by
carefully monitoring operating costs, the Company seeks to maximize broadcast
cash flow and, ultimately, after tax cash flow (broadcast cash flow less
corporate general and administrative expenses, debt service, tax payments and
dividend requirements). This focus on after tax cash flow should facilitate
reduction of leverage without undue dependence on capital markets and position
the Company to pursue attractive acquisitions.
Related Business Expansion. In addition to the foregoing six key elements,
the Company seeks to further leverage its radio expertise and expand into
industries related to the operation of radio stations. In this regard, the
Company formed a national radio network, The AMFM Radio Networks, in September
1997 and acquired Katz, a full-service media representation firm in October
1997. The Company has also recently begun exploring the acquisition of
additional complementary media businesses, particularly businesses with
significant after tax cash flow generating potential, including radio stations
in medium-sized markets, television, outdoor advertising, and similar
international media opportunities. There can be no assurance that these plans
will ultimately be successful.
ADVERTISING
The primary source of the Company's radio revenues is the sale of
broadcasting time for local, regional and national advertising. On a pro forma
basis, giving effect to the Completed Transactions (but without giving effect to
the Pending Transactions), approximately 70% of the Company's gross radio
revenues would have been generated from the sale of local advertising in 1997.
The Company believes that radio is one of the most efficient, cost-effective
means for advertisers to reach specific demographic groups. The advertising
rates charged by the Company's radio stations are based primarily on (i) a
station's ability to attract audiences in the demographic groups targeted by its
advertisers (as measured principally by quarterly Arbitron rating surveys that
quantify the number of listeners tuned to the station at various times) and (ii)
the supply of and demand for radio advertising time. Advertising rates generally
are the highest during morning and evening drive-time hours.
Depending on the format of a particular station, there are predetermined
numbers of advertisements that are broadcast each hour. The Company determines
the number of advertisements broadcast hourly that can maximize available
revenue dollars without jeopardizing listening levels. Although the number of
advertisements broadcast during a given time period may vary, the total number
of advertisements broadcast on a particular station generally does not vary
significantly from year to year.
A station's sales staff generates most of its local and regional
advertising sales. To generate national advertising sales, the Company engages
an advertising representative for each of its stations that specializes in
national sales and is compensated on a commission-only basis. Most advertising
contracts are short-term and generally run only for a few weeks.
The Company's Katz media representation operations generate revenues
primarily through contractual commissions realized through the sale of national
spot advertising air time. National spot advertising air time is commercial air
time sold to advertisers on behalf of radio and television stations and cable
systems located outside the local markets of those stations and systems. Katz
represents its media clients pursuant to media representation contracts. Media
representation contracts typically have terms of up to ten years in initial
length. In connection with the substantial consolidation that has occurred in
the broadcast industry in recent years and the concomitant development of large
client station groups, the frequency of representation contract "buyouts" has
increased. These buyouts occur because station groups have tended to negotiate
exclusive, long-term representation contracts with a single media representation
firm covering all of the station group's stations, including stations acquired
after the date of the initial representation contract. In the event that one of
the station group's stations is sold to an owner represented by a different
firm, representation contracts are frequently bought out by the successor
representation firm. Katz generally amortizes the cost of acquiring new
representation contracts associated with a buyout over the expected benefit
period, and also generally
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<PAGE> 59
amortizes the income associated with a sellout of an existing client's contract
over the remaining life of the contract sold.
COMPETITION
The radio broadcasting industry is a highly competitive business. The
success of each of the Company's stations is dependent, to a significant degree,
upon its audience ratings and share of the overall advertising revenue within
its market. The Company's radio stations compete for listeners and advertising
revenues directly with other radio stations, as well as with other media, within
their respective markets. Radio stations compete for listeners primarily on the
basis of program content and by hiring on-air talent that appeals to a
particular demographic group. By building a strong listener base comprised of a
specific demographic group in each of its markets, the Company is able to
attract advertisers who seek to reach those listeners. Other media, including
broadcast television, cable television, newspapers, magazines, direct mail
coupons and billboard advertising also compete with the Company's stations for
advertising revenues. The Company also competes with other broadcasting
operators for acquisition opportunities, and prices for radio stations in major
markets have increased significantly in recent periods. To the extent that the
rapid pace of consolidation in the radio broadcasting industry continues,
certain competitors may emerge with larger portfolios of major market radio
stations, greater ability to deliver large audiences to advertisers and more
access to capital resources than does the Company. The audience ratings and
market share for the Company are and will be subject to change and any adverse
change in a particular market could have a material and adverse effect on the
revenue of its stations located in that market. There can be no assurance that
any one of the Company's stations will be able to maintain or increase its
current audience ratings or advertising revenue market share.
The radio broadcasting industry 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, direct broadcast satellite
("DBS") systems and other digital audio broadcasting formats to local and
national audiences. In addition, the FCC has auctioned spectrum for a new
satellite-delivered Digital Audio Radio Service ("DARS"). These actions may
result in the introduction of several new national or regional satellite radio
services with sound quality equivalent to compact discs. Another possible
competitor to traditional radio is In Band On Channel ("IBOC") digital radio.
IBOC could provide multi-channel, multi-format digital radio services in the
same band width currently occupied by traditional AM and FM radio services. The
Company cannot predict at this time the effect, if any, that any such new
technologies may have on the radio broadcasting industry.
The success of the Company's Katz media representation operations depends
on Katz' ability to maintain and acquire representation contracts with radio and
television stations and cable systems, the inventory of time Katz represents and
the experience of Katz' executive management and sales personnel. The media
representation business is highly competitive, both in terms of competition to
gain client stations and to sell air time to advertisers. Katz competes not only
with other independent and network media representatives but also with direct
national advertising. Katz also competes on behalf of its clients for
advertising dollars with other media such as newspapers and magazines, outdoor
advertising, transit advertising, direct response advertising, yellow page
directories and point of sale advertising.
FEDERAL REGULATION OF RADIO BROADCASTING INDUSTRY
Introduction. The radio broadcasting industry is subject to extensive and
changing regulation over, among other things, program content, technical
operations and business and employment practices.
The ownership, operation and sale of radio broadcast stations (including
those licensed to the Company) are subject to the jurisdiction of the FCC, which
acts under authority granted by the Communications Act. The Communications Act
prohibits the assignment or transfer of control of an FCC license without the
prior consent of the FCC. In determining whether to grant requests for consent
to such assignments or transfers, and in determining whether to grant or renew a
radio broadcast license, the FCC considers a number of factors pertaining to the
licensee (and proposed licensee), including: limitations on alien ownership and
the common ownership of television broadcast, radio broadcast and daily
newspaper properties, the "character" of the
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licensee (and proposed licensee) and those persons or entities that have
"attributable" interests, and compliance with the Anti-Drug Abuse Act of 1988.
Among other things, the FCC assigns frequency bands for radio broadcasting;
determines the particular frequencies, locations and operating power of radio
broadcast stations; issues, renews, revokes and modifies radio broadcast station
licenses; regulates equipment used by radio broadcast stations; adopts and
implements regulations and policies that directly or indirectly affect the
ownership, operation, program content and employment and business practices of
radio broadcast stations; and has the power to impose penalties for violations
of its rules and the Communications Act.
The following is a brief summary of certain provisions of the
Communications Act and specific FCC rules and policies. Reference should be made
to the Communications Act, FCC rules, and the public notices and rulings of the
FCC for further information concerning the nature and extent of federal
regulation of radio broadcast stations.
Failure to observe these or other FCC rules and policies may result in the
imposition of various sanctions, including admonishment, monetary forfeitures,
the grant of "short" (less than the maximum eight-year term) renewal terms or,
for particularly egregious violations, the denial of a license renewal
application, the revocation of FCC licenses, or the denial of FCC consent to
acquire additional broadcast properties.
License Renewal. Radio broadcast licenses are granted for maximum terms of
up to eight years. They may be renewed through an application to the FCC, and,
in certain instances, licensees are entitled to renewal expectancies. During
certain periods when a renewal application is pending, competing applicants may
file for the radio frequency being used by the renewal applicant, although the
FCC is prohibited from considering such competing applications if the existing
license has satisfied certain obligations. Petitions to deny license renewals
can be filed by interested parties, including members of the public. The FCC is
required to hold hearings on a renewal application in certain circumstances.
The following table sets forth the date of acquisition by the Company of
the radio stations actually owned by the Company as of May 1, 1998 or would be
owned upon consummation of the Pending Transactions, the frequency of each such
station, and the date of expiration of such station's main FCC broadcast
license:
<TABLE>
<CAPTION>
DATE OF EXPIRATION DATE
STATION MARKET(1) ACQUISITION FREQUENCY OF FCC LICENSE
------- --------- ----------- --------- ---------------
<S> <C> <C> <C> <C>
KKBT-FM..................... Los Angeles, CA 5/89 92.3 MHz 12/05
KYSR-FM..................... Los Angeles, CA 9/97 98.7 MHz 12/97*
KBIG-FM..................... Los Angeles, CA 4/98 104.3 MHz 12/05
KLAC-AM..................... Los Angeles, CA 9/97 570 kHz 12/05
KCMG-FM..................... Los Angeles, CA 9/97 100.3 MHz 12/05
WLTW-FM..................... New York, NY 7/97 106.7 MHz 6/98
WKTU-FM..................... New York, NY 5/95 103.5 MHz 6/98
WHTZ-FM..................... New York, NY 9/97 100.3 MHz 6/98
WBIX-FM..................... New York, NY 4/98 105.1 MHz 6/98
WAXQ-FM..................... New York, NY 7/97 104.3 MHz 6/98
WGCI-FM..................... Chicago, IL 12/97 107.5 MHz 12/03
WNUA-FM..................... Chicago, IL 1/96 95.5 MHz 12/03
WLIT-FM..................... Chicago, IL 9/97 93.9 MHz 12/03
WVAZ-FM..................... Chicago, IL 5/95 102.7 MHz 12/03
WRCX-FM..................... Chicago, IL 12/93 103.5 MHz 12/03
WGCI-AM..................... Chicago, IL 12/97 1390 kHz 12/03
WMVP-AM..................... Chicago, IL 5/84 1000 kHz 12/03
</TABLE>
52
<PAGE> 61
<TABLE>
<CAPTION>
DATE OF EXPIRATION DATE
STATION MARKET(1) ACQUISITION FREQUENCY OF FCC LICENSE
------- --------- ----------- --------- ---------------
<S> <C> <C> <C> <C>
KYLD-FM..................... San Francisco, CA 9/97 94.9 MHz 12/97*
KMEL-FM..................... San Francisco, CA 11/92 106.1 MHz 12/05
KKSF-FM..................... San Francisco, CA 1/97 103.7 MHz 12/05
KABL-AM..................... San Francisco, CA 9/97 960 kHz 12/05
KISQ-FM..................... San Francisco, CA 9/97 98.1 MHz 12/97*
KIOI-FM..................... San Francisco, CA 4/94 101.3 MHz 12/97*
KNEW-AM..................... San Francisco, CA 9/97 910 kHz 12/05
KHKS-FM..................... Dallas, TX 12/97 106.1 MHz 8/05
KZPS-FM..................... Dallas, TX 10/97 92.5 MHz 8/05
KDGE-FM..................... Dallas, TX 10/97 94.5 MHz 8/05
KSKY-AM..................... Dallas, TX 5/95 660 kHz 8/05
KBFB-FMS.................... Dallas, TX Pending 97.9 MHz 8/05
KTXQ-FMS.................... Dallas, TX Pending 102.1 MHz 8/05
WDAS-FM..................... Philadelphia, PA 5/97 105.3 MHz 8/98
WUSL-FM..................... Philadelphia, PA 5/97 98.9 MHz 8/98
WJJZ-FM..................... Philadelphia, PA 1/96 106.1 MHz 8/98
WIOQ-FM..................... Philadelphia, PA 5/97 102.1 MHz 8/98
WYXR-FM..................... Philadelphia, PA 1/96 104.5 MHz 8/98
WDAS-AM..................... Philadelphia, PA 5/97 1480 kHz 8/98
WMZQ-FM..................... Washington, D.C. 7/97 98.7 MHz 10/03
WASH-FM..................... Washington, D.C. 11/92 97.1 MHz 10/03
WBIG-FM..................... Washington, D.C. 9/97 100.3 MHz 10/03
WGAY-FM..................... Washington, D.C. 11/96 99.5 MHz 10/03
WTEM-AM(2).................. Washington, D.C. 980
4/97 kHz(2) 10/03
WWRC-AM(2).................. Washington, D.C. 570
9/97 kHz(2) 10/03
WWDC-FMS.................... Washington, D.C. Pending 101.1 MHz 10/03
WWDC-AMS.................... Washington, D.C. Pending 1260 kHz 10/03
KKBQ-FM..................... Houston, TX 12/97 92.9 MHz 8/05
KLDE-FM..................... Houston, TX 4/98 94.5 MHz 8/05
KLOL-FM..................... Houston, TX 6/93 101.1 MHz 8/97*
KTRH-AM..................... Houston, TX 6/93 740 kHz 8/05
KBME-AM..................... Houston, TX 12/97 790 kHz 8/05
KODA-FMS.................... Houston, TX Pending 99.1 MHz 8/05
KKRW-FMS.................... Houston, TX Pending 93.7 MHz 8/05
KQUE-AMS.................... Houston, TX Pending 1290 kHz 8/97*
WFOX-FM..................... Atlanta, GA 9/97 97.1 MHz 4/03
WJMN-FM..................... Boston, MA 1/96 94.5 MHz 4/98*
WXKS-FM..................... Boston, MA 1/96 107.9 MHz 4/06
WXKS-AM..................... Boston, MA 1/96 1430 kHz 4/98*
WJLB-FM..................... Detroit, MI 4/97 97.9 MHz 10/03
WNIC-FM..................... Detroit, MI 5/95 100.3 MHz 10/03
WKQI-FM..................... Detroit, MI 5/95 95.5 MHz 10/03
WMXD-FM..................... Detroit, MI 4/97 92.3 MHz 10/03
WWWW-FM..................... Detroit, MI 1/97 106.7 MHz 10/03
WDFN-AM..................... Detroit, MI 1/97 1130 kHz 10/03
WYUR-AM..................... Detroit, MI 5/95 1310 kHz 10/03
WEDR-FM..................... Miami/Ft. Lauderdale, FL 10/96 99.1 MHz 2/03
WVCG-AM..................... Miami/Ft. Lauderdale, FL 7/83 1080 kHz 2/03
</TABLE>
53
<PAGE> 62
<TABLE>
<CAPTION>
DATE OF EXPIRATION DATE
STATION MARKET(1) ACQUISITION FREQUENCY OF FCC LICENSE
------- --------- ----------- --------- ---------------
<S> <C> <C> <C> <C>
KXKL-FM..................... Denver, CO 9/97 105.1 MHz 4/05
KALC-FM..................... Denver, CO 9/97 105.9 MHz 4/05
KIMN-FM..................... Denver, CO 9/97 100.3 MHz 4/05
KXPK-FM..................... Denver, CO 1/98 96.5 MHz 4/05
KVOD-FM..................... Denver, CO 9/97 92.5 MHz 4/05
KRRF-AM..................... Denver, CO 9/97 1280 kHz 4/05
KEEY-FM..................... Minneapolis/St. Paul, MN 9/97 102.1 MHz 4/05
KDWB-FM..................... Minneapolis/St. Paul, MN 9/97 101.3 MHz 4/05
KQQL-FM..................... Minneapolis/St. Paul, MN 9/97 107.9 MHz 4/05
KTCZ-FM..................... Minneapolis/St. Paul, MN 9/97 97.1 MHz 4/05
WRQC-FM..................... Minneapolis/St. Paul, MN 9/97 100.3 MHz 4/05
KFAN-AM..................... Minneapolis/St. Paul, MN 9/97 1130 kHz 4/05
KXBR-AM..................... Minneapolis/St. Paul, MN 9/97 690 kHz 4/05
KOY-AM...................... Phoenix, AZ 9/97 550 kHz 10/05
KMLE-FM..................... Phoenix, AZ 9/97 107.9 MHz 10/05
KOOL-FM..................... Phoenix, AZ 9/97 94.5 MHz 10/05
KYOT-FM..................... Phoenix, AZ 9/97 95.5 MHz 10/05
KZON-FM..................... Phoenix, AZ 9/97 101.5 MHz 10/05
KISO-AM..................... Phoenix, AZ 9/97 1230 kHz 10/05
KYXY-FMS.................... San Diego, CA Pending 96.5 MHz 12/97*
KPLN-FMS.................... San Diego, CA Pending 103.7 MHz 12/97*
WUBE-FM..................... Cincinnati, OH 9/97 105.1 MHz 10/03
WYGY-FM..................... Cincinnati, OH 9/97 96.5 MHz 10/03
WBOB-AM..................... Cincinnati, OH 9/97 1160 kHz 10/03
WUBE-AM..................... Cincinnati, OH 9/97 1230 kHz 10/03
WWSW-FM..................... Pittsburgh, PA 9/97 94.5 MHz 8/98
WWSW-AM..................... Pittsburgh, PA 9/97 970 kHz 8/98
WDVE-FMS.................... Pittsburgh, PA Pending 102.5 MHz 8/98
WXDX-FMS.................... Pittsburgh, PA Pending 105.9 MHz 8/98
WJJJ-FMS.................... Pittsburgh, PA Pending 104.7 MHz 8/98
WVTY-FMS.................... Pittsburgh, PA Pending 96.1 MHz 8/98
WJHM-FM..................... Orlando, FL 9/97 101.9 MHz 2/03
WOCL-FM..................... Orlando, FL 9/97 105.9 MHz 2/03
WXXL-FM..................... Orlando, FL 9/97 106.7 MHz 2/03
WOMX-FM..................... Orlando, FL 9/97 105.1 MHz 2/03
KFBK-AM..................... Sacramento, CA 9/97 1530 kHz 12/05
KHYL-FM..................... Sacramento, CA 9/97 101.1 MHz 12/05
KGBY-FM..................... Sacramento, CA 9/97 92.5 MHz 12/05
KSTE-AM..................... Sacramento, CA 9/97 650 kHz 12/05
WFYV-FM+.................... Jacksonville, FL 9/97 104.5 MHz 2/03
WAPE-FM+.................... Jacksonville, FL 9/97 95.1 MHz 2/03
WALK-FM..................... Nassau/Suffolk
(Long Island), NY 9/97 97.5 MHz 6/98
WALK-AM..................... Nassau/Suffolk
(Long Island), NY 9/97 1370 kHz 6/98
KGGI-FM..................... Riverside/San-Bernardino, CA 9/97 99.1 MHz 12/05
KMRZ-AM..................... Riverside/San-Bernardino, CA 9/97 1290 kHz 12/05
</TABLE>
54
<PAGE> 63
- ---------------
* Indicates pending renewal application.
+ Indicates station to be disposed in a pending transaction.
S Indicates station to be acquired in a pending transaction.
(1) Actual city of license may differ from metropolitan market served in
certain cases.
(2) On March 9, 1998, the Company exchanged the call signs and formats of
WWRC-AM and WTEM-AM such that beginning on such date the call sign and
format of WWRC-AM were used on the 570 kHz frequency and the call sign and
format of WTEM-AM were used on the 980 kHz frequency.
55
<PAGE> 64
Ownership Matters. Under the Communications Act, a broadcast license may
not be granted to or held by any 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, if the FCC finds that the public
interest will be served by the refusal or revocation of such license. The
Company has been advised that the FCC staff has interpreted this provision of
the Communications Act to require an affirmative public interest finding before
a broadcast license may be granted to or held by any such corporation and that
the FCC has made such an affirmative finding only in limited circumstances.
These restrictions apply in modified form to other forms of business
organizations, including partnerships. The Company therefore may be restricted
from having more than one-fourth of its stock owned or voted by aliens, foreign
governments or non-U.S. corporations. The respective Certificates of
Incorporation of Chancellor Media, CMHC and the Company prohibit alien ownership
and control that are intended to facilitate compliance with the provisions of
the Communications Act applicable to alien ownership. The Company believes that
in light of current levels of alien ownership of the Company's capital stock,
the foregoing restrictions are not likely to have a material impact on
Chancellor Media, CMHC or the Company.
The Communications Act and FCC rules also generally prohibit the common
ownership, operation or control 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. In October 1996, the Commission issued a Notice of Inquiry to explore
possible changes in the newspaper/broadcast cross-ownership waiver policy with
respect to newspaper/radio combinations, including the possibility of adopting a
waiver policy based on market size or on the number of independently owned media
in a market.
The 1996 Act eliminated national ownership caps on ownership of AM and FM
radio stations. Prior to the 1996 Act, radio groups were limited to ownership of
20 FM stations and 20 AM stations on a national basis. Additionally, the 1996
Act increased local ownership limits. Prior to the 1996 Act, a single owner was
limited to owning two FMs and two AMs in a single large radio market with common
ownership of three stations, including two in the same service, permitted in
smaller markets. After the 1996 Act, local ownership limits were increased as
follows: in markets with 45 or more stations, ownership is limited to eight
stations, no more than five of which can be in the same service; in markets with
30-44 stations, ownership is limited to seven stations, no more than four of
which can be in the same service; in markets with 15-29 stations, ownership is
limited to six stations, no more than four of which can be in the same service;
and in markets with 14 or fewer stations, ownership is limited to no more than
50% of the market's total with no more than three stations in the same service.
Because of these multiple ownership rules and the cross-interest policy
described below, a purchaser of capital stock of Chancellor Media or the Company
who acquires an attributable interest in the Company may violate the FCC's rules
if it also has an "attributable" interest in other television or radio stations,
or in daily newspapers, depending on the number and location of those radio or
television stations or daily newspapers. Such a purchaser also may be restricted
in the companies in which it may invest, to the extent that those investments
give rise to an attributable interest. If an attributable stockholder 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 stockholder 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
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<PAGE> 65
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.
In the case of corporations, the interest of officers, directors and
persons or entities that directly or indirectly have the right to vote 5% or
more of the corporation's voting stock (or 10% or more of such stock in the case
of insurance companies, investment companies, bank trust departments and certain
other "passive investors" that hold such stock for investment purposes only) are
generally attributed with ownership of whatever radio stations, television
stations, and daily newspapers the corporation owns. Likewise, the interest of
an officer or a director of a corporate parent (as well as the corporate parent)
is generally attributed with ownership of whatever the subsidiary owns.
In the case of 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,
non-voting stock, options and warrants for voting stock that have not yet been
exercised, limited partnership interests where the limited partner is not
"materially involved" in the media-related activities of the partnership, and
minority voting stock interests in corporations where there is a single holder
of more than 50% of the outstanding voting stock, generally do not subject their
holders to attribution.
Hicks Muse, through its ownership of a majority of the outstanding capital
stock of Capstar, has an attributable interest in Capstar, and also has
attributable interests in Sunrise and LIN. Thomas O. Hicks, the Chairman of the
Board and a director of Chancellor Media, CMHC and the Company, has an
attributable interest in Capstar, which holds attributable interests in numerous
radio stations in various markets (mainly mid-size and small) throughout the
United States. Mr. Hicks also has an attributable interest in Sunrise, which
owns or proposes to acquire six television stations in six markets. Eric C.
Neuman, a director of Chancellor Media, CMHC and the Company, also has
attributable interests in Capstar and Sunrise. Messrs. Hicks and Newman also
have attributable interests in LIN, which owns or operates 11 television
stations in eight markets. Lawrence D. Stuart, Jr., a director of Chancellor
Media, CMHC and the Company, also has attributable interest in Capstar. The
attributable interests of Hicks Muse and Messrs. Hicks, Neuman and Stuart in
these broadcast entities may impact the ability of the Company to acquire
certain properties. Under the FCC's rules, these broadcast interests are
attributed to the Company. If any such radio broadcast interests overlap with
the Company's directly-held radio broadcast interests in the Company's markets,
such interests are combined with the Company's interests in such markets when
determining compliance with the multiple ownership rules. In addition, under the
FCC's one-to-a-market rules, a party may not have attributable interests in
radio stations and a television station in the same market unless a waiver is
granted by the FCC. Although none of the television stations owned through
Sunrise and LIN overlap with any of the stations owned or to be acquired by the
Company in any of its markets, there can be no assurance that, in the future,
such overlaps will not occur. As a result of these attributable interests, the
Company's future acquisition strategy may be adversely affected. There can be no
assurance that these additional attributable interests will not have a material
adverse effect on the Company's future acquisition strategy or on the business,
financial condition and results of operations of the Company. See "Risk
Factors -- Radio Broadcasting Industry Subject to Federal Regulation."
The FCC has issued a Notice of Proposed Rulemaking (the "NPRM") that
contemplates tightening attribution standards where parties have multiple
nonattributable interests in and relationships with stations that would be
prohibited by the FCC's cross-interest rules, if the interests/relationships
were attributable. The NPRM contemplates that this change in attribution will
apply only to persons holding debt or equity interests that exceed certain
benchmarks.
In addition, the FCC has a "cross-interest" policy that under certain
circumstances could prohibit a person or entity with an attributable interest in
a broadcast station or daily newspaper from having a "meaningful"
nonattributable interest in another broadcast station or daily newspaper in the
same local market. Among other things, "meaningful" interests could include
significant equity interests (including non-voting stock, voting stock, and
limited partnership interests) and significant employment positions. This policy
may limit the permissible investments that an equity investor in the Company may
make or hold. If the FCC determines that a stockholder of the Company has
violated this cross-interest policy, the Company may be
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<PAGE> 66
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.
Programming and Operation. The Communications Act requires broadcasters to
serve the "public interest." The FCC has gradually relaxed or eliminated many of
the more formalized procedures it had developed in the past to promote the
broadcast of certain types of programming responsive to the needs of a station's
community of license. A licensee continues to be required, however, to present
programming that is responsive to community problems, needs and interests and to
maintain certain records demonstrating such responsiveness. Complaints from
listeners concerning a station's programming often will be considered by the FCC
when it evaluates the licensee's renewal application, but such complaints may be
filed and considered at any time. Stations also must follow various FCC rules
that regulate, among other things, political advertising, 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. The broadcast of obscene and indecent
material and the advertisement of contests and lotteries are regulated by FCC
rules, as well as by state and other federal laws.
Time Brokerage Agreements. Over the past three years, a number of radio
stations, including certain of the Company's stations, have entered into what
commonly are referred to as "Time Brokerage Agreements," or "TBAs" (certain
types of these agreements also are known as "Local Marketing Agreements," or
"LMAs"). These agreements may take various forms. Separately-owned and licensed
stations may agree to function cooperatively in terms of programming,
advertising sales, and other matters, subject to the licensee of each station
maintaining independent control over the programming and other operations of its
own station and compliance with the requirements of antitrust laws. One typical
type of TBA is a programming agreement between two separately-owned radio
stations that serve a common service area, whereby the licensee of one station
programs substantial portions of the broadcast day on the other licensee's
station (subject to ultimate editorial and other controls being exercised by the
latter licensee), and sells advertising time during those program segments. The
FCC staff 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 station and otherwise ensures compliance with
applicable FCC rules and policies.
A station that brokers more than 15% of the broadcast time, on a weekly
basis, on another 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 a TBA 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 broadcast
licensee from simulcasting more than 25% of its programming on another station
in the same broadcast service (i.e., AM-AM or FM-FM) where the two stations
serve substantially the same geographic area, whether the licensee owns the
stations or owns and programs the other through a TBA arrangement.
Proposed Changes. The FCC is considering various proposals to modify its
broadcast "attribution" rules. Among the proposals are (i) raising the basic
benchmark for attributing ownership from 5% to 10% of the licensee's voting
stock, (ii) raising the attribution benchmark for certain institutional
investors from 10% to 20%, (iii) limiting the applicability of the single
majority shareholder rule (discussed above) to treat as attributable large stock
interests coupled with other debt or securities and (iv) treating non-voting
stock as attributable in certain circumstances. The FCC is also considering
changes to its multiple ownership rules to encourage minority ownership of radio
and television broadcast stations.
The FCC has 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 financial
performance of the Company's radio broadcast stations, result in the loss of
audience share and advertising revenues for the Company's radio broadcast
stations, and affect the ability of the Company to acquire additional radio
broadcast stations or finance such acquisitions. Such matters include: changes
to the license renewal process; the FCC's equal employment opportunity rules and
other matters relating to minority and female involvement in the broadcasting
industry; proposals to change rules relating to political
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broadcasting; technical and frequency allocation matters; AM stereo
broadcasting; proposals to permit expanded use of FM translator stations;
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 companies to deliver audio and video
programming to the home through existing phone lines; proposals to limit the tax
deductibility of advertising expenses by advertisers; proposals to auction to
the highest bidder the right to use the radio broadcast spectrum, instead of
granting FCC licenses and subsequent license renewals; and proposals to
reinstate the "Fairness Doctrine" which requires a station to present coverage
of opposing views in certain circumstances. It is also possible that Congress
may enact additional legislation that could have a material impact on the
operation, ownership and financial performance of the Company's radio stations
over and above the already substantial impact of the 1996 Act.
The FCC has taken initial steps to authorize the use of a new technology,
DARS, to deliver audio programming by satellite. The FCC is also considering
various proposals for terrestrial DARS. DARS may provide a medium for the
delivery of multiple new audio programming formats to local and national
audiences. It is not known at this time whether this 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, nor can it judge in advance what impact, if any, the implementation of
any of these proposals or changes might have on its business.
Federal Antitrust Laws. The FTC and the DOJ evaluate transactions
requiring a pre-acquisition filing under the HSR Act to determine whether those
transactions should be challenged under the federal antitrust laws. These
agencies (particularly the DOJ) recently have been increasingly active in their
review of radio station acquisitions where an operator proposes to acquire new
stations in its existing markets.
As part of its increased scrutiny of radio station acquisitions, the DOJ
has stated publicly that it believes that TBAs and other similar agreements
customarily entered into in connection with radio station transfers prior to the
expiration of the waiting period under the HSR Act could violate the HSR Act.
Since then, the DOJ has stated publicly that it will apply its new policy
prohibiting TBAs in connection with purchase agreements until the expiration or
termination of the HSR waiting period on a prospective basis.
The DOJ has stated publicly that it has established certain revenue and
audience share concentration benchmarks with respect to radio station
acquisitions, above which a transaction may receive additional antitrust
scrutiny. However, to date, the DOJ has also investigated transactions that do
not meet or exceed these benchmarks and has cleared transactions that do exceed
the benchmarks. Although the Company does not believe that its acquisition
strategy as a whole will be adversely affected in any material respect by
antitrust review (including review under the HSR Act) or by additional
divestitures that the Company may have to make as a result of antitrust review,
there can be no assurance that this will be the case.
EMPLOYEES
The Company has approximately 4,300 full-time employees and 900 part-time
employees. Certain employees at the Company's stations in New York, Los Angeles,
Chicago, San Francisco, Washington, D.C., Philadelphia, Detroit and Cincinnati
(approximately 300 employees), are represented by unions. The Company believes
that it has good relations with its employees and these unions.
The Company employs several high-profile on-air personalities who have
large, loyal audiences in their respective markets. The Company believes that
its relationships with its on-air talent are valuable, and it generally enters
into employment agreements with these individuals.
PROPERTIES
The Company's corporate headquarters is in Irving, Texas. The types of
properties required to support each of the Company's existing or to be acquired
radio stations include offices, studios, transmitter sites and antenna sites. A
station's studio is generally housed with its office in a downtown or business
district. A
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station's transmitter sites and antenna sites generally are located in a manner
that provides maximum market coverage.
The studios and offices of the Company's stations and its corporate
headquarters are located in leased or owned facilities. The terms of these
leases typically expire in one to ten years. The Company either owns or leases
its transmitter and antenna sites. These leases have expiration dates that range
generally from one to eight years.
The Company does not anticipate any difficulties in renewing those leases
that expire within the next several years or in leasing other space, if
required.
Katz operates out of 69 sales offices in approximately 54 separate
locations throughout the United States.
No one property is material to the Company's overall operations. The
Company believes that its properties are in good condition and suitable for its
operations. The Company owns substantially all of the equipment used in its
radio broadcasting business.
LEGAL PROCEEDINGS
In August 1993, the Company terminated an agreement with Sagittarius
Broadcasting Company (an affiliate of Infinity Broadcasting Corporation) and One
Twelve, Inc. (collectively, the "Claimants") pursuant to which programming
featuring radio personality Howard Stern was broadcast on radio station WLUP-AM
(now WMVP-AM) in Chicago. The Claimants allege that termination of the agreement
was wrongful and have sued the Company in the Supreme Court of the State of New
York, County of New York (the "Court"). The agreement required payments to the
Claimants in the amount of $2.6 million plus five percent of advertising
revenues generated by the programming over the three-year term of the agreement.
A total of approximately $680,000 was paid to the Claimants pursuant to the
agreement prior to termination. Claimants' complaint alleged claims for breach
of contract, indemnification, breach of fiduciary duty and fraud. Claimants'
aggregate prayer for relief totaled $45.0 million. On July 12, 1994, the Court
granted the Company's motion to dismiss Claimants' claims for fraud and breach
of fiduciary duty. On June 6, 1995, the Court denied the Claimants' motion for
summary judgment on their contract and indemnification claims and this order has
been affirmed on appeal. On May 17, 1996, after the close of discovery, the
Company filed a motion for summary judgment, seeking the dismissal of the
remaining claims in the original complaint. On July 1, 1996, Claimants moved for
leave to amend their complaint in order to add claims for breach of the covenant
of good faith and fair dealing, tortious interference with business advantage
and prima facie tort. In the proposed amended complaint, Claimants seek
compensatory and punitive damages in excess of $25.0 million. On March 13, 1997,
the Court denied the Company's motion for summary judgment, allowed Claimants'
request to amend the complaint to add a claim for breach of the covenant of good
faith and fair dealing and denied Claimants' request to amend the complaint to
add claims for tortious interference with business advantage and prima facia
tort. On April 25, 1997, the Company filed a notice of appeal of the denial of
the Company's motion for summary judgment. In October 1997, the N.Y. State
Supreme Court, Appellate Division, granted a portion of the appeal seeking to
strike certain damages sought, but otherwise affirmed the denial of the motion
for summary judgment and sent the case back to the trial court for trial. The
Company believes that it acted within its rights in terminating the agreement.
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 or results of
operations.
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MANAGEMENT AND BOARD OF DIRECTORS
The directors and executive officers of Chancellor Media, CMHC and the
Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Thomas O. Hicks........................ 52 Chairman of the Board, interim Chief
Executive Officer and Director
James E. de Castro..................... 45 Chief Operating Officer and Director
Matthew E. Devine...................... 49 Chief Financial Officer and Chief
Accounting Officer, Secretary
Kenneth J. O'Keefe..................... 43 Executive Vice President -- Operations
Thomas J. Hodson....................... 54 Director
Perry J. Lewis......................... 59 Director
Jeffrey A. Marcus...................... 51 Director
John H. Massey......................... 57 Director
Eric C. Neuman......................... 52 Director
Lawrence D. Stuart, Jr................. 52 Director
Steven Dinetz.......................... 51 Director
Vernon E. Jordan, Jr................... 62 Director
</TABLE>
In addition to the foregoing, one seat on the Board of Directors of
Chancellor Media, CMHC and CMCLA is currently vacant as a result of the
resignation of Scott K. Ginsburg from the Board of Directors on April 20, 1998.
Under the respective bylaws of Chancellor Media, CMHC and CMCLA, the Board of
Directors of each company has the authority to fill this vacancy. As of the date
of this Prospectus, the vacant seat on the Board of Directors of each company
has not yet been filled.
THOMAS O. HICKS
Mr. Hicks was elected Chairman of the Board and a director of Chancellor
Media, CMHC and CMCLA upon the consummation of the Chancellor Merger. Mr. Hicks
has also served as interim Chief Executive Officer of Chancellor Media, CMHC and
CMCLA since April 14, 1998. He had been Chairman and a director of Chancellor
and CRBC prior to the Chancellor Merger, since April 1996. Mr. Hicks is Chairman
of the Board and Chief Executive Officer of Hicks Muse, a private investment
firm located in Dallas, St. Louis, New York and Mexico City specializing in
strategic investments, leveraged acquisitions and recapitalizations. From 1984
to May 1989, Mr. Hicks was Co-Chairman of the Board and Co-Chief Executive
Officer of Hicks & Haas, Incorporated, a Dallas based private investment firm.
Mr. Hicks serves as a director of Capstar Broadcasting Corporation, Sybron
International Corporation, Inc., Berg Electronics Corp., Neodata Corporation,
D.A.C. Vision Inc. and Olympus Real Estate Corporation.
JEFFREY A. MARCUS
Mr. Marcus became a director of Chancellor Media, CMHC and CMCLA upon
consummation of the Chancellor Merger. Mr. Marcus, Chancellor Media and CMCLA
have signed an agreement whereby Mr. Marcus would become the President and Chief
Executive Officer of Chancellor Media, CMHC and CMCLA, effective on June 1,
1998. Prior to the Chancellor Merger, Mr. Marcus served as a director of
Chancellor and CRBC. Mr. Marcus currently serves as the Chairman and Chief
Executive Officer of Marcus Cable Company, the ninth largest cable television
multiple system operator (MSO) in the United States which serves over 1.2
million customers and which Mr. Marcus formed in 1990. Until November 1988, Mr.
Marcus served as Chairman and Chief Executive Officer of WestMarc
Communications, Inc., an MSO formed through the merger in 1987 of Marcus
Communications, Inc. and Western TeleCommunications, Inc. Mr. Marcus has more
than 29 years experience in the cable television business. Mr. Marcus is a
co-owner of the Texas Rangers Baseball Club and serves as a director of Brinker
International, Inc. and a director or trustee of several charitable and civic
organizations.
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JAMES E. DE CASTRO
Mr. de Castro has been Chief Operating Officer of Chancellor Media, CMHC
and CMCLA since September 22, 1997. From September 5, 1997 to September 22,
1997, Mr. de Castro served as Co-Chief Operating Officer of Chancellor Media,
CMHC and CMCLA. Mr. de Castro was elected Co-Chief Operating Officer and a
director of Chancellor Media, CMHC and CMCLA upon the consummation of the
Chancellor Merger. Mr. de Castro was previously President of Evergreen since
1993 and Chief Operating Officer and a director of Evergreen since 1989. From
1987 to 1988, Mr. de Castro held various positions with H&G Communications, Inc.
and predecessor entities. From 1981 to 1989, Mr. de Castro was general manager
of radio stations WLUP-FM and WLUP-AM (now known as WMVP-AM) in Chicago, and
from 1989 to 1992, Mr. de Castro was general manager of radio station KKBT-FM in
Los Angeles.
MATTHEW E. DEVINE
Mr. Devine became Chief Financial Officer, Chief Accounting Officer and
Secretary of Chancellor Media, CMHC and CMCLA upon consummation of the
Chancellor Merger. Prior thereto, Mr. Devine had been an Executive Vice
President of Evergreen since 1993, Chief Financial Officer, Treasurer and
Secretary of Evergreen since 1988 and a director of Evergreen from 1989 through
the Chancellor Merger.
KENNETH J. O'KEEFE
Mr. O'Keefe became an Executive Vice President of Chancellor Media, CMHC
and CMCLA upon the consummation of the Chancellor Merger. Mr. O'Keefe had been
an Executive Vice President of Evergreen since February of 1996 and served as a
director of Evergreen from May of 1996 until the consummation of the Chancellor
Merger. Prior to joining Evergreen in 1996, Mr. O'Keefe was a director, Chief
Financial Officer and Executive Vice President of Pyramid Communications, Inc.
from March 1994 until Evergreen's acquisition of Pyramid Communications, Inc. on
January 17, 1996. Mr. O'Keefe served in various capacities with Pyramid
Communications, Inc. or predecessor entities during the five-year period prior
to his joining Evergreen in 1996.
THOMAS J. HODSON
Mr. Hodson became a director of Chancellor Media, CMHC and CMCLA upon
consummation of the Chancellor Merger. Mr. Hodson had previously served as a
director of Evergreen since 1992. Mr. Hodson is President of TJH Capital, Inc.,
a private investment company. He had been the President and a director of
Columbia Falls Aluminum Company from January 1994 to March 1998. He had been a
Vice President of Stephens, Inc. from 1986 through 1993.
PERRY J. LEWIS
Mr. Lewis became a director of Chancellor Media, CMHC and CMCLA upon
consummation of the Chancellor Merger. Mr. Lewis had previously served as a
director of Evergreen since Evergreen acquired BPI in 1995. Mr. Lewis was the
Chairman of BPI from its inception in 1988 until its merger with Evergreen, and
was Chief Executive Officer of BPI from 1993 to 1995. Mr. Lewis is a founder of
Morgan, Lewis, Githens & Ahn, an investment banking and leveraged buyout firm
which was established in 1982. Mr. Lewis serves as director of Aon Corporation,
ITI Technologies, Inc., Gradall Industries, Inc. and Stuart Entertainment, Inc.
JOHN H. MASSEY
Mr. Massey became a director of Chancellor Media, CMHC and CMCLA upon
consummation of the Chancellor Merger. Prior to the Chancellor Merger, Mr.
Massey served as a director of Chancellor and CRBC. Until August 2, 1996, Mr.
Massey served as the Chairman of the Board and Chief Executive Officer of Life
Partners Group, Inc., an insurance holding company, having assumed those offices
in October 1994. Prior to joining Life Partners, he served, since 1992, as the
Chairman of the Board of, and currently serves as a director of, FSW Holdings,
Inc., a regional investment banking firm. Since 1986, Mr. Massey has served as a
director of Gulf-California Broadcast Company, a private holding company that
was sold in May 1996. From 1986 to 1992, he also was President of
Gulf-California Broadcast Company. From 1976 to 1986, Mr. Massey
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was President of Gulf Broadcast Company, which owned and operated 6 television
stations and 11 radio stations in major markets in the United States. Mr. Massey
currently serves as a director of Central Texas Bankshare Holdings, Inc.,
Colorado Investment Holdings, Inc., Hill Bancshares Holdings, Inc., Bank of The
Southwest of Dallas, Texas, Columbus State Bank, Columbine JDS Systems, Inc.,
The Paragon Group, Inc., the Brazos Fund Group Inc. and Sunrise Television
Group, Inc.
ERIC C. NEUMAN
Mr. Neuman became a director of Chancellor Media, CMHC and CMCLA upon
consummation of the Chancellor Merger. Mr. Neuman previously served as a
director of Chancellor and CRBC since April 1996. Since May 1993, Mr. Neuman has
been an officer of Hicks Muse and is currently serving as Senior Vice President.
From 1985 to 1993, Mr. Neuman was a Managing General Partner of Communications
Partners, Ltd., a private investment firm specializing in media and
communications businesses. Mr. Neuman currently serves as a director of Capstar
Broadcasting Corporation.
LAWRENCE D. STUART, JR.
Mr. Stuart became a director of Chancellor Media, CMHC and CMCLA upon
consummation of the Chancellor Merger. Mr. Stuart previously served as a
director of Chancellor and CRBC since January 1997. Since October 1995, Mr.
Stuart has served as a Managing Director and Principal of Hicks Muse. Prior to
joining Hicks Muse, from 1990 to 1995 he served as the managing partner of the
Dallas office of the law firm Weil, Gotshal & Manges LLP. Mr. Stuart serves as a
director of Capstar Broadcasting Corporation.
STEVEN DINETZ
Mr. Dinetz was elected Co-Chief Operating Officer and a director of
Chancellor Media, CMHC, and CMCLA upon the consummation of the Chancellor
Merger. As of September 22, 1997, Mr. Dinetz no longer serves as Co-Chief
Operating Officer of Chancellor Media, CMHC and CMCLA, but continues to serve as
a director for each such entity. Prior to consummation of the Chancellor Merger,
Mr. Dinetz served as President, Chief Executive Officer and a director of
Chancellor and CRBC since their formation and prior thereto was the President
and Chief Executive Officer and a director of Chancellor Communications, a
predecessor entity of Chancellor.
VERNON E. JORDAN, JR.
Mr. Jordan became a director of Chancellor Media, CMHC and CMCLA on October
14, 1997. Mr. Jordan currently serves as a senior partner in the Washington,
D.C. office of the law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P. Mr.
Jordan serves as a director of American Express Company, Bankers Trust Company,
Bankers Trust New York Corporation, Dow Jones & Company, Inc., the Ford
Foundation, Howard University, J.C. Penney Company, Inc., Revlon Group, Revlon,
Inc., Ryder System, Inc., Sara Lee Corporation, Union Carbide Corporation, Xerox
Corporation, LBJ Foundation, National Academy Foundation and the Roy Wilkins
Foundation.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Company's Common Stock to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of any equity securities of the Company. To the Company's
knowledge, for the period from January 1, 1997 through March 1, 1998, all
Section 16(a) filing requirements applicable to its executive officers,
directors and holders of more than 10% of the Company's Common Stock were
satisfied, except that (i) Putnam Investments, Inc. has not filed a Form 3 in
connection with its ownership of the Company's Common Stock, (ii) directors
Jeffrey A. Marcus and John H. Massey each filed a late Form 5 for the year ended
December 31, 1997 in connection with the grant of stock options under the
Company's Non-Employee
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Director Stock Option Plan in September 1997, and (iii) director Steven Dinetz
has not filed a Form 4 in connection with certain stock option exercises
effected by Mr. Dinetz in November and December 1997.
COMPENSATION OF DIRECTORS
Directors who are also officers of Chancellor Media, CMHC and CMCLA receive
no additional compensation for their services as directors. Effective following
the Chancellor Merger, directors of Chancellor Media, CMHC and CMCLA who are not
officers will receive (i) a fee of $36,000 per annum, (ii) a $1,000 fee for
attendance at meetings or, if applicable, a $500 fee for attendance at meetings
by telephone and (iii) a $2,000 fee for service as chairman of a board
committee, a $1,000 fee for attendance at committee meetings or, if applicable,
a $500 fee for attendance at committee meetings by telephone. Directors of
Chancellor Media, CMHC and CMCLA are also reimbursed for travel expenses and
other out-of-pocket costs incurred in connection with such meetings.
Additionally, all non-employee directors of Chancellor Media, CMHC and CMCLA in
office on the day of Chancellor Media's annual stockholders meeting are entitled
to an award of options to purchase 15,000 shares of Common Stock at an exercise
price equal to the fair market value of such shares on the date of grant.
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation. The following table sets forth all compensation,
including bonuses, stock option awards and other payments, paid or accrued by
the Company for the three fiscal years ending December 31, 1997, to the
Company's Chief Executive Officer and each of the Company's other executive
officers serving in such capacity at the end of the last completed fiscal year
whose total annual salary and bonus exceeded $100,000 during the fiscal year
ended December 31, 1997.
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
---------------------------------------- COMPENSATION
OTHER ------------ SECURITIES
NAME AND ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(2) STOCK AWARDS OPTIONS PAYOUTS COMPENSATION(3)
------------------ ---- -------- ---------- --------------- ------------ ---------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Scott K. Ginsburg.... 1997 $850,000 $3,615,000 -- -- 500,000 -- $9,101
Former President 1996 750,000 956,000 -- -- 375,000 -- 9,776
and Chief 1995 650,000 -- -- -- -- 7,663
Executive Officer
James E. de Castro... 1997 $825,000 $2,581,000 -- -- 425,000 -- 2,630
Chief Operating 1996 750,000 704,000 -- -- 75,000 -- 2,455
Officer 1995 650,000 125,000 -- -- 300,000 -- 2,455
Matthew E. Devine.... 1997 $375,000 $1,205,000 -- -- 262,500 -- --
Senior Vice 1996 300,000 352,000 -- -- 37,500 -- --
President, 1995 275,000 63,000 -- -- 150,000 -- --
Chief Financial
Officer and
Secretary
Kenneth J. O'Keefe... 1997 $320,000 $1,205,000 -- -- -- -- --
Executive Vice 1996 210,000(4) 210,000 -- -- 300,000 -- --
President- 1995 -- -- -- -- -- -- --
Operations
</TABLE>
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- ---------------
(1) No information is set forth herein regarding Steven Dinetz, who served as
the Company's Co-Chief Operating Officer from September 5, 1997 through
September 22, 1997, as amounts paid by the Company to Mr. Dinetz during 1997
for total annual salary and bonus did not exceed $100,000. On September 22,
1997, as part of the Chancellor Merger, Mr. Dinetz resigned from his
position as Co-Chief Operating Officer of the Company, but retained his
position as a director of the Company. Upon Mr. Dinetz' resignation, the
Company accelerated the exercisability of all of Mr. Dinetz' stock options
previously granted by Chancellor Broadcasting Company. In February 1998, the
Company made certain additional cash payments to Mr. Dinetz. Both the
acceleration of the exercisability of the stock options and the cash payment
were part of Mr. Dinetz' severance package which he elected to receive after
a change in job responsibilities directly related to the Chancellor Merger.
(2) The aggregate annual amount of perquisites and other personal benefits,
securities or property does not exceed $50,000 or 10% of the total of the
annual salary and bonus for the named officer.
(3) Represents payments of term life insurance policies.
(4) Represents compensation for the period beginning March 1, 1996, when Mr.
O'Keefe joined the Company.
Option Grants in Last Fiscal Year. The following table sets forth
information regarding options to purchase Common Stock granted by the Company to
its Chief Executive Officer and the other executive officers named in the
Summary Compensation Table during the 1997 fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------
NUMBER OF
SECURITIES % OF TOTAL GRANT DATE VALUE
UNDERLYING OPTIONS --------------------------
OPTIONS GRANTED TO EXERCISE OR GRANT DATE
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME (#)(1)(2) FISCAL YEAR ($/SHARE)(2) DATE $(3)
---- ---------- ------------ ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Scott K. Ginsburg.................. 500,000 8.0% $23.25 9/5/07 $6,155,000
James E. de Castro................. 425,000 6.8% 23.25 9/5/07 5,231,750
Matthew E. Devine.................. 262,500 4.2% 23.25 9/5/07 3,231,375
Kenneth J. O'Keefe................. -- -- -- -- --
</TABLE>
- ---------------
(1) Represents options to purchase shares of Common Stock granted under the
Company's 1995 Stock Option Plan for Executive Officers and Key Employees
(the "1995 Stock Option Plan"). The options awarded to Mr. Ginsburg, Mr. de
Castro and Mr. Devine during the last fiscal year are exercisable in whole
or part beginning on September 5, 1997, and expire on September 5, 2007. The
options may expire earlier upon the occurrence of certain merger or
consolidation transactions involving the Company. The Company is not
required to issue and deliver any certificate for shares of Common Stock
purchased upon exercise of the option or any portion thereof prior to
fulfillment of certain conditions, including the completion of registration
or qualification of such shares of Common Stock under federal or state
securities laws and the payment to the Company of all amounts required to be
withheld upon exercise of the options under any federal, state or local tax
law. The holder of an option has no rights or privileges of a stockholder in
respect of any shares of Common Stock purchasable upon exercise of the
options unless and until certificates representing such shares shall have
been issued by the Company to such holder. Once exercisable, the options are
exercisable by the holder or, upon the death of such holder, by his personal
representatives or by any person empowered to do so under such holder's will
or under the applicable laws of descent and distribution. The options are
not transferable except by will or by the applicable laws of descent and
distribution.
(2) Represents the estimated fair value of Common Stock on September 5, 1997,
the date of grant, as adjusted for the two-for-one stock split of the
Company's Common Stock effected in the form of a stock dividend, paid on
January 12, 1998.
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(3) The present value of each grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions: dividend yield of 0% for all years; expected volatility of
41.88%; risk-free interest rate of 5.38%, and expected life of seven years.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END VALUES
The following table sets forth information concerning option exercises in
the year ended December 31, 1997 by the Company's Chief Executive Officer and
the other executive officers named in the Summary Compensation Table, and the
value of each such executive officer's unexercised options at December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Scott K. Ginsburg.......... -- -- 500,000 375,000 7,034,000 9,873,000
James E. de Castro......... 300,000 6,979,000 1,220,000 375,000 34,830,250 9,873,000
Matthew E. Devine.......... -- -- 562,500 187,500 14,082,000 4,936,500
Kenneth J. O'Keefe......... -- -- -- 300,000 -- 7,992,000
</TABLE>
- ---------------
(1) Based upon a per share price for Common Stock of $37.31. This price
represents the closing price for the Common Stock on the Nasdaq National
Market System on December 31, 1997, as adjusted for the two-for-one stock
split of the Company's Common Stock, effected in the form of a stock
dividend, paid on January 12, 1998.
EMPLOYMENT AGREEMENTS
Ginsburg Employment Agreement
Prior to April 14, 1998, Scott K. Ginsburg served as the President and
Chief Executive Officer of Chancellor Media, CMHC and CMCLA. On September 4,
1997, the Company entered into a new employment agreement (the "Ginsburg
Employment Agreement") with Mr. Ginsburg, to be effective on the closing date of
the Chancellor Merger. The Ginsburg Employment Agreement, which had a term that
extends through September 5, 2002, provided for an initial annual base salary of
$1,000,000 for the first year of the employment agreement, to be increased each
year by a percentage equal to the percentage change in the consumer price index
during the preceding year. In addition, the Ginsburg Employment Agreement
provided for an annual bonus based upon the financial performance of the Company
in relation to certain annual performance targets which are defined in the
Ginsburg Employment Agreement. The Ginsburg Employment Agreement provided that,
on the closing date of the Chancellor Merger and on each of the first four
anniversaries thereof on which Mr. Ginsburg remained employed by the Company,
Mr. Ginsburg would be granted options to purchase 200,000 shares of Common
Stock. If Mr. Ginsburg's employment was terminated without "cause" (as defined
in the Ginsburg Employment Agreement) or if Mr. Ginsburg terminated his
employment for "good reason" (as defined in the Ginsburg Employment Agreement)
prior to the fifth annual anniversary of the consummation of the Chancellor
Merger, Mr. Ginsburg would receive on such termination date a number of options
equal to 1,000,000 minus the number of options previously granted to Mr.
Ginsburg pursuant to the preceding sentence prior to such date. In addition, in
recognition of Mr. Ginsburg's rights under his prior employment agreement, the
Company granted Mr. Ginsburg an option to acquire an additional 300,000 shares
of Common Stock on the closing date of the Chancellor Merger. The Ginsburg
Employment Agreement provided that all options granted pursuant to the Ginsburg
Employment Agreement would be exercisable for ten years from the date of grant
of the option (notwithstanding any termination of employment), at a price per
share equal to the market price for Common Stock at the close of trading on the
day immediately preceding the date of the grant. The Ginsburg Employment
Agreement provided that, in the event of termination of Mr. Ginsburg's
employment by the Company without "cause" or by Mr. Ginsburg with "good reason,"
the Company would make a one-time cash payment to Mr. Ginsburg in a gross amount
such that the net payments retained by Mr. Ginsburg shall equal $20,000,000. The
Ginsburg Employment
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Agreement further provided that, in the event of termination of Mr. Ginsburg's
employment by reason of expiration or non-renewal of the Ginsburg Employment
Agreement, the Company would make a one-time cash payment to Mr. Ginsburg equal
to two times the amount of his annual base salary for the contract year in which
his employment terminates. The Ginsburg Employment Agreement provided that Mr.
Ginsburg would have registration rights with respect to all Common Stock
acquired by Mr. Ginsburg at any time which rights were no less favorable to Mr.
Ginsburg as the registration rights held by Hicks Muse and its affiliates with
respect to the common stock of Chancellor immediately prior to the consummation
of the Chancellor Merger. Under the Ginsburg Employment Agreement, the Company
also agreed to make to Mr. Ginsburg a ten-year unsecured loan in the amount of
$3,500,000 bearing interest at a fixed rate equal to the applicable Federal
long-term rate in effect on the date on which the loan is made. The terms of the
loan require Mr. Ginsburg to repay principal of the loan in five equal annual
installments, commencing on the sixth anniversary of the date on which the loan
is made. As of April 15, 1998, Mr. Ginsburg has borrowed $3,500,000 under the
loan.
On April 14, 1998, Mr. Ginsburg resigned as President and Chief Executive
Officer of Chancellor Media, CMHC and CMCLA, and on April 20, 1998, Mr. Ginsburg
resigned as director of Chancellor Media, CMHC and CMCLA and from all
appointments and positions with their respective subsidiaries. On April 20, 1998
(the "Agreement Date"), the Company entered into a separation and consulting
agreement (the "Ginsburg Separation and Consulting Agreement") with Mr.
Ginsburg. The Ginsburg Separation and Consulting Agreement, provides for (a) a
lump sum severance payment of $20,000,000 net of applicable employee withholding
taxes, which is the same amount Mr. Ginsburg would have been entitled to under
the Ginsburg Employment Agreement based upon a termination of his employment by
him for "good reason" or by the Company "without cause," and (b) a grant to Mr.
Ginsburg of stock options to acquire 800,000 shares of Common Stock of
Chancellor Media, subject to the approval of Chancellor Media's stockholders (at
the 1998 annual meeting of stockholders) of a 1998 Chancellor Media Corporation
Employee Stock Option Plan, which is the same number of stock options to which
Mr. Ginsburg would have been entitled based upon a termination of his employment
by him for "good reason" or by the Company "without cause," except that the
Ginsburg Separation and Consulting Agreement provides that the exercise price
for such stock options is $23.25 per share and shall become exercisable as
follows: (i) options for 266,666 shares shall be exercisable beginning on the
Agreement Date for a period of seven years thereafter, (ii) options for 266,667
shares shall be exercisable beginning one year from the Agreement Date for a
period of six years thereafter, and (iii) options for 266,667 shares shall be
exercisable beginning two years from the Agreement Date for a period of five
years thereafter. Should the stockholders of Chancellor Media fail to approve
the 1998 Chancellor Media Corporation Employee Stock Option Plan, the Ginsburg
Separation and Consulting Agreement provides that Mr. Ginsburg shall receive
equivalent rights through stock appreciation rights. Previously granted stock
options were unaffected by the Ginsburg Separation and Consulting Agreement. The
Ginsburg Separation and Consulting Agreement also provides that Chancellor
Media, CMHC and CMCLA shall retain Mr. Ginsburg as a consultant through April
13, 2003, Mr. Ginsburg to be compensated for such consulting services in an
amount equal to $2,500,000 for each full year of consulting services. The
Ginsburg Separation and Consulting Agreement further provides for three-year
non-solicitation and non-hire covenants by Mr. Ginsburg, as well as other mutual
releases and other provisions typically found in an employment termination
agreement, but does not provide for a noncompetition agreement from Mr.
Ginsburg.
de Castro Employment Agreement
On September 4, 1997, Evergreen and the Company entered into a new
employment agreement (the "de Castro Employment Agreement") with Mr. de Castro,
Chief Operating Officer of Chancellor Media, CMHC and CMCLA, to be effective on
the closing date of the Chancellor Merger. The de Castro Employment Agreement,
which has a term that extends through September 5, 2002, provides for an initial
annual base salary of $900,000 for the first year of the employment agreement,
to be increased each year by a percentage equal to the percentage change in the
consumer price index during the preceding year. In addition, the de Castro
Employment Agreement provides for an annual bonus based upon a percentage of the
amount by which the Company exceeds an annual performance target which is
defined in the de Castro Employment Agreement. The de Castro Employment
Agreement provides that, on the closing date of the Chancellor Merger and on
each of the first four anniversaries thereof on which Mr. de Castro remains
employed by the
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Company, Mr. de Castro shall be granted options to purchase 200,000 shares of
Common Stock. If Mr. de Castro's employment is terminated without "cause" (as
defined in the de Castro Employment Agreement) or if Mr. de Castro terminates
his employment for "good reason" (as defined in the de Castro Employment
Agreement) prior to the fifth annual anniversary of the consummation of the
Chancellor Merger, Mr. de Castro will receive on such termination date a number
of options equal to 1,000,000 minus the number of options previously granted to
Mr. de Castro pursuant to the preceding sentence prior to such date. In
addition, in recognition of Mr. de Castro's rights under his prior employment
agreement, the Company granted Mr. de Castro an option to acquire an additional
225,000 shares of Common Stock on the closing date of the Chancellor Merger. The
de Castro Employment Agreement provides that all options granted pursuant to the
de Castro Employment Agreement will be exercisable for ten years from the date
of grant of the option (notwithstanding any termination of employment), at a
price per share equal to the market price for Common Stock at the close of
trading on the day immediately preceding the date of the grant. The de Castro
Employment Agreement provides that, in the event of termination of Mr. de
Castro's employment by the Company without "cause" or by Mr. de Castro with
"good reason," the Company shall make a one-time cash payment to Mr. de Castro
in a gross amount such that the net payments retained by Mr. de Castro shall
equal $5,000,000 less applicable employee withholding taxes. The de Castro
Employment Agreement further provides that, in the event of termination of Mr.
de Castro's employment by Mr. de Castro for other than "good reason," in
exchange for Mr. de Castro's agreement not to induce any employee of any radio
station owned by the Company to terminate such employment or to become employed
by any other radio station, the Company shall continue to pay Mr. de Castro his
applicable base salary through the fifth anniversary of the closing date of the
Chancellor Merger. In such event, the Company also has the right, in exchange
for the payment at the end of each calendar year until each calendar year
through December 31, 2002, of an annual amount equal to the product of Mr. de
Castro's average bonus multiplied by the fraction of each such calendar year
which precedes the fifth anniversary of the consummation of the Chancellor
Merger, to require that Mr. de Castro not be employed by or perform activities
on behalf of or have ownership interest in any radio broadcasting station
serving the same market as any radio station owned by the Company. The de Castro
Employment Agreement further provides that if Mr. de Castro's employment is
terminated by reason of expiration or non-renewal of the de Castro Employment
Agreement, the Company shall make a one-time cash payment to Mr. de Castro equal
to two times the amount of his annual base salary for the contract year in which
such employment terminates.
Following Mr. Ginsburg's resignation, on April 19, 1998, the Board of
Directors of Chancellor Media, CMHC and CMCLA approved the principal terms of a
new employment agreement to be entered with Mr. de Castro (the "New de Castro
Employment Agreement"), under which Mr. de Castro would remain in his position
as Chief Operating Officer of Chancellor Media, CMHC and CMCLA. It is expected
that the terms of the New de Castro Employment Agreement will be substantially
identical to the terms of the de Castro Employment Agreement, except in the
following respects: (i) the New de Castro Employment Agreement will have a term
that extends through April 17, 2003, (ii) the New de Castro Employment Agreement
will provide for a $1,000,000 signing bonus less applicable employee withholding
taxes, (iii) the Company shall make a one-time cash payment to Mr. de Castro of
$5,000,000 less applicable employee withholding taxes and the Company shall
grant to Mr. de Castro stock options to purchase 800,000 shares of Common Stock
of Chancellor Media (subject to stockholder approval of the 1998 Chancellor
Media Corporation Employee Stock Option Plan), (iv) certain portions of the
formula used to calculate Mr. de Castro's annual bonus would be adjusted based
upon mutual agreement, (v) the Company will grant to Mr. de Castro 80% of the
number of stock options that the Company grants annually to its new Chief
Executive Officer (without taking into account any initial lump-sum stock
options granted to such Chief Executive Officer), on the same terms and
conditions as set forth in the grant to such new Chief Executive Officer, (vi)
certain provisions related to termination benefits and other language
adjustments would be made upon mutual agreement, and (vii) the foregoing is in
lieu of any benefits to which Mr. de Castro would have otherwise been entitled
under the prior de Castro Employment Agreement. Definitive documentation
regarding the New de Castro Employment Agreement is currently in progress.
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<PAGE> 77
Devine Employment Agreement
On September 4, 1997, Evergreen and the Company entered into a new
employment agreement (the "Devine Employment Agreement") with Mr. Devine, Senior
Vice President and Chief Financial Officer of Chancellor Media, CMHC and the
Company, to be effective on the closing date of the Chancellor Merger. The
Devine Employment Agreement, which has a term that extends through September 5,
2002, provides for an initial annual base salary of $500,000 for the first year
of the employment agreement, to be increased each year by $25,000. In addition,
the Devine Employment Agreement provides for an annual bonus based upon a
percentage of the amount by which the Company exceeds an annual performance
target which is defined in the Devine Employment Agreement. The Devine
Employment Agreement provides that, on the closing date of the Chancellor Merger
and on each of the first four anniversaries thereof on which Mr. Devine remains
employed by the Company, Mr. Devine shall be granted options to purchase 150,000
shares of Common Stock. If Mr. Devine's employment is terminated without "cause"
(as defined in the Devine Employment Agreement) or if Mr. Devine terminates his
employment for "good reason" (as defined in the Devine Employment Agreement)
prior to the fifth annual anniversary of the consummation of the Chancellor
Merger, Mr. Devine will receive on such termination date a number of options
equal to 750,000 minus the number of options previously granted to Mr. Devine
pursuant to the preceding sentence prior to such date. In addition, in
recognition of Mr. Devine's rights under his prior employment agreement, the
Company granted Mr. Devine an option to acquire an additional 112,500 shares of
Common Stock on the closing date of the Chancellor Merger. The Devine Employment
Agreement provides that all options granted pursuant to the Devine Employment
Agreement will be exercisable for ten years from the date of grant of the option
(notwithstanding any termination of employment), at a price per share equal to
the market price for Common Stock at the close of trading on the day immediately
preceding the date of the grant. The Devine Employment Agreement provides that,
in the event of termination of Mr. Devine's employment by the Company without
"cause" or by Mr. Devine with "good reason," the Company shall make a one-time
cash payment to Mr. Devine in a gross amount such that the net payments retained
by Mr. Devine shall equal $2,000,000 less applicable employee withholding taxes.
The Devine Employment Agreement further provides that, in the event of
termination of Mr. Devine's employment by Mr. Devine for other than "good
reason," in exchange for Mr. Devine's agreement not to induce any employee of
any radio station owned by the Company to terminate such employment or to become
employed by any other radio station, the Company shall continue to pay Mr.
Devine his applicable base salary through the earlier of the fifth anniversary
of the closing date of the Chancellor Merger or the second anniversary of the
termination of employment (the "Cessation Date"). In such event, the Company
also has the right, in exchange for the payment at the end of each calendar year
through the year which includes the Cessation Date of an annual amount equal to
the product of Mr. Devine's average bonus multiplied by the fraction of each
such calendar year which precedes the Cessation Date, to require that Mr. Devine
not be employed by or perform activities on behalf of or have an ownership
interest in any radio broadcasting station serving the same market as any radio
station owned by the Company. The Devine Employment Agreement further provides
that if Mr. Devine's employment is terminated by reason of expiration or
non-renewal of the Devine Employment Agreement, the Company shall make a
one-time cash payment to Mr. Devine equal to two times the amount of his annual
base salary for the contract year in which such employment terminates.
Following Mr. Ginsburg's resignation, on April 19, 1998, the Board of
Directors of Chancellor Media, CMHC and CMCLA approved the principal terms of a
new employment agreement to be entered with Mr. Devine (the "New Devine
Employment Agreement"), under which Mr. Devine would remain in his position as
Chief Financial Officer of Chancellor Media, CMHC and CMCLA or any new
multi-media company formed with Chancellor Media. It is expected that the terms
of the New Devine Employment Agreement will be substantially identical to the
terms of the Devine Employment Agreement, except in the following respects: (i)
the New Devine Employment Agreement will have a term that extends through April
17, 2003, (ii) the New Devine Employment Agreement will provide for a $1,000,000
signing bonus less applicable employee withholding taxes, (iii) the Company
shall make a one-time cash payment to Mr. Devine of $2,000,000 less applicable
employee withholding taxes and the Company shall grant to Mr. Devine stock
options to purchase 600,000 shares of Common Stock of Chancellor Media (subject
to stockholder approval of the 1998 Chancellor Media Corporation Employee Stock
Option Plan), (iv) Mr. Devine's maximum
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<PAGE> 78
annual bonus would be increased and certain portions of the formula used to
calculate Mr. Devine's annual bonus would be adjusted based upon mutual
agreement, (v) certain provisions related to termination by Mr. Devine for other
than "good reason" would be modified to make them comparable to certain
provisions related to termination by Mr. de Castro for other than "good reason"
contained in the New de Castro Employment Agreement, (vi) the Company will grant
to Mr. Devine 60% of the number of stock options that the Company grants
annually to its new Chief Executive Officer (without taking into account any
initial lump-sum stock options granted to such Chief Executive Officer), on the
same terms and conditions as set forth in the grant to such new Chief Executive
Officer, (vii) certain provisions related to termination benefits and other
language adjustments would be made upon mutual agreement, and (viii) the
foregoing is in lieu of any benefits to which Mr. Devine would have otherwise
been entitled under the prior Devine Employment Agreement. Definitive
documentation regarding the New Devine Employment Agreement is currently in
progress.
O'Keefe Employment Agreement
In February of 1996, the Company entered into an employment agreement (the
"O'Keefe Employment Agreement") with Mr. O'Keefe that has a term through
February 28, 1999 and provides for an annual base salary beginning at $300,000
in 1996 and increasing incrementally to $350,000 in 1998. The O'Keefe Employment
Agreement provides for Mr. O'Keefe to receive an annual incentive bonus based
upon a percentage of the amount by which the Company exceeds certain annual
performance targets as defined in the agreement. The agreement also provides
that Mr. O'Keefe is eligible for certain options to purchase Common Stock.
Pursuant to the agreement, Mr. O'Keefe was awarded options to purchase 300,000
shares of Common Stock. The stock options vest and become exercisable subject to
Mr. O'Keefe's continued employment by the Company through February 28, 1999.
However, Mr. O'Keefe may be eligible to exercise the options on a pro rata basis
in the event he is terminated prior to February 28, 1999 upon certain events
specified in his employment agreement, including Mr. O'Keefe's death or
disability, a change in control of the Company, termination without cause and a
material breach of the employment agreement by the Company leading to the
resignation of Mr. O'Keefe. The agreement terminates upon the death of Mr.
O'Keefe and may be terminated by the Company upon the disability of Mr. O'Keefe
or for or without "cause" (as defined in the agreement). During the term of the
agreement, Mr. O'Keefe is prohibited from engaging in certain activities
competitive with the business of the Company. However, with the approval of the
Company, Mr. O'Keefe may engage in activities not directly competitive with the
business of the Company as long as such activities do not materially interfere
with Mr. O'Keefe's employment obligations. On March 1, 1997, Evergreen and Mr.
O'Keefe amended the O'Keefe Employment Agreement in order to make certain
provisions of the O'Keefe Employment Agreement comparable to those contained in
Mr. de Castro's and Mr. Devine's former employment agreement.
On September 4, 1997, the Company amended its employment agreement (the
"O'Keefe Amendment") with Mr. O'Keefe. As a result of the O'Keefe Amendment, the
O'Keefe Employment Agreement is to expire as of December 31, 1997, and the
O'Keefe Amendment is effective on January 1, 1998. The O'Keefe Amendment, which
has a term through December 31, 2000, provides for an initial annual base salary
of $500,000 for the first year of the employment agreement, to be increased each
year by $25,000. In addition, the O'Keefe Amendment provides for an annual bonus
based upon the financial performance of the Company in relation to certain
annual performance targets which are defined in the O'Keefe Amendment. The
O'Keefe Amendment provides that, on January 1, 1998 and 1999, assuming that Mr.
O'Keefe remains employed by the Company on such dates, Mr. O'Keefe shall be
granted options to purchase 100,000 shares of Common Stock. Furthermore, with
respect to the option to purchase 300,000 shares of Common Stock granted under
the O'Keefe Employment Agreement, (i) all such options will become exercisable
on February 28, 1999 if Mr. O'Keefe remains employed by the Company on such
date, (ii) if Mr. O'Keefe's employment is terminated as a result of Mr.
O'Keefe's death or disability or resignation by Mr. O'Keefe following a material
breach of the O'Keefe Amendment by the Company, a prorated portion of such
options will become exercisable and (iii) if Mr. O'Keefe's employment is
terminated without "cause" (as defined in the O'Keefe Amendment) or there is a
"change of control" (as defined in the O'Keefe Amendment), all such options
shall become exercisable. The O'Keefe Amendment provides that all options
described in the O'Keefe Amendment
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will be exercisable for seven years from the date of grant of the option, and
that all options granted pursuant to the O'Keefe Amendment will be granted at a
price per share equal to the market price for Common Stock on the date of the
grant. The O'Keefe Amendment provides that, in the event of termination of Mr.
O'Keefe's employment by the Company without "cause," the Company shall pay Mr.
O'Keefe his base salary and a prorated annual bonus and provide health and life
insurance coverage until the earlier of the expiration of the term of the
O'Keefe Amendment or the date on which Mr. O'Keefe becomes employed in a
position providing similar compensation.
Marcus Employment Agreement
On April 29, 1998, the Company entered into an employment agreement (the
"Marcus Employment Agreement") with Jeffrey A. Marcus, to be effective as of
June 1, 1998. The Marcus Employment Agreement, which has a term that extends
through May 31, 2003, provides for an initial annual base salary of $1,125,000
for the first year of the employment agreement, to be increased each year by a
percentage equal to the percentage change in the consumer price index during the
preceding year. The Marcus Employment Agreement provides for a one-time
execution bonus in the gross amount of $1,000,000. In addition, the Marcus
Employment Agreement provides for an annual bonus in an amount to be determined
by the Compensation Committee in its reasonable discretion; provided, however,
the annual bonus shall in no event be less than $2,000,000 nor greater than
$4,000,000. The Marcus Employment Agreement provides that, on each of the
anniversaries thereof on which Mr. Marcus remains employed by the Company, Mr.
Marcus shall be granted options to purchase 200,000 shares of Common Stock. If
Mr. Marcus's employment is terminated without "cause" (as defined in the Marcus
Employment Agreement) or if Mr. Marcus terminates his employment for "good
reason" (as defined in the Marcus Employment Agreement) prior to the fifth
annual anniversary of the effective date of the Marcus Employment Agreement, Mr.
Marcus will receive on such termination date a number of options equal to
1,000,000 minus the number of options previously granted to Mr. Marcus pursuant
to the preceding sentence prior to such date. The Marcus Employment Agreement
provides that all options granted pursuant to the Marcus Employment Agreement
will be exercisable for ten years from the date of grant of such options
(notwithstanding any termination of employment), at a price per share equal to
the market price for Common Stock at the close of trading on the day immediately
preceding the date of the grant. The Marcus Employment Agreement also provides
that, on the Execution Date, Mr. Marcus shall be granted options to purchase
1,250,000 shares of Common Stock, one-half of which will vest on the date of the
grant and one-half of which will vest on the 18th month anniversary of the date
of the grant, with each option exercisable for ten years from the date of grant
of such options (notwithstanding any termination of employment), at a price of
$42.125 per share. The Marcus Employment Agreement provides that, in the event
of termination of Mr. Marcus's employment by the Company without "cause" or by
Mr. Marcus with "good reason," the Company shall make a one-time cash payment to
Mr. Marcus in a gross amount such that the net payments retained by Mr. Marcus
(after payment by the Company of excise taxes imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended, with respect to such payment, to the
extent applicable) shall equal $6,250,000.
The Marcus Employment Agreement further provides that, in the event of
termination of Mr. Marcus's employment by Mr. Marcus for other than "good
reason," in exchange for Mr. Marcus's agreement not to induce any employee of
any radio station owned by the Company to terminate such employment or to become
employed by any other radio station, the Company shall continue to pay Mr.
Marcus his applicable base salary through the fifth anniversary of the effective
date thereof. In such event, the Company also has the right, in exchange for the
payment at the end of each calendar year until each calendar year ending
December 31, 2003, of an annual amount equal to the product of Mr. Marcus's
average bonus multiplied by the fraction of each such calendar year which
precedes the fifth anniversary of the effective date of the Marcus Employment
Agreement, to require that Mr. Marcus not be employed by or perform activities
on behalf of or have ownership interest in any radio or television broadcasting
station serving the same market as any radio station owned by the Company, or in
connection with any business enterprise that is directly or indirectly engaged
in any of the business activities in which any business owned by the Company has
significant involvement, subject to certain exceptions. The Marcus Employment
Agreement further provides that if Mr. Marcus's employment is terminated by
reason of expiration or non-renewal of the Marcus Employment Agreement, the
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Company shall make a one-time cash payment to Mr. Marcus equal to two times the
amount of his annual base salary for the contract year in which such employment
terminates. The Marcus Employment Agreement also provides that Mr. Marcus shall
be entitled to receive personal security services, to be paid for by the
Company, and certain other customary benefits and perquisites.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The members of the compensation committee of Chancellor Media, CMHC and
CMCLA are Messrs. Hicks, Massey, Jordan, Marcus and Lewis. Mr. Hicks serves as
chairman of the compensation committee, and also serves as the Chairman of the
Board of Chancellor Media, CMHC and CMCLA. Messrs. Massey and Marcus previously
served on the compensation committee of Chancellor, and Mr. Lewis previously
served on the compensation committee of Evergreen.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table lists information concerning the beneficial ownership
of the Common Stock of Chancellor Media on March 1, 1998 by (i) each director
and executive officer of Chancellor Media and their affiliates on March 1, 1998,
(ii) all directors and executive officers as a group and (iii) each person known
to the Company to own beneficially more than 5% of the Common Stock of
Chancellor Media. As of March 1, 1998, 1,000 shares of the common stock of CMCLA
are held beneficially and of record by CMHC, and 40 shares are held beneficially
and of record by KMG, which is a wholly-owned subsidiary of CMHC. As of March 1,
1998. All of the common stock of CMHC is held beneficially and of record by
Chancellor Media Corporation.
<TABLE>
<CAPTION>
NAME OF STOCKHOLDER SHARES PERCENT(1)
- ------------------- ---------- ----------
<S> <C> <C>
Scott K. Ginsburg.......................................... 4,718,132(2) 3.9%
James E. de Castro......................................... 1,170,000(3) *
Matthew E. Devine.......................................... 562,500(4) *
Kenneth J. O'Keefe......................................... 104,000(5) *
Thomas O. Hicks............................................ 16,444,371(6) 13.7%
Perry J. Lewis............................................. 118,548(7) *
Thomas J. Hodson........................................... 15,000(8) *
Eric C. Neuman............................................. 6,356 *
Lawrence D. Stuart, Jr..................................... 9,910 *
Jeffrey A. Marcus.......................................... 87,878(9) *
John H. Massey............................................. 41,024(10) *
Steven Dinetz.............................................. 1,681,226(11) 1.4%
Vernon E. Jordan, Jr....................................... -- *
All directors and executive officers as a group............ 24,958,945(12) 20.8%
Hicks Muse and affiliates.................................. 16,444,371(13) 13.7%
Putnam Investments, Inc.................................... 15,703,966(14) 13.1%
Janus Capital Corp......................................... 6,517,600(15) 5.4%
</TABLE>
- ---------------
* Less than one percent (1%).
(1) Assumes that 120,145,483 primary shares of Chancellor Media Common Stock
were issued and outstanding as of March 1, 1998. On March 13, 1998,
Chancellor Media issued 21,850,000 shares of its Common Stock in a
registered public offering. The shares of Common Stock issued by Chancellor
Media on March 13, 1998 are not taken into consideration in the above table
in the calculation of percentages of shares outstanding.
(2) Includes options to purchase 500,000 shares and 14,400 shares held by Mr.
Ginsburg as custodian for his children.
(3) Consists of options to purchase 1,170,000 shares.
(4) Consists of options to purchase 562,500 shares.
(5) Includes options to purchase 100,000 shares.
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(6) Consists of 778,969 shares owned of record by Mr. Hicks, 346,736 shares
owned of record by Mr. Hicks as trustee for certain trusts of which his
children are beneficiaries and 20,816 shares owned of record by Mr. Hicks
as co-trustee of a trust for the benefit of unrelated parties. Also
includes 15,297,850 shares owned of record by three limited partnerships of
which the ultimate general partners are entities controlled by Mr. Hicks
and Hicks Muse. Mr. Hicks is the controlling stockholder of Hicks Muse and
serves as Chairman of the Board, Chief Executive Officer and Secretary of
Hicks Muse. Accordingly, Mr. Hicks may be deemed to be the beneficial owner
of all or a portion of the stock owned of record by such limited
partnerships. Mr. Hicks disclaims beneficial ownership of shares not owned
of record by him.
(7) Includes options to purchase 15,000 shares.
(8) Consists of options to purchase 15,000 shares.
(9) Includes options to purchase 24,242 shares.
(10) Consists of options to purchase 24,242 shares and 16,782 shares held by Mr.
Massey's wife as her separate property.
(11) Includes (i) options to purchase 1,549,138 shares, (ii) 1,090 shares held
by an individual retirement account for the benefit of Mr. Dinetz and (iii)
1,000 shares held by Mr. Dinetz' daughter. Mr. Dinetz disclaims beneficial
ownership of the shares of Chancellor Media Common Stock that are not owned
by him of record.
(12) Includes options to purchase 3,960,122 shares.
(13) Consists of 778,969 shares owned of record by Mr. Hicks, 346,736 shares
owned of record by Mr. Hicks as trustee for certain trusts of which his
children are beneficiaries and 20,816 shares owned of record by Mr. Hicks
as co-trustee of a trust for the benefit of unrelated parties. Also
includes 15,297,850 shares owned of record three limited partnerships of
which the ultimate general partners are entities controlled by Mr. Hicks or
Hicks Muse. Mr. Hicks is the controlling stockholder of Hicks Muse and
serves as Chairman of the Board, Chief Executive Officer and Secretary of
Hicks Muse. Accordingly, Mr. Hicks may be deemed to be the beneficial owner
of all or a portion of the stock owned of record by such limited
partnerships. John R. Muse, Charles W. Tate, Jack D. Furst, Lawrence D.
Stuart, Jr., Michael J. Levitt, and Alan B. Menkes are officers, directors
and minority stockholders of Hicks Muse and as such may be deemed to share
with Mr. Hicks the power to vote or dispose of shares held by such
partnerships. Messrs. Hicks, Muse, Tate, Furst, Stuart, Levitt and Menkes
disclaim the existence of a group and each of them disclaims beneficial
ownership of shares not owned of record by him. The address of Hicks Muse
is 200 Crescent Court, Suite 1600, Dallas, TX 75201.
(14) The address of Putnam Investments, Inc. is One Post Office Square, Boston,
MA 02109.
(15) The address of Janus Capital Corp. is 100 Fillmore Street, Denver, CO
80206-4923.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of December 31, 1997, Thomas O. Hicks and affiliates of Hicks Muse
beneficially owned an aggregate 18,727,028 shares of Common Stock of the
Company. Mr. Hicks was elected Chairman of the Board and a director of the
Company upon consummation of the Chancellor Merger.
The Company is subject to a financial monitoring and oversight agreement,
dated April 1, 1996, as amended on September 4, 1997 (the "Financial Monitoring
and Oversight Agreement"), with Hicks, Muse & Co. Partners, L.P. ("Hicks Muse
Partners"), an affiliate of Hicks Muse. Pursuant to the Financial Monitoring and
Oversight Agreement, the Company pays to Hicks Muse Partners an annual fee of
not less than $1.0 million, subject to increase or decrease (but not below $1.0
million), based upon changes in the Consumer Price Index. Hicks Muse Partners is
also entitled to reimbursement for any out-of-pocket expenses incurred in
connection with rendering services under the Financial Monitoring and Oversight
Agreement. The Financial Monitoring and Oversight Agreement provides that the
agreement will terminate at such time as Thomas O. Hicks and his affiliates
collectively cease to beneficially own at least two-thirds of the number of
shares of Common Stock beneficially owned by them, collectively, at the
effective time of the Chancellor Merger. The Company and Chancellor paid Hicks
Muse Partners a total of $0.7 million in 1997 pursuant to the Financial
Monitoring and Oversight Agreement of which $0.3 million was paid by the Company
following the Chancellor Merger and which is included in corporate general and
administrative expense in the accompanying consolidated statement of operations.
In connection with the consummation of the Chancellor Merger, a Financial
Advisory Agreement among Chancellor, CRBC and HM2/Management Partners, L.P.
("HM2/Management"), an affiliate of Hicks Muse, was terminated. In consideration
thereof, in lieu of any payments required to be made under the Financial
Advisory Agreement in respect of the transactions contemplated by the Chancellor
Merger, HM2/Management was paid a fee of $10.0 million in cash upon consummation
of the Chancellor Merger which was accounted for as a direct acquisition cost.
As part of the termination of the Financial Advisory Agreement, the Company paid
Hicks Muse Partners $1.5 million for financial advisory services in connection
with the Katz Acquisition which was accounted for as a direct acquisition cost.
Vernon E. Jordan, Jr., a director of the Company, also serves on the board
of directors of Bankers Trust Company and Bankers Trust New York Corporation.
Affiliates of Bankers Trust Company and Bankers Trust New York Corporation have
provided a variety of commercial banking, investment banking and financial
advisory services to the Company, and expect to continue to provide such
services to the Company in the future.
Chancellor Media is subject to that certain Amended and Restated
Stockholders Agreement, dated as of February 14, 1996, as amended on September
4, 1997 (the "Chancellor Stockholders Agreement"), among Chancellor and certain
holders of the Common Stock held by former stockholders of Chancellor, which
provides for certain registration rights for the shares of Common Stock held by
such holders. In addition, Chancellor Media is subject to an additional
registration rights agreement relating to the Common Stock held by former
stockholders of Chancellor (collectively with the Chancellor Stockholders
Agreement, the "Registration Rights Agreements"). Each of the Registration
Rights Agreements relates to shares of Common Stock held by certain affiliates
of Hicks Muse, and in one instance, shares of Common Stock held by an
unaffiliated third party.
As part of the Chancellor Merger, the Company has made certain cash
payments and accelerated the vesting of certain stock options previously granted
by Chancellor to Steven Dinetz, a director of the Company. For a description of
these transactions, see "Executive Compensation -- Compensation of Executive
Officers."
The Company has entered into the Capstar Transaction with Capstar, which is
affiliated with the Company. For a description of this transaction, see
"Business -- Recent Developments -- Pending Transactions."
Certain radio stations owned by Capstar have engaged Katz to sell national
spot advertising air time, and such stations pay customary commissions to Katz
for such services. Additionally, Capstar's radio stations are
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affiliated with the AMFM Radio Networks and receive a portion of advertising
revenues generated by the network.
DESCRIPTION OF THE EXCHANGE NOTES
The Exchange Notes will be issued under an indenture, dated as of December
22, 1997 (the "Indenture"), by and among the Company, the Guarantors named
therein and The Bank of New York, as trustee (the "Trustee"). A copy of the
Indenture may be obtained from the Company upon written request. The following
summary of all of the provisions of the Indenture considered by the Company to
be material to a prospective investor in the Exchange Notes does not purport to
be complete and is subject to, and is qualified in its entirety by reference to,
the Trust Indenture Act of 1939, as amended (the "TIA"), and to all of the
provisions of the Indenture, including the definitions of certain terms therein,
and those terms made a part of the Indenture by reference to the TIA as in
effect on the date of the Indenture. The definitions of certain terms used in
the following summary are set forth below under "-- Certain Definitions." The
Trustee also serves as the Transfer Agent and Registrar for the Common Stock of
Chancellor Media and for all of the preferred stock of Chancellor Media and the
Company. In addition, the Trustee serves as trustee under the Indenture, dated
June 16, 1997, governing Chancellor Media's 6% Convertible Subordinated Exchange
Debentures due 2012. Finally, the Trustee serves as a lender and as a
co-syndication agent under the Senior Credit Facility.
The Exchange Notes will be unsecured obligations of the Company and will
rank pari passu in right of payment to the 9 3/8% Notes, the 8 3/4% Notes and
the 10 1/2% Notes, and will be subordinated in right of payment to all Senior
Debt of the Company. The Exchange Notes will be guaranteed on a senior
subordinated basis by the Guarantors.
The Exchange Notes will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Initially,
the Trustee will act as paying agent and registrar for the Exchange Notes. The
Exchange Notes may be presented for registration or transfer and exchange at the
offices of the registrar, which initially will be the Trustee's principal
corporate trust office. The Company may change any paying agent and registrar
without notice to the holders. The Company will pay principal (and premium, if
any) on the Exchange Notes at the Trustee's principal corporate trust office in
New York, New York. At the Company's option, such amounts may be paid at the
Trustee's principal corporate trust office or by check mailed to the registered
address of the holders.
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes will be limited to $500,000,000 aggregate principal
amount and will mature on December 15, 2007. Interest on the Exchange Notes will
accrue at the rate of 8 1/8% per annum and will be payable semiannually on each
June 15 and December 15, commencing on June 15, 1998, to the persons who are
registered holders at the close of business on the June 1 and December 1
immediately preceding the applicable interest payment date. Interest on the
Exchange Notes will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from the Issue Date. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
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OPTIONAL REDEMPTION
The Exchange Notes will be redeemable, at the Company's option, in whole at
any time or in part from time to time, on and after December 15, 2002, at the
following redemption prices (expressed as percentages of the principal amount)
if redeemed during the twelve-month period commencing on December 15 of the
years set forth below, plus, in each case, accrued and unpaid interest thereon
to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C> <C>
2002............................................................. 104.063%
2003............................................................. 102.708
2004............................................................. 101.354
2005 and thereafter.............................................. 100.000
</TABLE>
In addition, on or prior to December 15, 2000, the Company may, at its
option, use the net cash proceeds of one or more Public Equity Offerings (as
defined below) to redeem the Exchange Notes, in part, at a redemption price
equal to 108.125% of the principal amount thereof plus accrued and unpaid
interest thereon to the date of redemption; provided, however, that after any
such redemption the aggregate principal amount of Notes outstanding must equal
at least 65% of the aggregate principal amount of Notes originally issued in the
Offering. In order to effect a redemption with proceeds of a Public Equity
Offering, the Company shall send the redemption notice in the manner specified
in the Indenture not later than 60 days after the consummation of such Public
Equity Offering.
In addition, at any time on or prior to December 15, 2000, the Exchange
Notes may also be redeemed in whole at the option of the Company upon the
occurrence of a Change of Control (as defined below), upon not less than 30 nor
more than 60 days prior notice (but in no event more than 90 days after the
occurrence of such Change of Control) mailed by first-class mail to each
holder's registered address, at a redemption price equal to 100% of the
principal amount thereof plus the Applicable Premium (as defined below) as of,
and accrued and unpaid interest, if any, to, the date of redemption (the
"Redemption Date") (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date in
respect of then outstanding Exchange Notes).
"Applicable Premium" means, with respect to an Exchange Note at any
Redemption Date, the greater of (i) 1.0% of the principal amount of such
Exchange Note and (ii) (a) the present value of all remaining required interest
and principal payments due on such Exchange Note and all premium payments
relating thereto assuming a redemption date of December 15, 2002, computed using
a discount rate equal to the Treasury Rate (as defined below) plus 100 basis
points minus (b) the then outstanding principal amount of such Exchange Note
minus (c) accrued interest paid on the redemption date.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15 (519)
("Statistical Release") which has become publicly available at least two
business days prior to the Redemption Date (or, if such Statistical Release is
no longer published, any publicly available source or similar market data)) most
nearly equal to the period from the Redemption Date to December 15, 2002;
provided, however, that if the period from the Redemption Date to December 15,
2002 is not equal to the constant maturity of a United States Treasury security
for which a weekly average yield is given, the Treasury Rate shall be obtained
by linear interpolation (calculated to the nearest one-twelfth of a year) from
the weekly average yields of United States Treasury securities for which such
yields are given, except that if the period from the Redemption Date to December
15, 2002 is less than one year, the weekly average yield on actually traded
United States Treasury securities adjusted to a constant maturity of one year
shall be used.
Selection. In the case of any partial redemption, selection of the Exchange
Notes for redemption will be made by the Trustee on a pro rata basis, by lot or
by such other method as the Trustee in its sole discretion shall deem to be fair
and appropriate, although no Exchange Note of $1,000 in original principal
amount or less will be redeemed in part. If any Exchange Note is to be redeemed
in part only, the notice of redemption relating to such Exchange Note shall
state the portion of the principal amount thereof to be redeemed. A new
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<PAGE> 85
Exchange 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
Exchange Note.
The Senior Credit Facility restricts the Company's ability to optionally
redeem the Exchange Notes.
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control,
each holder may have the right to require that the Company repurchase all or a
portion of such holder's Exchange Notes pursuant to the offer described below
(the "Change of Control Offer"), at a purchase price equal to 101% of the
principal amount thereof plus accrued interest, if any, to the date of
repurchase.
The Indenture provides that, prior to the mailing of the notice referred to
below, but in any event within 30 days following the date on which a Change of
Control occurs, the Company covenants to (i) repay in full all Indebtedness
under the Senior Credit Facility (and terminate all commitments thereunder) or
offer to repay in full all such Indebtedness (and terminate all such
commitments) and to repay the Indebtedness owed to (and terminate the
commitments of) each lender which has accepted such offer or (ii) obtain the
requisite consents under the Senior Credit Facility to permit the repurchase of
the Exchange Notes as provided below. The Company will first comply with the
covenant in the preceding sentence before it will be required to repurchase
Exchange Notes pursuant to the provisions described below; provided that the
Company's failure to comply with the covenant described in the preceding
sentence shall constitute an Event of Default described under clause (iii) under
"-- Events of Default."
Within 30 days following the date upon which a Change of Control occurs,
the Company must send, by first class mail, a notice to each holder, with a copy
to the Trustee, which notice shall govern the terms of the Change of Control
Offer. Such notice will state, among other things, the purchase date, which must
be no earlier than 30 days nor later than 45 days from the date such notice is
mailed, other than as may be required by law (the "Change of Control Payment
Date"). Upon compliance by the Company with the covenant described in the
immediately preceding paragraph, the Company's failure to make a Change of
Control Offer in accordance with this "Change of Control" covenant, and, upon
the making of a Change of Control Offer, the failure of the Company to pay, on
or before the Change of Control Payment Date, the purchase price for the
Exchange Notes validly tendered pursuant to the Change of Control Offer, shall
constitute an Event of Default described under clauses (iii) and (ii),
respectively, under "-- Events of Default." Holders electing to have an Exchange
Note purchased pursuant to a Change of Control Offer will be required to
surrender the Exchange Note, properly endorsed for transfer together with such
other customary documents as the Company may reasonably request, to the paying
agent at the address specified in the notice prior to the close of business on
the business day prior to the Change of Control Payment Date.
The Company will comply with the requirements of Rule 14e-1 under the Act
and any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the purchase of Exchange Notes
pursuant to a Change of Control Offer.
This "Change of Control" covenant will not apply in the event of (i)
certain transactions with Permitted Holders (as defined below) and (ii) changes
in a majority of the Board of Directors of Chancellor Media, CMHC or the Company
so long as a majority of each such Board of Directors continues to consist of
Continuing Directors (as defined below). In addition, this covenant is not
intended to afford holders of the Exchange Notes protection in the event of
certain highly leveraged transactions, reorganizations, restructurings, mergers
and other similar transactions that might adversely affect the holders of the
Exchange Notes but would not constitute a Change of Control. However, the
Indenture contains limitations on the ability of the Company to incur additional
Indebtedness and to engage in certain mergers, consolidations and sales of
assets, whether or not a Change of Control is involved. See "-- Certain
Covenants -- Limitation on Incurrence of Additional Indebtedness," "-- Certain
Covenants -- Limitation on Asset Sales," "-- Certain Covenants -- Limitation on
Asset Swaps" and "-- Certain Covenants -- Merger, Consolidation and Sale of
Assets."
If a Change of Control were to occur, there can be no assurance that the
Company would have sufficient funds to pay the purchase price for all Exchange
Notes that the Company might be required to purchase. In
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<PAGE> 86
the event that the Company were required to purchase Exchange Notes pursuant to
a Change of Control Offer, the Company expects that it would need to seek
third-party financing to the extent it does not have available funds to meet its
purchase obligations. However, there can be no assurance that the Company would
be able to obtain such financing on favorable terms, if at all. In addition, the
Senior Credit Facility restricts the Company's ability to repurchase the
Exchange Notes, including pursuant to a Change of Control Offer. See
"Description of Certain Indebtedness -- Senior Credit Facility."
With respect to the sale of assets, the phrase "all or substantially all"
as used in the Indenture varies according to the facts and circumstances of the
subject transaction, has no clearly established meaning under relevant law and
is subject to judicial interpretation. Accordingly, in certain circumstances
there may be a degree of uncertainty in ascertaining whether a particular
transaction would involve a disposition of "all or substantially all" of the
assets of a person and therefore it may be unclear whether a Change of Control
has occurred and whether the Exchange Notes are subject to a Change of Control
Offer.
Without the consent of each holder of the Exchange Notes affected thereby,
after the mailing of the notice of the Change of Control Offer, no amendment to
the Indenture may, directly or indirectly, affect the Company's obligation to
purchase the Exchange Notes or amend, modify or change the obligation of the
Company to consummate a Change of Control Offer or waive any default in the
performance thereof or modify any of the provisions or definitions with respect
to any such offer. In addition, the Trustee may not waive the right of any
holder of the Exchange Notes to require the repurchase of his or her Exchange
Notes upon a Change of Control.
SUBORDINATION
The payment of all Obligations on the Exchange Notes will be subordinated
and junior in right of payment to the prior payment in full in cash or Cash
Equivalents (or such payment duly provided for to the satisfaction of the
holders of Senior Debt) of all Obligations on Senior Debt. Upon any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, to creditors upon any liquidation, dissolution, winding
up, reorganization, assignment for the benefit of creditors or marshalling of
assets of the Company or in a bankruptcy, reorganization, insolvency,
receivership or other similar proceeding relating to the Company or its
property, whether voluntary or involuntary, all Obligations due or to become due
upon all Senior Debt will first be paid in full in cash or Cash Equivalents (or
such payment duly provided for to the satisfaction of the holders of Senior
Debt) before any payment or distribution of any kind or character is made on
account of any Obligations on the Exchange Notes, or for the acquisition of any
of the Exchange Notes for cash or property or otherwise. If any default occurs
and is continuing in the payment when due, whether at maturity, upon any
redemption, by declaration or otherwise, of any principal of, or interest on, or
any other amounts owing with respect to any Senior Debt, no payment of any kind
or character (except (i) in Qualified Capital Stock issued by the Company to pay
interest on the Exchange Notes or issued in exchange for the Exchange Notes,
(ii) in securities substantially identical to the Exchange Notes issued by the
Company in payment of interest accrued thereon or (iii) in securities issued by
the Company which are subordinated to the Senior Debt at least to the same
extent as the Exchange Notes and having a Weighted Average Life to Maturity at
least equal to the remaining Weighted Average Life to Maturity of the Exchange
Notes (the issuance of such subordinated securities to be consented to by the
holders of at least a majority of the outstanding amount of Senior Debt
consisting of each class of Designated Senior Debt then outstanding, which
subordinated securities will be issued in exchange for outstanding Exchange
Notes or to pay interest accrued on outstanding Exchange Notes)), will be made
by the Company or any other Person on behalf of the Company with respect to any
Obligations on the Exchange Notes or to acquire any of the Exchange Notes for
cash or property or otherwise. In addition, if any other event of default occurs
and is continuing (or if such an event of default would occur upon any payment
with respect to the Exchange Notes or would arise upon the passage of time as a
result of such payment) with respect to any Designated Senior Debt (as such
event of default is defined in the instrument creating or evidencing such
Designated Senior Debt) and such event of default permits the holders of such
Designated Senior Debt then outstanding to accelerate the maturity thereof and
if the Representative for the respective issue of Designated Senior Debt gives
written notice of the event of default to the Trustee (a "Default Notice"),
then, unless and
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<PAGE> 87
until all such events of default have been cured or waived or have ceased to
exist or the Company and the Trustee receive notice from the Representative for
the respective issue of Designated Senior Debt terminating the Blockage Period
(as defined below), during the 180 days after the delivery of such Default
Notice (the "Blockage Period"), neither the Company nor any other Person on
behalf of the Company will make any payment of any kind or character (except (i)
in Qualified Capital Stock issued by the Company to pay interest on the Exchange
Notes or issued in exchange for the Exchange Notes, (ii) in securities
substantially identical to the Exchange Notes issued by the Company in payment
of interest accrued thereon or (iii) in securities issued by the Company which
are subordinated to the Senior Debt at least to the same extent as the Exchange
Notes and having a Weighted Average Life to Maturity at least equal to the
remaining Weighted Average Life to Maturity of the Exchange Notes (the issuance
of such subordinated securities to be consented to by the holders of at least a
majority of the outstanding amount of Senior Debt consisting of each class of
Designated Senior Debt then outstanding, which subordinated securities will be
issued in exchange for outstanding Exchange Notes or to pay interest accrued on
outstanding Exchange Notes)) with respect to any Obligations on the Exchange
Notes or to acquire any of the Exchange Notes for cash or property or otherwise.
Notwithstanding anything herein to the contrary, in no event will a Blockage
Period extend beyond 180 days from the date the payment on the Exchange Notes
was due and only one such Blockage Period may be commenced within any 360
consecutive days. No event of default which existed or was continuing on the
date of the commencement of any Blockage Period with respect to the Designated
Senior Debt initiating such Blockage Period shall be, or be made, the basis for
commencement of a second Blockage Period by the Representative of such
Designated Senior Debt whether or not within a period of 360 consecutive days,
unless such event of default has been cured or waived for a period of not less
than 90 consecutive days (it being acknowledged that any subsequent action, or
any breach of any financial covenants for a period commencing after the date of
commencement of such Blockage Period that, in either case, would give rise to an
event of default pursuant to any provision under which an event of default
previously existed or was continuing, shall constitute a new event of default
for this purpose).
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Debt, including
the holders of the Exchange Notes, may recover less, ratably, than holders of
Senior Debt.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants.
Limitation on Incurrence of Additional Indebtedness. The Indenture provides
that neither the Company nor any of its Subsidiaries will, directly or
indirectly, create, incur, assume, guarantee, acquire or become liable for,
contingently or otherwise (collectively "incur"), any Indebtedness other than
Permitted Indebtedness. Notwithstanding the foregoing limitations, the Company
or any Subsidiary may incur Indebtedness if on the date of the incurrence of
such Indebtedness, after giving effect to the incurrence of such Indebtedness
and the receipt and application of the proceeds thereof, the Company's Leverage
Ratio is less than 7.0 to 1.
Limitation on Restricted Payments. The Indenture provides that neither the
Company nor any of its Subsidiaries will, directly or indirectly, (a) declare or
pay any dividend or make any distribution (other than dividends or distributions
payable in Qualified Capital Stock of the Company) on shares of the Company's
Capital Stock, (b) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or any warrants, rights or options to acquire
shares of any class of such Capital Stock, other than the exchange of such
Capital Stock or any warrants, rights or options to acquire shares of any class
of such Capital Stock for Qualified Capital Stock or warrants, rights or options
to acquire Qualified Capital Stock, (c) make any principal payment on, purchase,
defease, redeem, prepay, decrease or otherwise acquire or retire for value,
prior to any scheduled final maturity, scheduled repayment or scheduled sinking
fund payment, any Indebtedness of the Company or its Subsidiaries that is
subordinate or junior in right of payment to the Exchange Notes, or (d) make any
Investment (other than Permitted Investments) (each of the foregoing prohibited
actions set forth in clauses (a), (b), (c) and (d) being referred to as a
"Restricted Payment"), if, at the time of such Restricted Payment or immediately
after giving effect thereto, (i) a Default or an Event of Default has occurred
and is continuing, (ii) the Company is not able to incur at least $1.00 of
additional
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Indebtedness (other than Permitted Indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness" covenant, or (iii) the
aggregate amount of Restricted Payments made by the Company on or after the
Merger Date, together with the aggregate amount of Restricted Payments made by
CRBC subsequent to the 9 3/8% Notes Issue Date and through September 4, 1997
(the amount expended for such purposes, if other than in cash, being the fair
market value of such property as determined by the respective Board of Directors
in good faith) exceeds the sum of: (A) (x)100% of the aggregate Consolidated
EBITDA of CRBC from the 9 3/8% Notes Issue Date through September 4, 1997, plus
100% of the aggregate Consolidated EBITDA of the Company from and after the
Merger Date (or, in the event that either such Consolidated EBITDA shall be a
deficit, minus 100% of such deficit), to the most recent date for which
financial information is available to the Company, taken as one accounting
period, less (y) 1.4 times Consolidated Interest Expense for the same entities
and for the same periods, plus (B) 100% of the aggregate net proceeds, including
the fair market value of property other than cash as determined by the Board of
Directors in good faith, received by the Company from any Person (other than a
Subsidiary of the Company) from the issuance and sale on or subsequent to the
Merger Date of Qualified Capital Stock of the Company, plus 100% of the
aggregate net proceeds, including the fair market value of property other than
cash as previously determined by the board of directors of CRBC in good faith,
previously received by CRBC from any Person (other than a Subsidiary of CRBC)
from the issuance and sale on or subsequent to the 9 3/8% Notes Issue Date of
Qualified Capital Stock of CRBC (excluding any net proceeds from issuances and
sales financed directly or indirectly using funds borrowed from the Company or
any Subsidiary of the Company or from CRBC or any Subsidiary of CRBC,
respectively, until and to the extent such borrowing is repaid, but including
the proceeds from the issuance and sale of any securities convertible into or
exchangeable for Qualified Capital Stock to the extent such securities are so
converted or exchanged and including any additional proceeds received by the
Company or CRBC, respectively, upon such conversion or exchange), plus (C)
without duplication of any amount included in clause (iii)(B) above, 100% of the
aggregate net proceeds, including the fair market value of property other than
cash (valued as provided in clause (iii)(B) above), received by the Company as a
capital contribution on or subsequent to the Merger Date, plus 100% of the
aggregate net proceeds, including the fair market value of property other than
cash (valued as provided in clause (iii)(B) above), previously received by CRBC
as a capital contribution on or subsequent to the 9 3/8% Notes Issue Date
(excluding the net proceeds from one or more Public Equity Offerings by
Chancellor Media or CMHC to the extent used to redeem the Exchange Notes on or
after the date of the Indenture).
Notwithstanding the foregoing, these provisions do not prohibit: (1) the
payment of any dividend or the making of any distribution within 60 days after
the date of its declaration if the dividend or distribution would have been
permitted on the date of declaration; (2) the acquisition of Capital Stock or
warrants, options or other rights to acquire Capital Stock either (i) solely in
exchange for shares of Qualified Capital Stock or warrants, options or other
rights to acquire Qualified Capital Stock, or (ii) through the application of
the net proceeds of a substantially concurrent sale for cash (other than to a
Subsidiary of the Company) of shares of Qualified Capital Stock or warrants,
options or other rights to acquire Qualified Capital Stock; (3) the acquisition
of Indebtedness of the Company that is subordinate or junior in right of payment
to the Exchange Notes, either (i) solely in exchange for shares of Qualified
Capital Stock (or warrants, options or other rights to acquire Qualified Capital
Stock) or for Indebtedness of the Company which is subordinate or junior in
right of payment to the Exchange Notes, at least to the extent that the
Indebtedness being acquired is subordinated to the Exchange Notes and has a
Weighted Average Life to Maturity no less than that of the Indebtedness being
acquired or (ii) through the application of the net proceeds of a substantially
concurrent sale for cash (other than to a Subsidiary of the Company) of shares
of Qualified Capital Stock (or warrants, options or other rights to acquire
Qualified Capital Stock) or Indebtedness of the Company which is subordinate or
junior in right of payment to the Exchange Notes, at least to the extent that
the Indebtedness being acquired is subordinated to the Exchange Notes and has a
Weighted Average Life to Maturity no less than that of the Indebtedness being
refinanced; (4) payments by CRBC to fund the operating expenses of Chancellor
Broadcasting from the 9 3/8% Notes Issue Date through September 4, 1997 and by
the Company to fund the operating expenses of CMHC from and after the Merger
Date, in each case in an amount not to exceed $500,000 per annum; (5) payments
by CRBC to Chancellor Broadcasting from the 9 3/8% Notes Issue Date through
September 4, 1997 and by the Company to CMHC from and after the Merger Date,
respectively, in
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each case to make payments pursuant to (a) the Financial Monitoring and
Oversight Agreements or (b) the Tax Sharing Agreement; (6) payments by (a) CRBC
to repurchase or to enable Chancellor Broadcasting to repurchase Capital Stock
or other securities of Chancellor Broadcasting from employees of Chancellor
Broadcasting or CRBC in each case, from the 9 3/8% Notes Issue Date through
September 4, 1997, and (b) by the Company to repurchase or to enable CMHC to
repurchase Capital Stock or other securities of CMHC from employees of CMHC or
the Company, in each case, after the Merger Date, in an aggregate amount not to
exceed $5,000,000; (7) payments by CRBC to Chancellor Broadcasting from the
9 3/8% Notes Issue Date through September 4, 1997, or by the Company to CMHC
from and after the Merger Date, in each case, to enable Chancellor Broadcasting
or CMHC, respectively, to redeem or repurchase stock purchase or similar rights
in an aggregate amount not to exceed $500,000; (8) payments, not to exceed
$100,000 in the aggregate, by CRBC to Chancellor Broadcasting from the 9 3/8%
Notes Issue Date through September 4, 1997, together with payments by the
Company to CMHC after the Merger Date, in each case, to enable Chancellor
Broadcasting or CMHC, respectively, to make cash payments to holders of its
Capital Stock in lieu of the issuance of fractional shares of its Capital Stock;
and (9) payments made pursuant to any merger, consolidation or sale of assets
effected in accordance with the "Merger, Consolidation and Sale of Assets"
covenant; provided, however, that no such payment may be made pursuant to this
clause (9) unless, after giving effect to such transaction (and the incurrence
of any Indebtedness in connection therewith and the use of the proceeds
thereof), the Company would be able to incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with the "Limitation on
Incurrence of Additional Indebtedness" covenant such that after incurring that
$1.00 of additional Indebtedness, the Leverage Ratio would be less than 5.5 to
1; provided, however, that in the case of clauses (5)(a), (6), (7), (8) and (9),
no Default or Event of Default shall have occurred or be continuing at the time
of such payment or as a result thereof. In determining the aggregate amount of
Restricted Payments made by the Company on or subsequent to the Merger Date and
the aggregate amount of Restricted Payments made by CRBC subsequent to the
9 3/8% Notes Issue Date and through September 4, 1997, amounts expended pursuant
to clauses (1), (2), (3) (but only to the extent that Indebtedness is acquired
in exchange for, or with the net proceeds from, the issuance of Qualified
Capital Stock or warrants, options or other rights to acquire Qualified Capital
Stock), (5)(a), (6), (7), (8) and (9) (including any amounts previously expended
by CRBC pursuant to clauses (1), (2) (3) (but only to the extent that
Indebtedness is acquired in exchange for, or with the net proceeds from, the
issuance of Qualified Capital Stock or warrants, options or other rights to
acquire Qualified Capital Stock), (5)(a), (6), (7), (8) and (9) under the
'Limitation on Restricted Payments' section of the 9 3/8% Indenture) shall be
included in such calculation.
Limitation on Asset Sales. The Indenture provides that neither the Company
nor any of its Subsidiaries will consummate an Asset Sale unless (i) the Company
or the applicable Subsidiary, as the case may be, receives consideration at the
time of such Asset Sale at least equal to the fair market value of the assets
sold or otherwise disposed of (as determined in good faith by management of the
Company or, if such Asset Sale involves consideration in excess of $2,500,000 by
the Board of Directors, as evidenced by a board resolution), (ii) at least 75%
of the consideration received by the Company or the Subsidiary, as the case may
be, from such Asset Sale is cash or Cash Equivalents (other than in the case
where the Company is exchanging all or substantially all the assets of one or
more broadcast businesses operated by the Company (including by way of the
transfer of capital stock) for all or substantially all the assets (including by
way of the transfer of capital stock) constituting one or more broadcast
businesses operated by another Person, in which event the foregoing requirement
with respect to the receipt of cash or Cash Equivalents shall not apply) and is
received at the time of such disposition and (iii) upon the consummation of an
Asset Sale, the Company applies, or causes such Subsidiary to apply, such Net
Cash Proceeds within 180 days of receipt thereof either (A) to repay the
principal of any Senior Debt (and, to the extent such Senior Debt relates to
principal under a revolving credit or similar facility, to obtain a
corresponding reduction in the commitments thereunder), (B) to reinvest, or to
be contractually committed to reinvest pursuant to a binding agreement, in
Productive Assets and, in the latter case, to have so reinvested within 360 days
of the date of receipt of such Net Cash Proceeds, or (C) to purchase Exchange
Notes (pro rata among the holders of Exchange Notes tendered to the Company for
purchase, based upon the aggregate principal amount of the Exchange Notes so
tendered) tendered to the Company for purchase at a price equal to 100% of the
principal amount thereof, plus accrued interest thereon
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to the date of purchase, pursuant to an offer to purchase made by the Company as
set forth below (a "Net Proceeds Offer"); provided, however, that, prior to
making any Net Proceeds Offer, the Company shall, to the extent required
pursuant to the 9 3/8% Indenture as in effect on the Issue Date, offer to use
such Net Proceeds to repurchase and use all or a portion of such Net Proceeds to
repurchase 9 3/8% Notes and then, to the extent required pursuant to the 8 3/4%
Indenture as in effect on the Issue Date, offer to use the remaining Net
Proceeds to repurchase 8 3/4% Notes and then, to the extent required pursuant to
the 10 1/2% Indenture as in effect on the Issue Date, offer to use the remaining
Net Proceeds to repurchase 10 1/2% Notes, in which event the Company shall be
required to use only the Net Proceeds remaining after such repurchases to make
the Net Proceeds Offer contemplated by this covenant; provided further, that if
at any time any non-cash consideration received by the Company or any Subsidiary
of the Company, as the case may be, in connection with any Asset Sale is
converted into or sold or otherwise disposed of for cash, then such conversion
or disposition shall be deemed to constitute an Asset Sale hereunder and the Net
Cash Proceeds thereof shall be applied in accordance with clause (iii) above;
provided, further that the Company may defer making a Net Proceeds Offer until
the aggregate Net Cash Proceeds from Asset Sales (taking into account any Net
Cash Proceeds used to repurchase 9 3/8% Notes, 8 3/4% Notes and 10 1/2% Notes
pursuant to the second immediately preceding proviso) to be applied equals or
exceeds $5,000,000.
Subject to the deferral right set forth in the final proviso of the
preceding paragraph, each notice of a Net Proceeds Offer will be mailed, by
first class mail, to holders of Exchange Notes as shown on the applicable
register of holders of Exchange Notes not more than 180 days after the relevant
Asset Sale or, in the event the Company or a Subsidiary has entered into a
binding agreement as provided in (B) above, within 180 days following the
termination of such agreement but in no event later than 360 days after the
relevant Asset Sale. Such notice will specify, among other things, the purchase
date (which will be no earlier than 30 days nor later than 45 days from the date
such notice is mailed, except as otherwise required by law) and will otherwise
comply with the procedures set forth in the Indenture. Upon receiving notice of
the Net Proceeds Offer, holders of Exchange Notes may elect to tender their
Exchange Notes in whole or in part in integral multiples of $1,000. To the
extent holders properly tender Exchange Notes in an amount exceeding the Net
Proceeds Offer, subject to the limitations set forth in the immediately
preceding paragraph, the Company shall select the Exchange Notes to be
repurchased on a pro rata basis (based upon the aggregate principal amount of
Exchange Notes tendered). To the extent that the aggregate principal amount of
Exchange Notes tendered pursuant to any Net Proceeds Offer is less than the
amount of Net Cash Proceeds subject to such Net Proceeds Offer, the Company may
use any remaining portion of such Net Cash Proceeds not required to fund the
repurchase of tendered Exchange Notes for any purposes otherwise permitted by
the Indenture. Upon the consummation of any Net Proceeds Offer, the amount of
Net Cash Proceeds subject to any future Net Proceeds Offer from the Asset Sales
giving rise to such Net Cash Proceeds shall be deemed to be zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Exchange Notes pursuant to a Net Proceeds Offer.
Limitation on Asset Swaps. The Indenture provides that the Company will
not, and will not permit any Subsidiary to, engage in any Asset Swaps, unless:
(i) at the time of entering into 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
(other than Permitted Indebtedness) in compliance with the "Limitation on
Incurrence of Additional Indebtedness" covenant; (iii) the respective fair
market values of the assets being purchased and sold by the Company or any of
its Subsidiaries (as determined in good faith by the management of the Company
or, if such Asset Swap includes consideration in excess of $2,500,000, by the
Board of Directors, 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 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,
calculated from the time the
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agreement to swap assets was entered into; provided, however, that this covenant
shall not apply to any of the transactions of the Company and its subsidiaries
pending as of the date of December 15, 1997.
Limitations on Transactions with Affiliates. The Indenture provides that
neither the Company nor any of its Subsidiaries will, directly or indirectly,
enter into or permit to exist any transaction (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any
service) with or for the benefit of any of its Affiliates (other than
transactions between the Company and a Wholly-Owned Subsidiary of the Company or
among Wholly-Owned Subsidiaries of the Company) (an "Affiliate Transaction"),
other than Affiliate Transactions on terms that are no less favorable than those
that might reasonably have been obtained in a comparable transaction on an
arm's-length basis from a person that is not an Affiliate; provided, however,
that for a transaction or series of related transactions involving value of
$1,000,000 or more, such determination will be made in good faith by a majority
of members of the Board of Directors of the Company and by a majority of the
disinterested members of the Board of Directors of the Company, if any;
provided, further, that for a transaction or series of related transactions
involving value of $5,000,000 or more, the Board of Directors of the Company has
received an opinion from a nationally recognized investment banking firm that
such Affiliate Transaction is fair, from a financial point of view, to the
Company or such Subsidiary. The foregoing restrictions will not apply to
reasonable and customary directors' fees, indemnification and similar
arrangements and payments thereunder, or to any obligations of the Company under
the Financial Monitoring and Oversight Agreements, the Tax Sharing Agreement or
any employment agreement with any officer of the Company (provided that each
amendment of any of the foregoing agreements shall be subject to the limitations
of this covenant), as well as reasonable and customary investment banking,
financial advisory, commercial banking and similar fees and expenses paid to BT
Securities Corporation and its Affiliates.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Indenture provides that neither the Company nor any of its
Subsidiaries will, directly or indirectly, create or otherwise cause or permit
to exist or become effective any encumbrance or restriction on the ability of
any Subsidiary to (a) pay dividends or make any other distributions on its
Capital Stock; (b) make loans or advances or pay any Indebtedness or other
obligation owed to the Company or any of its Subsidiaries; or (c) transfer any
of its property or assets to the Company, except for such encumbrances or
restrictions existing under or by reason of: (1) applicable law, (2) the
Indenture, (3) customary non-assignment provisions of any lease governing a
leasehold interest of the Company or any Subsidiary, (4) any instrument
governing Acquired Indebtedness, which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, (5) agreements
permitted under the 9 3/8% Indenture, the 8 3/4% Indenture and the 10 1/2%
Indenture existing on the Issue Date (including the Credit Agreement and Senior
Credit Facility, as applicable), as such agreements are from time to time in
effect; provided, however, that any amendments or modifications of such
agreements which affect the encumbrances or restrictions of the types subject to
this covenant shall not result in such encumbrances or restrictions being less
favorable to the Company in any material respect, as determined in good faith by
the Board of Directors of the Company, than the provisions as in effect before
giving effect to the respective amendment or modification, (6) an agreement
effecting a refinancing, replacement or substitution of Indebtedness issued,
assumed or incurred pursuant to an agreement referred to in clause (2), (4) or
(5) above or any other agreement evidencing Indebtedness permitted under the
Indenture; provided, however, that the provisions relating to such encumbrance
or restriction contained in any such refinancing, replacement or substitution
agreement or any such other agreement are not less favorable to the Company in
all material respects as determined in good faith by the Board of Directors of
the Company than the provisions relating to such encumbrance or restriction
contained in agreements referred to in such clause (2), (4) or (5), or (7)
restrictions on the transfer of assets subject to any Lien permitted under the
Indenture imposed by the holder of such Lien.
Prohibition on Incurrence of Senior Subordinated Debt.The Indenture
prohibits the Company from incurring or suffering to exist Indebtedness that is
senior in right of payment to the Exchange Notes and is expressly subordinate in
right of payment to any other Indebtedness of the Company.
Limitation on Preferred Stock of Subsidiaries. The Indenture provides that
the Company will not permit any of its Subsidiaries to issue any Preferred Stock
(other than to the Company or to a Wholly-Owned
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Subsidiary of the Company) or permit any Person (other than the Company or a
Wholly-Owned Subsidiary of the Company) to own any Preferred Stock of a
Subsidiary (other than Acquired Preferred Stock; provided that at the time the
issuer of such Acquired Preferred Stock becomes a Subsidiary of the Company or
merges with the Company or any of its Subsidiaries, and after giving effect to
such transaction, the Company shall be able to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness" covenant).
Limitation on Liens. The Indenture provides that neither the Company nor
any of its Subsidiaries will create, incur, assume or suffer to exist any Liens
upon any of their respective assets, except for (a) Permitted Liens, (b) Liens
to secure Senior Debt or guarantees thereof permitted under the Indenture, (c)
Liens permitted under the 9 3/8% Indenture, the 8 3/4% Indenture and the 10 1/2%
Indenture existing on the Issue Date, (d) Liens in favor of the Trustee, (e)
Liens to secure Guarantor Senior Debt permitted under the Indenture, and (f) any
Lien to secure the replacement, refunding, extension or renewal, in whole or in
part, of any Indebtedness described in the foregoing clauses; provided that, to
the extent any such clause limits the amount secured or the asset subject to
such Liens, no extension or renewal will increase the assets subject to such
Liens or the amount secured thereby beyond the assets or amounts set forth in
such clauses.
Limitation on Sale and Leaseback Transactions. The Indenture provides that
neither the Company nor any of its Subsidiaries will enter into any Sale and
Leaseback Transaction, except that the Company or any Subsidiary may enter into
a Sale and Leaseback Transaction if, immediately prior thereto, and after giving
effect to such Sale and Leaseback Transaction (the Indebtedness thereunder being
equivalent to the Attributable Value thereof) the Company could incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) in
compliance with the "Limitation on Incurrence of Additional Indebtedness"
covenant.
Guarantees of Certain Indebtedness. The Indenture provides that the Company
will not permit any of its Subsidiaries, directly or indirectly, to incur,
guarantee or secure through the granting of Liens, the payment of any
Indebtedness under the Senior Credit Facility or any refunding or refinancing
thereof, in each case, unless such Subsidiary, the Company and the Trustee
execute and deliver a supplemental indenture pursuant to which such Subsidiary
becomes a Guarantor of the Exchange Notes and which evidences such Subsidiary's
Guarantee of the Exchange Notes, such Guarantee to be a senior subordinated
unsecured obligation of such Subsidiary. Neither the Company nor any such
Guarantor shall be required to make a notation on the Exchange Notes or its
Guarantee to reflect any such subsequent Guarantee. Nothing in this covenant
shall be construed to permit any Subsidiary of the Company to incur Indebtedness
otherwise prohibited by the "Limitation of Incurrence of Additional
Indebtedness" covenant.
Limitation on Line of Business. The Indenture provides that for so long as
any Exchange Notes are outstanding, the Company and its Subsidiaries will engage
solely in the ownership and operation of broadcast businesses or businesses
related thereto, including, without limitation, media representation, sale of
advertising and such other activities as are incidental or similar or related
thereto.
Merger, Consolidation and Sale of Assets. The Indenture provides that the
Company may not, in a single transaction or a series of related transactions,
consolidate with or merge with or into, or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its assets to, another
Person or adopt a plan of liquidation unless (i) either (A) the Company is the
survivor of such merger or consolidation or (B) the surviving or transferee
Person is a corporation, partnership or trust organized and existing under the
laws of the United States, any state thereof or the District of Columbia and
such surviving or transferee Person expressly assumes by supplemental indenture
all of the obligations of the Company under the Exchange Notes and the
Indenture; (ii) immediately after giving effect to such transaction and the use
of proceeds therefrom (on a pro forma basis, including any Indebtedness incurred
or anticipated to be incurred in connection with such transaction), the Company
or the surviving or transferee Person is able to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness" covenant; (iii)
immediately after giving effect to such transaction (including any Indebtedness
incurred or anticipated to be incurred in connection with the transaction) no
Default or Event of Default has occurred and is continuing; and (iv) the Company
has delivered to the Trustee an Officers'
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Certificate and Opinion of Counsel, each stating that such consolidation, merger
or transfer complies with the Indenture, that the surviving Person agrees by
supplemental indenture to be bound thereby, and that all conditions precedent in
the Indenture relating to such transaction have been satisfied. For purposes of
the foregoing, the transfer (by lease, assignment, sale or otherwise, in a
single transaction or series of related transactions) of all or substantially
all of the properties and assets of one or more Subsidiaries, the Capital Stock
of which constitutes all or substantially all of the properties and assets of
the Company, will be deemed to be the transfer of all or substantially all of
the properties and assets of the Company.
GUARANTEES
Each Guarantor will fully and unconditionally guarantee, jointly and
severally, to each holder and the Trustee, subject to subordination provisions
substantially the same as those described above, the full and prompt payment of
principal of and interest on the Exchange Notes, and of all other obligations
under the Indenture.
The Indebtedness evidenced by each Guarantee (including the payment of
principal of, premium, if any, and interest on the Exchange Notes) is
subordinated to Guarantor Senior Debt (defined with respect to the Indebtedness
of a Guarantor in the same manner as Senior Debt is defined with respect to the
Company) on the same terms as the Exchange Notes are subordinated to Senior Debt
and will rank pari passu to the Guarantor's guarantees of the 9 3/8% Notes, the
8 3/4% Notes and the 10 1/2% Notes. See "-- Subordination." In addition, the
Guarantors have substantial additional Guarantor Senior Debt (relating to
guarantees of the borrowings under the Senior Credit Facility).
The obligations of each Guarantor are limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor (including, without limitation, any guarantees under the Senior Credit
Facility) and after giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Guarantee or pursuant to its contribution obligations under
the Indenture, result in the obligations of the Guarantor under the Guarantee
not constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Guarantor that makes a payment or distribution under a Guarantee
is entitled to a contribution from each other Guarantor in a pro rata amount
based on the Adjusted Net Assets of each Guarantor.
Each Guarantor may consolidate with or merge into or sell its assets to the
Company or to another Guarantor without limitation. Each 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 Guarantor
(whether or not affiliated with the Guarantor). Upon the sale or disposition of
a Guarantor (or all or substantially all of its assets) to a Person (whether or
not an Affiliate of such Guarantor) which is not a Subsidiary of the Company,
which is otherwise in compliance with the Indenture, such Guarantor shall be
deemed released from all its obligations under the Indenture and its Guarantee
and such Guarantee shall terminate; provided, however, that any such termination
shall occur only to the extent that all obligations of such Guarantor under the
Senior Credit Facility and all of its guarantees of, and under all of its
pledges of assets or other security interests which secure, Indebtedness of the
Company shall also terminate upon such release, sale or transfer; provided,
further, that the consideration received by the Company in connection with such
sale or other disposition shall be applied in accordance with the covenant. See
"-- Certain Covenants -- Limitation on Asset Sales."
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on the Exchange Notes when the same becomes due
and payable and the Default continues for a period of 30 days (whether or not
such payment is prohibited by the subordination provisions of the Indenture);
(ii) the failure to pay the principal on any Exchange Notes, when such principal
becomes due and payable, at maturity, upon redemption or otherwise (whether or
not such payment is prohibited by the subordination provisions of the
Indenture); (iii) a default in the observance or performance of any other
covenant or agreement contained in the Exchange Notes or the Indenture which
default continues for a period of 30 days after the Company receives written
notice thereof specifying the default from the Trustee or holders of at least
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25% in aggregate principal amount of outstanding Exchange Notes; (iv) the
failure to pay at the final stated maturity (giving effect to any extensions
thereof) the principal amount of any Indebtedness of the Company or any
Subsidiary of the Company, or the acceleration of the final stated maturity of
any such Indebtedness, if the aggregate principal amount of such Indebtedness,
together with the aggregate principal amount of any other such Indebtedness in
default for failure to pay principal at the final stated maturity (giving effect
to any extensions thereof) or which has been accelerated, aggregates $5,000,000
or more at any time, in each case after a 10-day period during which such
default shall not have been cured or such acceleration rescinded; (v) one or
more judgments in an aggregate amount in excess of $5,000,000 (which are not
covered by insurance as to which the insurer has not disclaimed coverage) being
rendered against the Company or any of its Significant Subsidiaries and such
judgments remain undischarged or unstayed for a period of 60 days after such
judgment or judgments become final and non-appealable; and (vi) certain events
of bankruptcy, insolvency or reorganization affecting the Company or any of its
Significant Subsidiaries.
Upon the happening of any Event of Default specified in the Indenture, the
Trustee may, and the Trustee upon the request of holders of 25% in principal
amount of the Exchange Notes shall, or the holders of at least 25% in principal
amount of outstanding Exchange Notes may, declare the principal of and accrued
but unpaid interest, if any, on all the Exchange Notes to be due and payable by
notice in writing to the Company and the Trustee specifying the respective Event
of Default and that it is a "notice of acceleration" (the "Acceleration
Notice"), and the same (i) shall become immediately due and payable or (ii) if
there are any amounts outstanding under the Senior Credit Facility, will become
due and payable upon the first to occur of an acceleration under the Senior
Credit Facility or five Business Days after receipt by the Company and the
Representative under the Senior Credit Facility of such Acceleration Notice
(unless all Events of Default specified in such Acceleration Notice have been
cured or waived). If an Event of Default with respect to bankruptcy proceedings
relating to the Company occurs and is continuing, then such amount will ipso
facto become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any holder of the Exchange Notes.
The Indenture provides that, at any time after a declaration of
acceleration with respect to the Exchange Notes as described in the preceding
paragraph, the holders of a majority in principal amount of the Exchange Notes
then outstanding (by notice to the Trustee) may rescind and cancel such
declaration and its consequences if (i) the rescission would not conflict with
any judgment or decree of a court of competent jurisdiction, (ii) all existing
Events of Default have been cured or waived except nonpayment of principal or
interest on the Exchange Notes that has become due solely by such declaration of
acceleration, (iii) to the extent the payment of such interest is lawful,
interest (at the same rate specified in the Exchange Notes) on overdue
installments of interest and overdue payments of principal which has become due
otherwise than by such declaration of acceleration, has been paid, (iv) the
Company has paid the Trustee its reasonable compensation and reimbursed the
Trustee for its expenses, disbursements and advances and (v) in the event of the
cure or waiver of a Default or Event of Default of the type described in clause
(vi) of the description of Events of Default in the first paragraph above, the
Trustee has received an Officers' Certificate and an Opinion of Counsel that
such Default or Event of Default has been cured or waived. The holders of a
majority in principal amount of the Exchange Notes may waive any existing
Default or Event of Default under the Indenture, and its consequences, except a
default in the payment of the principal of or interest on any Exchange Notes.
The Company is required to deliver to the Trustee, within 120 days after
the end of the Company's fiscal year, a certificate indicating whether the
signing officers know of any Default or Event of Default that occurred during
the previous year and whether the Company has complied with its obligations
under the Indenture. In addition, the Company will be required to notify the
Trustee of the occurrence and continuation of any Default or Event of Default
within five business days after the Company becomes aware of the same.
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default thereunder should occur and be continuing,
the Trustee will be under no obligation to exercise any of the rights or powers
under the Indenture at the request or direction of any of the holders of the
Exchange Notes unless such holders have offered to the Trustee reasonable
indemnity or security against any loss, liability or expense. Subject to such
provision for security or indemnification and certain limitations contained in
the
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Indenture, the holders of a majority in principal amount of the outstanding
Exchange Notes have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on the Trustee.
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
The Company may terminate its obligations under the Indenture at any time,
and the obligations of the Guarantors with respect thereto shall terminate, by
delivering all outstanding Exchange Notes to the Trustee for cancellation and
paying all sums payable by it thereunder. The Company, at its option, (i) will
be discharged from any and all obligations with respect to the Exchange Notes,
and each Guarantor will be discharged from any and all obligations with respect
to its Guarantee, (except for certain obligations of the Company to register the
transfer or exchange of such Exchange Notes, replace stolen, lost or mutilated
Exchange Notes, maintain paying agencies and hold moneys for payment in trust)
or (ii) need not comply with certain of the restrictive covenants with respect
to the Indenture, if the Company deposits with the Trustee, in trust, U.S. Legal
Tender or U.S. Government Obligations or a combination thereof which, through
the payment of interest thereon and principal in respect thereof in accordance
with their terms, will be sufficient to pay all the principal of and interest on
the Exchange Notes on the dates such payments are due in accordance with the
terms of such Exchange Notes as well as the Trustee's fees and expenses. To
exercise either such option, the Company is required to deliver to the Trustee
(A) an Opinion of Counsel or a private letter ruling issued to the Company by
the IRS to the effect that the holders of the Exchange Notes will not recognize
income, gain or loss for federal income tax purposes as a result of the deposit
and related defeasance and will be subject to federal income tax on the same
amount and in the same manner and at the same times as would have been the case
if such option had not been exercised and, in the case of an Opinion of Counsel
furnished in connection with a Discharge pursuant to clause (i) above,
accompanied by a private letter ruling issued to the Company by the IRS to such
effect, (B) subject to certain qualifications, an Opinion of Counsel to the
effect that funds so deposited will not be subject to avoidance under applicable
Bankruptcy Law, and (C) an Officers' Certificate and an Opinion of Counsel to
the effect that the Company has complied with all conditions precedent to the
defeasance. Notwithstanding the foregoing, the Opinion of Counsel required by
clause (A) above need not be delivered if all Exchange Notes not therefore
delivered to the Trustee for cancellation (i) have become due and payable, (ii)
will become due and payable on the maturity date within one year, or (iii) are
to be called for redemption within one year under arrangements satisfactory to
the Trustee for the giving of notice of redemption by the Trustee in the name,
and at the expense, of the Company.
REPORTS TO HOLDERS
The Company will file with the Trustee and provide to the holders of the
Exchange Notes, within 15 days after it files them with the Commission, copies
of the annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may by rules
and regulations prescribe) which the Company files with the Commission pursuant
to Section 13 or 15(d) of the Exchange Act. In the event the Company is no
longer required to furnish such reports to its securityholders pursuant to the
Exchange Act, the Company will cause its consolidated financial statements,
comparable to those which would have been required to appear in annual or
quarterly reports, to be delivered to the holders of the Exchange Notes.
MODIFICATION OF THE INDENTURE
From time to time, the Company and the Trustee, together, without the
consent of the holders of the Exchange Notes, may amend or supplement the
Indenture for certain specified purposes, including curing ambiguities, defects
or inconsistencies. Other modifications and amendments of the Indenture may be
made with the consent of the holders of a majority in principal amount of the
then outstanding Exchange Notes, except that, without the consent of each holder
of the Exchange Notes affected thereby, no amendment may, directly or
indirectly: (i) reduce the amount of Exchange Notes whose holders must consent
to an amendment; (ii) reduce the rate of or change the time for payment of
interest, including defaulted interest, on
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any Exchange Notes; (iii) reduce the principal of or change the fixed maturity
of any Exchange Notes, or change the date on which any Exchange Notes may be
subject to redemption or repurchase, or reduce the redemption or repurchase
price therefor; (iv) make any Exchange Notes payable in money other than that
stated in the Exchange Notes; (v) make any change in provisions of the Indenture
protecting the right of each holder of an Exchange Note to receive payment of
principal of and interest on such Exchange Note on or after the due date thereof
or to bring suit to enforce such payment or permitting holders of a majority in
principal amount of the Exchange Notes to waive Defaults or Events of Default;
or (vi) after the Company's obligation to purchase the Exchange Notes arises
under the Indenture, amend, modify or change the obligation of the Company to
make or consummate a Change of Control Offer or a Net Proceeds Offer or waive
any default in the performance thereof or modify any of the provisions or
definitions with respect to any such offers.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"8 3/4% Notes" means the $200.0 million aggregate principal amount of
8 3/4% Senior Subordinated Notes due 2007 of the Company, issued pursuant to an
indenture, dated as of June 24, 1997, as amended, as the same may be modified or
amended from time to time and future refinancings thereof.
"9 3/8% Notes" means the $200.0 million aggregate principal amount of
9 3/8% Senior Subordinated Notes due 2004 of the Company, issued pursuant to an
indenture, dated as of February 14, 1996, as amended, as the same may be
modified or amended from time to time and future refinancings thereof.
"9 3/8% Notes Issue Date" means February 14, 1996.
"10 1/2% Notes" means the $100.0 million aggregate principal amount of
10 1/2% Senior Subordinated Notes due 2007 of the Company, issued pursuant to an
amended and restated indenture, dated as of December 19, 1996 and amended and
restated as of October 28, 1997, as amended, as the same may be modified or
amended from time to time and future refinancings thereof.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Subsidiary of the
Company or at the time it merges or consolidates with the Company or any of its
Subsidiaries or assumed in connection with the acquisition of assets from such
Person and not incurred by such Person in connection with, or in anticipation or
contemplation of, such Person becoming a Subsidiary of the Company or such
acquisition, merger or consolidation.
"Acquired Preferred Stock" means Preferred Stock of any Person at the time
such Person becomes a Subsidiary of the Company or at the time it merges or
consolidates with the Company or any of its Subsidiaries and not issued by such
Person in connection with, or in anticipation or contemplation of, such
acquisition, merger or consolidation.
"Adjusted Net Assets" of a Guarantor at any date shall mean the lesser of
the amount by which (x) the fair value of the property of such Guarantor exceeds
the total amount of liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and contingent liabilities
incurred or assumed on such date), but excluding liabilities under the Guarantee
of such Guarantor at such date, and (y) the present fair salable value of the
assets of such Guarantor at such date exceeds the amount that will be required
to pay the probable liability of such Guarantor on its debts (after giving
effect to all other fixed and contingent liabilities incurred or assumed on such
date and after giving effect to any collection from any Subsidiary of such
Guarantor in respect of the obligations of such Subsidiary under the Guarantee),
excluding debt in respect of the Guarantee, as they become absolute and matured.
"Affiliate" means a Person who, directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Company. The term "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
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"Asset Acquisition" means (i) an Investment by the Company or any
Subsidiary of the Company in any other Person pursuant to which such Person
shall become a Subsidiary of the Company or shall be consolidated or merged with
the Company or any Subsidiary of the Company or (ii) the acquisition by the
Company or any Subsidiary of the Company of assets of any Person comprising a
division or line of business of such Person.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Subsidiaries (excluding any Sale and Leaseback Transaction or any pledge of
assets or stock by the Company or any of its Subsidiaries) to any Person other
than the Company or a Wholly-Owned Subsidiary of the Company of (i) any Capital
Stock of any Subsidiary of the Company or (ii) any other property or assets of
the Company or any Subsidiary of the Company other than in the ordinary course
of business; provided, however, that for purposes of the "Limitation on Asset
Sales" covenant, Asset Sales shall not include (a) a transaction or series of
related transactions for which the Company or its Subsidiaries receive aggregate
consideration of less than $500,000, (b) transactions permitted under the
"Limitation on Asset Swaps" covenant, (c) transactions permitted under the
"Merger, Consolidation and Sale of Assets" covenant or (d) any Contract Buy Out.
"Asset Swap" means the execution of a definitive agreement, subject only to
FCC 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 Productive Assets between the Company or any of its
Subsidiaries and another Person or group of affiliated Persons; provided that
any amendment to or waiver of any closing condition which individually or in the
aggregate is material to the Asset Swap shall be deemed to be a new Asset Swap.
"Attributable Value" in respect of a sale and leaseback arrangement of any
property means, as at the time of determination, the greater of (i) the fair
market value of the property subject to such arrangement (as determined in good
faith by the Board of Directors of the Company) or (ii) the present value
(discounted at the interest rate borne by the Exchange Notes, compounded
annually) of the total obligations of the lessee for rental payments during the
remaining term of the lease included in such arrangement.
"Capitalized Lease Obligation" means, as to any Person, the obligation of
such Person to pay rent or other amounts under a lease to which such Person is a
party that is required to be classified and accounted for as a capital lease
obligation under GAAP and, for purposes of this definition, the amount of such
obligation at any date shall be the capitalized amount of such obligation at
such date, determined in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated) of capital stock, including each class of common stock and Preferred
Stock of such Person and (ii) with respect to any Person that is not a
corporation, any and all partnership or other equity interests of such Person.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc.; (iii) commercial paper maturing no more than one year from the
date of creation thereof and, at the time of acquisition, having a rating of at
least A-1 from Standard & Poor's Corporation or at least P-1 from Moody's
Investors Service, Inc.; (iv) certificates of deposit or bankers' acceptances
maturing within one year from the date of acquisition thereof issued by any
commercial bank organized under the laws of the United States of America or any
state thereof or the District of Columbia or any U.S. branch of a foreign bank
having at the date of acquisition thereof combined capital and surplus of not
less than $200,000,000; (v) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clause (i) above
entered into with any bank meeting the qualifications
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specified in clause (iv) above; and (vi) investments in money market funds which
invest substantially all their assets in securities of the types described in
clauses (i) through (v) above.
"Chancellor Broadcasting" means Chancellor Broadcasting Company, a Delaware
corporation that was merged with and into Evergreen Mezzanine Holdings
Corporation, a Delaware corporation, on the Merger Date.
"Chancellor Media" means Chancellor Media Corporation, a Delaware
corporation formerly known as Evergreen Media Corporation, and its successors.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company to any Person or group of related Persons for purposes of Section 13(d)
of the Exchange Act (a "Group") (whether or not otherwise in compliance with the
provisions of the Indenture), other than to Hicks Muse or any of its Affiliates,
officers and directors or to Steven Dinetz or Scott K. Ginsburg (the "Permitted
Holders"); or (ii) a majority of the Board of Directors of Chancellor Media,
CMHC or the Company shall consist of Persons who are not Continuing Directors;
or (iii) the acquisition by any Person or Group (other than the Permitted
Holders) of the power, directly or indirectly, to vote or direct the voting of
securities having more than 50% of the ordinary voting power for the election of
directors of Chancellor Media, CMHC or the Company.
"CMHC" means Chancellor Mezzanine Holdings Corporation, a Delaware
corporation formerly known as Evergreen Mezzanine Holdings Corporation, and its
successors.
"Commodity Agreement" means any commodity futures contract, commodity
option or other similar agreement or arrangement entered into by the Company or
any of its Subsidiaries designed to protect the Company or any of its
Subsidiaries against fluctuations in the price of commodities actually used in
the ordinary course of business of the Company and its Subsidiaries.
"Consolidated EBITDA" means, with respect to any Person, for any period,
the sum (without duplication) of (i) Consolidated Net Income and (ii) to the
extent Consolidated Net Income has been reduced thereby, (A) all income taxes of
such Person and its Subsidiaries paid or accrued in accordance with GAAP for
such period (other than income taxes attributable to extraordinary or
nonrecurring gains or losses), (B) Consolidated Interest Expense and (C)
Consolidated Non-Cash Charges, all as determined on a consolidated basis for
such Person and its Subsidiaries in conformity with GAAP.
"Consolidated Interest Expense" means, with respect to any Person for any
period, without duplication, the sum of (i) the interest expense of such Person
and its Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP, including, without limitation, (a) any amortization of
debt discount, (b) the net cost under Interest Swap Obligations (including any
amortization of discounts), (c) the interest portion of any deferred payment
obligation, (d) all commissions, discounts and other fees and charges owed with
respect to letters of credit, bankers' acceptance financing or similar
facilities, and (e) all accrued interest and (ii) the interest component of
Capitalized Lease Obligations paid or accrued by such person and its
Subsidiaries during such period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" of any Person means, for any period, the
aggregate net income (or loss) of such Person and its Subsidiaries for such
period on a consolidated basis, determined in accordance with GAAP; provided
that there shall be excluded therefrom, without duplication, (a) gains and
losses from Asset Sales (without regard to the $500,000 limitation set forth in
the definition thereof) or abandonments or reserves relating thereto and the
related tax effects, (b) items classified as extraordinary or nonrecurring gains
and losses, and the related tax effects according to GAAP, (c) the net income
(or loss) of any Person acquired in a pooling of interests transaction accrued
prior to the date it becomes a Subsidiary of such first referred to Person or is
merged or consolidated with it or any of its Subsidiaries, (d) the net income of
any Subsidiary to the extent that the declaration of dividends or similar
distributions by that Subsidiary of that income is restricted by contract,
operation of law or otherwise and (e) the net income of any Person, other than a
Subsidiary, except to the extent of the lesser of (x) dividends or distributions
paid to such first referred to Person or its Subsidiary by such Person and (y)
the net income of such Person (but in no event less than
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zero), and the net loss of such Person shall be included only to the extent of
the aggregate Investment of the first referred to Person or a consolidated
Subsidiary of such Person.
"Consolidated Non-Cash Charges" means, with respect to any Person for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Subsidiaries reducing Consolidated Net Income of such Person
and its Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP (excluding any such charges constituting an extraordinary
or nonrecurring item).
"Continuing Director" means, as of the date of determination, any Person
who (i) was a member of the Board of Directors of Chancellor Media, CMHC or the
Company on the date of the Indenture, (ii) was nominated for election or elected
to the Board of Directors of Chancellor Media, CMHC or the Company with the
affirmative vote of a majority of the Continuing Directors who were members of
such Board of Directors at the time of such nomination or election, or (iii) is
a representative of a Permitted Holder.
"Contract Buy Out" means the involuntary disposition or termination
(including, without limitation, pursuant to a buy out) of a contract between a
media representation company and a client station.
"CRBC" means Chancellor Radio Broadcasting Company, a Delaware corporation
that was merged with and into CMCLA on the Merger Date.
"Credit Agreement" means the Credit Agreement, dated on or about February
14, 1996, among Chancellor Broadcasting, CRBC, the lenders thereto and Bankers
Trust Company as managing agent, as such agreement may be amended (including any
amendment and restatement thereof), supplemented or otherwise modified from time
to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including by way of adding Subsidiaries of
CRBC as additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its Subsidiaries against fluctuations in currency values.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Designated Guarantor Senior Debt" means (i) Indebtedness guaranteed by a
Guarantor under or in respect of the Senior Credit Facility and (ii) any other
Indebtedness constituting Guarantor Senior Debt which, at the time of
determination, has an aggregate principal amount of at least $25,000,000 and is
specifically designated in the instrument evidencing such Guarantor Senior Debt
as "Designated Guarantor Senior Debt" by the Guarantor.
"Designated Senior Debt" means (i) Indebtedness under or in respect of the
Senior Credit Facility and (ii) any other Indebtedness constituting Senior Debt
which, at the time of determination, has an aggregate principal amount of at
least $25,000,000 and is specifically designated in the instrument evidencing
such Senior Debt as "Designated Senior Debt" by the Company.
"Disqualified Capital Stock" means any Capital Stock which, by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures (excluding any
maturity as the result of an optional redemption by the issuer thereof) or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof (except, in each case,
upon the occurrence of a Change of Control), in whole or in part, on or prior to
the final maturity date of the Notes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"Financial Monitoring and Oversight Agreements" means the Financial
Monitoring and Oversight Agreement among Hicks, Muse & Co. Partners, L.P., CRBC
and Chancellor Broadcasting, as in effect on the
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9 3/8% Notes Issue Date, and the Financial Advisory Agreement among
HM2/Management Partners, L.P., CRBC and Chancellor Broadcasting, as in effect on
the 9 3/8% Notes Issue Date, or as each is amended in connection with the merger
of Chancellor Broadcasting, CRBC, Chancellor Media, CMHC and the Company on the
Merger Date.
"GAAP" means generally accepted accounting principles as in effect in the
United States of America as of the Issue Date.
"Guarantors" mean (i) initially, all of the Company's subsidiaries on the
Issue Date except Katz International Limited, Katz Television Sales Limited,
Katz Radio Sales Limited and National Cable Communications, L.P. and (ii) each
of the Company's Subsidiaries that, subsequent to the Issue Date, executes a
supplemental indenture in which such Subsidiary agrees to be bound by the terms
of the Indenture as a Guarantor; provided that any Person constituting a
Guarantor as described above shall cease to constitute a Guarantor when its
respective Guarantee is released in accordance with the terms thereof.
"Guarantor Senior Debt" means any Indebtedness of a Guarantor (including
any interest accruing subsequent to the filing of a petition of bankruptcy at
the rate provided for in the documentation with respect thereto, whether or not
such interest is an allowed claim under applicable law), whether outstanding on
the Issue Date or thereafter created, incurred or assumed, unless, in the case
of any particular Indebtedness, the instrument creating or evidencing the same
or pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Guarantees. Without
limiting the generality of the foregoing, "Guarantor Senior Debt" shall also
include the principal of, premium, if any, interest (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on, and all other amounts
owing in respect of, and all monetary obligations of every nature under, (x) the
Senior Credit Agreement, including, without limitation, obligations to pay
principal and interest, reimbursement obligations under letters of credit, fees,
expenses and indemnities, and (y) all Interest Swap Obligations. Notwithstanding
the foregoing, "Guarantor Senior Debt" shall not include any of the following
amounts (whether or not constituting Indebtedness as defined in this Indenture):
(i) any Indebtedness of a Guarantor to a Subsidiary of such Guarantor; (ii)
Indebtedness and other amounts owing to trade creditors incurred in connection
with obtaining goods, materials or services; (iii) Indebtedness represented by
Disqualified Capital Stock; (iv) any liability for federal, state, local or
other taxes owed or owing by a Guarantor; (v) any Indebtedness which is, by its
express terms, subordinated in right of payment to any other Indebtedness of
such Guarantor; and (vi) guarantees of each of the 9 3/8% Notes, the 8 3/4%
Notes, the 10 1/2% Notes and the Notes.
"Hicks Muse" means Hicks, Muse, Tate & Furst Incorporated.
"Indebtedness" means with respect to any Person, without duplication, any
liability of such Person (i) for borrowed money, (ii) evidenced by bonds,
debentures, notes or other similar instruments, (iii) constituting Capitalized
Lease Obligations, (iv) incurred or assumed as the deferred purchase price of
property, or pursuant to conditional sale obligations and title retention
agreements (but excluding trade accounts payable arising in the ordinary course
of business), (v) for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction, (vi) for Indebtedness of
others guaranteed by such Person, (vii) for Interest Swap Obligations, Commodity
Agreements and Currency Agreements and (viii) for Indebtedness of any other
Person of the type referred to in clauses (i) through (vii) which are secured by
any Lien on any property or asset of such first referred to Person, the amount
of such Indebtedness being deemed to be the lesser of the value of such property
or asset or the amount of the Indebtedness so secured. The amount of
Indebtedness of any Person at any date shall be the outstanding principal amount
of all unconditional obligations described above, as such amount would be
reflected on a balance sheet prepared in accordance with GAAP, and the maximum
liability at such date of such Person for any contingent obligations described
above.
"Interest Swap Obligations" means the obligations of any Person under any
interest rate protection agreement, interest rate future, interest rate option,
interest rate swap, interest rate cap or other interest rate hedge or
arrangement.
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"Investment" means (i) any transfer or delivery of cash, stock or other
property of value in exchange for Indebtedness, stock or other security or
ownership interest in any Person by way of loan, advance, capital contribution,
guarantee or otherwise and (ii) an investment deemed to have been made by the
Company at the time any entity which was a Subsidiary of the Company ceases to
be such a Subsidiary in an amount equal to the value of the loans and advances
made, and any remaining ownership interest in, such entity immediately following
such entity ceasing to be a Subsidiary of the Company. The amount of any
non-cash Investment shall be the fair market value of such Investment, as
determined conclusively in good faith by management of the Company unless the
fair market value of such Investment exceeds $1.0 million, in which case the
fair market value shall be determined conclusively in good faith by the Board of
Directors of the Company at the time such Investment is made.
"Issue Date" means the date of original issuance of the Original Notes.
"Leverage Ratio" shall mean, as to any Person, the ratio of (i) the sum of
the aggregate outstanding amount of Indebtedness of such Person and its
Subsidiaries as of the date of calculation on a consolidated basis in accordance
with GAAP to (ii) the Consolidated EBITDA of such Person for the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
determination.
For purposes of this definition, the aggregate outstanding principal amount
of Indebtedness of the Person and its Subsidiaries for which such calculation is
made shall be determined on a pro forma basis as if the Indebtedness giving rise
to the need to perform such calculation had been incurred and the proceeds
therefrom had been applied, and all other transactions in respect of which such
Indebtedness is being incurred had occurred, on the last day of the Four Quarter
Period. In addition to the foregoing, for purposes of this definition,
"Consolidated EBITDA" shall be calculated on a pro forma basis after giving
effect to (i) the incurrence of the Indebtedness of such Person and its
Subsidiaries (and the 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 (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 and (ii) any Asset Sales or Asset
Acquisitions (including, without limitation, any Asset Acquisition giving rise
to the need to make such calculation as a result of such Person or one of its
Subsidiaries (including any Person who becomes a Subsidiary as a result of such
Asset Acquisition) incurring, assuming or otherwise becoming liable for
Indebtedness) at any time on or subsequent to the first day of the Four Quarter
Period and on or prior to the date of determination, as if such Asset Sale or
Asset Acquisition (including the incurrence, assumption or liability for any
such Indebtedness and also including any Consolidated EBITDA associated with
such Asset Acquisition) occurred on the first day of the Four Quarter Period.
Furthermore, in calculating "Consolidated Interest Expense" for purposes of the
calculation of "Consolidated EBITDA," (i) interest on Indebtedness determined on
a fluctuating basis as of the date of determination (including Indebtedness
actually incurred on the date of the transaction giving rise to the need to
calculate the Leverage Ratio) and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum equal to
the rate of interest on such Indebtedness as in effect on the date of
determination and (ii) notwithstanding (i) above, interest determined on a
fluctuating basis, to the extent such interest is covered by Interest Swap
Obligations, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"Merger Date" means September 5, 1997.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents (including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents)
received by the Company or any of its Subsidiaries from such Asset Sale net of
(i) reasonable out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation,
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legal, accounting and investment banking fees and sales commissions, recording
fees, title insurance premiums, appraisers fees and costs reasonably incurred in
preparation of any asset or property for sale), (ii) taxes paid or reasonably
estimated to be payable (calculated based on the combined state, federal and
foreign statutory tax rates applicable to the Company or the Subsidiary engaged
in such Asset Sale) and (iii) repayment of Indebtedness secured by assets
subject to such Asset Sale; provided that if the instrument or agreement
governing such Asset Sale requires the transferor to maintain a portion of the
purchase price in escrow (whether as a reserve for adjustment of the purchase
price or otherwise) or to indemnify the transferee for specified liabilities in
a maximum specified amount, the portion of the cash or Cash Equivalents that is
actually placed in escrow or segregated and set aside by the transferor for such
indemnification obligation shall not be deemed to be Net Cash Proceeds until the
escrow terminates or the transferor ceases to segregate and set aside such
funds, in whole or in part, and then only to the extent of the proceeds released
from escrow to the transferor or that are no longer segregated and set aside by
the transferor.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing, or otherwise relating to, any
Indebtedness.
"Permitted Indebtedness" means, without duplication, (i) the Notes; (ii)
the Guarantees; (iii) Indebtedness of the Company incurred pursuant to the
Credit Agreement in an aggregate principal amount at any time outstanding not to
exceed the sum of the aggregate commitments pursuant to the Credit Agreement as
initially in effect on the 9 3/8% Notes Issue Date; (iv) the 9 3/8% Notes, the
8 3/4% Notes and the 10 1/2% Notes and Guarantees thereof; (v) Interest Swap
Obligations; provided that such Interest Swap Obligations are entered into to
protect the Company from fluctuations in interest rates of its Indebtedness;
(vi) additional Indebtedness of the Company or any of its Subsidiaries not to
exceed $10,000,000 in principal amount outstanding at any time (which amount
may, but need not, be incurred under the Senior Credit Facility); (vii)
Refinancing Indebtedness; (viii) Indebtedness owed by the Company to any
Wholly-Owned Subsidiary or by any Subsidiary to the Company or any Wholly-Owned
Subsidiary of the Company; and (ix) guarantees by Subsidiaries of any
Indebtedness permitted to be incurred pursuant to the Indenture.
"Permitted Investments" means (i) Investments by the Company or any
Subsidiary to acquire the stock or assets of any Person (or Indebtedness of such
Person acquired in connection with a transaction in which such Person becomes a
Subsidiary of the Company) engaged in the broadcast business or businesses
reasonably related thereto, including, without limitation, media representation,
sale of advertising and such other activities as are incidental or similar or
related thereto; provided that if any such Investment or series of related
Investments involves an Investment by the Company in excess of $5,000,000, the
Company is able, at the time of such Investment and immediately after giving
effect thereto, to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) in compliance with the "Limitation on Incurrence of
Additional Indebtedness" covenant, (ii) Investments received by the Company or
its Subsidiaries as consideration for a sale of assets, including an Asset Sale
effected in compliance with the "Limitation on Asset Sales" covenant, (iii)
Investments by the Company or any Wholly-Owned Subsidiary of the Company in any
Wholly-Owned Subsidiary of the Company (whether existing on the Issue Date or
created thereafter) or any Person that after such Investments, and as a result
thereof, becomes a Wholly-Owned Subsidiary of the Company and Investments in the
Company by any Wholly-Owned Subsidiary of the Company, (iv) cash and Cash
Equivalents, (v) Investments in securities of trade creditors, wholesalers or
customers received pursuant to any plan of reorganization or similar arrangement
and (vi) additional Investments in an aggregate amount not to exceed $2,500,000
at any time outstanding.
"Permitted Liens" means (i) Liens for taxes, assessments and governmental
charges to the extent not required to be paid under the Indenture, (ii)
statutory Liens of landlords and carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen or other like Liens to the extent not required to be paid
under the Indenture, (iii) pledges or deposits to secure lease obligations or
nondelinquent obligations under workers' compensation, unemployment insurance or
similar legislation, (iv) Liens to secure the performance of public statutory
obligations that are not delinquent, performance bonds or other obligations of a
like nature (other than for borrowed money), in each case incurred in the
ordinary course of business, (v) easements, rights-of-way, restrictions, minor
defects or irregularities in title and other similar charges or encumbrances
incurred in
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the ordinary course of business not interfering in any material respect with the
business of the Company or its Subsidiaries, (vi) Liens upon specific items of
inventory or other goods and proceeds of any Person securing such Person's
obligations in respect of letters of credit or bankers' acceptances issued or
created for the account of such Person to facilitate the purchase, shipment or
storage of such inventory or other goods in the ordinary course of business,
(vii) judgment and attachment Liens not giving rise to an Event of Default,
(viii) leases or subleases granted to others in the ordinary course of business
consistent with past practice not interfering in any material respect with the
business of the Company or its Subsidiaries, (ix) any interest or title of a
lessor in the property subject to any lease, whether characterized as
capitalized or operating other than any such interest or title resulting from or
arising out of a default by the Company or its Subsidiaries of its obligations
under such lease and (x) Liens arising from filing UCC financing statements for
precautionary purposes in connection with true leases of personal property that
are otherwise permitted under the Indenture and under which the Company or any
of its Subsidiaries is a lessee.
"Person" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a governmental
agency or political subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Productive Assets" means assets of a kind used or usable by the Company
and its Subsidiaries in broadcast businesses or businesses reasonably related
thereto, including, without limitation, media representation, sale of
advertising and such other activities as are incidental or similar or related
thereto, and specifically includes assets acquired through Asset Acquisitions.
"Public Equity Offering" means an underwritten public offering of Capital
Stock (other than Disqualified Capital Stock) of Chancellor Media, CMHC or the
Company, pursuant to an effective registration statement filed with the
Commission in accordance with the Securities Act; provided, however, that, in
the case of a Public Equity Offering by Chancellor Media or CMHC, Chancellor
Media or CMHC contributes to the capital of the Company net cash proceeds in an
amount at least sufficient to redeem the 9 3/8% Notes, 8 3/4% Notes, 10 1/2%
Notes and Exchange Notes, if any, called for redemption in accordance with the
terms thereof.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Refinancing Indebtedness" means any refinancing by the Company of
Indebtedness of the Company or any of its Subsidiaries incurred in accordance
with the "Limitation on Incurrence of Additional Indebtedness" covenant (other
than pursuant to clause (iii) or (iv) of the definition of Permitted
Indebtedness) that does not (i) result in an increase in the aggregate principal
amount of Indebtedness (such principal amount to include, for purposes of this
definition, any premiums, penalties or accrued interest paid with the proceeds
of the Refinancing Indebtedness) of such Person or (ii) create Indebtedness with
(A) a Weighted Average Life to Maturity that is less than the Weighted Average
Life to Maturity of the Indebtedness being refinanced or (B) a final maturity
earlier than the final maturity of the Indebtedness being refinanced.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; provided that if, and
for so long as, any Designated Senior Debt lacks such a representative, then the
Representative for such Designated Senior Debt shall at all times constitute the
holders of a majority in outstanding principal amount of such Designated Senior
Debt.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Subsidiary of any property, whether owned by the
Company or any Subsidiary at the Issue Date or later acquired, which has been or
is to be sold or transferred by the Company or such Subsidiary to such Person or
to any other Person from whom funds have been or are to be advanced by such
Person on the security of such property.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Senior Credit Facility" means the Second Amended and Restated Loan
Agreement, dated April 25, 1997, as amended from time to time, among the
Company, the lenders from time to time named party thereto,
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Toronto Dominion (Texas), Inc., Bankers Trust Company, The Bank of New York,
NationsBank of Texas, N.A. and Union Bank of California, as managing agents,
Toronto Dominion Securities (USA), Inc., as arranging agent, and Toronto
Dominion (Texas), Inc., as administrative agent for the lenders, together with
the related documents thereto (including, without limitation, any guarantee
agreements, stock pledge agreements and other security documents), in each case,
as such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including by way of adding Subsidiaries of the Company as
additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders.
"Senior Debt" means any Indebtedness of the Company (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law), whether outstanding on the
Issue Date or thereafter created, incurred or assumed, unless, in the case of
any particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Exchange Notes.
Without limiting the generality of the foregoing, "Senior Debt" shall also
include the principal of, premium, if any, interest (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on, and all other amounts
owing in respect of, and all monetary obligations of every nature under, (x) the
Senior Credit Facility, including, without limitation, obligations to pay
principal and interest, reimbursement obligations under letters of credit, fees,
expenses and indemnities, and (y) all Interest Swap Obligations. Notwithstanding
the foregoing, Senior Debt shall not include any of the following amounts
(whether or not constituting Indebtedness as defined in the Indenture): (i) any
Indebtedness of the Company to a Subsidiary of the Company, (ii) Indebtedness
and other amounts owing to trade creditors incurred in connection with obtaining
goods, materials or services, (iii) Indebtedness represented by Disqualified
Capital Stock, (iv) any liability for federal, state, local or other taxes owed
or owing by the Company, (v) any Indebtedness which is, by its express terms,
subordinated in right of payment to any other Indebtedness of the Company,
including the 9 3/8% Notes, the 8 3/4% Notes, the 10 1/2% Notes, the Original
Notes, the 12 1/4% Subordinated Exchange Debentures due 2008 of the Company and
the 12% Subordinated Exchange Debentures due 2009 of the Company.
"Significant Subsidiary" means for any Person each Subsidiary of such
Person which (i) for the most recent fiscal year of such Person accounted for
more than 5% of the consolidated net income of such Person or (ii) as at the end
of such fiscal year, was the owner of more than 5% of the consolidated assets of
such Person.
"Subsidiary," with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
Notwithstanding anything in the Indenture to the contrary, all references to the
Company and its consolidated Subsidiaries or to financial information prepared
on a consolidated basis in accordance with GAAP shall be deemed to include the
Company and its Subsidiaries as to which financial statements are prepared on a
combined basis in accordance with GAAP and to financial information prepared on
such a combined basis. Notwithstanding anything in the Indenture to the
contrary, an Unrestricted Subsidiary shall not be deemed to be a Subsidiary for
purposes of the Indenture.
"Tax Sharing Agreement" means the Tax Sharing Agreement between CRBC and
Chancellor Broadcasting, as in effect on the 9 3/8% Notes Issue Date.
"Unrestricted Subsidiary" means a Subsidiary of the Company created after
the 9 3/8% Notes Issue Date and so designated by a resolution adopted by the
Board of Directors of the Company, provided that (a) neither the Company nor any
of its other Subsidiaries (other than Unrestricted Subsidiaries) (1) provides
any credit support for any Indebtedness of such Subsidiary (including any
undertaking, agreement or instrument
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evidencing such Indebtedness) or (2) is directly or indirectly liable for any
Indebtedness of such Subsidiary, (b) the creditors with respect to Indebtedness
for borrowed money of such Subsidiary, having a principal amount in excess of
$5,000,000, have agreed in writing that they have no recourse, direct or
indirect, to the Company or any other Subsidiary of the Company (other than
Unrestricted Subsidiaries), including, without limitation, recourse with respect
to the payment of principal of or interest on any Indebtedness of such
Subsidiary and (c) at the time of designation of such Subsidiary such Subsidiary
has no property or assets (other than de minimis assets resulting from the
initial capitalization of such Subsidiary). Any such designation by the Board of
Directors of the Company shall be evidenced to the Trustee by the filing with
the Trustee of a certified copy of the resolution of the Company's Board of
Directors giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions. Until
otherwise designated by the Board of Directors of the Company, National Cable
Communications, L.P., a Delaware limited partnership, shall be an Unrestricted
Subsidiary.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the total of the
product obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the Exchange Notes initially will be represented
by one or more permanent global certificates in definitive, fully registered
form (the "Global Certificate"). The Global Certificate will be deposited with,
or on behalf of, The Depository Trust Company, New York, New York ("DTC") and
registered in the name of a nominee of DTC.
The Global Certificate. The Company expects that pursuant to procedures
established by DTC (i) upon the issuance of the Global Certificate, DTC or its
custodian will credit, on its internal system, the aggregate principal amount of
Exchange Notes of the individual beneficial interests represented by such global
securities to the respective accounts of persons who have accounts with such
depositary and (ii) ownership of beneficial interests in the Global Certificate
will be shown on, and the transfer of such ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants). Ownership of beneficial interests in the
Global Certificate will be limited to persons who have accounts with DTC
("participants") or persons who hold interests through participants.
So long as DTC, or its nominee, is the registered owner or holder of the
Exchange Notes, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Exchange Notes represented by such Global
Certificate for all purposes. No beneficial owner of an interest in the Global
Certificate will be able to transfer that interest except in accordance with
DTC's procedures, in addition to those procedures provided for in the Indenture.
Payments of the principal of, premium, if any, and interest on the Global
Certificate will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. None of the Company, the Trustee nor the Paying Agent
and Registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Global Certificate or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interest.
The Company expects that DTC, or its nominee, upon receipt of any payment
of principal, premium, if any, and interest in respect of the Global
Certificate, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the Global Certificate as shown on the records of DTC or its nominee. The
Company also expects that payments by participants to owners of beneficial
interests in the Global Certificate held through such participants will be
governed by standing instructions and customary practice, as is now the case
with securities held for the accounts of
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customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in clearinghouse funds. If a
holder requires physical delivery of a Certificated Security for any reason,
including to sell Exchange Notes to persons in states that require physical
delivery of the Certificate, or to pledge such securities, such holder must
transfer its interest in the Global Certificate, in accordance with the normal
procedures of DTC and with the procedures set forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Exchange Notes (including the presentation of Exchange
Notes for exchange as described below) only at the direction of one or more
participants to whose account the DTC interests in the Global Certificate are
credited and only in respect of such Exchange Notes as to which such participant
or participants has or have given such direction.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Certificate among participants of DTC, it
is under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
obligations under the rules and procedures governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Certificate and a successor depositary
is not appointed by the Company within 90 days, Certificated Securities will be
issued in exchange for the Global Certificate.
DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR CREDIT FACILITY
On April 25, 1997, the Company closed its Second Amended and Restated Loan
Agreement (as amended from time to time, the "Senior Credit Facility") with TD
Securities (USA) Inc. as arranging agent, The Bank of New York and Bankers Trust
Company, as co-syndication agents, NationsBank of Texas, N.A. and Union Bank of
California, as co-documentation agents, Toronto Dominion (Texas), Inc., as
administrative agent (the "Administrative Agent"), and the financial
institutions party thereto (the "Lenders"). The Senior Credit Facility initially
provided for a maximum commitment of $1.75 billion, and upon consummation of the
Chancellor Merger, the aggregate commitment under the Senior Credit Facility was
increased to $2.50 billion. Loans under the Senior Credit Facility consist of
(i) a $900.0 million term loan facility (the "Term Loan Facility") and (ii) a
$1.60 billion revolving loan facility (the "Revolving Loan Facility" and,
collectively with the Term Loan Facility, the "Loans").
The following description of certain provisions of the Senior Credit
Facility does not purport to be complete and is qualified in its entirety by
reference to the full text of the Senior Credit Facility, a copy of which is
available from the Company on request.
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Term Loan Facility
The Term Loan Facility matures on June 30, 2005. The Term Loan Facility
requires scheduled annual reductions of the principal balance of the Term Loan
Facility outstanding on June 30, 2000, payable quarterly in equal quarterly
amounts, commencing on September 30, 2000 in the following percentages: (i) from
9/30/00 through and including 6/30/01, 15.00%; (ii) from 9/30/01 through and
including 6/30/02, 20.00%; (iii) from 9/30/02 through and including 6/30/03,
20.00%; (iv) from 9/30/03 through and including 6/30/04, 20.00%; and (v) from
9/30/04 through and including 6/30/05, 25.00%. Mandatory or optional prepayments
made by the Company against the Term Loan Facility will not affect the reduction
percentages set forth above.
Revolving Loan Facility
The Revolving Loan Facility matures on June 30, 2005. The Revolving Loan
Facility requires scheduled annual reductions of the Revolving Loan Commitment
(as defined in the Senior Credit Facility) as of June 30, 2000, payable
quarterly in equal quarterly amounts, commencing on September 30, 2000 in the
following percentages: (i) from 9/30/00 through and including 6/30/01, 15.00%;
(ii) from 9/30/01 through and including 6/30/02, 20.00%; (iii) from 9/30/02
through and including 6/30/03, 20.00%; (iv) from 9/30/03 through and including
6/30/04, 20.00%; and (v) from 9/30/04 through and including 6/30/05, 25.00%.
Voluntary reductions of the Revolving Loan Commitment made by the Company shall
not affect the reduction percentages set forth above.
Additional Facility Indebtedness
The Company has the ability to incur additional indebtedness ("Additional
Facility Indebtedness") in a principal amount not to exceed $250.0 million from
one or more of the Lenders or any other institution acceptable to the
Administrative Agent that agrees to extend such credit, provided that certain
conditions under the Senior Credit Facility are complied with. As of the date
hereof, the Company has not requested, and no Lender has issued, any commitment
to extend such Additional Facility Indebtedness to the Company.
Interest Rate
The Loans bear interest at a rate equal to, at the Company's option, (i)
the Prime Rate (as defined in the Senior Credit Facility) in effect from time to
time plus the Applicable Margin (as defined) (a "Prime Rate Loan") or (ii) the
Eurodollar Rate (as defined in the Senior Credit Facility) as determined by the
Administrative Agent for the respective interest period plus the Applicable
Margin (a "Eurodollar Loan"). The Applicable Margin is calculated based on the
Company's Total Leverage Ratio (as defined in the Senior Credit Facility)
according to the table set forth below:
<TABLE>
<CAPTION>
PRIME RATE EURODOLLAR RATE
TOTAL LEVERAGE RATIO APPLICABLE MARGIN APPLICABLE MARGIN
-------------------- ----------------- -----------------
<S> <C> <C>
Greater than 6.75..................................... 1.000% 2.000%
Greater than 6.50 but less than or equal to 6.75...... 0.750% 1.750%
Greater than 6.00 but less than or equal to 6.50...... 0.375% 1.375%
Greater than 5.50 but less than or equal to 6.00...... 0.125% 1.125%
Greater than 5.00 but less than or equal to 5.50...... 0.000% 0.875%
Greater than 4.50 but less than or equal to 5.00...... 0.000% 0.625%
Greater than 4.00 but less than or equal to 4.50...... 0.000% 0.500%
Less than or equal to 4.00............................ 0.000% 0.400%
</TABLE>
Fees
The Company is required to pay commitment fees on the aggregate unused
amount of the Available Revolving Loan Commitment (as defined in the Senior
Credit Facility) based on the Total Leverage Ratio for the most recent fiscal
quarter end. If the Total Leverage Ratio is greater than or equal to 5.50, the
corresponding commitment fee is 0.375%; if the Total Leverage Ratio is less than
5.50, the corresponding
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commitment fee is 0.250%. The Administrative Agent will also receive such other
customary fees as have been separately agreed upon with the Company. The Company
also is required to pay fees for outstanding letters of credit drawn under the
Senior Credit Facility at a rate per annum on the amount of the Letter of Credit
Obligations (as defined in the Senior Credit Facility) equal to the Applicable
Margin for Eurodollar Loans plus an issuing bank fee of $2,000 for issuing,
amending or renewing any letter of credit.
Security and Guarantees
The Senior Credit Facility is secured by (i) a pledge of all capital stock
owned by CMCLA and its subsidiaries, (ii) a pledge of all capital stock of CMCLA
and KMG owned by CMHC, (iii) a pledge of all capital stock of CMCLA owned by
KMG, (iv) a non-recourse pledge of all capital stock of CMHC owned by Chancellor
Media, (v) a pledge of all debt and equity securities of persons engaged in any
Non-Core Business (as defined in the Senior Credit Facility) purchased by the
Company, (vi) a collateral assignment of all partnership interests held by the
subsidiaries of CMCLA, (vii) a collateral assignment of all trust interests held
by the subsidiaries of CMCLA, (viii) a collateral assignment of all limited
liability company interests held by CMCLA, (ix) downstream guarantees provided
by CMHC and KMG and (x) upstream guarantees provided by the subsidiaries of
CMCLA.
Covenants
The Senior Credit Facility contains customary restrictive covenants, which,
among other things and with certain exceptions, limit the ability of the Company
to incur additional indebtedness and liens in connection therewith, enter into
certain transactions with affiliates, pay dividends, consolidate, merge or
effect certain asset sales, issue additional stock, effect an asset swap, make
acquisitions and make capital expenditures and enter new lines of business.
Under the Senior Credit Facility, the Company is required to maintain
specified financial ratios, based on its Senior Leverage Ratio and Total
Leverage Ratio (in each case, as defined in the Senior Credit Facility), for
specified periods of time. Under the Senior Credit Facility, the Company must
not exceed the following ratios during the following periods of time:
<TABLE>
<CAPTION>
PERIOD ENDING SENIOR LEVERAGE RATIO TOTAL LEVERAGE RATIO
------------- --------------------- --------------------
<S> <C> <C>
4/25/97 through 12/31/98.......................... 6.00 to 1.00 7.00 to 1.00
1/1/99 through 12/31/99........................... 5.50 to 1.00 6.00 to 1.00
1/1/00 through 12/31/00........................... 3.75 to 1.00 5.25 to 1.00
1/1/01 and thereafter............................. 3.50 to 1.00 5.25 to 1.00
</TABLE>
Under the Senior Credit Facility, the Company may not, as of the end of any
fiscal quarter, allow its ratio of the sum of Operating Cash Flow plus the
Available Revolving Commitment (in each case, as defined in the Senior Credit
Facility) during the last fiscal four-quarter period to Pro Forma Fixed Changes
(as defined in the Senior Credit Facility) for the four-quarter period beginning
on the day following that fiscal quarter end, to be less than 1.05 to 1.00.
Under the Senior Credit Facility, the Company also is required to comply
with certain other financial tests, such as a specified ratio of Operating Cash
Flow to Cash Interest Expense (as each such term is defined in the Senior Credit
Facility).
Use of Proceeds
The Senior Credit Facility requires that the Net Proceeds from any
Permitted Asset Sale (in each case, as defined in the Senior Credit Facility) be
applied, at the Company's election, to the Term Loan Facility or the Revolving
Loan Facility or any combination thereof. In the alternative, the Company may
elect to make an acquisition with the Net Proceeds, so long as the Company has
entered into a contract for such acquisition within 12 months from the date of
such Permitted Asset Sale and has concluded the purchase with 18 months from the
date of such Permitted Asset Sale. In addition, 50% of Net Proceeds from any
Subordinated Indebtedness issued by the Company, other than the assumption or
refinancing of the 9 3/8% Notes, the 8 3/4%
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Notes, the 10 1/2% Notes and the Notes, may be applied, at the Company's
election, to the Term Loan Facility or the Revolving Loan Facility or any
combination thereof. To the extent that the Company elects to apply any amounts
described in this paragraph to the Revolving Loan Facility, the commitments
under such facility will not be permanently reduced and will be available for
subsequent borrowing by the Company.
Events of Default
The Senior Credit Facility contains customary events of default, including
(i) the default in the payment of any interest, reimbursement amounts with
respect to letters of credit, or fees or other amounts payable to the Lenders
(other than principal) when due which is not cured within five days from the
date that such payment was due, (ii) the default in the payment of any principal
amount when due, (iii) the default in the performance or observance of certain
representations, warranties, covenants and agreements contained in the Senior
Credit Facility, (iv) a Senior Credit Facility Change of Control (as defined
below), (v) the entry of an order for relief, winding-up or liquidation under
Title 11 of the United States Code or similar federal or state laws against
Chancellor Media, CMHC or the Company, (vi) the voluntary commencement by the
Company of bankruptcy proceedings under Title 11 of the United States Code or
similar federal or state laws, or the commencement of involuntary bankruptcy
proceedings against the Company, which are not diligently contested or which
continue undismissed for a period of 45 consecutive days, (vii) the entry of a
judgment against the Company which, individually or when aggregated with other
such judgments, exceeds $10 million, (viii) the failure to satisfy certain
minimum employee benefit funding standards, (ix) the acceleration of the
maturity of (a) Subordinated Indebtedness of the Company or (b) any other
indebtedness of the Company in an aggregate principal amount exceeding $3
million, (x) any event which would permit the acceleration of such subordinated
indebtedness or such other indebtedness which has not been cured within any
applicable cure period or waived in writing, (xi) any event which does not
permit acceleration of such Subordinated Indebtedness or such other indebtedness
but requires the Company to purchase or acquire such Subordinated Indebtedness
or such other indebtedness, (xii) any material default under any Interest Hedge
Agreement (as defined in the Senior Credit Facility) with a notional principal
amount of $6 million or more, (xii) the issuance by the FCC of a revocation
order based on alleged alien ownership of the Company, (xiii) the final,
non-appealable termination or revocation of any material FCC license or failure
to renew any such license, (xiv) the failure of any security document or note
under the Senior Credit Facility to be in effect, or (xv) the breach by CMHC of
the guarantee or stock pledge made by it pursuant to the Senior Credit Facility.
A "Senior Credit Facility Change of Control" will be deemed to have
occurred under the Senior Credit Facility if (i) any Person (as defined in the
Senior Credit Facility), other than Scott K. Ginsburg, Matthew Devine, Kenneth
J. O'Keefe, James de Castro and Hicks Muse and its affiliates, shall
individually or collectively control more than 51% on a fully diluted basis of
the voting power of Chancellor Media or (ii) CMHC and KMG shall cease to own all
of the issued and outstanding common stock of CMCLA.
9 3/8% NOTES
The 9 3/8% Notes mature on October 1, 2004. Interest on the 9 3/8% Notes
accrues at the rate of 9 3/8% per annum and is payable semiannually. The 9 3/8%
Notes are unsecured obligations of the Company, ranking subordinate in right of
payment to all Senior Debt (as defined in the 9 3/8% Indenture) of the Company
and pari passu with the 8 3/4% Notes and the 10 1/2% Notes, and will rank pari
passu with the Exchange Notes.
Substantially all of the Company's subsidiaries fully and unconditionally
guarantee the full and prompt payment of principal of all interest on the 9 3/8%
Notes, and of all other obligations under the 9 3/8% Indenture. The indebtedness
evidenced by each such guarantee is subordinated to each Guarantor's Senior Debt
on the same terms as the 9 3/8% Notes are subordinated to the Company's Senior
Debt.
Prior to January 31, 1999 the Company may redeem the 9 3/8% Notes with the
net cash proceeds of one or more Public Equity Offerings (as defined in the
9 3/8% Indenture) at a redemption price of 108.203% or 107.031% of the principal
amount thereof, plus, in each case, accrued and unpaid interest to the
redemption date, during the respective 12-month periods commencing on February
1, 1997 and 1998; provided, however, that after any such redemption at least 75%
of the aggregate principal amount of the 9 3/8% Notes originally issued must be
outstanding. The Company's ability to optionally redeem the 9 3/8% Notes are
subject to
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restrictions contained in the Senior Credit Facility, which limits the amount of
debt subordinate to the indebtedness under the Senior Credit Facility that may
be redeemed by the Company.
Under the 9 3/8% Indenture, in the event of a change of control (as defined
in the 9 3/8% Indenture) of the Company, each holder of 9 3/8% Notes will have
the right to require the Company to repurchase, in whole or in part, such
holder's 9 3/8% Notes at a purchase price equal to 101% of their principal
amount, plus accrued and unpaid interest, if any to the date of repurchase.
The 9 3/8% Indenture contains certain restrictive covenants which, among
other things, impose limitations (subject to certain exceptions) on the Company
with respect to (i) the payment of dividends or other distributions on capital
stock and the purchase, redemption or retirement for value of shares of capital
stock as any warrants, options or other rights for shares of capital stock; (ii)
the incurrence of additional indebtedness; (iii) the incurrence of subsidiary
indebtedness; (iv) the repayment of redemption of subordinated indebtedness
other than in accordance with its scheduled repayment; (v) sales of assets by
the Company; (vi) asset swaps; (vii) transactions with stockholders and
affiliates; (viii) the restriction of certain payments by subsidiaries to their
respective parents; (ix) the creation of liens on the assets of the Company or
its subsidiaries; (x) the incurrence of indebtedness senior to the 9 3/8% Notes
and subordinate to other indebtedness of the Company; (xi) investments by the
Company or its subsidiaries; (xii) the issuance of preferred stock by any of the
Company's subsidiaries; (xiii) sales and leasebacks by the Company or its
subsidiaries; (xiv) the guarantee of indebtedness; (xv) the conduct of business
other than the ownership and operation of radio broadcast stations and
businesses reasonably related thereto; and (xvi) the merger or sale of all or
substantially all the assets of the Company. Upon the happening of certain
events of default specified in the 9 3/8% Indenture, the trustee for the 9 3/8%
Notes may, and the trustee upon the request of holders of 25% in principal
amount then outstanding of the 9 3/8% Notes shall, or the holders of at least
25% in principal amount of outstanding 9 3/8% Notes may, declare the principal
amount then outstanding of and accrued but unpaid interest, if any, on all of
such 9 3/8% Notes to be due and payable. Upon the happening of certain other
events of default specified in the 9 3/8% Notes Indenture, the unpaid principal
of and accrued but unpaid interest on all outstanding 9 3/8% Notes will
automatically become due and payable without any action by the trustee or the
holders of the 9 3/8% Notes.
The Company may terminate its obligations under the 9 3/8% Indenture at any
time, and the obligations of the Guarantors with respect thereto shall
terminate, by delivering all outstanding 9 3/8% Notes of the appropriate series
to the appropriate trustee for cancellation and paying all sums payable by it
thereunder. The Company, at its option, (i) will be discharged from any and all
obligations with respect to the 9 3/8% Notes delivered, and the guarantor will
be discharged from any and all obligations with respect to its guarantee of such
9 3/8% Notes, (except for certain obligations of the Company to register the
transfer or exchange of such 9 3/8% Notes, replace stolen, lost or mutilated
9 3/8% Notes, maintain paying agencies and hold moneys for payment in trust) or
(ii) need not comply with certain of the restrictive covenants with respect to
the 9 3/8% Indenture, in each case, if the Company, in addition to satisfying
certain other obligations, deposits with the appropriate trustee, in trust, U.S.
legal tender or U.S. Government Obligations (in each case, as defined in the
9 3/8% Indenture) or a combination thereof which, through the payment of
interest thereon and principal in respect thereof in accordance with their
terms, will be sufficient to pay all the principal of and interest on 9 3/8%
Notes to be defeased on the dates such payments are due in accordance with the
terms of 9 3/8% Notes as well as the trustee's fees and expenses.
8 3/4% NOTES
The 8 3/4% Notes mature on June 15, 2007. Interest on the 8 3/4% Notes
accrues at the rate of 8 3/4% per annum and is payable semiannually. The 8 3/4%
Notes are unsecured obligations of the Company, ranking subordinate in right of
payment to all Senior Debt (as defined in the 8 3/4% Indenture) of the Company
and pari passu with the 9 3/8% Notes and the 10 1/2% Notes, and will rank pari
passu with the Exchange Notes.
Substantially all of the Company's subsidiaries fully and unconditionally
guarantee the full and prompt payment of principal of all interest on the 8 3/4%
Notes, and of all other obligations under the 8 3/4% Indenture.
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The indebtedness evidenced by each such guarantee is subordinated to each
Guarantor's Senior Debt on the same terms as the 8 3/4% Notes are subordinated
to the Company's Senior Debt.
Prior to June 15, 2000 the Company may redeem the 8 3/4% Notes with the net
cash proceeds of one or more Public Equity Offerings (as defined in the 8 3/4%
Indenture) at a redemption price of 108.75% of the principal amount thereof,
plus accrued and unpaid interest to the redemption date; provided, however, that
after any such redemption at least 75% of the aggregate principal amount of the
8 3/4% Notes originally issued must be outstanding. The Company's ability to
optionally redeem the 8 3/4% Notes are subject to restrictions contained in the
Senior Credit Facility, which limits the amount of debt subordinate to the
indebtedness under the Senior Credit Facility that may be redeemed by the
Company.
Under the 8 3/4% Indenture, in the event of a change of control (as defined
in the 8 3/4% Indenture) of the Company, each holder of 8 3/4% Notes will have
the right to require the Company to repurchase, in whole or in part, such
holder's 8 3/4% Notes at a purchase price equal to 101% of their principal
amount, plus accrued and unpaid interest, if any to the date of repurchase.
The 8 3/4% Indenture contains certain restrictive covenants which, among
other things, impose limitations (subject to certain exceptions) on the Company
with respect to (i) the payment of dividends or other distributions on capital
stock and the purchase, redemption or retirement for value of shares of capital
stock as any warrants, options or other rights for shares of capital stock; (ii)
the incurrence of additional indebtedness; (iii) the incurrence of subsidiary
indebtedness; (iv) the repayment or redemption of subordinated indebtedness
other than in accordance with its scheduled repayment; (v) sales of assets by
the Company; (vi) asset swaps; (vii) transactions with stockholders and
affiliates; (viii) the restriction of certain payments by subsidiaries to their
respective parents; (ix) the creation of liens on the assets of the Company or
its subsidiaries; (x) the incurrence of indebtedness senior to the 8 3/4% Notes
and subordinate to other indebtedness of the Company; (xi) investments by the
Company or its subsidiaries; (xii) the issuance of preferred stock by any of the
Company's subsidiaries; (xiii) sales and leasebacks by the Company or its
subsidiaries; (xiv) the guarantee of indebtedness; (xv) the conduct of business
other than the ownership and operation of radio broadcast stations and
businesses reasonably related thereto; and (xvi) the merger or sale of all or
substantially all the assets of the Company. Upon the happening of certain
events of default specified in the 8 3/4% Indenture, the trustee for the 8 3/4%
Notes may, and the trustee upon the request of holders of 25% in principal
amount then outstanding of the 8 3/4% Notes shall, or the holders of at least
25% in principal amount of outstanding 8 3/4% Notes may, declare the principal
amount then outstanding of and accrued but unpaid interest, if any, on all of
such 8 3/4% Notes to be due and payable. Upon the happening of certain other
events of default specified in the 8 3/4% Indenture, the unpaid principal of and
accrued but unpaid interest on all outstanding 8 3/4% Notes will automatically
become due and payable without any action by the trustee or the holders of the
8 3/4% Notes.
The Company may terminate its obligations under the 8 3/4% Indenture at any
time, and the obligations of the Guarantors with respect thereto shall
terminate, by delivering all outstanding 8 3/4% Notes of the appropriate series
to the appropriate trustee for cancellation and paying all sums payable by it
thereunder. The Company, at its option, (i) will be discharged from any and all
obligations with respect to the 8 3/4% Notes delivered, and the guarantor will
be discharged from any and all obligations with respect to its guarantee of such
8 3/4% Notes, (except for certain obligations of the Company to register the
transfer or exchange of such 8 3/4% Notes, replace stolen, lost or mutilated
8 3/4% Notes, maintain paying agencies and hold moneys for payment in trust) or
(ii) need not comply with certain of the restrictive covenants with respect to
the 8 3/4% Indenture, in each case, if the Company, in addition to satisfying
certain other obligations, deposits with the appropriate trustee, in trust, U.S.
legal tender or U.S. Government Obligations (in each case, as defined in the
8 3/4% Indenture) or a combination thereof which, through the payment of
interest thereon and principal in respect thereof in accordance with their
terms, will be sufficient to pay all the principal of and interest on 8 3/4%
Notes to be defeased on the dates such payments are due in accordance with the
terms of 8 3/4% Notes as well as the trustee's fees and expenses.
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10 1/2% NOTES
The 10 1/2% Notes mature on January 15, 2007. Interest on the 10 1/2% Notes
accrues at the rate of 10 1/2% per annum and is payable semiannually. The
10 1/2% Notes are unsecured obligations of the Company, ranking subordinate in
right of payment to all Senior Debt (as defined in the 10 1/2% Indenture) of the
Company and pari passu with the 9 3/8% Notes and the 8 3/4% Notes, and will rank
pari passu with the Exchange Notes.
Substantially all of the Company's subsidiaries fully and unconditionally
guarantee the full and prompt payment of principal of all interest on the
10 1/2% Notes, and of all other obligations under the 10 1/2% Indenture. The
indebtedness evidenced by each such guarantee is subordinated to each
Guarantor's Senior Debt on the same terms as the 10 1/2% Notes are subordinated
to the Company's Senior Debt.
Prior to January 15, 2000 the Company may redeem the 10 1/2% Notes with the
net cash proceeds of one or more offerings of Equity Interests (as defined in
the 10 1/2% Indenture) at a redemption price of 109.5% of the principal amount
thereof, plus accrued and unpaid interest to the redemption date; provided,
however, that after any such redemption at least 65% of the aggregate principal
amount of the 10 1/2% Notes originally issued must be outstanding. The Company's
ability to optionally redeem the 10 1/2% Notes are subject to restrictions
contained in the Senior Credit Facility, which limits the amount of debt
subordinate to the indebtedness under the Senior Credit Facility that may be
redeemed by the Company.
Under the 10 1/2% Indenture, in the event of a change of control (as
defined in the 10 1/2% Indenture) of the Company, the Company shall be obligated
to make an offer to repurchase all outstanding 10 1/2% Notes at a purchase price
equal to 101% of their principal amount, plus accrued and unpaid interest, if
any to the date of repurchase.
The 10 1/2% Indenture contains certain restrictive covenants which, among
other things, impose limitations (subject to certain exceptions) on the Company
with respect to (i) the payment of dividends or other distributions on capital
stock and the purchase, redemption or retirement for value of shares of capital
stock as any warrants, options or other rights for shares of capital stock; (ii)
the incurrence of additional indebtedness; (iii) the incurrence of subsidiary
indebtedness; (iv) the repayment or redemption of subordinated indebtedness
other than in accordance with its scheduled repayment; (v) sales of assets by
the Company; (vi) asset swaps; (vii) transactions with stockholders and
affiliates; (viii) the restriction of certain payments by subsidiaries to their
respective parents; (ix) the creation of liens on the assets of the Company or
its subsidiaries; (x) the incurrence of indebtedness senior to the 10 1/2% Notes
and subordinate to other indebtedness of the Company; (xi) investments by the
Company or its subsidiaries; (xii) the issuance of preferred stock by any of the
Company's subsidiaries; (xiii) sales and leasebacks by the Company or its
subsidiaries; (xiv) the guarantee of indebtedness; (xv) the conduct of business
other than the ownership and operation of broadcast businesses or businesses
related thereto, including media representation and sale of advertising; and
(xvi) the merger or sale of all or substantially all the assets of the Company.
Upon the happening of certain events of default specified in the 10 1/2%
Indenture, the trustee for the 10 1/2% Notes may, and the trustee upon the
request of holders of 25% in principal amount then outstanding of the 10 1/2%
Notes shall, or the holders of at least 25% in principal amount of outstanding
10 1/2% Notes may, declare the principal amount then outstanding of and accrued
but unpaid interest, if any, on all of such 10 1/2% Notes to be due and payable.
Upon the happening of certain other events of default specified in the 10 1/2%
Indenture, the unpaid principal of and accrued but unpaid interest on all
outstanding 10 1/2% Notes will automatically become due and payable without any
action by the trustee or the holders of the 10 1/2% Notes.
The Company may terminate its obligations under the 10 1/2% Indenture at
any time, and the obligations of the Guarantors with respect thereto shall
terminate, by delivering all outstanding 10 1/2% Notes of the appropriate series
to the appropriate trustee for cancellation and paying all sums payable by it
thereunder. The Company, at its option, (i) will be discharged from any and all
obligations with respect to the 10 1/2% Notes delivered, and the guarantor will
be discharged from any and all obligations with respect to its guarantee of such
10 1/2% Notes, (except for certain obligations of the Company to register the
transfer or exchange of such 10 1/2% Notes, replace stolen, lost or mutilated
10 1/2% Notes, maintain paying agencies and hold moneys for payment in trust) or
(ii) need not comply with certain of the restrictive covenants with respect to
the 10 1/2%
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Indenture, in each case, if the Company, in addition to satisfying certain other
obligations, deposits with the appropriate trustee, in trust, U.S. cash or
Government Securities (as defined in the 10 1/2% Indenture) or a combination
thereof which, through the payment of interest thereon and principal in respect
thereof in accordance with their terms, will be sufficient to pay all the
principal of and interest on 10 1/2% Notes to be defeased on the dates such
payments are due in accordance with the terms of 10 1/2% Notes as well as the
trustee's fees and expenses.
12% EXCHANGE DEBENTURES
For a description of the 12% Subordinated Exchange Debentures due 2009
issuable by the Company from time to time upon exchange of the 12% Preferred
Stock, see "Description of Capital Stock -- CMCLA -- 12% Preferred
Stock -- Exchange."
12 1/4% EXCHANGE DEBENTURES
For a description of the 12 1/4% Subordinated Exchange Debentures due 2008
issuable by the Company from time to time upon exchange of the 12 1/4% Preferred
Stock, see "Description of Capital Stock -- CMCLA -- 12 1/4% Preferred
Stock -- Exchange."
6% EXCHANGE DEBENTURES
For a description of the 6% Convertible Subordinated Exchange Debentures
due 2012 issuable by Chancellor Media from time to time upon exchange of the
$3.00 Convertible Preferred Stock, see "Description of Capital
Stock -- Chancellor Media -- $3.00 Convertible Exchangeable Preferred Stock --
Exchange."
DESCRIPTION OF CAPITAL STOCK
CHANCELLOR MEDIA
COMMON STOCK
Chancellor Media's authorized common stock consists of 200,000,000 shares
of Common Stock, par value $0.01 per share (the "Common Stock"), approximately
120,145,483 of which were issued and outstanding as of March 1, 1998 and
75,000,000 shares of Class A Common Stock, par value $0.01 per share (the "Class
A Common Stock"), none of which were issued and outstanding as of March 1, 1998.
The shares of Common Stock currently outstanding are validly issued, fully
paid and nonassessable.
It is not contemplated that any shares of Class A Common Stock will be
issued at any time. The Amended and Restated Certificate of Incorporation of
Chancellor Media (the "Chancellor Media Certificate") provides that the issuance
of any shares of Class A Common Stock will require the unanimous affirmative
vote of the Board of Directors of Chancellor Media.
Dividends
Holders of shares of Common Stock and Class A Common Stock are entitled to
receive such dividends as may be declared by the Board of Directors of
Chancellor Media out of funds legally available for such purpose. The Senior
Credit Facility and the certificates of designation governing the $3.00
Convertible Preferred Stock and the 7% Convertible Preferred Stock each directly
restrict, and the 9 3/8% Indenture, the 8 3/4% Indenture, the 10 1/2% Indenture
and the Indenture and the certificates of designation governing the 12%
Preferred Stock and the 12 1/4% Preferred Stock each indirectly restrict,
Chancellor Media's ability to pay cash dividends on the Common Stock and Class A
Common Stock.
Chancellor Media has not declared or paid any dividends on the Common Stock
and Class A Common Stock in the past, and it is not anticipated that Chancellor
Media will pay any cash dividends on the Common Stock and Class A Common Stock
in the foreseeable future.
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Voting Rights
Holders of shares of Common Stock and Class A Common Stock, each voting as
a separate class, shall be entitled to vote on all matters submitted to a vote
of the stockholders, except as otherwise provided by law. Each share of Common
Stock and Class A Common Stock is entitled to one vote per share. Holders of
Common Stock and Class A Common Stock are not entitled to cumulative votes in
the election of directors.
Under Delaware law, the affirmative vote of the holders of a majority of
the outstanding shares of any class of capital stock of Chancellor Media is
required to approve any amendment to the Chancellor Media Certificate that would
increase or decrease the aggregate number of authorized shares of any class,
increase or decrease the par value of the shares of any class, or modify or
change the powers, preferences or special rights of the shares of any class so
as to affect such class adversely.
Liquidation Rights
Upon liquidation, dissolution, or winding-up of Chancellor Media, the
holders of Common Stock and Class A Common Stock are entitled to share ratably
in all assets available for distribution after payment in full of creditors and
the holders of preferred stock of Chancellor Media.
Transfer Agent
The Bank of New York serves as the Transfer Agent and Registrar for the
Common Stock.
Alien Ownership
The Chancellor Media Certificate restricts the ownership and voting of
Chancellor Media's capital stock, including its Common Stock, in accordance with
the Communications Act and the rules of the FCC, to prohibit ownership of more
than 25% of Chancellor Media's outstanding capital stock (or control of more
than 25% of the voting power it represents) by or for the account of aliens,
foreign governments, or non-U.S. corporations or corporations otherwise subject
to control by such persons or entities. The Chancellor Media Certificate also
prohibits any transfer of Chancellor Media's capital stock that would cause
Chancellor Media to violate this prohibition. In addition, the Chancellor Media
Certificate authorizes the Board of Directors of Chancellor Media to adopt such
provisions as its deems necessary to enforce these prohibitions.
Other Provisions
The holders of Common Stock and Class A Common Stock are not entitled to
preemptive or similar rights. The shares of Common Stock are not subject to
redemption or a sinking fund.
No single shareholder of Chancellor Media holds more than 50.0% of the
combined voting power of Chancellor Media. See "Risk Factors -- Control of the
Company." As a result, a holder of an "attributable" interest in Chancellor
Media may violate the FCC's multiple ownership rules or cross interest rules if
such holder also has an "attributable" interest (or, in some cases, a
"meaningful" nonattributable 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 stockholder may also be
restricted in the companies in which such stockholder may invest. See
"Business -- Federal Regulation of Radio Broadcasting Industry -- Ownership
Matters."
$3.00 CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
Dividends
Holders of $3.00 Convertible Preferred Stock are entitled to receive, when,
as and if declared by the Board of Directors out of legally available funds,
cash dividends at an annual rate of $3.00 per share, payable quarterly in
arrears on March 15, June 15, September 15 and December 15 of each year (each a
"Dividend Payment Date"), beginning September 15, 1997. Dividends will accrue
and be cumulative from the most recent date to which dividends have been paid
or, if none have been paid, from the date of first issuance of the $3.00
Convertible Preferred Stock and will be payable to holders of record on the
March 1, June 1,
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September 1 and December 1 immediately preceding the relevant Dividend Payment
Date. No interest, or sum of money in lieu of interest, will be payable in
respect of any accrued and unpaid dividends.
The $3.00 Convertible Preferred Stock has priority as to dividends over the
Common Stock and any other series or class of the Company's stock that ranks
junior to the $3.00 Convertible Preferred Stock as to dividends. Notwithstanding
the foregoing, the $3.00 Convertible Preferred Stock shall rank junior as to
dividends and rights upon a liquidation, dissolution or winding-up of the
Company to any and all classes or series of capital stock (other than Common
Stock) of the Company, whether currently issued or issued in the future, that
does not by its terms expressly provide that it ranks on a parity with or junior
to the $3.00 Convertible Preferred Stock as to dividends and rights upon a
liquidation, dissolution or winding-up of the Company.
Liquidation Rights
Upon liquidation, dissolution or winding-up of Chancellor Media, subject to
the payment in full, or until provision has been made for the payment in full,
of all claims of creditors of Chancellor Media, holders of $3.00 Convertible
Preferred Stock are entitled to receive the liquidation preference of $50.00 per
share, plus an amount equal to any accrued and unpaid dividends, whether or not
declared, to the payment date, before any payment or distribution is made to the
holders of Common Stock or any other series or class of stock hereafter issued
that ranks junior as to liquidation rights to the $3.00 Convertible Preferred
Stock.
Voting Rights
The holders of $3.00 Convertible Preferred Stock will have no voting rights
except as described below or as required by law. In exercising any voting
rights, each outstanding share of $3.00 Convertible Preferred Stock will be
entitled to one vote, although shares held by Chancellor Media or any entity
controlled by Chancellor Media will have no voting rights.
Whenever dividends on the $3.00 Convertible Preferred Stock are in arrears
in an aggregate amount equal to at least six quarterly dividends (whether or not
consecutive), the size of Chancellor Media's board of directors will be
increased by two, and the holders of $3.00 Convertible Preferred Stock, will be
entitled to elect two additional directors to the Board of Directors at, subject
to certain limitations, any annual meeting of stockholders at which directors
are to be elected held during the period when the dividends remain in arrears
or, under certain circumstances, at a special meeting of stockholders. These
voting rights will terminate when all dividends in arrears and for the current
quarterly period have been paid in full or declared and set apart for payment.
The term of office of the additional directors so elected will terminate
immediately upon that payment or provision for payment.
Under Delaware law, holders of the $3.00 Convertible Preferred Stock will
be entitled to vote as a class upon a proposed amendment to the Chancellor Media
Certificate, whether or not entitled to vote thereon by the Chancellor Media
Certificate, if the amendment would increase or decrease the aggregate number of
authorized shares of such class, increase or decrease the par value of the
shares of such class, or alter or change the powers, preferences, or special
rights of the shares of such class so as to affect them adversely.
Optional Redemption
The $3.00 Convertible Preferred Stock may not be redeemed prior to June 16,
1999. Thereafter, the $3.00 Convertible Preferred Stock may be redeemed by
Chancellor Media, at its option (subject to contractual and other restrictions
with respect thereto, including limitations under the Senior Credit Facility,
the 9 3/8% Indenture, the 8 3/4% Indenture, the 10 1/2% Indenture and the
Indenture, and to the legal availability of funds therefor), in whole or in part
at any time, if redeemed during the 12-month period beginning June 15 of
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any year specified below (June 16 in the case of 1999) at the following
redemption prices (expressed as percentages of the liquidation preference
thereof):
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1999........................................................ 104.80%
2000........................................................ 104.20
2001........................................................ 103.60
2002........................................................ 103.00
2003........................................................ 102.40
2004........................................................ 101.80
2005........................................................ 101.20
2006........................................................ 100.60
2007 and thereafter......................................... 100.00
</TABLE>
plus in each case accrued and unpaid dividends, whether or not declared, to the
redemption date.
The foregoing is subject to the proviso that on or prior to June 15, 2000
the $3.00 Convertible Preferred Stock may not be redeemed at the option of
Chancellor Media unless the closing price of Chancellor Media's Common Stock has
equalled or exceeded 150% of the conversion price at such time for at least 20
out of any 30 consecutive trading days ending within 15 days before the notice
of redemption is first mailed.
Conversion Rights
Each holder of $3.00 Convertible Preferred Stock will have the right at any
time at the holder's option to convert any and all shares of $3.00 Convertible
Preferred Stock into Common Stock at a conversion price (subject to adjustment
as described below) of $25.00 per share (after giving effect to the 1998 Stock
Split) of underlying Common Stock (equivalent to a conversion rate of 2.00
shares of Common Stock per share of $3.00 Convertible Preferred Stock). If the
$3.00 Convertible Preferred Stock is called for redemption, the conversion right
will terminate at the close of business on the redemption date fixed by the
Board of Directors.
Change of Control. If there occurs a Change of Control (as defined in the
certificate of designation for the $3.00 Convertible Preferred Stock) with
respect to Chancellor Media, then shares of the $3.00 Convertible Preferred
Stock may be converted, at the option of the holder thereof at any time from the
date of such Change of Control until the expiration of 45 days after the date of
a note by the Company to all holders of the $3.00 Convertible Preferred Stock of
the occurrence of the Change of Control, into the number of shares of Common
Stock determined by dividing (i) the redemption price for the $3.00 Convertible
Preferred Stock (see "-- Optional Redemption") in effect on the date of the
Change of Control by (ii) the adjusted conversion price.
Exchange
Shares of $3.00 Convertible Preferred Stock will be exchangeable at the
option of Chancellor Media, in whole but not in part, on any March 15, June 15,
September 15 or December 15, commencing September 15, 2000, through the issuance
of Chancellor Media's 6% Subordinated Exchange Debentures due 2012 (the "6%
Exchange Debentures") in redemption of and in exchange for shares of $3.00
Convertible Preferred Stock, provided certain conditions are met. Holders of the
$3.00 Convertible Preferred Stock will be entitled to receive 6% Exchange
Debentures at the rate of $50.00 principal amount of 6% Exchange Debentures for
each share of $3.00 Convertible Preferred Stock.
7% CONVERTIBLE PREFERRED STOCK
Dividends
Holders of 7% Convertible Preferred Stock are entitled to receive, when, as
and if declared by the Board of Directors of Chancellor Media out of legally
available funds, cash dividends at an annual rate equal to 7% of the liquidation
preference per share, payable quarterly.
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The 7% Convertible Preferred Stock has priority as to dividends over the
Common Stock and Class A Common Stock of Chancellor Media and any other series
or class of Chancellor Media's stock that ranks junior to the 7% Convertible
Preferred Stock as to dividends (the "Junior Dividend Stock"). Notwithstanding
the foregoing, the 7% Convertible Preferred Stock shall rank junior as to
dividends, redemption payments and rights upon a liquidation, dissolution or
winding-up of Chancellor Media to any and all classes or series of capital stock
(other than common stock) of Chancellor Media, issued in the future, that does
not by its terms expressly provide that it ranks on a parity with or junior to
the 7% Convertible Preferred Stock as to dividends and rights upon a
liquidation, dissolution or winding-up of Chancellor Media.
No dividend (other than dividends payable solely in common stock, any
Junior Dividend Stock or warrants or other rights to acquire such common stock
or Junior Dividend Stock) may be paid or declared and set apart for payment on,
and no purchase, redemption or other acquisition shall be made by Chancellor
Media of, the Common Stock of Chancellor Media or Junior Dividend Stock unless
all accrued and unpaid dividends on the 7% Convertible Preferred Stock,
including the full dividend for the then-current quarterly dividend period,
shall have been paid or declared and set apart for payment without interest.
Except as provided below, Chancellor Media may not pay dividends on any
class or series of stock issued in the future having parity with the 7%
Convertible Preferred Stock as to dividends ("Parity Dividend Stock") unless it
has paid or declared and set apart for payment or contemporaneously pays or
declares and sets apart for payment all accrued and unpaid dividends for all
prior dividend payment periods on the 7% Convertible Preferred Stock. In
addition, except as provided below, Chancellor Media may not pay dividends on
the 7% Convertible Preferred Stock unless it has paid or declared and set apart
for payment or contemporaneously pays or declares and sets apart for payment all
accrued and unpaid dividends for all prior dividend payment periods on the
Parity Dividend Stock. Whenever all accrued dividends in respect of prior
dividend payment periods are not paid in full on 7% Convertible Preferred Stock
and on any Parity Dividend Stock, all dividends declared on the 7% Convertible
Preferred Stock and the Parity Dividend Stock will be declared and made pro rata
so that the amount of dividends declared on the 7% Convertible Preferred Stock
and the Parity Dividend Stock will bear the same ratio that accrued and unpaid
dividends in respect of prior dividend payment periods on the 7% Convertible
Preferred Stock and the Parity Dividend Stock bear to each other. The $3.00
Convertible Preferred Stock constitutes "Parity Dividend Stock" for purposes of
the 7% Convertible Preferred Stock.
Chancellor Media may not purchase any shares of the 7% Convertible
Preferred Stock or any Parity Dividend Stock (except for consideration payable
in common stock or Junior Dividend Stock) or redeem fewer than all the shares of
the 7% Convertible Preferred Stock and Parity Dividend Stock then outstanding if
Chancellor Media has failed to pay any accrued dividend on the 7% Convertible
Preferred Stock or on any Parity Dividend Stock on a stated payment date.
Notwithstanding the foregoing, in such event, Chancellor Media may purchase or
redeem fewer than all the shares of the 7% Convertible Preferred Stock and
Parity Dividend Stock if such repurchase or redemption is made pro rata so that
the amounts purchased or redeemed bear to each other the same ratio that the
required redemption payments on the shares of the 7% Convertible Preferred Stock
and any Parity Dividend Stock then outstanding bear to each other.
If Chancellor Media issues any series or class of stock that ranks senior
as to dividends to the 7% Convertible Preferred Stock ("Senior Dividend Stock")
and fails to pay or declare and set apart for payment accrued and unpaid
dividends on any Senior Dividend Stock (except to the extent allowed by the
terms of the Senior Dividend Stock), Chancellor Media may not pay or declare and
set apart for payment any dividend on the 7% Convertible Preferred Stock unless
and until all accrued and unpaid dividends on the Senior Dividend Stock,
including the full dividends for the then current dividend period, have been
paid or declared and set apart for payment without interest.
Liquidation Rights
In the case of the voluntary or involuntary liquidation, dissolution or
winding up of Chancellor Media, subject to the payment in full, or until
provision has been made for the payment in full, of all claims of creditors of
Chancellor Media, holders of 7% Convertible Preferred Stock are entitled to
receive the liquidation preference of the 7% Convertible Preferred Stock, plus
an amount equal to any accrued and unpaid
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dividends, whether or not declared, to the payment date, before any payment or
distribution is made to the holders of common stock or any other series or class
of stock issued in the future that ranks junior as to liquidation rights to the
7% Convertible Preferred Stock ("Junior Liquidation Stock"). Holders of 7%
Convertible Preferred Stock will not be entitled to receive the liquidation
preference of their shares until the liquidation preference of any other series
or class of stock that ranks senior as to liquidation rights to the 7%
Convertible Preferred Stock ("Senior Liquidation Stock"), if any, and any
creditors of Chancellor Media have been paid in full. The holders of 7%
Convertible Preferred Stock and any series or class of stock that ranks on a
parity as to liquidation rights with the 7% Convertible Preferred Stock ("Parity
Liquidation Stock") are entitled to share ratably, in accordance with the
respective preferential amounts payable on their stock, in any distribution
(after payment of the liquidation preference on any Senior Liquidation Stock)
that is not sufficient to pay in full the aggregate liquidation preference on
both the 7% Convertible Preferred Stock and on any Parity Liquidation Stock. The
$3.00 Convertible Preferred Stock constitutes "Parity Liquidation Stock" for
purposes of the 7% Convertible Preferred Stock.
Voting Rights
The holders of 7% Convertible Preferred Stock will have no voting rights
except as described below or as required by law.
Whenever dividends on the 7% Convertible Preferred Stock are in arrears in
aggregate amount equal to at least six quarterly dividends (whether or not
consecutive), the size of Chancellor Media's Board of Directors will be
increased by two, and the holders of 7% Convertible Preferred Stock, voting
separately as a class together with holders of any Parity Dividend Stock of
Chancellor Media then having voting rights, will be entitled to elect two
additional directors to the Board of Directors of Chancellor Media at, subject
to certain limitations, any annual meeting of stockholders at which directors
are to be elected held during the period when the dividends remain in arrears
or, under certain circumstances, at a special meeting of stockholders. These
voting rights will terminate when all dividends in arrears and for the current
quarterly period have been paid in full or declared and set apart for payment.
The term of office of the additional directors so elected will terminate
immediately upon that payment or provision for payment.
In addition, so long as any 7% Convertible Preferred Stock is outstanding,
Chancellor Media may not, without the affirmative vote or consent of the holders
of at least 66 2/3% of all outstanding shares of 7% Convertible Preferred Stock
and outstanding Parity Dividend Stock, voting as a single class (i) amend, alter
or repeal (by merger or otherwise) any provision of the certificate of
designation for the 7% Convertible Preferred Stock, the Chancellor Media
Certificate or the bylaws of Chancellor Media so as to affect adversely the
relative rights, preferences, qualifications, limitations of restrictions of the
7% Convertible Preferred Stock or (ii) effect any reclassification of the 7%
Convertible Preferred Stock.
Change of Control
The certificate of designation for the 7% Convertible Preferred Stock
provides that, upon the occurrence of a change of control (as defined in such
certificate of designation), each holder will have the right to require that
Chancellor Media purchase all or a portion of such holder's 7% Convertible
Preferred Stock in cash at a purchase price equal to 101% of the liquidation
preference thereof, plus, without duplication, all accumulated and unpaid
dividends per share to the date of repurchase. If the repurchase of the 7%
Preferred Stock would violate or constitute a default under the Senior Credit
Facility or other indebtedness of Chancellor Media, then, pursuant to the
certificate of designation for the 7% Convertible Preferred Stock, Chancellor
Media will either (A) repay in full all such indebtedness or (B) obtain the
requisite consents, if any, under such indebtedness required to permit the
repurchase of the 7% Convertible Preferred Stock.
Redemption at Option of Chancellor Media
The 7% Convertible Preferred Stock may not be redeemed prior to January 19,
2000. Thereafter, the 7% Convertible Preferred Stock may be redeemed by
Chancellor Media, at its option (subject to contractual and other restrictions
with respect thereto, including limitations under the Senior Credit Facility,
the 9 3/8% Indenture, the 8 3/4% Indenture, the 10 1/2% Indenture and the
Indenture, and to the legal availability of funds therefor), in whole or in part
at any time, if redeemed during the 12-month period beginning January 15
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(January 19 in the case of 2000), of any year specified below at the following
redemption prices (expressed as percentages of the liquidation preference
thereof):
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2000........................................................ 104.90%
2001........................................................ 104.20
2002........................................................ 103.50
2003........................................................ 102.80
2004........................................................ 102.10
2005........................................................ 101.40
2006........................................................ 100.70
2007 and thereafter......................................... 100.00
</TABLE>
plus in each case accrued and unpaid dividends, whether or not declared, to the
redemption date.
Conversion Rights
Each holder of 7% Convertible Preferred Stock will have the right, at the
holder's option, to convert any or all shares of 7% Convertible Preferred Stock
into Common Stock at any time at a conversion price (subject to adjustment) of
$18.095 per share (after giving effect to the 1998 Stock Split) of underlying
Common Stock. If the 7% Convertible Preferred Stock is called for redemption,
the conversion right with respect to the called shares of 7% Convertible
Preferred Stock, will terminate at the close of business on the redemption date
fixed by the Board of Directors of Chancellor Media.
CMCLA
The authorized capital stock of CMCLA consists of 2,000 shares of common
stock, par value $.01 per share, 1,000 of which were owned of record and
beneficially by CMHC and 40 of which were owned of record and beneficially by
KMG as of March 1, 1998, and 10,000,000 shares of preferred stock, par value
$.01 per share, 1,000,000 of which are designated 12 1/4% Series A Senior
Cumulative Exchangeable Preferred Stock with an initial liquidation value of
$119.444944 per share (the "12 1/4% Preferred Stock"), of which 1,000,000 shares
are issued and outstanding, and 3,600,000 of which are designated 12%
Exchangeable Preferred Stock with a stated liquidation value of $100.00 per
share (the "12% Preferred Stock"), of which 2,117,629 shares are issued and
outstanding.
12 1/4% PREFERRED STOCK
Dividends. Holders of the 12 1/4% Preferred Stock are entitled to receive,
when, as and if declared by the Board of Directors of the Company, out of funds
legally available therefor, dividends on each share of 12 1/4% Preferred Stock
at a rate per annum equal to 12 1/4% of the then effective liquidation
preference per share of the 12 1/4% Preferred Stock, payable quarterly. If any
dividend payable on any dividend payment date on or before February 15, 2001 is
not declared or paid in full in cash on such dividend payment date, the amount
not paid on such dividend payment date will be added to the liquidation
preference of the 12 1/4% Preferred Stock on such dividend payment date and will
be deemed paid in full and will not accumulate. After February 15, 2001,
dividends may be paid only in cash out of funds legally available therefor.
Although the Company was not required to do so, it paid the most recent
quarterly dividend payment on the 12 1/4% Preferred Stock in cash.
Ranking. The 12 1/4% Preferred Stock ranks, with respect to dividend
rights and distribution rights on liquidation, winding-up and dissolution (a)
senior to the common stock of the Company, to the 12% Preferred Stock and to
each other class of capital stock or series of preferred stock that may in the
future be established by the Board of Directors of the Company the terms of
which do not expressly provide that it ranks senior to or on a parity with the
12 1/4% Preferred Stock, (b) on a parity with each other class of capital stock
or series of preferred stock that may in the future be established 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 12 1/4% Preferred Stock and (c) junior
to each class of capital stock or series of preferred stock that may in the
future be established by the
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<PAGE> 120
Board of Directors of the Company the terms of which expressly provide that such
class or series will rank senior to the 12 1/4% Preferred Stock.
Optional Redemption. The 12 1/4% Preferred Stock is redeemable (subject to
contractual and other restrictions with respect thereto, including limitations
under the Senior Credit Facility, the 9 3/8% Indenture, the 8 3/4% Indenture,
the 10 1/2% Indenture and the Indenture, and to the legal availability of funds
therefor), in whole or in part at any time on and after February 15, 2001 at the
option of the Board of Directors of the Company, at the redemption prices
(expressed as percentages of the then effective liquidation preference thereof)
set forth below, if redeemed during the twelve-month period commencing on
February 15 of each of the years set forth below, plus accumulated and unpaid
dividends to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001........................................................ 106.125%
2002........................................................ 104.900
2003........................................................ 103.675
2004........................................................ 102.450
2005........................................................ 101.225
2006 and thereafter......................................... 100.000
</TABLE>
In addition, on or prior to February 15, 1999, the Company may, at its
option, use the net cash proceeds of any Public Equity Offering (as defined in
the certificate of designation for the 12 1/4% Preferred Stock) to redeem the
12 1/4% Preferred Stock, in part, at a redemption price equal to 109.8% of the
then effective liquidation preference if redeemed during the twelve-month period
commencing on February 15, 1998, plus accumulated and unpaid dividends to the
date of redemption; provided, however, that after any such redemption from the
proceeds of a Public Equity Offering, the shares of 12 1/4% Preferred Stock
outstanding must equal at least 75% of the aggregate number of shares of 12 1/4%
Preferred Stock originally issued; provided further, that any such redemption
must occur on or prior to 60 days after receipt by the Company of the proceeds
of the Public Equity Offering.
Mandatory Redemption. The 12 1/4% Preferred Stock is subject to mandatory
redemption (subject to contractual and other restrictions with respect thereto
and to the legal availability of funds therefor) in whole on February 15, 2008,
at a price equal to the then effective liquidation preference thereof, plus all
accumulated and unpaid dividends to the date of redemption.
Voting Rights. Holders of the 12 1/4% Preferred Stock have no voting
rights except as otherwise required by law; provided that the Company may not
authorize any class of capital stock that ranks senior to or on a parity with
the 12 1/4% Preferred Stock and may not, subject to certain exceptions, effect a
merger or sale of substantially all of its assets, without the affirmative vote
of holders of at least a majority of the shares of 12 1/4% Preferred Stock then
outstanding voting or consenting, as the case may be, as one class and, provided
further, that the holders of 12 1/4% Preferred Stock, voting together as a
single class, shall have the right to elect the lesser of two directors and that
number of directors constituting 25% of the Board of Directors of the Company
upon the occurrence of certain events including, but not limited to, the failure
by the Company on or after February 15, 2001 to pay cash dividends in full on
the 12 1/4% Preferred Stock for six or more quarterly dividend periods, whether
or not consecutive, the failure by the Company to discharge any mandatory
redemption or repayment obligation with respect to the 12 1/4% Preferred Stock,
the failure by the Company to make a Change of Control Offer (as defined in the
certificate of designation for the 12 1/4% Preferred Stock), the breach or
violation of one or more of the covenants contained in the certificate of
designation for the 12 1/4% Preferred Stock or the failure the Company to repay
at final stated maturity, or the acceleration of the final stated maturity of
certain indebtedness of the Company (including indebtedness under the Senior
Credit Facility, the 9 3/8% Notes, the 8 3/4% Notes and the 10 1/2% Notes, the
Original Notes, and, assuming consummation of the Exchange Offer, the Exchange
Notes).
Change of Control. The certificate of designation for the 12 1/4%
Preferred Stock provides that, upon the occurrence of a Change of Control (as
defined below), each holder will have the right to require that the Company
repurchase all or a portion of such holder's 12 1/4% Preferred Stock in cash at
a purchase price equal
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<PAGE> 121
to 101% of the then current effective liquidation preference thereof, plus an
amount in cash equal to all accumulated and unpaid dividends per share to the
date of repurchase. If the repurchase of the 12 1/4% Preferred Stock would
violate or constitute a default under the Senior Credit Facility, the 9 3/8%
Indenture, or other indebtedness of the Company, then pursuant to the
certificate of designation for the 12 1/4% Preferred Stock, the Company will
either (A) repay in full all such indebtedness and terminate all commitments
outstanding under the Senior Credit Facility or (B) obtain the requisite
consents, if any, under the Senior Credit Facility, the 9 3/8% Indenture, or
such other indebtedness required to permit the repurchase of 12 1/4% Preferred
Stock. In an offer by the Company to repurchase the 12 1/4% Preferred Stock at
the holder's option upon a Change of Control, the Company will comply with
Section 14(e) of the Exchange Act and the rules and regulations promulgated
thereunder, as then in effect.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or
series of related transactions) of all or substantially all of the assets of the
Company to any Person or group of related Persons for purposes of Section 13(d)
of the Exchange Act (a "Group"), other than to Hicks Muse or any of its
affiliates, officers and directors or to Steven Dinetz (the "Permitted
Holders"); or (ii) a majority of the Board of Directors of Chancellor Media,
CMHC or the Company shall consist of Persons who are not Continuing Directors
(as defined below); or (iii) the acquisition by any Person or Group (other than
the Permitted Holders) of the power, directly or indirectly, to vote or direct
the voting of securities having more than 50% of the ordinary voting power for
the election of directors of Chancellor Media, CMHC or the Company.
"Continuing Director" means, as of the date of determination, any Person
who (i) was a member of the Board of Directors of CRBC on February 26, 1996,
(ii) was nominated for election or elected to the Board of Directors of
Chancellor Media, CMHC or the Company with the affirmative vote of a majority of
the Continuing Directors who were members of such Board of Directors at the time
of such nomination or election, or (iii) is a representative of a Permitted
Holder.
With respect to the sale of "all or substantially all" of the assets of the
Company, which would constitute a Change of Control for purposes of the
certificate of designation for the 12 1/4% Preferred Stock, the meaning of the
phrase "all or substantially all" varies according to the facts and
circumstances of the subject transaction, has no clearly established meaning
under relevant law and is subject to judicial interpretation. Accordingly, in
certain circumstances there may be a degree of uncertainty in ascertaining
whether a particular transaction would involve a disposition of "all or
substantially all" of the assets of the Company and, therefore, it may be
unclear whether a Change of Control has occurred and whether the 12 1/4%
Preferred Stock is subject to a Change of Control Offer.
Certain Covenants. The certificate of designation for the 12 1/4%
Preferred Stock contains covenants customary for securities comparable to the
12 1/4% Preferred Stock, including covenants that restrict the ability of the
Company and its subsidiaries to incur additional indebtedness, pay dividends and
make certain other restricted payments, and merge or consolidate with any other
person or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially of the assets of the Company.
Exchange. The Company may, at its option, subject to certain conditions,
including its ability to incur additional indebtedness under the Senior Credit
Facility, the 9 3/8% Indenture, the 8 3/4% Indenture, the 10 1/2% Indenture, and
the Indenture, on any scheduled dividend payment date, exchange the 12 1/4%
Preferred Stock, in whole but not in part, for its 12 1/4% Subordinated Exchange
Debentures due 2008 (the "12 1/4% Exchange Debentures"). Holders of the 12 1/4%
Preferred Stock will be entitled to receive $1.00 principal amount of 12 1/4%
Exchange Debentures for each $1.00 in liquidation preference of 12 1/4%
Preferred Stock including, to the extent necessary, 12 1/4% Exchange Debentures
in principal amounts of less than $1,000.
The 12 1/4% Exchange Debentures, if issued, will be issued under an
indenture (as supplemented the "12 1/4% Exchange Indenture") between the Company
and U.S. Trust Company of Texas, N.A., as Trustee. The 12 1/4% Exchange
Debentures will be unsecured obligations of the Company, ranking subordinate in
right of payment to all senior indebtedness of the Company, including the 9 3/8%
Notes, the 8 3/4% Notes, the 10 1/2% Notes, the Original Notes, and assuming
consummation of the Exchange Offer, the Exchange Notes, and the indebtedness
under the Senior Credit Facility. Interest on the 12 1/4% Exchange Debentures
will accrue
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<PAGE> 122
at the same rate per annum as the stated dividend rate on the 12 1/4% Preferred
Stock. The 12 1/4% Exchange Debentures will be redeemable, at the Company's
option, in whole at any time or in part from time to time, after an initial
period, at redemption prices equivalent to those relating to the optional
redemption of the 12 1/4% Preferred Stock. The 12 1/4% Exchange Indenture
provides that upon the occurrence of a change of control of the Company (as
defined therein), each holder will have the right to require that the Company
repurchase all or a portion of such holder's 12 1/4% Exchange Debentures at a
purchase price equal to 101% of the principal amount thereof plus accrued
interest, if any, to the date of repurchase. The 12 1/4% Exchange Indenture
contains certain customary covenants for securities comparable to the 12 1/4%
Exchange Debentures, including covenants restricting the incurrence of
additional indebtedness, the issuance of subsidiary preferred stock, the making
of certain restricted payments, the creation of dividend and other payment
restrictions affecting subsidiaries, certain transactions with affiliates, and
the lines of business in which the Company and its subsidiaries may be engaged.
12% PREFERRED STOCK
Dividends. Holders of the 12% Preferred Stock are entitled to receive,
when, as and if declared by the Board of Directors of the Company, out of funds
legally available therefor, dividends on each share of 12% Preferred Stock at a
rate per annum equal to 12%, subject to increase in certain circumstances of the
then effective liquidation preference per share of the 12% Preferred Stock,
payable semi-annually. All dividends on the 12% Preferred Stock are cumulative.
The Company, at its option, may pay dividends on any dividend payment date
occurring on or before January 15, 2002 either in cash or in additional shares
of 12% Preferred Stock. After January 15, 2002, dividends may be paid only in
cash out of funds legally available therefor. Although the Company was not
required to do so, it paid the most recent semi-annual dividend payment on the
12% Preferred Stock in cash.
Ranking. The 12% Preferred Stock ranks with respect to dividend rights and
rights on liquidation, winding-up and dissolution, (a) senior to the common
stock of the Company and to each other class of capital stock or series of
preferred stock that may in the future be established by the Board of Directors
of the Company the terms of which expressly provide that it ranks junior to or
on a parity with the 12% Preferred Stock, (b) on a parity with each other class
of capital stock or series of preferred stock that may in the future be
established 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 12%
Preferred Stock and (c) junior to the 12 1/4% Preferred Stock and to each class
of capital stock or series of preferred stock that may in the future be
established by the Board of Directors of the Company the terms of which do not
expressly provide that such class or series will rank junior to the 12%
Preferred Stock.
Optional Redemption. The 12% Preferred Stock is redeemable (subject to
contractual and other restrictions with respect thereto, including limitations
under the Senior Credit Facility, the 9 3/8% Indenture, the 8 3/4% Indenture,
the 10 1/2% Indenture and the Indenture, and to the legal availability of funds
therefor), in whole or in part at any time on or after January 15, 2002 at the
option of the Company, at the redemption prices (expressed as percentages of the
then effective liquidation preference thereof) set forth below, if redeemed
during the twelve-month period commencing on January 15 of each of the years set
forth below, plus accumulated and unpaid dividends to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002........................................................ 106.00%
2003........................................................ 104.80%
2004........................................................ 103.60%
2005........................................................ 102.40%
2006........................................................ 101.20%
2007 and thereafter......................................... 100.00%
</TABLE>
In addition, on or prior to January 15, 2000, the Company may, at its option,
use the net cash proceeds of any Public Equity Offering (as defined in the
certificate of designation for the 12% Preferred Stock) to redeem the
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<PAGE> 123
12% Preferred Stock, in part, at a redemption price equal to 112% of the then
effective liquidation preference, plus, in each case, accumulated and unpaid
dividends to the date of redemption; provided, however, that after any such
redemption from the proceeds of a Public Equity Offering, there must be at least
$150.0 million aggregate liquidation preference of 12% Preferred Stock
outstanding; provided further, that any such redemption must occur on or prior
to 60 days after receipt by the Company of the proceeds of the Public Equity
Offering.
Mandatory Redemption. The 12% Preferred Stock is subject to mandatory
redemption (subject to contractual and other restrictions with respect thereto
and to the legal availability of funds therefor) in whole on January 15, 2009 at
a price equal to the then effective liquidation preference thereof, plus all
accumulated and unpaid dividends to the date of redemption.
Voting Rights. Holders of the 12% Preferred Stock will have no voting
rights except as otherwise required by law; provided that the Company may not
authorize any class of capital stock that is senior to or on a parity with the
12% Preferred Stock (subject to an exception for the authorization of up to $50
million initial liquidation preference of Parity Stock) and may not, subject to
certain exceptions, effect a merger or sale of substantially all of its assets,
without the affirmative vote of holders of at least a majority of the shares of
12% Preferred Stock then outstanding voting or consenting, as the case may be,
as one class and, provided further, that the holders of 12% Preferred Stock,
voting together as a single class, shall have the right to elect the lesser of
two directors or that number of directors constituting 25% of the members of the
Board of Directors of the Company upon the occurrence of certain events
including, but not limited to, the failure by the Company on or after January
15, 2002 to pay cash dividends in full on the 12% Preferred Stock for three or
more quarterly dividend periods, whether or not consecutive, the failure by the
Company to discharge any mandatory redemption or repayment obligation with
respect to the 12% Preferred Stock, the failure by the Company to make a Change
of Control Offer (as defined in the certificate of designation for the 12%
Preferred Stock), the breach or violation of one or more of the covenants
contained in the certificate of designation for the 12% Preferred Stock or the
failure by the Company to repay at final stated maturity, or the acceleration of
the first stated maturity of certain indebtedness of the Company, whether or not
consecutive (including indebtedness under the Senior Credit Facility, the 9 3/8%
Notes, the 8 3/4% Notes, the 10 1/2% Notes, the Original Notes, and, assuming
consummation of the Exchange Offer, the Exchange Notes).
Change of Control. The certificate of designation for the 12% Preferred
Stock provides that, upon the occurrence of a change of control (which is
defined identically to the definition of "change of control" applicable to the
12 1/4% Preferred Stock), each holder will have the right to require that the
Company repurchase all or a portion of such holder's 12% Preferred Stock in cash
at a purchase price equal to 101% of the then current effective liquidation
preference thereof, plus an amount in cash equal to all accumulated and unpaid
dividends per share to the date of repurchase. If the repurchase of the 12%
Preferred Stock would violate or constitute a default under the certificate of
designation for the 12 1/4% Preferred Stock, the Senior Credit Facility, the
9 3/8% Indenture, or other indebtedness of the Company, then pursuant to the
certificate of designation for the 12% Preferred Stock, the Company will either
(A) repay in full all such indebtedness and terminate all commitments
outstanding under the Senior Credit Facility or (B) obtain the requisite
consents, if any, under the Senior Credit Facility, the 9 3/8% Indenture, or
such other indebtedness required to permit the repurchase of the 12% Preferred
Stock. In an offer by the Company to repurchase the 12% Preferred Stock at the
holder's option upon a Change of Control, the Company will comply with Section
14(e) of the Exchange Act and the rules and regulations promulgated thereunder,
as then in effect.
Certain Covenants. The certificate of designation of the 12% Preferred
Stock contains covenants customary for securities comparable to the 12%
Preferred Stock, including covenants that restrict the ability of the Company
and its subsidiaries to incur additional indebtedness, pay dividends and make
certain other restricted payments, and merge or consolidate with any other
person or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially of the assets of the Company.
Exchange. The Company may, at its option, subject to certain conditions,
including its ability to incur additional indebtedness under the 9 3/8%
Indenture and the Senior Credit Facility, on any scheduled dividend payment
date, exchange the 12% Preferred Stock, in whole but not in part, for its 12%
Subordinated Exchange
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<PAGE> 124
Debentures due 2009 (the "12% Exchange Debentures"). Holders of the 12%
Preferred Stock will be entitled to receive $1.00 principal amount of 12%
Exchange Debentures for each $1.00 in liquidation preference of 12% Preferred
Stock including, to the extent necessary, 12% Exchange Debentures in principal
amounts of less than $1,000.
The 12% Exchange Debentures, if issued, will be issued under an indenture
(as supplemented, the "12% Exchange Indenture") between the Company and U.S.
Trust Company of Texas, N.A., as Trustee. The 12% Exchange Debentures will be
unsecured obligations of the Company, ranking subordinate in right of payment to
all senior indebtedness of the Company, including the 9 3/8% Notes, the 8 3/4%
Notes, the 10 1/2% Notes, the Original Notes, and, assuming consummation of the
Exchange Offer, the Exchange Notes, and the indebtedness under the Senior Credit
Facility. Interest on the 12% Exchange Debentures will accrue at the same rate
per annum as the stated dividend rate on the 12% Preferred Stock. The 12%
Exchange Debentures will be redeemable, at the Company's option, in whole at any
time or in part from time to time, after an initial period, at redemption prices
equivalent to those relating to the optional redemption of the 12% Preferred
Stock. The 12% Exchange Indenture provides that upon the occurrence of a change
of control (as defined therein) of the Company, each holder will have the right
to require that the Company repurchase all or a portion of such holder's 12%
Exchange Debentures at a purchase price equal to 101% of the principal amount
thereof plus accrued interest, if any, to the date of repurchase. The 12%
Exchange Indenture contains certain customary covenants for securities
comparable to the 12% Exchange Debentures, including covenants restricting the
incurrence of additional indebtedness, the issuance of subsidiary preferred
stock, the making of certain restricted payment, the creation of dividend and
other repayment restrictions affecting subsidiaries, certain transactions with
affiliates, and the lines of business in which the Company and its subsidiaries
may be engaged.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Latham & Watkins, counsel to the Company, has advised the Company that the
following discussion expresses its opinion as to the material federal income tax
consequences expected to result to Holders whose Original Notes are exchanged
for the Exchange Notes in this Exchange Offer. The signed opinion of Latham &
Watkins is filed as an exhibit to the Registration Statement of which this
Prospectus forms a part. Such opinion is based upon current provisions of the
Internal Revenue Code of 1986, as amended, applicable Treasury regulations,
judicial authority and administrative rulings and practice. There can be no
assurance that the Internal Revenue Service (the "Service") will not take a
contrary view, and no ruling from the Service has been or will be sought.
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 to holders. EACH HOLDER OF THE ORIGINAL NOTES
SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
OF EXCHANGING THE ORIGINAL NOTES FOR THE EXCHANGE NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
The exchange of the Original Notes for the Exchange Notes pursuant to the
Exchange Offer should not be treated as an "exchange" for federal income tax
purposes, because the Exchange Notes should not be considered to differ
materially in kind or extent from the Original Notes. Accordingly, the exchange
of Original Notes for Exchange Notes should not be a taxable event to holders
for federal income tax purposes. Moreover, the Exchange Notes should have the
same tax attributes as the Original Notes and the same tax consequences to
holders as the Original Notes have to holders, including, without limitation,
the same issue price, adjusted issue price, original issue discount, adjusted
tax basis and holding period.
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<PAGE> 125
PLAN OF DISTRIBUTION
Based on interpretations by the Staff set forth in no-action letters issued
to third parties, the Company believes that Exchange Notes issued pursuant to
the Exchange Offer in exchange for the Original Notes may be offered for resale,
resold and otherwise transferred by holders thereof (other than any holder that
is (i) an Affiliate of the Company, (ii) a broker-dealer who acquired Original
Notes directly from the Company or (iii) a broker-dealer who acquired Original
Notes as a result of market-making or other trading activities) without
compliance with the registration and prospectus delivery provisions of the
Securities Act provided that such Exchange Notes are acquired in the ordinary
course of such holders' business, and such holders are not engaged in, and do
not intend to engage in, a distribution of Exchange Notes; provided that
broker-dealers ("Participating Broker-Dealers") receiving Exchange Notes in the
Exchange Offer will be subject to a prospectus delivery requirement with respect
to resales of such Exchange Notes. To date, the Staff has taken the position
that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to transactions involving an exchange of securities
such as the exchange pursuant to the Exchange Offer (other than a resale of an
unsold allotment from the sale of the Original Notes to the Initial Purchasers)
by means of this Prospectus. Pursuant to the Registration Rights Agreement, the
Company agreed to permit Participating Broker-Dealers and other persons, if any,
subject to similar prospectus delivery requirements to use this Prospectus in
connection with the resale of such Exchange Notes.
The Company will not receive any proceeds from any sale of the Exchange
Notes by Participating Broker-Dealers. The Exchange Notes received by
Participating Broker-Dealers for their own account pursuant to the Exchange
Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the Exchange Notes or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any participating
Broker-Dealer and/or the purchasers of any such Exchange Notes. Any
participating Broker-Dealer that resells Exchange Notes that were received by it
for its own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a Participating Broker-Dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that requests
such documents in the Letter of Transmittal.
The Company has agreed in the Registration Rights Agreement to indemnify
each Participating Broker-Dealer reselling the Exchange Notes pursuant to this
Prospectus, and their officers, directors and controlling persons, against
certain liabilities in connection with the offer and sale of the Exchange Notes,
including liabilities under the Securities Act, or to contribute to payments
that such Participating Broker-Dealers may be required to make in respect
thereof.
LEGAL MATTERS
Legal matters in connection with the issue and sale of the Exchange Notes
will be passed upon for the Company by Latham & Watkins, Washington, D.C. Eric
L. Bernthal, a former director of Chancellor Media, is a partner of Latham &
Watkins and owns 5,000 shares of Common Stock of Chancellor Media and options to
acquire 25,000 shares of Common Stock of Chancellor Media.
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<PAGE> 126
EXPERTS
The consolidated financial statements of Chancellor Media Corporation of
Los Angeles and Subsidiaries as of December 31, 1997 and for the year ended
December 31, 1997 included in this Registration Statement, have been included
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The consolidated financial statements of Chancellor Media Corporation of
Los Angeles and subsidiaries, the combined financial statements of WMZQ Inc. and
Viacom Broadcasting East Inc., the combined financial statements of Riverside
Broadcasting Co., Inc. and WAXQ Inc., the financial statements of WLIT Inc., the
combined financial statements of KYSR Inc. and KIBB Inc. and the financial
statements of WDAS-AM/FM (station owned and operated by Beasley FM Acquisition
Corp.), included in the Prospectus have been audited by KPMG Peat Marwick LLP,
independent certified public accountants, to the extent and for the periods
indicated in their reports thereon. Such financial statements have been included
in reliance upon the reports of KPMG Peat Marwick LLP included herein and upon
the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Chancellor Radio Broadcasting
Company and Subsidiaries as of December 31, 1996 and 1995 and for each of the
three years in the period ended December 31, 1996 included in this Registration
Statement, have been included herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
The combined financial statements of Colfax Communications, Inc. Radio
Group as of December 31, 1996, 1995 and 1994, and for each of the three years in
the period ended December 31, 1996, included in this Prospectus, have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
118
<PAGE> 127
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES
PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial statements of
Chancellor Media Corporation of Los Angeles ("CMCLA" and, together with its
subsidiaries, the "Company") are presented using the purchase method of
accounting for all acquisitions and reflect the combination of consolidated
historical financial data of the Company and each of the stations acquired in
the transactions completed by the Company and Chancellor Radio Broadcasting
Company ("CRBC") during 1997 and the elimination of the consolidated historical
data of the stations disposed in the transactions completed by the Company and
CRBC during 1997 (the "Completed Transactions"). The unaudited pro forma
condensed combined balance sheet data at December 31, 1997 presents adjustments
for the Completed Transactions consummated after such date, the contribution to
the Company from Chancellor Media of the net proceeds from the offering by
Chancellor Media of 21,850,000 shares of Common Stock completed on March 13,
1998 (the "1998 Equity Offering") and the proposed Preferred Stock Repurchase,
as if each such transaction had occurred at December 31, 1997. The unaudited pro
forma condensed combined statement of operations data for the twelve months
ended December 31, 1997 presents adjustments for the Completed Transactions,
financing transactions undertaken by the Company and CRBC during 1997, the
contribution to the Company from Chancellor Media of the net proceeds from the
1998 Equity Offering and the proposed Preferred Stock Repurchase, as if each
such transaction occurred on January 1, 1997. The pro forma financial
information does not give effect to the Pending Transactions.
The information set forth in the unaudited pro forma condensed combined
financial statements of the Company assumes that all of the outstanding shares
of 12 1/4% Preferred Stock and 12% Preferred Stock (or, if the Preferred Stock
Consent Solicitation is successful, the 12% Exchange Debentures issuable upon
exchange of the 12% Preferred Stock) will be repurchased and retired pursuant to
a tender offer, certain permitted redemptions, negotiated purchases or
open-market transactions. In this regard, the Company has commenced the
Preferred Stock Consent Solicitation and the Debenture Tender Offer for the 12%
Preferred Stock and the 12% Exchange Debentures issuable upon exchange of the
12% Preferred Stock. See "Recent Developments -- Consent Solicitation and Tender
Offer." The pro forma data is based on assumed premiums plus accrued and unpaid
dividends to be paid to holders of 12 1/4% Preferred Stock and 12% Preferred
Stock (or, if the Preferred Stock Consent Solicitation is successful, accrued
and unpaid dividends on the 12% Preferred Stock prior to exchange and premiums
and accrued and unpaid interest on the proposed repurchase of the 12% Exchange
Debentures) and other assumptions relating to such repurchases. No assurance can
be given that the actual premiums paid in connection with any such repurchases
made by the Company will not be greater, perhaps by a substantial amount, than
the amounts assumed in the pro forma data. In addition, there can be no
assurance that any shares of 12 1/4% Preferred Stock and 12% Preferred Stock
(or, if the Preferred Stock Consent Solicitation is successful, the 12% Exchange
Debentures issuable upon exchange of the 12% Preferred Stock) will be
repurchased by the Company. See "Risk Factors -- Possible Non-Consummation of,
or Increased Cost of, Proposed Repurchase of 12 1/4% Preferred Stock and 12%
Preferred Stock."
The purchase method of accounting has been used in the preparation of the
unaudited pro forma condensed combined financial statements. Under this method
of accounting, the aggregate purchase price is allocated to assets acquired and
liabilities assumed based on their estimated fair values. For purposes of the
unaudited pro forma condensed combined financial statements, the purchase prices
of the assets acquired in the Completed Transactions have been allocated based
primarily on information furnished by management of the acquired or to be
acquired assets. The final allocation of the respective purchase prices of the
assets acquired in the Completed Transactions are determined a reasonable time
after consummation of such transactions and are based on a complete evaluation
of the assets acquired and liabilities assumed. Accordingly, the information
presented herein may differ from the final purchase price allocation; however,
such allocations are not expected to differ materially from the preliminary
amounts.
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 condensed combined financial statements should be
read in conjunction with the respective financial statements and related notes
thereto of the Company which have previously been reported. The unaudited pro
forma condensed combined financial statements are presented for illustrative
purposes only and are not necessarily indicative of the results of operations or
financial position that would have been achieved had the transactions reflected
therein been consummated as of the dates indicated, or of the results of
operations or financial positions for any future periods or dates.
P-1
<PAGE> 128
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AT DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA COMPANY ADJUSTMENTS
ADJUSTMENTS AS ADJUSTED FOR THE
CMCLA FOR THE FOR THE PREFERRED
HISTORICAL COMPLETED COMPLETED STOCK COMPANY
AT 12/31/97 TRANSACTIONS TRANSACTIONS REPURCHASE PRO FORMA
----------- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets..................... $ 283,661 $ 321,642(1) $ 520,953 $(237,292)(3) $ 283,661
(84,350)(2)
Property and equipment, net........ 159,797 1,874(2) 161,671 -- 161,671
Intangible assets, net............. 4,404,443 87,126(2) 4,491,569 -- 4,491,569(4)
Other assets....................... 113,576 (4,650)(2) 108,926 -- 108,926
---------- --------- ---------- --------- ----------
Total assets..................... $4,961,477 $ 321,642 $5,283,119 $(237,292) $5,045,827
========== ========= ========== ========= ==========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Liabilities
Current liabilities................ $ 171,017 $ -- $ 171,017 $ (13,585)(3) $ 157,432
Long-term debt..................... 2,573,000 (673,000)(1) 1,900,000 184,466(3) 2,084,466
Deferred tax liabilities........... 361,640 -- 361,640 -- 361,640
Other liabilities.................. 44,405 -- 44,405 -- 44,405
---------- --------- ---------- --------- ----------
Total liabilities................ 3,150,062 (673,000) 2,477,062 170,881 2,647,943
Redeemable preferred stock......... 331,208 -- 331,208 (331,208)(3) --
STOCKHOLDER'S EQUITY:
Common stock....................... 1 -- 1 -- 1
Additional paid in capital......... 1,637,628 994,642(1) 2,632,270 -- 2,632,270
Accumulated deficit................ (157,422) -- (157,422) (76,965)(3) (234,387)
---------- --------- ---------- --------- ----------
Total stockholder's equity....... 1,480,207 994,642 2,474,849 (76,965) 2,397,884
---------- --------- ---------- --------- ----------
Total liabilities and
stockholder's equity.......... $4,961,477 $ 321,642 $5,283,119 $(237,292) $5,045,827
========== ========= ========== ========= ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements
P-2
<PAGE> 129
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA COMPANY ADJUSTMENTS
ADJUSTMENTS AS ADJUSTED FOR THE
COMPLETED FOR THE FOR THE PREFERRED
COMPANY TRANSACTIONS COMPLETED COMPLETED STOCK COMPANY
YEAR ENDED DECEMBER 31, 1997 HISTORICAL HISTORICAL(5) TRANSACTIONS TRANSACTIONS PURCHASE PRO FORMA
---------------------------- ---------- ------------- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues........................ $663,804 $485,216 $ (17,651)(6) $1,130,526 $ -- $1,130,526
(843)(7)
Less: agency commissions.............. (81,726) (44,595) -- (126,321) -- (126,321)
-------- -------- --------- ---------- ---------- ----------
Net revenues.......................... 582,078 440,621 (18,494) 1,004,205 -- 1,004,205
Station operating expenses excluding
depreciation and amortization....... 316,248 270,760 (14,395)(6) 572,613 -- 572,613
Depreciation and amortization......... 185,982 32,522 (2,677)(6) 341,675 -- 341,675
125,848(8)
Corporate general and administrative
expenses............................ 21,442 16,238 (1,842)(9) 35,838 -- 35,838
Merger expense........................ -- 6,124 (6,124)(10) -- -- --
Restructuring charge.................. -- 15,958 -- 15,958 -- 15,958
Stock option compensation............. -- 3,083 -- 3,083 -- 3,083
-------- -------- --------- ---------- ---------- ----------
Operating income (loss)............... 58,406 95,936 (119,304) 35,038 -- 35,038
Interest expense...................... 85,017 69,130 (579)(6) 150,375 12,913(13) 163,288
(3,193)(11)
Interest income....................... (1,922) (399) -- (2,321) -- (2,321)
Other (income) expense................ (17,997) (144) -- (18,141) -- (18,141)
-------- -------- --------- ---------- ---------- ----------
Income (loss) before income taxes..... (6,692) 27,349 (115,532) (94,875) (12,913) (107,788)
Income tax expense (benefit).......... 7,802 18,753 (50,134)(12) (23,579) (5,424)(14) (29,003)
-------- -------- --------- ---------- ---------- ----------
Net income (loss)..................... (14,494) 8,596 (65,398) (71,296) (7,489) (78,785)
Preferred stock dividends............. 12,901 27,321 -- 40,222 (40,222)(15) --
-------- -------- --------- ---------- ---------- ----------
Loss attributable to common stock..... $(27,395) $(18,725) $ (65,398) $ (111,518) $ 32,733 $ (78,785)
======== ======== ========= ========== ========== ==========
Broadcast cash flow................... $265,830 $169,861 $ (4,099) $ 431,592 $ -- $ 431,592
======== ======== ========= ========== ========== ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements
P-3
<PAGE> 130
ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET RELATED TO
THE COMPLETED TRANSACTIONS COMPLETED AFTER DECEMBER 31, 1997
(1) Reflects the contribution to the Company from Chancellor Media of the net
proceeds of $994,642 from Chancellor Media's 1998 Equity Offering. The net
proceeds of the 1998 Equity Offering were used to reduce bank borrowings
under the Senior Credit Facility (as defined) of $673,000 and the remaining
proceeds were recorded as an increase to cash of $321,642.
(2) Reflects the Completed Transactions that were completed after December 31,
1997 as follows:
<TABLE>
<CAPTION>
PURCHASE PRICE ALLOCATION FINANCING
---------------------------------------- ----------------------
PROPERTY AND INTANGIBLE DECREASE DECREASE IN
PURCHASE EQUIPMENT, ASSETS, IN OTHER CURRENT
COMPLETED TRANSACTIONS PRICE NET(A) NET(A) ASSETS ASSETS
---------------------- -------- ------------ ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
KXPK-FM(b).................... $26,000 $1,411 $24,589 $1,650 $24,350
Bonneville Exchange(c)........ 63,000 463 62,537 3,000 60,000
------- ------ ------- ------ -------
Total............... $89,000 $1,874 $87,126 $4,650 $84,350
======= ====== ======= ====== =======
</TABLE>
- ---------------
(a) The Company has assumed that historical balances of net property and
equipment acquired approximate fair value for the preliminary allocation of
the purchase price. Such amounts are based primarily on information provided
by management of the respective stations acquired in the Completed
Transactions.
(b) On January 30, 1998, the Company acquired, in the Denver Acquisition,
KXPK-FM in Denver from Ever Green Wireless LLC (which is unrelated to the
Company) for $26,000 in cash, of which $1,650 was previously paid by CRBC as
escrow funds and are classified as other assets at December 31, 1997.
(c) On April 3, 1998, the Company exchanged WTOP-AM in Washington, KZLA-FM in
Los Angeles and WGMS-FM in Washington plus $60,000 in cash for Bonneville's
stations WBIX-FM in New York, KLDE-FM in Houston and KBIG-FM in Los Angeles
(the "Bonneville Exchange"). The Company had previously paid $3,000 in cash
to Bonneville on August 6, 1997 which was classified as other assets at
December 31, 1997.
ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET RELATED TO
THE PREFERRED STOCK REPURCHASE
(3) Reflects the adjustment to record the repurchase of all of the outstanding
shares of 12 1/4% Preferred Stock and 12% Preferred Stock (or 12% Exchange
Debentures issuable upon exchange of the 12% Preferred Stock) based on
assumed aggregate premiums of $76,965 and aggregate accrued and unpaid
dividends of $13,585 to be paid to holders of 12 1/4% Preferred Stock and
12% Preferred Stock (or 12% Exchange Debentures issuable upon exchange of
the 12% Preferred Stock).
ALLOCATION OF COMPANY PRO FORMA INTANGIBLE ASSETS
(4) The Company Pro Forma intangible assets of $4,491,569 consists of the
following at December 31, 1997:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
-----------
<S> <C> <C>
Broadcast licenses.......................................... 15-40 $3,594,673
Goodwill.................................................... 15-40 717,576
Representation contracts.................................... 17 105,000
Other intangibles........................................... 1-40 386,272
----------
$4,803,521
Less: accumulated amortization.............................. (311,952)
----------
Net intangible assets....................................... $4,491,569
==========
</TABLE>
P-4
<PAGE> 131
The Company discloses broadcast license value separately from goodwill and
amortizes such intangible assets over an estimated average life of 15 years,
whereas CRBC grouped all broadcast license value with goodwill and amortized
such intangibles assets over an estimated average life of 40 years. In
connection with the application of purchase accounting for the Chancellor
Merger, broadcast license value and goodwill have been separately identified and
disclosed and amortized over an estimated average life of 15 years in accordance
with the Company's policies and procedures. The intangible assets have been
treated in a consistent manner for the Company in the Unaudited Combined
Condensed Pro Forma Financial Statements and, upon the consummation of the
Chancellor Merger, have been accounted for similarly in the Company's financial
statements.
The Company amortizes intangible assets using the straight-line method over
estimated useful lives ranging from 1 to 40 years. The Company continually
evaluates the propriety of the carrying amount of goodwill and other intangible
assets as well as the amortization period to determine whether current events or
circumstances warrant adjustments to the carrying value and/or revised estimates
of useful lives. This evaluation consists of the projection of undiscounted
operating income before depreciation, amortization, nonrecurring charges and
interest for each of the Company's radio stations over the remaining
amortization periods of the related intangible assets. The projections are based
on a historical trend line of actual results since the acquisitions of the
respective stations adjusted for expected changes in operating results. To the
extent such projections indicate that undiscounted operating income is not
expected to be adequate to recover the carrying amounts of the related
intangible assets, such carrying amounts would be written down by charges to
expense.
P-5
<PAGE> 132
ADJUSTMENTS TO UNAUDITED CONDENSED COMBINED STATEMENTS OF OPERATIONS RELATED TO
THE COMPLETED TRANSACTIONS
(5) The detail of the historical financial data of the stations to be acquired
or disposed of in the Completed Transactions for the year ended December 31,
1997 has been obtained from the historical financial statements of the
respective stations and is summarized below:
<TABLE>
<CAPTION>
ACQUISITIONS
--------------------------------------------------------------------
EVERGREEN CRBC AS
VIACOM ADJUSTED FOR KZPS-FM/
WUSL-FM ACQUISITION COMPLETED KDGE-FM
WDAS-FM/AM WIOQ-FM HISTORICAL CHANCELLOR HISTORICAL
YEAR ENDED HISTORICAL HISTORICAL 1/1- TRANSACTIONS 1/1-
DECEMBER 31, 1997 1/1-4/30(A) 1/1-5/15(B) 7/2(C) 1/1-9/5(D) 7/31(E)
----------------- ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Gross revenues................ $5,028 $7,088 $38,972 $241,481 $7,616
Less: agency commissions...... (680) (829) (5,470) (30,754) (929)
------ ------ ------- -------- ------
Net revenues.................. 4,348 6,259 33,502 210,727 6,687
Station operating expenses
excluding depreciation and
amortization................ 2,533 3,649 14,936 119,328 5,293
Depreciation and
amortization................ 875 -- 2,279 30,505 280
Corporate general and
administrative expenses..... 172 141 682 7,226 --
Merger expense................ -- -- -- 6,124 --
Restructuring charge.......... -- -- -- -- --
Stock option compensation..... -- -- -- 3,083 --
------ ------ ------- -------- ------
Operating income (loss)....... 768 2,469 15,605 44,461 1,114
Interest expense.............. 19 990 -- 49,812 --
Interest income............... (21) -- -- (218) --
Other (income) expense........ 884 -- -- (584) 12
------ ------ ------- -------- ------
Income (loss) before income
taxes....................... (114) 1,479 15,605 (4,549) 1,102
Income tax expense
(benefit)................... -- -- 5,892 1,180 --
------ ------ ------- -------- ------
Net income (loss)............. (114) 1,479 9,713 (5,729) 1,102
Preferred stock dividends..... -- -- -- 27,321 --
------ ------ ------- -------- ------
Income (loss) attributable to
common stock................ $ (114) $1,479 $ 9,713 $(33,050) $1,102
====== ====== ======= ======== ======
Broadcast cash flow........... $1,815 $2,610 $18,566 $ 91,399 $1,394
====== ====== ======= ======== ======
<CAPTION>
ACQUISITIONS
--------------------------------------------------------
KATZ KBIG-FM
ACQUISITION GANNETT KLDE-FM
HISTORICAL ACQUISITION KXPX-FM WBIX-FM
YEAR ENDED 1/1- HISTORICAL HISTORICAL HISTORICAL
DECEMBER 31, 1997 10/28(F) 1/1-12/29(G) 1/1-8/31(H) 1/1-10/10(I)
----------------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Gross revenues................ $144,886 $61,057 $3,460 $33,125
Less: agency commissions...... -- (8,052) (458) (4,636)
-------- ------- ------ -------
Net revenues.................. 144,886 53,005 3,002 28,489
Station operating expenses
excluding depreciation and
amortization................ 109,341 26,303 2,816 18,277
Depreciation and
amortization................ 141 1,736 198 --
Corporate general and
administrative expenses..... 8,105 -- -- --
Merger expense................ -- -- -- --
Restructuring charge.......... 15,958 -- -- --
Stock option compensation..... -- -- -- --
-------- ------- ------ -------
Operating income (loss)....... 11,341 24,966 (12) 10,212
Interest expense.............. 18,310 -- -- --
Interest income............... (170) -- -- --
Other (income) expense........ -- (375) (81) --
-------- ------- ------ -------
Income (loss) before income
taxes....................... (6,799) 25,341 69 10,212
Income tax expense
(benefit)................... 1,912 10,127 -- --
-------- ------- ------ -------
Net income (loss)............. (8,711) 15,214 69 10,212
Preferred stock dividends..... -- -- -- --
-------- ------- ------ -------
Income (loss) attributable to
common stock................ $ (8,711) $15,214 $ 69 $10,212
======== ======= ====== =======
Broadcast cash flow........... $ 35,545 $26,702 $ 186 $10,212
======== ======= ====== =======
</TABLE>
P-6
<PAGE> 133
<TABLE>
<CAPTION>
DISPOSITIONS
--------------------------------------------------------------------------------
WPEG-FM
WBAV-FM/AM SAN
WRFX-FM WEJM- FRANCISCO
WFNZ-FM WNKS-FM WPNT-FM FM/AM WJZW-FM FREQUENCY
YEAR ENDED HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL
DECEMBER 31, 1997 1/1-5/15(B) 1/1-5/15(J) 5/30-6/19(K) 1/1-8/26(L) 1/1-7/2(M) 1/1-7/7(N)
----------------- ----------- ----------- ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues................ $(7,788) $(1,332) $(567) $(1,279) $(4,137) $(1,370)
Less: agency commissions...... 1,029 142 93 135 567 178
------- ------- ----- ------- ------- -------
Net revenues.................. (6,759) (1,190) (474) (1,144) (3,570) (1,192)
Station operating expenses
excluding depreciation and
amortization................ (3,569) (994) (285) (1,276) (2,161) (1,738)
Depreciation and
amortization................ -- (212) (279) (305) (315) (84)
Corporate general and
administrative expenses..... -- -- -- -- (70) --
Merger expense................ -- -- -- -- -- --
Restructuring charge.......... -- -- -- -- -- --
Stock option compensation..... -- -- -- -- -- --
------- ------- ----- ------- ------- -------
Operating income (loss)....... (3,190) 16 90 437 (1,024) 630
Interest expense.............. -- -- -- -- -- --
Interest income............... -- -- -- -- -- --
Other (income) expense........ -- -- -- -- -- --
------- ------- ----- ------- ------- -------
Income (loss) before income
taxes....................... (3,190) 16 90 437 (1,024) 630
Income tax expense
(benefit)................... -- -- -- -- (260) --
------- ------- ----- ------- ------- -------
Net income (loss)............. (3,190) 16 90 437 (764) 630
Preferred stock dividends..... -- -- -- -- -- --
------- ------- ----- ------- ------- -------
Income (loss) attributable to
common stock................ $(3,190) $ 16 $ 90 $ 437 $ (764) $ 630
======= ======= ===== ======= ======= =======
Broadcast cash flow........... $(3,190) $ (196) $(189) $ 132 $(1,409) $ 546
======= ======= ===== ======= ======= =======
<CAPTION>
DISPOSITIONS
--------------------------------------------------------------------
WBZS-AM WTOP-AM
WZHF-AM WGMS-FM
KDFC-FM KDFC-AM WLUP-FM KZLA-FM WFLN-FM COMPLETED
YEAR ENDED HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL TRANSACTIONS
DECEMBER 31, 1997 1/1-1/31(O) 1/1-8/13(P) 1/1-7/14(E) 1/1-10/1(I) 1/1-4/30(Q) HISTORICAL
----------------- ----------- ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues................ $(278) $(1,091) $(6,928) $(31,429) $(1,298) $485,216
Less: agency commissions...... 26 23 935 3,951 134 (44,595)
----- ------- ------- -------- ------- --------
Net revenues.................. (252) (1,068) (5,993) (27,478) (1,164) 440,621
Station operating expenses
excluding depreciation and
amortization................ (224) (665) (5,642) (14,434) (728) 270,760
Depreciation and
amortization................ -- (54) (1,443) -- (800) 32,522
Corporate general and
administrative expenses..... -- (18) -- -- -- 16,238
Merger expense................ -- -- -- -- -- 6,124
Restructuring charge.......... -- -- -- -- -- 15,958
Stock option compensation..... -- -- -- -- -- 3,083
----- ------- ------- -------- ------- --------
Operating income (loss)....... (28) (331) 1,092 (13,044) 364 95,936
Interest expense.............. -- -- -- (1) -- 69,130
Interest income............... -- -- -- 10 -- (399)
Other (income) expense........ -- -- -- -- -- (144)
----- ------- ------- -------- ------- --------
Income (loss) before income
taxes....................... (28) (331) 1,092 (13,053) 364 27,349
Income tax expense
(benefit)................... -- (98) -- -- -- 18,753
----- ------- ------- -------- ------- --------
Net income (loss)............. (28) (233) 1,092 (13,053) 364 8,596
Preferred stock dividends..... -- -- -- -- -- 27,321
----- ------- ------- -------- ------- --------
Income (loss) attributable to
common stock................ $ (28) $ (233) $ 1,092 $(13,053) $ 364 $(18,725)
===== ======= ======= ======== ======= ========
Broadcast cash flow........... $ (28) $ (403) $ (351) $(13,044) $ (436) $169,861
===== ======= ======= ======== ======= ========
</TABLE>
P-7
<PAGE> 134
- ---------------
(a) On May 1, 1997, the Company acquired, in the Beasley Acquisition, WDAS-FM/AM
in Philadelphia for $103,000 in cash.
(b) On May 15, 1997, the Company exchanged, in the EZ Exchange, 5 of its 6
stations in the Charlotte market (WPEG-FM, WBAV-FM/AM, WRFX-FM and WFNZ-AM)
for WUSL-FM and WIOQ-FM in Philadelphia.
(c) On July 2, 1997, the Company acquired, in the Evergreen Viacom Acquisition,
WLTW-FM and WAXQ-FM in New York and WMZQ-FM, WJZW-FM, WZHF-AM, and WBZS-AM
in Washington, D.C. for approximately $612,388 in cash including various
other direct acquisition costs. The Evergreen Viacom Acquisition was
financed with (i) bank borrowings under the Senior Credit Facility (as
defined) of $552,559; (ii) $53,750 in escrow funds paid by the Company on
February 19, 1997 and (iii) $6,079 financed through working capital. In June
1997, Chancellor Media issued 5,990,000 shares of $3.00 Convertible
Exchangeable Preferred Stock (the "$3.00 Convertible Preferred Stock") for
net proceeds of approximately $287,800 which were contributed to the Company
by Evergreen and used to repay borrowings under the Senior Credit Facility
and subsequently were reborrowed on July 2, 1997 as part of the financing of
the Evergreen Viacom Acquisition. On July 7, 1997, the Company sold WJZW-FM
in Washington, D.C. to affiliates of Capital Cities/ABC Radio for $68,000 in
cash. The assets of WJZW-FM, as well as the assets of WZHF-AM and WBZS-AM,
which were sold on August 13, 1997, were accounted for as assets held for
sale in connection with the purchase price allocation of the Viacom
Acquisition and no gain or loss was recognized by the Company upon
consummation of the sales (see 5(m) and 5(p)).
(d) On September 5, 1997, pursuant to an Amended and Restated Agreement and Plan
of Merger, dated as of February 19, 1997 and amended and restated on July
31, 1997 (the "Chancellor Merger Agreement"), among Chancellor Broadcasting
Company ("Chancellor"), CRBC, Evergreen Media Corporation ("Evergreen"),
Evergreen Mezzanine Holdings Corporation ("EMHC") and Evergreen Media
Corporation of Los Angeles ("EMCLA"), (i) Chancellor was merged (the "Parent
Merger") with and into EMHC, a direct, wholly-owned subsidiary of Evergreen,
with EMHC remaining as the surviving corporation and (ii) CRBC was merged
(the "Subsidiary Merger") with and into EMCLA, a direct, wholly-owned
subsidiary of EMHC, with EMCLA remaining as the surviving corporation
(collectively, the "Chancellor Merger"). Upon consummation of the Parent
Merger, Evergreen was renamed Chancellor Media Corporation and EMHC was
renamed Chancellor Mezzanine Holdings Corporation ("CMHC"). Upon
consummation of the Subsidiary Merger, the Company was renamed Chancellor
Media Corporation of Los Angeles ("CMCLA"). Consummation of the Chancellor
Merger added 52 radio stations (36 FM and 16 AM) to the Company's portfolio
of stations, including 13 stations in markets in which the Company
previously operated. The total purchase price allocated to net assets
acquired was approximately $1,998,383 which included (i) the conversion of
each outstanding share of Chancellor Common Stock into 0.9091 shares of
Chancellor Media Common Stock, resulting in the issuance of 34,617,460
shares of Chancellor Media Common Stock at $15.50 per share, (ii) the
assumption of long-term debt of CRBC of $949,000 which included $549,000 of
borrowings outstanding under the CRBC senior credit facility, $200,000 of
CRBC's 9 3/8% Senior Subordinated Notes due 2004 and $200,000 of CRBC's
8 3/4% Senior Subordinated Notes due 2007, (iii) the issuance of 2,117,629
shares of the Company's 12% Exchangeable Preferred Stock (the "12% Preferred
Stock") in exchange for CRBC's substantially identical securities with a
fair value of $215,570 including accrued and unpaid dividends of $3,807,
(iv) the issuance of 1,000,000 shares of the Company's 12 1/4% Series A
Senior Cumulative Exchangeable Preferred Stock (the "12 1/4% Preferred
Stock") in exchange for CRBC's substantially identical securities with a
fair value of $120,217 including accrued and unpaid dividends of $772, (v)
the issuance of 2,200,000 shares of Chancellor Media's 7% Convertible
Preferred Stock (the "7% Convertible Preferred Stock") in exchange for
Chancellor's substantially identical securities with a fair value of
$111,048 including accrued and unpaid dividends of $1,048, (vi) the
assumption of stock options issued to Chancellor stock option holders with a
fair value of $34,977 and (vii) estimated acquisition costs of $31,000.
P-8
<PAGE> 135
CRBC's historical condensed combined statement of operations for the year ended
December 31, 1997 and pro forma adjustments related to the transactions
completed by CRBC prior to the Chancellor Merger (the "Completed Chancellor
Transactions") is summarized below:
<TABLE>
<CAPTION>
ACQUISITIONS DISPOSITIONS
-------------------------- ------------- PRO FORMA
CHANCELLOR ADJUSTMENTS CRBC AS
VIACOM FOR THE ADJUSTED FOR
CRBC COLFAX ACQUISITION WDRQ-FM COMPLETED COMPLETED
HISTORICAL HISTORICAL HISTORICAL HISTORICAL CHANCELLOR CHANCELLOR
YEAR ENDED DECEMBER 31, 1997 1/1-9/5 1/1-1/23(I) 1/1-7/2(II) 1/1-8/11(III) TRANSACTIONS TRANSACTIONS
---------------------------- ---------- ----------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues......................... $215,018 $3,183 $29,214 $(2,395) $ (3,539)(iv) $241,481
Less: agency commissions............... (26,575) (384) (4,046) 251 -- (30,754)
-------- ------ ------- ------- -------- --------
Net revenues........................... 188,443 2,799 25,168 (2,144) (3,539) 210,727
Station operating expenses excluding
depreciation and amortization........ 110,548 1,872 13,326 (1,986) (4,432)(iv) 119,328
Depreciation and amortization.......... 23,919 -- 2,370 (186) 4,484(v) 30,505
(82)(vi)
Corporate general and administrative
expenses............................. 7,102 -- 520 (42) (354)(vii) 7,226
Merger expense......................... 6,124 -- -- -- -- 6,124
Stock option compensation.............. 3,083 -- -- -- -- 3,083
-------- ------ ------- ------- -------- --------
Operating income (loss)................ 37,667 927 8,952 70 (3,155) 44,461
Interest expense....................... 37,978 -- 3,178 -- 8,656(viii) 49,812
Interest income........................ (218) -- -- -- -- (218)
Other (income) expense................. (584) -- -- -- -- (584)
-------- ------ ------- ------- -------- --------
Income (loss) before income taxes...... 491 927 5,774 70 (11,811) (4,549)
Income tax expense (benefit)........... 2,196 -- 1,558 18 (2,592)(ix) 1,180
-------- ------ ------- ------- -------- --------
Net income (loss)...................... (1,705) 927 4,216 52 (9,219) (5,729)
Preferred stock dividends.............. 25,817 -- -- -- 1,504(x) 27,321
-------- ------ ------- ------- -------- --------
Income (loss) attributable to common
stock................................ $(27,522) $ 927 $ 4,216 $ 52 $(10,723) $(33,050)
======== ====== ======= ======= ======== ========
Broadcast cash flow.................... $ 77,895 $ 927 $11,842 $ (158) $ 893 $ 91,399
======== ====== ======= ======= ======== ========
</TABLE>
P-9
<PAGE> 136
- ---------------
(i) On January 23, 1997, CRBC acquired, in the Colfax Acquisition, Colfax
Communications, a radio broadcasting company, with 12 radio stations (8 FM
and 4 AM) located in 4 markets (Minneapolis-St. Paul, Phoenix, Washington,
D.C. and Milwaukee markets). The total purchase price, including
acquisition costs, allocated to net assets acquired was approximately
$383,700. The Colfax Acquisition was financed through (i) a private
placement by CRBC of $200,000 of 12% Exchangeable Preferred Stock for net
proceeds of $191,817; (ii) a private placement by Chancellor of $110,000 of
7% Convertible Preferred Stock for net proceeds of $105,546; (iii)
additional bank borrowings under CRBC's previous senior credit agreement of
$65,937 and (iv) $20,400 in escrow funds. On March 31, 1997, CRBC sold
WMIL-FM and WOKY-AM in Milwaukee for $41,253 in cash. The assets of WMIL-FM
and WOKY-AM are classified as assets held for sale in connection with the
purchase price allocation of the Colfax Acquisition. Accordingly, WMIL-FM
and WOKY-AM net income of approximately $41 for the period January 23, 1997
through March 31, 1997 has been excluded from the Colfax historical
condensed statement of operations for the year ended December 31, 1997.
(ii) On July 2, 1997, CRBC acquired, in the Chancellor Viacom Acquisition,
KIBB-FM and KYSR-FM in Los Angeles, WLIT-FM in Chicago and WDRQ-FM in
Detroit for approximately $500,789 in cash including various other direct
acquisition costs. The Chancellor Viacom Acquisition was financed with (i)
bank borrowings of $273,159 under CRBC's restated senior credit agreement,
dated July 2, 1997 (the "CRBC Restated Credit Agreement"); (ii) borrowings
under an interim loan of Chancellor (the "Chancellor Broadcasting/Viacom
Interim Financing") of $168,300 which were contributed to CRBC by
Chancellor; (iii) escrow funds of $53,750 paid by CRBC on February 19, 1997
and (iv) $5,580 financed through working capital. The assets of WDRQ-FM in
Detroit are classified as assets held for sale in connection with the
purchase price allocation of the Chancellor Viacom Acquisition (see (iii)
below).
(iii)On August 11, 1997, CRBC sold, in the ABC/Detroit Disposition, WDRQ-FM in
Detroit for $37,000 in cash. The assets of WDRQ-FM were classified as
assets held for sale in connection with the purchase price allocation of
the Chancellor Viacom Acquisition (see 5(d)(ii)). Accordingly, WDRQ-FM net
income for the period July 2, 1997 to August 11, 1997 has been excluded
from CRBC's historical condensed statement of operations.
(iv) Reflects the elimination of time brokerage agreement fees received and paid
by CRBC as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 MARKET PERIOD REVENUE EXPENSE
- --------------------------------------------------- --------------- ------------ ------- -------
<S> <C> <C> <C> <C>
WWWW-FM/WDFN-AM(1)................................. Detroit 1/1 -- 1/31 $ (235) $ (16)
WOMX-FM, WXXL-FM, WJHM-FM(2)....................... Orlando 1/1 -- 2/13 -- (911)
WEAT-FM/AM, WOLL-FM(2)............................. West Palm Beach 1/1 -- 3/28 (593) (304)
WAPE-FM, WFYV-FM(3)................................ Jacksonville 1/1 -- 9/5 (2,711) (490)
WBAB-FM, WBLI-FM, WGBB-AM, WHFM-FM(3).............. Long Island 1/1 -- 9/5 -- (2,711)
------- -------
Total adjustment for decrease in gross
revenues and expenses $(3,539) $(4,432)
======= =======
</TABLE>
(1) On January 31, 1997, CRBC sold WWWW-FM and WDFN-AM in Detroit to the
Company for $30,000 in cash. Prior to the completion of the sale, CRBC had
entered into a joint sales agreement effective February 14, 1996 and a time
brokerage agreement effective April 1, 1996 to sell substantially all of
the broadcast time of WWWW-FM and WDFN-AM to the Company pending the
completion of the sale.
(2) On February 13, 1997, CRBC acquired, in the Omni Acquisition, substantially
all of the assets and assumed certain liabilities of the OmniAmerica Group
including WOMX-FM, WXXL-FM and WJHM-FM in Orlando, WEAT-FM/AM and WOLL-FM
in West Palm Beach, Florida and WAPE-FM AND WFYV-FM in Jacksonville. The
total purchase price, including acquisition costs, allocated to net assets
acquired was approximately $181,046. Prior to the consummation of the Omni
Acquisition, CRBC had entered into an agreement to operate the stations
under a time brokerage agreement effective July 1, 1996. Additionally,
prior to the consummation of CRBC's exchange of
P-10
<PAGE> 137
WEAT-FM/AM and WOLL-FM in West Palm Beach for KSTE-FM in Sacramento and
$33,000 in cash on March 28, 1997, CRBC entered into time brokerage
agreements to sell substantially all of the broadcast time of WEAT-FM/AM
and WOLL-FM in West Palm Beach and WAPE-FM and WFYV-FM in Jacksonville
effective July 1, 1996.
(3) On July 1, 1996, CRBC entered into an agreement to exchange, in the SFX
Exchange, WAPE-FM and WFYV-FM in Jacksonville, Florida, and $11,000 in cash
to SFX for WBAB-FM, WBLI-FM, WGBB-AM, and WHFM-FM in Long Island. CRBC
entered into time brokerage agreements to operate WBAB-FM, WBLI-FM,
WGBB-AM, and WHFM-FM effective July 1, 1996 and entered into time brokerage
agreements to sell substantially all of the broadcast time of WAPE-FM and
WFYV-FM effective July 1, 1996. On November 6, 1997, the DOJ filed suit
against the Company seeking to enjoin under the HSR Act the acquisition of
the four Long Island properties under the SFX Exchange. On March 30, 1998,
the Company and SFX entered into a Consent Decree under which the Company
and SFX agreed that the SFX Exchange would not be consummated and that the
time brokerage agreements under which the Company operated the Long Island
properties would be terminated as soon as possible but no later than August
1, 1998. The Company expects that the time brokerage agreements regarding
the Long Island properties will be terminated upon the consummation of
Capstar's acquisition of SFX (the "Capstar/SFX Acquisition"). The Company
has also agreed, in the Capstar Transaction, to exchange its two
Jacksonville properties, plus $90,250 in cash, to Capstar in exchange for
KODA-FM in Houston, which the Company expects will be consummated at or
following the Capstar/SFX Acquisition.
(v) Reflects incremental amortization related to the Completed Chancellor
Transactions and is based on the following allocation to intangible assets:
<TABLE>
<CAPTION>
INCREMENTAL HISTORICAL ADJUSTMENT
COMPLETED CHANCELLOR TRANSACTIONS AMORTIZATION INTANGIBLE AMORTIZATION AMORTIZATION FOR NET
YEAR ENDED DECEMBER 31, 1997 PERIOD ASSETS, NET EXPENSE (1) EXPENSE INCREASE
--------------------------------- ------------ ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Omni............................ 1/1 - 2/13 $ 171,837 $ 525 $ -- $ 525
Colfax.......................... 1/1 - 1/23 317,894 508 -- 508
KSTE-FM......................... 1/1 - 3/28 (32,475) (198) -- (198)
Chancellor Viacom Acquisition... 1/1 - 7/2 451,690 5,709 2,060 3,649
---------- ------- ------ -------
Total................. $ 908,946 $ 6,544 $2,060 $ 4,484
---------- ------- ------ -------
</TABLE>
- ---------------
(1) Intangible assets were amortized on a straight-line basis over an
estimated average 40 year life by CRBC. In connection with purchase
accounting for the Chancellor Merger, intangible assets are amortized
over an estimated average life of 15 years in accordance with the
Company's accounting policies and procedures.
Historical depreciation expense of the Completed Chancellor Transactions
is assumed to approximate depreciation expense on a pro forma basis.
Actual depreciation and amortization may differ based upon final purchase
price allocations.
(vi) Reflects the elimination of disposed stations' historical depreciation and
amortization expense of $82 for the year ended December 31, 1997
(WWWW-FM/WDFN-AM for the period of January 1, 1997 to January 31, 1997)
recognized by CRBC during the time brokerage agreement holding period.
(vii)Reflects the elimination of duplicate corporate expenses of $354 for the
year ended December 31, 1997 related to the Completed Chancellor
Transactions.
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<PAGE> 138
(viii)Reflects the adjustment to interest expense in connection with the
consummation of the Completed Chancellor Transactions, the issuance by
CRBC of its 12 1/4% Series A Senior Cumulative Exchangeable Preferred
Stock, the refinancing of CRBC's previous senior credit agreement on
January 23, 1997 and the offering on June 24, 1997 by CRBC of $200.0
million aggregate principal amount of its 8 3/4% Senior Notes due 2007
(the "8 3/4% Notes"):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
Additional bank borrowings related to:
Completed Chancellor Acquisitions......................... $ 558,892
Completed Chancellor Dispositions......................... (104,253)
New Loan Fees............................................. 6,873
---------
Total additional bank borrowings............................ $ 461,512
=========
Interest expense on additional bank borrowings at 7.5%...... $ 11,376
Less: historical interest expense of the stations acquired
in the Completed Chancellor Transactions.................. (3,178)
---------
Net increase in interest expense............................ 8,198
Reduction in interest expense on bank debt related to the
application of net proceeds of the following at 7.5%:
CRBC 8 3/4% Notes proceeds of $194,083 for the period
January 1, 1997 to June 24, 1997....................... (7,036)
Reduction in interest expense resulting from the redemption
of CRBC's 12.5% Senior Subordinated Notes of $60,000 on
June 5, 1997.............................................. (3,229)
Interest expense on $70,133 additional bank borrowings at
7.5% related to the redemption of CRBC's 12.5% Senior
Subordinated Notes on June 5, 1997........................ 2,265
Interest expense on $200,000 8 3/4% Notes issued
June 24, 1997............................................. 8,458
---------
Total adjustment for net increase in interest expense....... $ 8,656
=========
</TABLE>
(ix) Reflects the income tax benefit related to pro forma adjustments. The
adjustment to income taxes reflects the application of the estimated
effective tax rate on a pro forma basis to income (loss) before income
taxes for historical and pro forma adjustment amounts.
(x) Reflects incremental dividends and accretion of $1,504 on the 12%
Exchangeable Preferred Stock for the period January 1, 1997 to January 23,
1997:
(e) On July 14, 1997, the Company completed the disposition of WLUP-FM in
Chicago to Bonneville for net proceeds of $80,000 which were held by a
qualified intermediary pending the completion of the deferred exchange of
WLUP-FM for KZPS-FM and KDGE-FM in Dallas. On October 7, 1997, the Company
applied the net proceeds from the disposition of WLUP-FM of $80,000 in
cash, plus an additional $3,500 and various other direct acquisition costs,
in a deferred exchange of WLUP-FM for KZPS-FM and KDGE-FM in Dallas. The
exchange was accounted for as a like-kind exchange and no gain or loss was
recognized upon consummation of the transaction. The Company had previously
operated KZPS-FM and KDGE-FM under time brokerage agreements effective
August 1, 1997.
(f) On October 28, 1997, the Company and Chancellor Media acquired Katz Media
Group, Inc. ("KMG"), a full-service media representation firm, in a tender
offer transaction for a total purchase price of approximately $379,101 (the
"Katz Acquisition") which included (i) the conversion of each outstanding
share of KMG Common Stock into the right to receive $11.00 in cash,
resulting in total cash payments of $149,601, (ii) the assumption of
long-term debt of KMG and its subsidiaries of $222,000 which included
$122,000 of borrowings outstanding under the KMG senior credit facility and
$100,000 of the 10 1/2% Notes and (iii) estimated acquisition costs of
$7,500.
(g) On December 29, 1997, the Company acquired, in the Gannett Acquisition, 5
radio stations in 3 major markets from P&S, including WGCI-FM/AM in
Chicago, KHKS-FM in Dallas, and KKBQ-FM/AM in Houston for $340,000 in cash.
P-12
<PAGE> 139
(h) On January 30, 1998, the Company acquired, in the Denver Acquisition,
KXPK-FM in Denver from Ever Green Wireless LLC (which is unrelated to the
Company) for $26,000 in cash (including $1,650 paid by Chancellor in
escrow). The Company had previously been operating KXPK-FM under a time
brokerage agreement since September 1, 1997.
(i) On April 3, 1998, the Company exchanged WTOP-FM in Washington, KZLA-FM in
Los Angeles and WGMS-FM in Washington plus $57,000 in cash for Bonneville's
stations WBIX-FM in New York, KLDE-FM in Houston and KBIG-FM in Los Angeles
(the "Bonneville Option"). The Company had previously paid $3,000 in cash
to Bonneville on August 6, 1997. The Company had previously entered into
time brokerage agreements to operate KLDE-FM and KBIG-FM effective October
1, 1997 and WBIX-FM effective October 10, 1997 and had entered into time
brokerage agreements to sell substantially all of the broadcast time of
WTOP-AM, KZLA-FM and WGMS-FM effective October 1, 1997.
(j) On May 15, 1997, the Company sold, in the EZ Sale, WNKS-FM in Charlotte for
$10,000 in cash.
(k) On May 30, 1997, the Company acquired, in the Century Acquisition, WPNT-FM
in Chicago for $75,750 in cash (including $2,000 for the purchase of the
station's accounts receivable) of which $5,500 was paid as escrow funds in
July 1996. On June 19, 1997, the Company sold, in the Bonneville/WPNT
Disposition, WPNT-FM in Chicago for $75,000 in cash and recognized a gain
of $500.
(l) On June 3, 1997, the Company sold, in the Crawford Disposition, WEJM-FM in
Chicago for $14,750 in cash. On August 26, 1997, the Company sold, in the
Douglas Chicago Disposition, WEJM-AM in Chicago for $7,500 in cash.
(m) On July 7, 1997, the Company sold, in the ABC/Washington Disposition,
WJZW-FM in Washington for $68,000 in cash. The assets of WJZW-FM were
classified as assets held for sale in connection with the purchase price
allocation of the Evergreen Viacom Acquisition (see 5(c)). Accordingly,
WJZW-FM net income for the period July 2, 1997 to July 7, 1997 has been
excluded from the Company's historical condensed statement of operations.
(n) On July 7, 1997, the Company sold, in the San Francisco Frequency
Disposition, the San Francisco 107.7 MHz FM dial position and transmission
facility and the call letters from CRBC's KSAN-FM in San Francisco for
$44,000 in cash.
(o) On January 31, 1997, the Company acquired, in the KKSF/KDFC Acquisition,
KKSF-FM and KDFC-FM/AM in San Francisco for $115,000 in cash. The Company
had previously been operating KKSF-FM and KDFC-FM/AM under a time brokerage
agreement since November 1, 1996. On July 21, 1997, the Company sold, in
the Bonneville/KDFC Disposition, KDFC-FM in San Francisco for $50,000 in
cash. The assets of KDFC-FM were classified as assets held for sale in
connection with the purchase price allocation of the acquisition of
KKSF-FM/KDFC-FM/AM. Accordingly, KDFC-FM net income of approximately $791
for the period February 1, 1997 through July 21, 1997 has been excluded
from the Company's historical condensed statement of operations. Therefore,
the KDFC-FM condensed statement of operations includes the results of
operations for January 1, 1997 through January 31, 1997 (the time brokerage
agreement holding period in 1997) for the year ended December 31, 1997.
(p) On August 13, 1997, the Company sold, in the Douglas AM Dispositions,
WBZS-AM and WZHF-AM in Washington (acquired as part of the Evergreen Viacom
Acquisition -- see 5(c)) and KDFC-AM in San Francisco for $18,000 in the
form of a promissory note. The assets of WBZS-AM and WZHF-AM were
classified as assets held for sale in connection with the purchase price
allocation of the Evergreen Viacom Acquisition (see 5(c)). Accordingly,
WBZS-AM and WZHF-AM net income for the period July 2, 1997 to August 13,
1997 has been excluded from the Company's historical condensed statement of
operations.
(q) On August 12, 1996, the Company entered into an agreement to acquire
WFLN-FM in Philadelphia from Secret for $37,750 in cash. The Company also
entered into an agreement to operate WFLN-FM under a time brokerage
agreement effective September 1, 1996. The Company subsequently entered
into an agreement to sell WFLN-FM to Greater Media for $41,800 in cash. On
May 1, 1997, the Company assigned its time brokerage agreement to operate
WFLN-FM to Greater Media. On July 16, 1997, Secret purported to terminate
the sale of WFLN-FM to the Company. The Company subse-
P-13
<PAGE> 140
quently brought suit against Secret to enforce its right to acquire
WFLN-FM. In August 1997, pursuant to a court settlement, the Company,
Secret and Greater Media agreed that (i) Secret would sell WFLN-FM directly
to Greater Media for $37,750, (ii) Greater Media would deposit $4,050 (the
difference between the Company's proposed acquisition price for WFLN-FM
from Secret and the Company's proposed sale price for WFLN-FM to Greater
Media) with the court and (iii) the Company and Secret would litigate each
party's entitlement to the amount deposited with the court. On April 13,
1998, the Company and Secret entered into a settlement agreement under
which the Company received $3,500 of the amount deposited with the court
plus interest earned during the period in which the court held such
amounts, and Secret received the balance of such amounts.
(6) Reflects the elimination of intercompany transactions between the Company
and Katz for the year ended December 31, 1997.
(7) Reflects the elimination of time brokerage agreement fees received by the
Company as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 MARKET PERIOD REVENUE
---------------------------- ---------------- ---------- -------
<S> <C> <C> <C>
KZLA-FM......................................... Los Angeles 10/1-12/31 $(567)
WTOP-AM......................................... Washington, D.C. 10/1-12/31 (276)
-----
$(843)
=====
</TABLE>
(8) Reflects incremental amortization related to the Completed Transactions and
is based on the following allocation to intangible assets:
<TABLE>
<CAPTION>
INCREMENTAL INTANGIBLE HISTORICAL ADJUSTMENT
COMPLETED TRANSACTIONS AMORTIZATION ASSETS, AMORTIZATION AMORTIZATION FOR NET
YEAR ENDED DECEMBER 31, 1997 PERIOD(I) NET EXPENSE(I) EXPENSE INCREASE
---------------------------- ------------ ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
WWWW-FM/WDFN-AM.................. 1/1-1/31 $ 26,590 $ 148 $ -- $ 148
KKSF-FM (ii)..................... 1/1-1/31 58,698 326 -- 326
WJLB-FM/WMXD-FM.................. 1/1-3/31 165,559 2,759 -- 2,759
WWRC-AM.......................... 1/1-4/2 16,808 286 -- 286
WDAS-FM/AM....................... 1/1-4/30 98,185 2,182 820 1,362
Evergreen Viacom
Acquisition(iii)............... 1/1-7/2 515,654 17,379 793 16,586
Chancellor Merger(iv)............ 1/1-9/5 2,178,137 98,823 23,638 75,185
Chicago/Dallas Exchange.......... 1/1-10/7 (613) (31) -- (31)
Katz Acquisition(v).............. 1/1-10/28 354,058 10,267 7,616 2,651
Gannett Acquisition.............. 1/1-12/29 334,892 22,264 1,228 21,036
Denver Acquisition............... 1/1-12/31 24,589 1,639 268 1,371
Bonneville Option................ 1/1-12/31 62,537 4,169 -- 4,169
---------- -------- ------- --------
Total............................ $3,835,094 $160,211 $34,363 $125,848
========== ======== ======= ========
</TABLE>
- ---------------
(i) Intangible assets are amortized on a straight-line basis over an
estimated average 15 year life (except for the Katz
Acquisition -- see (v) below). The incremental amortization period
represents the period of the year that the station was not owned by
the Company.
(ii) Intangible assets for KKSF-FM excludes (1) $50,000 of the purchase
price allocated to KDFC-FM which has been classified as assets held
for sale, (2) $1,500 to be reimbursed by the buyers of KDFC-FM for
costs incurred in connection with relocating KKSF and (3) $4,802 of
the purchase price allocated to KDFC-AM which was sold, in the
Douglas AM Dispositions, on August 13, 1997.
(iii) Intangible assets for the Evergreen Viacom Acquisition of $515,654
excludes (1) $67,231 of the purchase price allocated to WJZW-FM which
was sold in the ABC/Washington Disposition on July 7, 1997 and (2)
$12,148 of the purchase price allocated to WZHF-AM and WBZS-AM which
were sold in the Douglas AM Dispositions on August 13, 1997.
(iv) Intangible assets for the Chancellor Merger of $2,178,137 includes
$293,548 resulting from the recognition of deferred tax liabilities.
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<PAGE> 141
(v) Intangible assets for the Katz Acquisition of $354,058 consist of
goodwill of $249,058 and representation contract value of $105,000
with estimated average lives of 40 years and 17 years, respectively.
Historical depreciation expense of the Completed Transactions is assumed to
approximate depreciation expense on a pro forma basis. Actual depreciation
and amortization may differ based upon final purchase price allocations.
(9) Reflects the elimination of duplicate corporate expenses of $1,842 for the
year ended December 31, 1997 related to the Completed Transactions.
(10) Reflects the elimination of merger expenses of $6,124 for the year ended
December 31, 1997 incurred by CRBC in connection with the Chancellor
Merger.
(11) Reflects the adjustment to interest expense in connection with the
consummation of the Completed Transactions, the amendment and restatement
of the Company's senior credit agreement on April 25, 1997 (the "Senior
Credit Facility"), Chancellor Media's $3.00 Convertible Preferred Stock
Offering completed on June 16, 1997, the offering by the Company of the
8 1/8% Notes on December 22, 1997 and Chancellor Media's 1998 Equity
Offering completed on March 13, 1998:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
Additional bank borrowings related to:
Completed Station Acquisitions............................ $1,527,059
Chancellor Merger(a)...................................... 164,000
Katz Acquisition(b)....................................... 157,101
Completed Station Dispositions............................ (349,250)
New Loan Fees............................................. 10,473
----------
Total additional bank borrowings............................ $1,509,383
==========
Interest expense at 7.0%.................................... $ 60,183
Less: historical interest expense related to completed
station acquisitions and dispositions..................... (1,009)
----------
Net increase in interest expense............................ 59,174
Reduction in interest expense on bank debt related to the
application of net proceeds of the following at 7.0%:
$3.00 Convertible Preferred Stock Offering proceeds
contributed to the Company of $287,808 for the period
January 1, 1997 to
June 16, 1997.......................................... (9,290)
8 1/8% Notes proceeds of $485,000 for the period January
1, 1997 to December 22, 1997........................... (33,196)
Chancellor Media's 1998 Equity Offering proceeds
contributed to the Company and used to reduce bank
borrowings by $673,000 for the year ended December 31,
1997................................................... (47,110)
Interest expense on the Company's $500,000 8 1/8% Notes
issued December 22, 1997.................................. 39,722
Reduction in interest expense related to the application of
the 7.0% interest rate to the Company's bank debt prior to
the refinancing of the Senior Credit Facility, to CRBC's
bank debt prior to consummation of the Chancellor Merger
and to KMG's bank debt prior to consummation of the Katz
Acquisition............................................... (12,493)
----------
Total adjustment for net decrease in interest expense....... $ (3,193)
==========
</TABLE>
(a) The Company incurred additional bank borrowings of $133,000 to
distribute to CMHC to retire outstanding borrowings under the
Chancellor Broadcasting/Viacom Interim Financing and $31,000 to finance
estimated acquisition costs related to the Chancellor Merger.
P-15
<PAGE> 142
(b) The Company incurred additional bank borrowings of $149,601 to finance
the payment of $11.00 in cash for each outstanding share of KMG Common
Stock and $7,500 to finance estimated acquisition costs related to the
Katz Acquisition.
(12) Reflects the income tax benefit related to pro forma adjustments. The
adjustment to income taxes reflects the application of the estimated
effective tax rate on a pro forma basis to income (loss) before income
taxes for historical and pro forma adjustment amounts.
ADJUSTMENTS TO UNAUDITED CONDENSED COMBINED STATEMENTS OF OPERATIONS RELATED TO
THE PREFERRED STOCK REPURCHASE
(13) Reflects the adjustment to interest expense in connection with the
consummation of the proposed Preferred Stock Repurchase:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
Increase in long-term debt................................. $184,466
Assumed interest rate...................................... 7.0%
--------
Increase in interest expense............................... $ 12,913
========
</TABLE>
(14) Reflects the income tax benefit related to pro forma adjustments. The
adjustment to income taxes reflects the application of the estimated
effective tax rate on a pro forma basis to income (loss) before income
taxes for historical and pro forma adjustment amounts.
(15) Reflects the elimination of preferred stock dividends and accretion of
$40,222 for the year ended December 31, 1997 in connection with the
repurchase of all of the outstanding shares of 12 1/4% Preferred Stock and
12% Preferred Stock (or 12% Exchange Debentures issuable upon exchange of
the 12% Preferred Stock).
P-16
<PAGE> 143
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
Report of Independent Accountants......................... F-3
Independent Auditors' Report.............................. F-4
Consolidated Balance Sheets as of December 31, 1996 and
1997................................................... F-5
Consolidated Statements of Operations for the years ended
December 31, 1995, 1996 and 1997....................... F-6
Consolidated Statements of Stockholder's Equity for the
years ended December 31, 1995, 1996 and 1997........... F-7
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and
1997................................................... F-8
Notes to Consolidated Financial Statements................ F-9
Report of Independent Accountants......................... F-32
Schedule II -- Valuation and Qualifying Accounts.......... F-33
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
Report of Independent Accountants......................... F-34
Consolidated Balance Sheets as of December 31, 1995 and
1996................................................... F-35
Consolidated Statements of Operations for the years ended
December 31, 1994, 1995 and
1996................................................... F-36
Consolidated Statements of Changes in Common Stockholder's
Equity for the years ended December 31, 1994, 1995 and
1996................................................... F-37
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and
1996................................................... F-38
Notes to Consolidated Financial Statements................ F-39
Unaudited Consolidated Balance Sheets as of December 31,
1996 and June 30, 1997................................. F-55
Unaudited Consolidated Statements of Operations for the
three and six months ended June 30, 1996 and 1997...... F-56
Unaudited Consolidated Statements of Changes in
Stockholder's Equity for the six months ended June 30,
1997................................................... F-57
Unaudited Consolidated Statements of Cash Flows for the
six months ended June 30, 1996 and 1997................ F-58
Notes to Unaudited Consolidated Financial Statements...... F-59
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
Independent Auditors' Report.............................. F-65
Combined Balance Sheets as of December 31, 1995 and 1996
and June 30, 1997
(unaudited)............................................ F-66
Combined Statements of Earnings for the years ended
December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1996 and 1997 (unaudited)............... F-67
Combined Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1996 and 1997 (unaudited)............... F-68
Notes to Combined Financial Statements.................... F-69
WMZQ INC. AND VIACOM BROADCASTING EAST INC.:
Independent Auditors' Report.............................. F-74
Combined Balance Sheets as of December 31, 1995 and 1996
and June 30, 1997
(unaudited)............................................ F-75
Combined Statements of Earnings for the years ended
December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1996 and 1997 (unaudited)............... F-76
Combined Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1996 and 1997 (unaudited)............... F-77
Notes to Combined Financial Statements.................... F-78
</TABLE>
F-1
<PAGE> 144
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
WDAS-AM/FM (STATION OWNED AND OPERATED BY BEASLEY FM
ACQUISITION CORP.):
Independent Auditors' Report.............................. F-83
Balance Sheets as of December 31, 1996 and March 31, 1997
(unaudited)............................................ F-84
Statements of Earnings and Station Equity for the year
ended December 31, 1996 and the three months ended
March 31, 1996 and 1997 (unaudited).................... F-85
Statements of Cash Flows for the year ended December 31,
1996 and the three months ended March 31, 1996 and 1997
(unaudited)............................................ F-86
Notes to Financial Statements............................. F-87
KYSR INC. AND KIBB INC.:
Independent Auditors' Report.............................. F-91
Combined Balance Sheets as of December 31, 1995 and 1996
and June 30, 1997
(unaudited)............................................ F-92
Combined Statements of Operations for the years ended
December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1996 and 1997 (unaudited)............... F-93
Combined Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1996 and 1997 (unaudited)............... F-94
Notes to Combined Financial Statements.................... F-95
WLIT INC.:
Independent Auditors' Report.............................. F-100
Balance Sheets as of December 31, 1995 and 1996 and June
30, 1997 (unaudited)................................... F-101
Statements of Earnings for the years ended December 31,
1994, 1995 and 1996 and the six months ended June 30,
1996 and 1997 (unaudited).............................. F-102
Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996 and the six months ended June 30,
1996 and 1997 (unaudited).............................. F-103
Notes to Financial Statements............................. F-104
COLFAX COMMUNICATIONS, INC. RADIO GROUP
Report of Independent Public Accountants.................. F-109
Combined Balance Sheets as of December 31, 1996, 1995, and
1994................................................... F-110
Combined Statements of Income for the years ended December
31, 1996, 1995, and 1994............................... F-111
Combined Statements of Changes in Partners' Equity for the
years ended December 31, 1996, 1995, and 1994.......... F-112
Combined Statements of Cash Flows for the years ended
December 31, 1996, 1995, and 1994...................... F-113
Notes to Consolidated Financial Statements................ F-114
</TABLE>
F-2
<PAGE> 145
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation of Los Angeles:
We have audited the accompanying consolidated balance sheet of Chancellor
Media Corporation of Los Angeles and subsidiaries (collectively, the "Company")
as of December 31, 1997, and the related consolidated statements of operations,
stockholder's equity and cash flows for the year ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 1997, and the consolidated results of its
operations and its cash flows for the year ended December 31, 1997 in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
February 10, 1998, except for notes 2(b)
paragraphs 1 and 3-5 as to which the date
is February 20, 1998 and 9(a) as to
which the date is March 13, 1998
F-3
<PAGE> 146
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Chancellor Media Corporation of Los Angeles:
We have audited the accompanying consolidated balance sheet of Chancellor
Media Corporation of Los Angeles (formerly Evergreen Media Corporation of Los
Angeles) and subsidiaries as of December 31, 1996, and the related consolidated
statements of operations, stockholder's equity and cash flows for the years
ended December 31, 1995 and 1996. In connection with our audits of the
consolidated financial statements, we have also audited the financial statement
schedule as of and for the years ended December 31, 1995 and 1996. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Chancellor
Media Corporation of Los Angeles and subsidiaries as of December 31, 1996, and
the results of their operations and their cash flows for the years ended
December 31, 1995 and 1996 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set forth
therein.
KPMG PEAT MARWICK LLP
Dallas, Texas
January 31, 1997
F-4
<PAGE> 147
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 3,060 $ 16,584
Accounts receivable, less allowance for doubtful accounts
of $2,292 in 1996 and $12,651 in 1997.................. 85,159 239,869
Other current assets (note 3)............................. 6,352 27,208
---------- ----------
Total current assets.............................. 94,571 283,661
Property and equipment, net (note 4)........................ 48,193 159,797
Intangible assets, net (note 5)............................. 853,643 4,404,443
Other assets, net (note 3).................................. 24,552 113,576
---------- ----------
$1,020,959 $4,961,477
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses (note 6)............ $ 26,650 $ 171,017
Current portion of long-term debt (note 7)................ 26,500 --
---------- ----------
Total current liabilities......................... 53,150 171,017
Long-term debt, excluding current portion (note 7).......... 331,500 2,573,000
Deferred tax liabilities (note 11).......................... 86,098 361,640
Other liabilities........................................... 800 44,405
---------- ----------
Total liabilities................................. 471,548 3,150,062
---------- ----------
Redeemable preferred stock (note 8):
Redeemable senior cumulative exchangeable preferred stock
of subsidiary, par value $.01 per share; 1,000,000
shares authorized, issued and outstanding in 1997;
liquidation preference of $121,274..................... -- 119,445
Redeemable cumulative exchangeable preferred stock of
subsidiary, par value $.01 per share; 3,600,000 shares
authorized and 2,117,629 shares issued and outstanding
in 1997; liquidation preference of $223,519............ -- 211,763
Stockholder's equity (note 9):
Common stock, $.01 par value. Authorized 1,040 shares;
issued and outstanding 1,000 shares in 1996 and 1,040
shares in 1997......................................... 1 1
Paid-in capital........................................... 662,922 1,637,628
Accumulated deficit....................................... (113,512) (157,422)
---------- ----------
Total stockholder's equity........................ 549,411 1,480,207
---------- ----------
Commitments and contingencies (notes 2, 7 and 12)...........
$1,020,959 $4,961,477
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 148
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Gross revenues.............................................. $186,365 $337,405 $663,804
Less agency commissions................................... 23,434 43,555 81,726
-------- -------- --------
Net revenues........................................... 162,931 293,850 582,078
-------- -------- --------
Operating expenses:
Station operating expenses excluding depreciation and
amortization........................................... 97,674 174,344 316,248
Depreciation and amortization............................. 47,005 93,749 185,982
Corporate general and administrative...................... 4,475 7,797 21,442
-------- -------- --------
Operating expenses..................................... 149,154 275,890 523,672
-------- -------- --------
Operating income....................................... 13,777 17,960 58,406
-------- -------- --------
Nonoperating (income) expenses:
Interest expense.......................................... 19,199 37,527 85,017
Interest income........................................... (55) (477) (1,922)
Gain on disposition of assets (note 2).................... -- -- (18,380)
Other expense, net........................................ 291 -- 383
-------- -------- --------
Nonoperating expenses, net............................. (19,435) (37,050) (65,098)
-------- -------- --------
Loss before income taxes and extraordinary item........ (5,658) (19,090) (6,692)
Income tax expense (benefit) (note 11)...................... 192 (2,896) 7,802
-------- -------- --------
Loss before extraordinary item......................... (5,850) (16,194) (14,494)
Extraordinary item -- loss on extinguishment of debt, net of
income tax benefit (note 7)............................... -- -- 4,350
-------- -------- --------
Net loss............................................... (5,850) (16,194) (18,844)
Preferred stock dividends (note 8).......................... -- -- 12,901
-------- -------- --------
Net loss attributable to common stock.................. $ (5,850) $(16,194) $(31,745)
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 149
CHANCELLOR CORPORATION OF LOS ANGELES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------- PAID-IN ACCUMULATED STOCKHOLDER'S
AMOUNT SHARES CAPITAL DEFICIT EQUITY
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1994........... $1 1,000 $ 195,170 $ (82,818) $ 112,353
Net capital contributed by Parent....... -- -- 202,904 -- 202,904
Dividend to Parent...................... -- -- -- (4,830) (4,830)
Net loss................................ -- -- -- (5,850) (5,850)
-- ----- ---------- --------- ----------
Balances at December 31, 1995 1 1,000 398,074 (93,498) 304,577
Net capital contributed by Parent....... -- -- 264,848 -- 264,848
Dividend to Parent...................... -- -- -- (3,820) (3,820)
Net loss................................ -- -- -- (16,194) (16,194)
-- ----- ---------- --------- ----------
Balances at December 31, 1996........... 1 1,000 662,922 (113,512) 549,411
Net capital contributed by Parent....... -- -- 974,706 -- 974,706
Dividend to Parent...................... -- -- -- (12,165) (12,165)
Issuance of common stock in connection
with the Katz Acquisition............. -- 40 -- -- --
Net loss................................ -- -- -- (31,745) (31,745)
-- ----- ---------- --------- ----------
Balances at December 31, 1997........... $1 1,040 $1,637,628 $(157,422) $1,480,207
== ===== ========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 150
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................... $ (5,850) $ (16,194) $ (18,844)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation.................................... 5,508 7,707 14,918
Amortization of goodwill, intangible assets and
other assets.................................. 41,497 86,042 171,064
Provision for doubtful accounts................. 904 2,179 5,174
Deferred income tax benefit..................... (479) (4,353) (3,829)
Gain on disposition of assets................... -- -- (18,380)
Loss on extinguishment of debt, net of income
tax benefit................................... -- -- 4,350
Changes in certain assets and liabilities, net
of effects of acquisitions:
Accounts receivable........................... (6,628) (28,146) (29,977)
Other current assets.......................... 724 (2,804) 733
Accounts payable and accrued expenses......... 3,711 3,991 20,004
Other assets.................................. (184) (354) (4,283)
Other liabilities............................. 490 (587) (1,416)
--------- --------- -----------
Net cash provided by operating
activities............................... 39,693 47,481 139,514
--------- --------- -----------
Cash flows from investing activities:
Acquisitions, net of cash acquired................. (188,004) (457,764) (1,631,505)
Escrow deposits on pending acquisitions............ -- (17,000) (4,655)
Proceeds from sale of assets....................... -- 32,000 269,250
Payments made on purchases of representation
contracts....................................... -- -- (31,456)
Payments received on sales of station
representation contracts........................ -- -- 9,296
Capital expenditures............................... (2,642) (6,543) (11,666)
Other.............................................. (1,466) (12,631) (22,273)
--------- --------- -----------
Net cash used by investing activities...... (192,112) (461,938) (1,423,009)
--------- --------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt........... 186,000 447,750 2,945,250
Principal payments on long-term debt............... (159,000) (290,750) (1,901,250)
Cash contributed by parent......................... 132,766 264,938 293,158
Dividends to parent................................ (4,830) (3,820) (14,572)
Payments for debt issuance costs................... (303) (3,941) (25,567)
Redemption of preferred stock...................... -- (90) --
--------- --------- -----------
Net cash provided by financing
activities............................... 154,633 414,087 1,297,019
--------- --------- -----------
Increase (decrease) in cash and cash equivalents..... 2,214 (370) 13,524
Cash and cash equivalents at beginning of year....... 1,216 3,430 3,060
--------- --------- -----------
Cash and cash equivalents at end of year............. $ 3,430 $ 3,060 $ 16,584
========= ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 151
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Chancellor Media Corporation of Los Angeles (formerly known as Evergreen
Media Corporation of Los Angeles) ("CMCLA"), a wholly-owned subsidiary of
Chancellor Media Corporation ("Chancellor Media"), and its subsidiaries
(collectively, the "Company") own and operate commercial radio stations in
various geographical regions across the United States. The Company's station
portfolio as of December 31, 1997 included 96 stations (68 FM and 28 AM)
comprising a total of 11 station clusters of four or five FM stations
("superduopolies") in seven of the 12 largest radio markets -- Los Angeles, New
York, Chicago, San Francisco, Philadelphia, Washington, D.C. and Detroit -- and
in four other large markets -- Denver, Minneapolis/St. Paul, Phoenix and
Orlando. The Company also owns Katz Media Group, Inc. ("KMG" and, together with
its operating subsidiaries, "Katz"), a full-service media representation firm
that sells national spot advertising time for its clients in the television,
radio and cable industries.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of CMCLA and its
subsidiaries all of which are wholly owned. Significant intercompany balances
and transactions have been eliminated in consolidation.
(c) 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.
(d) Intangible Assets
Intangible assets consist primarily of broadcast licenses, goodwill,
representation contracts and other identifiable intangible assets. Intangible
assets resulting from acquisitions are valued based upon estimated fair values.
The Company amortizes such intangible assets using the straight-line method over
estimated useful lives ranging from 1 to 40 years. The Company continually
evaluates the propriety of the carrying amount of goodwill and other intangible
assets as well as the amortization period to determine whether current events or
circumstances warrant adjustments to the carrying value and/or revised estimates
of useful lives. This evaluation consists of the projection of undiscounted
operating income before depreciation, amortization, nonrecurring charges and
interest over the remaining amortization periods of the related intangible
assets. The projections are based on a historical trend line of actual results
since the acquisitions of the respective stations adjusted for expected changes
in operating results. To the extent such projections indicate that undiscounted
operating income is not expected to be adequate to recover the carrying amounts
of the related intangible assets, such carrying amounts are written down by
charges to expense. At this time, the Company believes that no significant
impairment of goodwill and other intangible assets has occurred and that no
reduction of the estimated useful lives is warranted.
(e) Debt Issuance Costs
The costs related to the issuance of debt are capitalized and amortized to
expense over the lives of the related debt. During the years ended December 31,
1995, 1996 and 1997, the Company recognized amortization of debt issuance costs
of $631, $1,113 and $1,337, respectively, which amounts are included in
amortization expense in the accompanying consolidated statements of operations.
F-9
<PAGE> 152
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(f) Barter Transactions
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. Barter revenue is recorded and the liability relieved when commercials
are broadcast and barter expense is recorded and the asset relieved when goods
or services are received or used. Barter amounts are not significant to the
Company's consolidated financial statements.
(g) Income Taxes
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each 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 which impacted
operations.
(h) Revenue Recognition
Revenue is derived primarily from the sale of radio advertising time to
local and national advertisers and from commissions on sales of advertising time
for radio and television stations and cable television systems under
representation contracts by the Company's media representation firm, Katz Media
Group, Inc. Revenue is recognized as advertisements are broadcast.
Fees received or paid pursuant to various time brokerage agreements are
recognized as gross revenues or amortized to expense, respectively, over the
term of the agreement using the straight-line method.
(i) Representation Contracts
Representation contracts typically may be terminated by either party upon
written notice one year after receipt of such notice. In accordance with
industry practice, in lieu of termination, an arrangement is typically made for
the purchase of such contracts by the successor representation firm. Under such
arrangements, the purchase price paid by the successor representation firm is
based upon the historic commission income projected over the remaining contract
period, including the evergreen notice period, plus 2 months.
Income resulting from the disposition of representation contracts is
recognized as other revenue over the remaining life of the contracts sold. Other
revenue on the disposition of representation contracts included in gross revenue
in the accompanying consolidated statement of operations was $153 for the year
ended December 31, 1997. Costs of obtaining representation contracts are
deferred and amortized over the related period of benefit. Amortization of costs
of obtaining representation contracts included in depreciation and amortization
in the accompanying consolidated statement of operations was $380 for the year
ended December 31, 1997.
(j) Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers
temporary cash investments purchased with original maturities of three months or
less to be cash equivalents.
The Company paid approximately $19,134, $37,042 and $84,610 for interest in
1995, 1996 and 1997, respectively. The Company paid approximately $733 and
$11,079 for income taxes in 1996 and 1997, respectively.
F-10
<PAGE> 153
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(k) Derivative Financial Instruments
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well-defined interest rate risks related to interest on the Company's
outstanding debt.
As interest rates change under interest rate swap and cap agreements, the
differential to be paid or received is recognized as an adjustment to interest
expense. The Company is not exposed to credit loss as its interest rate swap
agreements are with the participating banks under the Company's senior credit
facility.
(l) Omission of Per Share Information
Net loss per share is not presented as such information is not meaningful.
All of the issued and outstanding shares of the Company's common stock have been
owned, directly or indirectly, by Chancellor Media during the three-year period
ended December 31, 1997.
(m) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of management, credit risk with respect to trade receivables
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 trade receivables are maintained. At December 31, 1995, 1996
and 1997, no receivable from any customer exceeded 5% of stockholders' equity
and no customer accounted for more than 10% of net revenues in 1995, 1996 or
1997.
(n) Stock Option Plan
The Company does not have any stock compensation plans under which it
grants stock awards to employees. Chancellor Media grants stock options to the
Company's officers and other key employees on behalf of the Company.
Prior to January 1, 1996, Chancellor Media accounted for its stock option
plans in accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. SFAS No. 123, Accounting for Stock-Based Compensation, permits
entities to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant or continue to apply the provisions of
APB Opinion No. 25 and provide pro forma net income and pro forma earnings per
share disclosures for employee stock option grants made in 1995 and future years
as if the fair-value-based method defined in SFAS No. 123 had been applied.
Chancellor Media has elected to continue to apply the provisions of APB Opinion
No. 25 and provide the pro forma disclosures of SFAS No. 123.
(o) Recently Issued Accounting Principles
The Company adopted the provisions of SFAS No. 129, Disclosures of
Information about Capital Structure, effective for the year ended December 31,
1997. This Statement consolidates existing pronouncements on required
disclosures about a company's capital structure including a brief discussion of
rights and
F-11
<PAGE> 154
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
privileges for securities outstanding. The adoption of this Statement had no
material effect on the Company's consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income. This Statement requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS No. 130 is effective for
financial statement periods beginning after December 15, 1997. Management does
not anticipate that this Statement will have a significant effect on the
Company's consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. This
Statement establishes standards for reporting information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997. Management does
not anticipate that this Statement will have a significant effect on the
Company's consolidated financial statements.
(p) Reclassifications
Certain reclassifications have been made to prior years' consolidated
financial statements to conform to the current year presentation.
(2) ACQUISITIONS AND DISPOSITIONS
(a) Completed Transactions
In May 1995, the Company acquired Broadcasting Partners, Inc. ("BPI"), a
publicly traded radio broadcasting company with seven FM and four AM radio
stations, eight of which are in the nation's ten largest radio markets (the "BPI
Acquisition"). The BPI Acquisition was effected through the merger of a
wholly-owned subsidiary of the Company with and into BPI, with BPI surviving the
merger as a wholly-owned subsidiary of the Company. The BPI Acquisition included
the conversion of each outstanding share of BPI common stock into the right to
receive $12.00 in cash and .69 shares of Chancellor Media's Common Stock,
resulting in total cash payments of $94,813 and the issuance of 11,222,018
shares of Chancellor Media's Common Stock valued at $6.25 per share. In
addition, the Company retired existing BPI debt of $81,926 and incurred various
other direct acquisition costs. The total purchase price, including closing
costs, allocated to net assets acquired was approximately $258,634.
On January 17, 1996, the Company acquired Pyramid Communications, Inc.
("Pyramid"), a radio broadcasting company with nine FM and three AM radio
stations in five radio markets (Chicago, Philadelphia, Boston, Charlotte and
Buffalo) (the "Pyramid Acquisition"). The Pyramid Acquisition was effected
through the merger of a wholly-owned subsidiary of the Company with and into
Pyramid, with Pyramid surviving the merger as a wholly-owned subsidiary of the
Company. The total purchase price, including closing costs, allocated to net
assets acquired was approximately $316,343 in cash.
On May 3, 1996, the Company acquired WKLB-FM in Boston from Fairbanks
Communications for $34,000 in cash plus various other direct acquisition costs.
On November 26, 1996, the Company exchanged WKLB-FM in Boston (now known as
WROR-FM) for WGAY-FM in Washington, D.C. The exchange was accounted for as a
like-kind exchange and no gain or loss was recognized upon consummation of the
transaction. The Company had previously been operating WGAY-FM under a time
brokerage agreement and selling substantially all of the broadcast time of
WKLB-FM under a time brokerage agreement, in each case since June 17, 1996,
pending completion of the exchange.
F-12
<PAGE> 155
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On July 19, 1996, the Company sold WHTT-FM and WHTT-AM in Buffalo to
Mercury Radio for $19,500 in cash, and on August 1, 1996, the Company sold
WSJZ-FM in Buffalo to American Radio Systems for $12,500 in cash (collectively,
the "Buffalo Stations"). The assets of the Buffalo Stations were classified as
assets held for sale in the Pyramid Acquisition and no gain or loss was
recognized by the Company upon consummation of the sales. The combined net
income of the Buffalo stations of approximately $733 has been excluded from the
consolidated statement of operations for the year ended December 31, 1996. The
excess of the proceeds over the carrying amounts at the dates of sale
approximated $2,561 (including interest costs during the holding period of
approximately $1,169) and has been accounted for as an adjustment to the
original purchase price of the Pyramid Acquisition. The Company had previously
entered into time brokerage agreements (effective April 15, 1996 for WSJZ-FM and
April 25, 1996 for WHTT-FM and WHTT-AM) to sell substantially all of the
broadcast time of these stations pending completion of the sales.
On August 14, 1996, the Company acquired KYLD-FM in San Francisco from
Crescent Communications for $44,000 in cash plus various other direct
acquisition costs. The Company had previously been operating KYLD-FM under a
time brokerage agreement since May 1, 1996.
On October 18, 1996, the Company acquired WEDR-FM in Miami from affiliates
of the Rivers Group for $65,000 in cash plus various other direct acquisition
costs.
On January 31, 1997, the Company acquired WWWW-FM and WDFN-AM in Detroit
from affiliates of Chancellor Radio Broadcasting Company ("CRBC") for $30,000 in
cash plus various other direct acquisition costs. The Company had previously
provided certain sales and promotional functions to WWWW-FM and WDFN-AM under a
joint sales agreement since February 14, 1996 and subsequently operated the
stations under a time brokerage agreement since April 1, 1996.
On January 31, 1997, the Company acquired KKSF-FM and KDFC-FM/AM in San
Francisco from affiliates of the Brown Organization for $115,000 in cash plus
various other direct acquisition costs. The Company had previously been
operating KKSF-FM and KDFC-FM/AM under a time brokerage agreement since November
1, 1996. On July 21, 1997, the Company sold KDFC-FM to Bonneville International
Corporation ("Bonneville") for $50,000 in cash. The assets of KDFC-FM were
classified as assets held for sale in connection with the purchase price
allocation of the acquisition of KKSF-FM and KDFC-FM/AM and no gain or loss was
recognized by the Company upon consummation of the sale. The combined net income
of KDFC-FM of approximately $934 has been excluded from the consolidated
statement of operations for the year ended December 31, 1997. The excess of the
proceeds over the carrying amount at the date of sale approximated $739
(including interest costs during the holding period of approximately $1,750) and
has been accounted for as an adjustment to the original purchase price of the
acquisition of KKSF-FM and KDFC-FM/AM.
On April 1, 1997, the Company acquired WJLB-FM and WMXD-FM in Detroit from
Secret Communications, L.P. ("Secret") for $168,000 in cash plus various other
direct acquisition costs. The Company had previously been operating WJLB-FM and
WMXD-FM under time brokerage agreements since September 1, 1996.
On April 3, 1997, the Company exchanged WQRS-FM in Detroit (which the
Company acquired on April 3, 1997 from Secret for $32,000 in cash plus various
other direct acquisition costs), to affiliates of Greater Media Radio, Inc. in
return for WWRC-AM in Washington, D.C. and $9,500 in cash. The exchange was
accounted for as a like-kind exchange and no gain or loss was recognized upon
consummation of the transaction. The net purchase price to the Company of
WWRC-AM was therefore $22,500. The Company had previously been operating WWRC-AM
under a time brokerage agreement since June 17, 1996.
On May 1, 1997, the Company acquired WDAS-FM/AM in Philadelphia from
affiliates of Beasley FM Acquisition Corporation for $103,000 in cash plus
various other direct acquisition costs.
F-13
<PAGE> 156
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On May 15, 1997, the Company exchanged five of its six stations in
Charlotte, North Carolina (WPEG-FM, WBAV-FM/AM, WRFX-FM and WFNZ-AM) for two FM
stations in Philadelphia (WIOQ-FM and WUSL-FM) owned by EZ Communications, Inc.
("EZ") in Philadelphia (the "Charlotte Exchange"), and also sold the Company's
sixth radio station in Charlotte, WNKS-FM, to EZ for $10,000 in cash and
recognized a gain of $3,536. The Charlotte Exchange was accounted for as a
like-kind exchange and no gain or loss was recognized upon consummation of the
transaction.
On May 30, 1997, the Company acquired WPNT-FM in Chicago from affiliates of
Century Broadcasting Company for $75,740 in cash (including $1,990 for the
purchase of the station's accounts receivable) plus various other direct
acquisition costs. On June 19, 1997, the Company sold WPNT-FM in Chicago to
Bonneville for $75,000 in cash and recognized a gain of $529.
On June 3, 1997, the Company sold WEJM-FM in Chicago to affiliates of
Crawford Broadcasting for $14,750 in cash and recognized a gain of $9,258.
On July 2, 1997, the Company acquired WLTW-FM and WAXQ-FM in New York and
WMZQ-FM, WJZW-FM, WZHF-AM and WBZS-AM in Washington, D.C. from Viacom
International, Inc. ("Viacom") for approximately $612,388 in cash including
various other direct acquisition costs (the "Viacom Acquisition"). The Viacom
Acquisition was financed with (i) bank borrowings under the Senior Credit
Facility (as defined) of $552,559; (ii) $53,750 in escrow funds paid by the
Company on February 19, 1997 and (iii) $6,079 financed through working capital.
In June 1997, Chancellor Media issued 5,990,000 shares of $3.00 Convertible
Exchangeable Preferred Stock for net proceeds of $287,808 which were contributed
to the Company by Chancellor Media and used to repay borrowings under the Senior
Credit Facility and subsequently were reborrowed on July 2, 1997 as part of the
financing of the Viacom Acquisition. On July 7, 1997, the Company sold WJZW-FM
in Washington, D.C. to affiliates of Capital Cities/ABC Radio for $68,000 in
cash. The assets of WJZW-FM, as well as the assets of WZHF-AM and WBZS-AM, which
were sold on August 13, 1997, were accounted for as assets held for sale in
connection with the purchase price allocation of the Viacom Acquisition and no
gain or loss was recognized by the Company upon consummation of the sales. The
combined net income of WJZW-FM, WZHF-AM and WBZS-AM of approximately $153 has
been excluded from the consolidated statement of operations for the year ended
December 31, 1997. The excess of the carrying amounts over the proceeds at the
dates of sale approximated $894 and has been accounted for as an adjustment to
the original purchase price of the Viacom Acquisition.
On July 7, 1997, the Company sold the Federal Communications Commission
("FCC") authorizations and certain transmission equipment previously used in the
operation of KYLD-FM in San Francisco to Susquehanna Radio Corporation
("Susquehanna") for $44,000 in cash and recognized a gain of $1,726.
Simultaneously therewith, CRBC sold the call letters "KSAN-FM" (which CRBC
previously used in San Francisco) to Susquehanna. On July 7, 1997, the Company
and CRBC entered into a time brokerage agreement to enable the Company to
operate KYLD-FM on the frequency previously assigned to KSAN-FM, and on July 7,
1997, CRBC changed the call letters of KSAN-FM to KYLD-FM. Upon the consummation
of the Chancellor Merger (as defined herein), the Company changed the format of
the new KYLD-FM to the format previously operated on the old KYLD-FM.
On July 14, 1997, the Company completed the disposition of WLUP-FM in
Chicago to Bonneville for net proceeds of $80,000 which were held by a qualified
intermediary pending the completion of the deferred exchange of WLUP-FM for
KZPS-FM and KDGE-FM in Dallas. On October 7, 1997, the Company applied the net
proceeds from the disposition of WLUP-FM of $80,000 in cash, plus an additional
$3,500 and various other direct acquisition costs, in a deferred exchange of
WLUP-FM for KZPS-FM and KDGE-FM in Dallas. The exchange was accounted for as a
like-kind exchange and no gain or loss was recognized upon consummation of the
transaction. The Company had previously operated KZPS-FM and KDGE-FM under time
brokerage agreements effective August 1, 1997.
F-14
<PAGE> 157
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On July 21, 1997, the Company entered into a time brokerage agreement with
CRBC whereby the Company began managing certain limited functions of CRBC's
stations KBGG-FM, KNEW-AM and KABL-FM in San Francisco pending the consummation
of the Chancellor Merger (as defined herein), which occurred on September 5,
1997.
On August 13, 1997, the Company sold WBZS-AM and WZHF-AM in Washington,
D.C. (acquired as part of the Viacom Acquisition) and KDFC-AM in San Francisco
to affiliates of Douglas Broadcasting ("Douglas") for $18,000 in the form of a
promissory note. The promissory note bears interest at 7 3/4%, with a balloon
principal payment due four years after closing. At closing, Douglas was required
to post a $1,000 letter of credit for the benefit of the Company that will
remain outstanding until all amounts due under the promissory note are paid.
On August 27, 1997, the Company sold WEJM-AM in Chicago to Douglas for
$7,500 in cash and recognized a gain of $3,331.
On September 5, 1997, pursuant to an Amended and Restated Agreement and
Plan of Merger, dated as of February 19, 1997 and amended and restated on July
31, 1997 (the "Chancellor Merger Agreement"), among Chancellor Broadcasting
Company ("Chancellor"), CRBC, Evergreen Media Corporation ("Evergreen"),
Evergreen Mezzanine Holdings Corporation ("EMHC") and Evergreen Media
Corporation of Los Angeles ("EMCLA"), (i) Chancellor was merged (the "Parent
Merger") with and into EMHC, a direct, wholly-owned subsidiary of Evergreen,
with EMHC remaining as the surviving corporation and (ii) CRBC was merged (the
"Subsidiary Merger") with and into EMCLA, a direct, wholly-owned subsidiary of
EMHC, with EMCLA remaining as the surviving corporation (collectively, the
"Chancellor Merger"). Upon consummation of the Parent Merger, Evergreen was
renamed Chancellor Media Corporation and EMHC was renamed Chancellor Mezzanine
Holdings Corporation ("CMHC"). Upon consummation of the Subsidiary Merger, the
Company was renamed Chancellor Media Corporation of Los Angeles . Consummation
of the Chancellor Merger added 52 radio stations (36 FM and 16 AM) to the
Company's portfolio of stations, including 13 stations in markets in which the
Company previously operated. The total purchase price allocated to net assets
acquired was approximately $1,998,383 which included (i) the conversion of each
outstanding share of Chancellor Common Stock into 0.9091 shares of Chancellor
Media Common Stock, resulting in the issuance of 34,617,460 shares of Chancellor
Media Common Stock at $15.50 per share, (ii) the assumption of long-term debt of
CRBC of $949,000 which included $549,000 of borrowings outstanding under the
CRBC senior credit facility, $200,000 of CRBC's 9 3/8% Senior Subordinated Notes
due 2004 and $200,000 of CRBC's 8 3/4% Senior Subordinated Notes due 2007 (iii)
the issuance of 2,117,629 shares of the Company's 12% Exchangeable Preferred
Stock in exchange for CRBC's substantially identical securities with a fair
value of $215,570 including accrued and unpaid dividends of $3,807, (iv) the
issuance of 1,000,000 shares of the Company's 12 1/4% Series A Senior Cumulative
Exchangeable Preferred Stock in exchange for CRBC's substantially identical
securities with a fair value of $120,217 including accrued and unpaid dividends
of $772, (v) the issuance of 2,200,000 shares of Chancellor Media's 7%
Convertible Preferred Stock in exchange for Chancellor's substantially identical
securities with a fair value of $111,048 including accrued and unpaid dividends
of $1,048, (vi) the assumption of stock options issued to Chancellor stock
option holders with a fair value of $34,977 and (vii) estimated acquisition
costs of $31,000.
On October 28, 1997, the Company acquired Katz, a full-service media
representation firm, in a tender offer transaction for a total purchase price of
approximately $379,101 (the "Katz Acquisition") which included (i) the
conversion of each outstanding share of KMG Common Stock into the right to
receive $11.00 in cash, resulting in total cash payments of $149,601, (ii) the
assumption of long-term debt of KMG and its subsidiaries of $222,000 which
included $122,000 of borrowings outstanding under the KMG senior credit facility
and $100,000 of 10 1/2% Senior Subordinated Notes due 2007 of Katz Media
Corporation (a subsidiary of KMG) and (iii) estimated acquisition costs of
$7,500.
F-15
<PAGE> 158
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On December 29, 1997, the Company acquired five radio stations from Pacific
and Southern Company, Inc., a subsidiary of Gannett Co., Inc., consisting of
WGCI-FM/AM in Chicago for $140,000, KKBQ-FM/ AM in Houston for $110,000 and
KHKS-FM in Dallas for $90,000, for an aggregate purchase price of $340,000 in
cash plus various other direct acquisition costs.
On January 30, 1998, the Company acquired KXPK-FM in Denver from Ever Green
Wireless LLC (which is unrelated to the Company) for $26,000 in cash plus
various other direct acquisition costs, of which $1,655 was previously paid by
CRBC as escrow funds and are classified as other assets at December 31, 1997.
The Company had previously been operating KXPK-FM under a time brokerage
agreement since September 1, 1997.
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.
A summary of the net assets acquired follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- ----------
<S> <C> <C> <C>
Working capital, including cash of $492 in 1995,
$1,011 in 1996 and $9,724 in 1997................ $ 12,012 $ 11,218 $ 66,805
Property and equipment............................. 11,684 11,519 118,371
Assets held for sale (note 2)...................... -- 32,000 131,000
Intangible assets.................................. 264,650 465,824 3,823,746
Other assets....................................... -- -- 26,742
Deferred tax liability............................. (29,712) (61,218) (279,371)
Other liabilities.................................. -- -- (39,681)
-------- -------- ----------
$258,634 $459,343 $3,847,612
======== ======== ==========
</TABLE>
The pro forma consolidated condensed results of operations data for 1996
and 1997, as if the 1996 and 1997 acquisitions and dispositions discussed above,
the 8 1/8% Notes offering described in note 7(f) and the amendment and
restatement of the Senior Credit Facility described in note 7(a) occurred at
January 1, 1996, follow:
<TABLE>
<CAPTION>
UNAUDITED
-----------------------
1996 1997
--------- ----------
<S> <C> <C>
Net revenues................................................ $ 882,054 $1,002,784
Net loss.................................................... (216,229) (149,683)
</TABLE>
The pro forma results are not necessarily indicative of what would have
occurred if the transactions had been in effect for the entire periods
presented.
(b) Pending Transactions
On July 1, 1996, CRBC entered into an agreement with SFX Broadcasting, Inc.
("SFX") pursuant to which CRBC agreed to exchange WAPE-FM and WFYV-FM in
Jacksonville and $11,000 in cash to SFX in return for WBAB-FM, WBLI-FM, WHFM-FM
and WGBB-AM in Nassau/Suffolk (Long Island) (the "SFX Exchange"). The Company
currently operates WBAB-FM, WBLI-FM, WHFM-FM and WGBB-FM pursuant to a time
brokerage agreement effective July 1, 1996 and SFX currently operates WAPE-FM
and WFYV-FM pursuant to a time brokerage agreement effective July 1, 1996. On
November 6, 1997, the Antitrust Division of the United States Department of
Justice (the "DOJ") filed suit against the Company seeking to enjoin, under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
F-16
<PAGE> 159
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Act"), the Company's acquisition of the four Long Island properties from SFX. If
the Company is unable to acquire the four Long Island properties, the SFX
Exchange will not be consummated. Furthermore, under the terms of the Capstar
Transaction (as defined below), upon consummation of Capstar Broadcasting
Corporation's pending acquisition of SFX, the SFX Exchange would be terminated.
On August 6, 1997, the Company paid $3,000 to Bonneville for an option to
exchange WTOP-AM in Washington, KZLA-FM in Los Angeles and WGMS-FM in Washington
and $57,000 in cash for Bonneville's stations WBIX-FM in New York, KLDE-FM in
Houston and KBIG-FM in Los Angeles (the "Bonneville Option"). The Bonneville
Option was exercised on October 1, 1997, and definitive exchange documentation
is presently being negotiated. The Company has entered into time brokerage
agreements to operate KLDE-FM and KBIG-FM effective October 1, 1997 and WBIX-FM
effective October 10, 1997 and has entered into time brokerage agreements to
sell substantially all of the broadcast time of WTOP-AM, KZLA-FM and WGMS-FM
effective October 1, 1997.
On February 17, 1998, the Company entered into an agreement to acquire
WWDC-FM/AM in Washington, D.C. from Capitol Broadcasting Company and its
affiliates for $72,000 in cash (including $4,000 paid by the Company in escrow
on February 18, 1998), plus an amount equal to the value assigned to certain
accounts receivable for the stations (the "Capitol Broadcasting Acquisition").
Consummation of the Capitol Broadcasting Acquisition is conditioned, among other
things, on the consummation of the exchanges of the Company's Washington, D.C.
stations that are subject to the Bonneville Option.
On February 20, 1998, the Company entered into an agreement to acquire from
Capstar Broadcasting Corporation (together with its subsidiaries, "Capstar")
KTXQ-FM and KBFB-FM in Dallas/Ft. Worth, KODA-FM, KKRW-FM and KQUE-AM in
Houston, KPLN-FM and KYXY-FM in San Diego and WVTY-FM, WJJJ-FM, WXDX-FM and
WDVE-FM in Pittsburgh (collectively, the "Capstar/SFX Stations") for an
aggregate purchase price of approximately $637,500 (the "Capstar Transaction").
The Capstar/SFX Stations are presently owned by SFX, and are expected to be
acquired by Capstar as part of Capstar's pending acquisition of SFX (the
"Capstar/SFX Acquisition"). The Capstar/SFX Stations would be acquired by the
Company in a series of purchases and exchanges over a period of three years, and
would be operated by the Company under time brokerage agreements immediately
upon the consummation of the Capstar/SFX Acquisition until acquired by the
Company. As part of the Capstar Transaction, the SFX Exchange would, upon
consummation of the Capstar/SFX Acquisition, be terminated and the Company would
exchange WAPE-FM and WFYV-FM in Jacksonville (valued for purposes of the Capstar
Transaction at $53,000) plus $90,250 in cash for Capstar/SFX Station KODA-FM in
Houston. The Company would pay approximately $494,250 for the remaining ten
Capstar/SFX Stations. As part of the Capstar Transaction, the Company would, at
the consummation of the Capstar/SFX Acquisition, provide a subordinated loan to
Capstar in the principal amount of $250,000 (the "Capstar Loan"). The Capstar
Loan would bear interest at the rate of 12% per annum (subject to increase in
certain circumstances), and would be secured by a senior pledge of common stock
of Capstar's direct subsidiaries and SFX and a senior guarantee by one of
Capstar's direct subsidiaries. A portion of the Capstar Loan would be prepaid by
Capstar in connection with the Company's acquisition of, and the proceeds of
such prepayment would be used by the Company as a portion of the purchase price
for, each Capstar/SFX Station. The Company's obligation to provide the Capstar
Loan is conditioned, among other things, on Capstar's receipt of at least
$650,000 in equity investments that are subordinate to the Capstar Loan between
January 1, 1998 and the consummation of the Capstar/SFX Acquisition. Hicks,
Muse, Tate & Furst, Incorporated ("Hicks Muse"), which is a substantial
shareholder of the Company (see note 14), controls Capstar, and certain
directors of the Company are directors and/or executive officers of Capstar
and/or Hicks Muse.
Consummation of each of the transactions discussed above is subject to
various conditions, including approval from the FCC and the expiration or early
termination of any waiting period required under the HSR Act. Except with
respect to the SFX Exchange, which the Company expects will be terminated in
connection
F-17
<PAGE> 160
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
with the Capstar Transaction, the Company believes that such conditions will be
satisfied in the ordinary course, but there can be no assurance that this will
be the case.
Escrow funds of $4,655 paid by the Company in connection with the
acquisition of KXPK-FM in Denver on January 30, 1998 and the Bonneville Option
have been classified as other assets in the accompanying balance sheet at
December 31, 1997.
(3) OTHER ASSETS
Other current assets consist of the following at December 31, 1996 and
1997:
<TABLE>
<CAPTION>
1996 1997
------ -------
<S> <C> <C>
Representation contracts receivable......................... $ -- $16,462
Prepaid expenses and other.................................. 6,352 10,746
------ -------
$6,352 $27,208
====== =======
</TABLE>
Other assets consist of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Deferred costs on purchases of representation contracts,
less accumulated amortization of $380 in 1997............. $ -- $ 35,411
Deferred debt issuance costs, less accumulated amortization
of $1,794 in 1996 and $943 in 1997........................ 7,086 24,624
Notes receivable (note 2)................................... -- 18,000
Representation contracts receivable......................... -- 12,187
Escrow deposits............................................. 17,000 4,655
Other....................................................... 466 18,699
------- --------
$24,552 $113,576
======= ========
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996 and
1997:
<TABLE>
<CAPTION>
ESTIMATED USEFUL LIFE 1996 1997
--------------------- ------- --------
<S> <C> <C> <C>
Broadcast and other equipment.................. 3-15 years $47,937 $115,440
Buildings and improvements..................... 3-20 years 11,735 24,308
Furniture and fixtures......................... 5-7 years 8,392 29,659
Land........................................... -- 7,379 23,122
------- --------
75,443 192,529
Less accumulated depreciation.................. 27,250 32,732
------- --------
$48,193 $159,797
======= ========
</TABLE>
F-18
<PAGE> 161
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
ESTIMATED USEFUL LIFE 1996 1997
--------------------- ---------- ----------
<S> <C> <C> <C>
Broadcast licenses......................... 15-40 $ 498,766 $3,507,547
Goodwill................................... 15-40 131,775 717,576
Representation contracts................... 17 -- 105,000
Other intangibles.......................... 1-40 397,062 386,272
---------- ----------
1,027,603 4,716,395
Less accumulated amortization.............. 173,960 311,952
---------- ----------
$ 853,643 $4,404,443
========== ==========
</TABLE>
In addition to broadcast licenses, goodwill and representation contracts,
categories of other intangible assets include: (i) premium advertising revenue
base (the value of the higher radio advertising revenues in certain of the
Company's markets as compared to other markets of similar population); (ii)
advertising client base (the value of the well-established advertising base in
place at the time of acquisition of certain stations); (iii) talent contracts
(the value of employment contracts between certain stations and their key
employees); (iv) fixed asset delivery premium (the benefit expected from the
Company's ability to operate fully constructed and operational stations from the
date of acquisition), and (v) premium audience growth pattern (the value of
expected above-average population growth in a given market).
(6) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at December
31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Accounts payable............................................ $17,746 $ 83,738
Accrued payroll............................................. 7,262 31,349
Representation contracts payable............................ -- 21,680
Accrued interest............................................ 1,642 18,130
Accrued dividends........................................... -- 16,120
------- --------
$26,650 $171,017
======= ========
</TABLE>
(7) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
-------- ----------
<S> <C> <C>
Senior Credit Facility(a)................................... $348,000 $1,573,000
Senior Notes(b)............................................. 10,000 --
9 3/8% Notes(c)............................................. -- 200,000
8 3/4% Notes(d)............................................. -- 200,000
10 1/2% Notes(e)............................................ -- 100,000
8 1/8% Notes(f)............................................. -- 500,000
-------- ----------
Total long-term debt.............................. 358,000 2,573,000
Less current portion........................................ 26,500 --
-------- ----------
$331,500 $2,573,000
======== ==========
</TABLE>
F-19
<PAGE> 162
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(a) Senior Credit Facility
On April 25, 1997, the Company entered into a loan agreement which amended
and restated its prior senior credit facility. Under the amended and restated
agreement, as amended on June 26, 1997, August 7, 1997, October 28, 1997 and
February 10, 1998 (as amended, the "Senior Credit Facility"), the Company
established a $1,250,000 revolving facility (the "Revolving Loan Facility") and
a $500,000 term loan facility (the "Term Loan Facility"). Upon consummation of
the Chancellor Merger, the aggregate commitments under the Revolving Loan
Facility and the Term Loan Facility were increased to $1,600,000 and $900,000,
respectively. In connection with the amendment and restatement of the Senior
Credit Facility, the Company wrote off the unamortized balance of deferred debt
issuance costs of $4,350 (net of a tax benefit of $2,343) as an extraordinary
charge.
Borrowings under the Senior Credit Facility bear interest at a rate based,
at the option of the Company, on the participating banks' prime rate or
Eurodollar rate, plus an incremental rate. Without giving effect to the interest
rate swap and cap agreements described below, the interest rate on the $900,000
outstanding under the Term Loan at December 31, 1997 was 7.09% on a blended
basis, based on Eurodollar rates, and the interest rate on the $665,000 and
$8,000 of advances outstanding under the Revolving Loan were 7.06% on a blended
basis and 8.63% at December 31, 1997, based on the Eurodollar and prime rates,
respectively. The Company pays fees ranging from 0.25% to 0.375% per annum on
the aggregate unused portion of the loan commitment based upon the leverage
ratio for the most recent quarter end, in addition to an annual agent's fee.
Pursuant to the Senior Credit Facility, the Company is required to enter
into interest hedging agreements that result in fixing or placing a cap on the
Company's floating rate debt so that no less than 50% of the principal amount of
total debt outstanding has a fixed or capped rate. At December 31, 1997,
interest rate swap agreements covering a notional balance of $1,325,000 were
outstanding. These outstanding swap agreements mature from 1998 through 1999 and
require the Company to pay fixed rates of 4.96% to 6.63% while the counterparty
pays a floating rate based on the three-month London Interbank Borrowing Offered
Rate ("LIBOR"). During the years ended December 31, 1995, 1996 and 1997, the
Company recognized charges (income) under its interest rate swap agreements of
$(275), $111 and $2,913, respectively. Because the interest rate swap agreements
are with banks that are lenders under the Senior Credit Facility, the Company is
not exposed to credit loss.
The Term Loan Facility is payable in quarterly installments commencing on
September 30, 2000 and ending June 30, 2005. The Revolving Loan Facility
requires scheduled annual reductions of the commitment amount, payable in
quarterly installments commencing on September 30, 2000 and ending on June 30,
2005. The capital stock of the Company's subsidiaries is pledged to secure the
performance of the Company's obligations under the Senior Credit Facility, and
each of the Company's subsidiaries have guaranteed those obligations.
(b) Senior Notes
The Company issued $20,000 of senior notes (the "Senior Notes") in 1989.
The Senior Notes bear interest at 11.59% per annum payable quarterly and
principal is payable in equal quarterly installments of $1,000 through May 1999.
In connection with the amendment and restatement of the Senior Credit Facility,
on April 25, 1997, the Company repaid all amounts outstanding under the Senior
Notes.
(c) 9 3/8% Notes
Upon consummation of the Chancellor Merger, on September 5, 1997, the
Company assumed CRBC's $200,000 aggregate principal amount of 9 3/8% Senior
Subordinated Notes due 2004 (the "9 3/8% Notes"). Interest on the 9 3/8% Notes
is payable semiannually, commencing on April 1, 1996. The 9 3/8% Notes mature on
F-20
<PAGE> 163
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
October 1, 2004 and are redeemable, in whole or in part, at the option of the
Company on or after February 1, 2000, at redemption prices ranging from 104.688%
at February 1, 2000 and declining to 100% on or after February 1, 2003, plus in
each case accrued and unpaid interest. In addition, on or prior to January 31,
1999, the Company may redeem up to 25% of the original aggregate principal
amount of the 9 3/8% Notes at a redemption price of 107.031% plus accrued and
unpaid interest with the net proceeds of one or more public equity offerings of
CMHC or the Company. Upon the occurrence of a change in control (as defined in
the indenture governing the 9 3/8% Notes), the holders of the 9 3/8% Notes have
the right to require the Company to repurchase all or any part of the 9 3/8%
Notes at a purchase price equal to 101% plus accrued and unpaid interest.
(d) 8 3/4% Notes
Upon consummation of the Chancellor Merger, on September 5, 1997, the
Company assumed CRBC's $200,000 aggregate principal amount of 8 3/4% Senior
Subordinated Notes due 2007 (the "8 3/4% Notes"). Interest on the 8 3/4% Notes
is payable semiannually, commencing on December 15, 1997. The 8 3/4% Notes
mature on June 15, 2007 and are redeemable, in whole or in part, at the option
of the Company on or after June 15, 2002, at redemption prices ranging from
104.375% at June 15, 2002 and declining to 100% on or after June 15, 2005, plus
in each case accrued and unpaid interest. In addition, prior to June 15, 2000,
the Company may redeem up to 25% of the original aggregate principal amount of
the 8 3/4% Notes at a redemption price of 108.75% plus accrued and unpaid
interest with the net proceeds of one or more public equity offerings of CMHC or
the Company. Upon the occurrence of a change in control (as defined in the
indenture governing the 8 3/4% Notes) on or prior to June 15, 2000, the 8 3/4%
Notes may be redeemed as a whole at the option of the Company at a redemption
price of 100% plus the Applicable Premium (as defined in the indenture governing
the 8 3/4% Notes) and accrued and unpaid interest. Upon the occurrence of a
change in control after June 15, 2000, the holders of the 8 3/4% Notes have the
right to require the Company to repurchase all or any part of the 8 3/4% Notes
at a purchase price equal to 101% plus accrued and unpaid interest.
(e) 10 1/2% Notes
Upon consummation of the Katz Acquisition, on October 28, 1997, the Company
assumed Katz Media Corporation's $100,000 aggregate principal amount of 10 1/2%
Senior Subordinated Notes due 2007 (the "10 1/2% Notes"). Interest on the
10 1/2% Notes is payable semiannually, commencing on July 15, 1997. The 10 1/2%
Notes mature on January 15, 2007 and are redeemable, in whole or in part, at the
option of the Company on or after January 15, 2002, at redemption prices ranging
from 105.25% at January 15, 2002 and declining to 100% on or after January 15,
2006, plus in each case accrued and unpaid interest. In addition, prior to
January 15, 2000, the Company may redeem up to 35% of the original aggregate
principal amount of the 10 1/2% Notes at a redemption price of 109.5% plus
accrued and unpaid interest with the net proceeds of one or more offerings of
equity interests of Chancellor Media, CMHC or the Company. Upon the occurrence
of a change in control (as defined in the indenture governing the 10 1/2%
Notes), the holders of the 10 1/2% Notes have the right to require the Company
to repurchase all or any part of the 10 1/2% Notes at a purchase price equal to
101% plus accrued and unpaid interest.
(f) 8 1/8% Notes
On December 22, 1997, the Company issued $500,000 aggregate principal
amount of 8 1/8% Senior Subordinated Notes due 2007 (the "8 1/8% Notes") for
estimated net proceeds of $485,000. Interest on the 8 1/8% Notes is payable
semiannually, commencing on June 15, 1998. The 8 1/8% Notes mature on December
15, 2007 and are redeemable, in whole or in part, at the option of the Company
on or after December 15, 2002, at redemption prices ranging from 104.063% at
December 15, 2002 and declining to 100% on or after December 15, 2005, plus in
each case accrued and unpaid interest. In addition, prior to December 15, 2000,
the Company may redeem up to 35% of the original aggregate principal amount of
the 8 1/8% Notes at a
F-21
<PAGE> 164
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
redemption price of 108.125% plus accrued and unpaid interest with the net
proceeds of one or more public equity offerings of Chancellor Media, CMHC or the
Company. Also, upon the occurrence of a change in control (as defined in the
indenture governing the 8 1/8% Notes), the 8 1/8% Notes may be redeemed as a
whole at the option of the Company at a redemption price of 100% plus the
Applicable Premium (as defined in the indenture governing the 8 1/8% Notes) and
accrued and unpaid interest. Upon the occurrence of a change in control after
December 15, 2000, the holders of the 8 1/8% Notes have the right to require the
Company to repurchase all or any part of the 8 1/8% Notes at a purchase price
equal to 101% plus accrued and unpaid interest.
(g) Summarized Financial Information of Subsidiary Guarantors
The 9 3/8% Notes, the 8 3/4% Notes, the 10 1/2% Notes and the 8 1/8% Notes
(collectively, the "Notes") are unsecured obligations of the Company,
subordinated in right of payment to all existing and any future senior
indebtedness of the Company. The Notes are fully and unconditionally guaranteed,
on a joint and several basis, by all of the Company's direct and indirect
subsidiaries other than certain inconsequential subsidiaries (the "Subsidiary
Guarantors"). The Subsidiary Guarantors are wholly-owned subsidiaries of the
Company. Summarized financial information of the Subsidiary Guarantors as of
December 31, 1997 and for the year ended December 31, 1997 is presented below.
Separate financial statements and other disclosures concerning the Subsidiary
Guarantors are not presented because management has determined that they are not
material to investors. There are no significant restrictions on distributions
from each of the Subsidiary Guarantors to the Company.
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Current assets........................................... 223,913
Noncurrent assets........................................ 987,028
Current liabilities...................................... 89,362
Noncurrent liabilities................................... 1,130,105
Net revenues............................................. 495,485
Operating income......................................... 58,354
Net loss................................................. (17,721)
</TABLE>
(h) Other
The Senior Credit Facility and the indentures governing the Notes contain
customary restrictive covenants, which, among other things and with certain
exceptions, limit the ability of the Company and its subsidiaries to incur
additional indebtedness and liens in connection therewith, enter into certain
transactions with affiliates, pay dividends, consolidate, merge or effect
certain asset sales, issue additional stock, effect an asset swap and make
acquisitions. The Company is required under the Senior Credit Facility to
maintain specified financial ratios, including leverage, cash flow and debt
service coverage ratios (as defined).
A summary of the future maturities of long-term debt at December 31, 1997
follows:
<TABLE>
<S> <C>
1998........................................................ $ --
1999........................................................ --
2000........................................................ 67,500
2001........................................................ 157,500
2002........................................................ 180,000
Thereafter.................................................. 2,168,000
</TABLE>
F-22
<PAGE> 165
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) REDEEMABLE PREFERRED STOCK
(a) 12 1/4% Preferred Stock
Upon consummation of the Chancellor Merger, on September 5, 1997, the
Company issued 1,000,000 shares of 12 1/4% Series A Senior Cumulative
Exchangeable Preferred Stock (the "12 1/4% Preferred Stock") in exchange for
CRBC's substantially identical securities with a fair value of $120,217
including accrued and unpaid dividends of $772. The liquidation preference of
each share of 12 1/4% Preferred Stock is $119.445 plus accrued and unpaid
dividends of $1,829 at December 31, 1997. The dividend rate on the 12 1/4%
Preferred Stock is 12.25% per annum of the liquidation preference and is payable
quarterly. If any dividend payable on any dividend payment date on or before
February 15, 2001 is not declared or paid in full in cash on such dividend
payment date, the amount not paid on such dividend payment date will be added to
the liquidation preference of the 12 1/4% Preferred Stock and will be deemed
paid in full and will not accumulate. The 12 1/4% Preferred Stock is redeemable
in whole or in part, at the option of the Company on or after February 15, 2001,
at redemption prices ranging from 106.125% at February 15, 2001 and declining to
100.0% of the liquidation preference on or after February 15, 2006, plus in each
case accrued and unpaid dividends. In addition, prior to February 15, 1999, the
Company may redeem up to 25% of the shares of 12 1/4% Preferred Stock originally
issued at a redemption price of 109.8% of the liquidation preference plus
accrued and unpaid dividends with the net proceeds of one or more public equity
offerings of the Company. The Company is required, subject to certain
conditions, to redeem all of the 12 1/4% Preferred Stock outstanding on February
15, 2008, at a redemption price of 100% of the liquidation preference, plus
accrued and unpaid dividends. The 12 1/4% Preferred Stock is exchangeable,
subject to certain conditions, at the option of the Company, in whole but not in
part, for 12 1/4% Subordinated Exchange Debentures due 2008 (the "12 1/4%
Exchange Debentures") at a rate of $1.00 principal amount of 12 1/4% Exchange
Debentures for each $1.00 in liquidation preference of 12 1/4% Preferred Stock.
Upon the occurrence of a change in control (as defined in the certificate of
designation governing the 12 1/4% Preferred Stock), the holders of the 12 1/4%
Preferred Stock have the right to require the Company to repurchase all or any
part of the 12 1/4% Preferred Stock at a price of 101% of the liquidation
preference plus accrued and unpaid dividends. The 12 1/4% Preferred Stock is
senior in liquidation preference to the Common Stock of the Company and to the
12% Preferred Stock.
(b) 12% Preferred Stock
Upon consummation of the Chancellor Merger, on September 5, 1997, the
Company issued 2,117,629 shares of 12% Exchangeable Preferred Stock (the "12%
Preferred Stock") in exchange for CRBC's substantially identical securities with
a fair value of $215,570 including accrued and unpaid dividends of $3,807. The
liquidation preference of each share of 12% Preferred Stock is $100.00 plus
accrued and unpaid dividends of $11,756 at December 31, 1997. The dividend rate
on the 12% Preferred Stock is 12% per annum of the liquidation preference and is
payable semi-annually. Dividends may be paid, at the Company's option, on any
dividend payment date occurring on or prior to January 15, 2002 either in cash
or in additional shares of 12% Preferred Stock. The 12% Preferred Stock is
redeemable in whole or in part, at the option of the Company, on or after
January 15, 2002, at redemption prices ranging from 106% at January 15, 2002 and
declining to 100% of the liquidation preference on or after January 15, 2007,
plus in each case accrued and unpaid dividends. In addition, prior to January
15, 2000, the Company may redeem all but $150,000 of the aggregate liquidation
preference of 12% Preferred Stock at a redemption price of 112% of the
liquidation preference plus accrued and unpaid dividends with the net proceeds
of one or more public equity offerings of the Company. The Company is required,
subject to certain conditions, to redeem all of the 12% Preferred Stock
outstanding on January 15, 2009, at a redemption price of 100% of the
liquidation preference, plus accrued and unpaid dividends. The 12% Preferred
Stock is exchangeable, subject to certain conditions, at the option of the
Company, in whole but not in part, for 12% Subordinated Exchange Debentures due
2009 (the "12% Exchange Debentures") at a rate of $1.00 principal amount of 12%
Exchange Debentures for each $1.00 in liquidation preference of 12% Preferred
Stock. Upon the occurrence of a change in control (as defined in
F-23
<PAGE> 166
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the certificate of designation governing the 12% Preferred Stock), the holders
of the 12% Preferred Stock have the right to require the Company to repurchase
all or any part of the 12% Preferred Stock at a price of 101% of the liquidation
preference plus accrued and unpaid dividends. In addition, upon the occurrence
of a change in control, the Company may redeem the 12% Preferred Stock in whole
but not in part at a redemption price of 112% of the liquidation preference plus
accrued and unpaid dividends. The 12% Preferred Stock is senior in liquidation
preference to the Common Stock of the Company and is subordinate to the 12 1/4%
Preferred Stock.
(9) STOCKHOLDER'S EQUITY
(a) On March 13, 1998, Chancellor Media completed a secondary public offering
of 21,850,000 shares of its Common Stock (the "1998 Offering"). The net proceeds
from the 1998 Offering of approximately $995.1 million were contributed to the
Company by Chancellor Media.
(b) Stock Options
Chancellor Media has established the 1992, 1993 and 1995 Key Employee Stock
Option Plans (the "Employee Option Plans") which provide for the issuance of
stock options to officers and other key employees of the Company and its
subsidiaries. The Employee Option Plans make available for issuance an aggregate
of 7,215,000 shares of Common Stock. Options issued under the Employee Option
Plans have varying vesting periods as provided in separate stock option
agreements and generally carry an expiration date of ten years subsequent to the
date of issuance. Options issued under the 1993 and 1995 Employee Option Plans
are required to have exercise prices equal to or in excess of the fair market
value of Chancellor Media Common Stock on the date of issuance.
In May 1995, Chancellor Media also established the Stock Option Plan for
Non-Employee Directors (the "Director Plan") which provides for the issuance of
stock options to non-employee directors of the Company. The Director Plan makes
available for issuance an aggregate of 450,000 shares of Chancellor Media Common
Stock. Options issued under the Director Plan have exercise prices equal to the
fair market value of Chancellor Media Common Stock on the date of issuance, vest
over a three year period and have an expiration date of ten years subsequent to
the date of issuance.
In connection with the BPI Acquisition, Chancellor Media assumed
outstanding options to purchase 310,276 shares of Chancellor Media Common Stock
(the "BPI Options"). The BPI Options vested and became exercisable on May 12,
1996 and have an expiration date of ten years subsequent to the original date of
issuance by BPI.
In connection with the Chancellor Merger, Chancellor Media assumed
outstanding options to purchase 3,526,112 shares of Chancellor Media Common
Stock (the "Chancellor Options") with a fair value of $34,977. The Chancellor
Options have varying vesting periods as provided in separate stock option
agreements and generally carry an expiration date of ten years subsequent to the
original date of issuance by Chancellor.
The total options available for grant were 3,679,500 and 1,115,894 at
December 31, 1996 and 1997, respectively.
Chancellor Media applies APB Opinion No. 25 in accounting for its Employee
Option Plans and, accordingly, no compensation cost has been recognized for its
stock options in the consolidated financial statements. Had Chancellor Media
determined compensation cost based on the fair value at the grant date for
F-24
<PAGE> 167
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
its stock options under SFAS No. 123, the Company's net loss would have been
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Net loss:
As reported....................................... $(5,850) $(16,194) $(31,745)
Pro forma......................................... (8,787) (20,969) (36,650)
</TABLE>
Pro forma net loss reflects only options granted in 1995, 1996 and 1997.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net loss amounts presented
above because compensation cost is reflected over the options' vesting period of
one year and compensation cost for options granted prior to 1995 is not
considered.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants: expected volatility of 44.5% for 1995 and 1996 and
41.9% for 1997; risk-free interest rate of 6.0% for 1995 and 1996 and 5.4% for
1997; dividend yield of 0% and expected lives ranging from three to seven years
for 1995, 1996 and 1997.
Following is a summary of activity in the employee option plans and
agreements discussed above for the years ended December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year...................... 1,956,000 $ 1.55 2,579,748 $ 3.46 3,559,984 $ 5.97
Granted..................... 516,000 10.08 1,174,500 11.56 2,773,590 22.89
Assumed in acquisitions..... 310,276 4.85 -- -- 3,526,112 9.29
Exercised................... (51,000) 0.65 (166,806) 4.27 (994,526) 5.43
Canceled.................... (151,528) 4.30 (27,458) 4.96 (38,464) 19.46
--------- ------ --------- ------ --------- ------
Outstanding at end of
year...................... 2,579,748 $ 3.46 3,559,984 $ 5.97 8,826,696 $12.98
========= ====== ========= ====== ========= ======
Options exercisable at year
end....................... 1,890,000 1,935,484 5,687,960
========= ========= =========
Weighted average fair value
of options granted during
the year.................. 4.27 4.88 10.25
========= ========= =========
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- -------------------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AT AVERAGE WEIGHTED EXERCISABLE AT WEIGHTED
RANGE OF DECEMBER 31, REMAINING AVERAGE DECEMBER 31, AVERAGE
EXERCISE PRICES 1997 CONTRACTUAL LIFE EXERCISE PRICE 1997 EXERCISE PRICE
--------------- -------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$0.01................... 1,000,000 5.3 years $ 0.01 1,000,000 $ 0.01
$4.13 to 6.17........... 2,186,056 7.2 years 4.58 2,039,692 4.60
$10.67 to 15.81......... 2,378,562 8.3 years 11.49 983,624 11.63
$17.05 to 23.75......... 2,769,078 9.5 years 21.38 1,464,644 22.50
$26.38 to 31.63......... 493,000 9.8 years 28.32 200,000 27.50
--------- ------ --------- ------
8,826,696 12.98 5,687,960 10.44
========= ====== ========= ======
</TABLE>
F-25
<PAGE> 168
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) EMPLOYEE BENEFIT PLANS
(a) 401(k) Plan
The Company offers substantially all of its employees voluntary
participation in a 401(k) Plan. The Company may make discretionary contributions
to the plan; however, no such contributions were made by the Company during
1995, 1996 or 1997.
(b) Katz Savings and Profit Sharing Plan
Katz has a defined contribution retirement plan, The Katz Media Group
Savings and Profit Sharing Plan (the "Katz Plan"). The Katz Plan covers
substantially all employees of Katz with greater than six months of service. The
Katz Plan permits Katz to match a percentage of a participant's contribution up
to a stated maximum percentage of an employee's salary. Cash contributions
included in to operating expenses approximated $200 for the year ended December
31, 1997. Effective January 1, 1998, the Company elected to discontinue cash
contributions under the matching provision of the Katz Plan. The Company intends
to merge the Katz Plan into the Company's 401(k) Plan during 1998.
(c) Katz Other Postretirement Benefits
Prior to the Company's acquisition of Katz on October 28, 1997, Katz
provided for certain medical, dental and life insurance benefits for employees
who retire beginning at age 55 with a minimum of 15 years of service and for
employees who retire at age 65 with a minimum of 10 years of service. The
Company will continue providing this coverage only for retirees and
beneficiaries currently receiving coverage and those active employees who have,
or will have attained by December 31, 1998, the age and service necessary to
receive coverage.
The accumulated post retirement benefit obligation ("APBO") consists of
$703 for retirees and $337 for active employees fully eligible for benefits for
a total APBO of $1,040 at December 31, 1997. As of December 31, 1997, Katz and
its subsidiaries have not funded any portion of the accumulated postretirement
benefit obligation. The net periodic postretirement benefit cost consists of
interest cost on the APBO of $11 for the year ended December 31, 1997. The APBO
was determined using an assumed discount rate of 6.5% and a health care cost
trend rate of 5% per annum for all future years. The effect of a 1% increase in
the health care cost trend rate would increase the APBO by $368 and would
increase the service and interest cost components of the net periodic
postretirement benefit cost by $24.
(11) INCOME TAXES
Income tax expense (benefit) from continuing operations consists of the
following:
<TABLE>
<CAPTION>
1995 1996 1997
----- ------- -------
<S> <C> <C> <C>
Current tax expense:
Federal............................................... $ 246 $ 485 $ 6,840
State................................................. 425 972 4,791
----- ------- -------
Total current tax expense............................... 671 1,457 11,631
Deferred benefit........................................ (479) (4,353) (3,829)
----- ------- -------
Total income tax expense (benefit)...................... $ 192 $(2,896) $ 7,802
===== ======= =======
</TABLE>
During 1997, the Company incurred an extraordinary loss on extinguishment
of debt. The tax benefit related to the extraordinary loss is approximately
$2,343. This tax benefit, which reduces current taxes payable, is separately
allocated to the extraordinary item.
F-26
<PAGE> 169
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total income tax expense (benefit) differed from the amount computed by
applying the U.S. federal statutory income tax rate of 35% to loss from
continuing operations for the years ended December 31, 1995, 1996 and 1997 as a
result of the following:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Computed "expected" tax benefit....................... $(1,980) $(6,682) $(2,342)
Amortization of goodwill.............................. 788 2,477 5,744
Net operating loss carryforwards for which no tax
benefit was recognized.............................. 923 -- --
State income taxes, net of federal benefit............ 276 632 2,533
Other, net............................................ 185 677 1,867
------- ------- -------
$ 192 $(2,896) $ 7,802
======= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1996 and
1997 are presented below:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss and credit carryforwards............... $ 13,519 $ 38,552
Accrued compensation primarily relating to stock
options................................................ 1,687 1,720
Differences in book and tax bases related to media
representation contracts............................... -- 39,908
Differences in book and tax bases of lease liabilities.... -- 4,727
Other..................................................... 1,215 3,147
--------- ---------
Total deferred tax assets......................... 16,421 88,054
--------- ---------
Deferred tax liabilities:
Property and equipment and intangibles, primarily
resulting from difference in bases from BPI, Pyramid,
Chancellor Merger and Katz acquisitions................ (101,761) (445,992)
Other..................................................... (758) (3,702)
--------- ---------
Total deferred tax liabilities.................... (102,519) (449,694)
--------- ---------
Net deferred tax liability........................ $ (86,098) $(361,640)
========= =========
</TABLE>
Deferred tax assets and liabilities are computed by applying the U.S.
federal and state income tax rate in effect to the gross amounts of temporary
differences and other tax attributes, such as net operating loss carryforwards.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. The Company expects the
deferred tax assets at December 31, 1997 to be realized as a result of the
reversal during the carryforward period of existing taxable temporary
differences giving rise to deferred tax liabilities and the generation of
taxable income in the carryforward period.
At December 31, 1997, the Company has net operating loss carryforwards
available to offset future taxable income of approximately $85,000, expiring
from 1998 to 2012 and has alternative minimum tax credit carryforwards of
approximately $3,600 that do not expire. All of the net operating loss and tax
credit
F-27
<PAGE> 170
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
carryforwards at December 31, 1997 are subject to annual use limitations under
tax rules governing changes of ownership.
(12) COMMITMENTS AND CONTINGENCIES
The Company has noncancelable operating leases, primarily for office space.
These 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 $3,073,
$5,462 and $10,913 during 1995, 1996 and 1997, respectively. 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>
<S> <C>
Year ending December 31:
1998..................................................... 30,784
1999..................................................... 28,644
2000..................................................... 26,533
2001..................................................... 25,188
2002..................................................... 23,506
Thereafter............................................... 156,335
</TABLE>
In August 1993, the Company terminated an agreement with Sagittarius
Broadcasting Company (an affiliate of Infinity Broadcasting Corporation) and One
Twelve, Inc. (collectively, the "Claimants" or the "Plaintiffs") pursuant to
which programming featuring radio personality Howard Stern was broadcast on
radio station WLUP-AM (now WMVP-AM) in Chicago. The Claimants allege that
termination of the agreement was wrongful and have sued the Company in the
Supreme Court of the State of New York, County of New York (the "Court"). The
agreement required payments to the Claimants in the amount of $2.6 million plus
five percent of advertising revenues generated by the programming over the
three-year term of the agreement. A total of approximately $680,000 was paid to
the Claimants pursuant to the agreement prior to termination. Claimants'
complaint alleged claims for breach of contract, indemnification, breach of
fiduciary duty and fraud. Claimants' aggregate prayer for relief totaled $45.0
million. On July 12, 1994, the Court granted the Company's motion to dismiss
Claimants' claims for fraud and breach of fiduciary duty. On June 6, 1995, the
Court denied the Claimants' motion for summary judgment on their contract and
indemnification claims and this order has been affirmed on appeal. On May 17,
1996, after the close of discovery, the Company filed a motion for summary
judgment, seeking the dismissal of the remaining claims in the original
complaint. On July 1, 1996, Claimants moved for leave to amend their complaint
in order to add claims for breach of the covenant of good faith and fair
dealing, tortious interference with business advantage and prima facia tort. In
the proposed amended complaint, Claimants seek compensatory and punitive damages
in excess of $25.0 million. On March 13, 1997, the Court denied the Company's
motion for summary judgment, allowed Claimants' request to amend the complaint
to add a claim for breach of the covenant of good faith and fair dealing and
denied Claimants' request to amend the complaint to add claims for tortious
interference with business advantage and prima facia tort. On April 25, 1997,
the Company filed a notice of appeal of the denial of the Company's motion for
summary judgment. In October 1997, the N.Y. State Supreme Court, Appellate
Division, granted a portion of the appeal seeking to strike certain damages
sought, but otherwise affirmed the denial of the motion for summary judgement
and sent the case back to the trial court for trial. The Company believes that
it acted within its rights in terminating the agreement.
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.
F-28
<PAGE> 171
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1996 and 1997. The fair
value of a financial instrument is defined as the amount at which the instrument
could be exchanged in a current transaction between willing parties.
<TABLE>
<CAPTION>
1996 1997
------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Interest rate swaps..................... $ -- $ 199 $ -- $ 3,919
Long-term debt -- Senior Credit
Facility.............................. 348,000 348,000 1,573,000 1,573,000
Long-term debt -- Senior Notes.......... 10,000 10,572 -- --
Long-term debt -- 9 3/8% Notes.......... -- -- 200,000 209,000
Long-term debt -- 8 3/4% Notes.......... -- -- 200,000 205,000
Long-term debt -- 10 1/2% Notes......... -- -- 100,000 110,000
Long-term debt -- 8 1/8% Notes.......... -- -- 500,000 500,000
Redeemable preferred stock -- 12 1/4%
Preferred Stock....................... -- -- 119,444 133,000
Redeemable preferred stock -- 12%
Preferred Stock....................... -- -- 211,764 239,821
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
Cash and cash equivalents, accounts receivable and accounts
payable: The carrying amount of these assets and liabilities approximates
fair value because of the short maturity of these instruments.
Interest rate swaps: The fair value of the interest rate swap and cap
contracts is estimated by obtaining quotations from brokers. The fair value
is an estimate of the amounts that the Company would (receive) pay at the
reporting date if the contracts were transferred to other parties or
canceled by the broker.
Long-term debt: The fair values of the Company's 9 3/8% Notes, 8 3/4%
Notes, 10 1/2% Notes and 8 1/8% Notes are based on December 31, 1997 quoted
market prices. As amounts outstanding under the Company's Senior Credit
Facility agreements bear interest at current market rates, their carrying
amounts approximate fair market value.
Redeemable preferred stock: The fair values of the Company's 12 1/4%
Preferred Stock and 12% Preferred Stock are based on December 31, 1997
quoted market prices.
(14) RELATED PARTY TRANSACTIONS
As of December 31, 1997, Thomas O. Hicks and affiliates of Hicks Muse
beneficially owned an aggregate 18,727,028 shares of Common Stock of Chancellor
Media. Mr. Hicks was elected Chairman of the Board and a director of the Company
upon consummation of the Chancellor Merger.
The Company is subject to a financial monitoring and oversight agreement,
dated April 1, 1996, as amended on September 4, 1997, (the "Financial Monitoring
and Oversight Agreement") with Hicks, Muse & Co. Partners, L.P. ("Hicks Muse
Partners"), an affiliate of Hicks Muse. Pursuant thereto, the Company pays to
Hicks Muse Partners an annual fee of not less than $1,000 , subject to increase
or decrease (but not below $1,000), based upon changes in the Consumer Price
Index. Hicks Muse Partners is also entitled to reimbursement for any
out-of-pocket expenses incurred in connection with rendering services under the
Financial Monitoring and Oversight Agreement. The Financial Monitoring and
Oversight Agreement provides
F-29
<PAGE> 172
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
that the agreement will terminate at such time as Thomas O. Hicks and his
affiliates collectively cease to beneficially own at least two-thirds of the
number of shares of Chancellor Media Common Stock beneficially owned by them,
collectively. The Company paid Hicks Muse Partners $333 in 1997 pursuant to the
Financial Monitoring and Oversight Agreement which is included in corporate
general and administrative expense in the accompanying consolidated statement of
operations.
In connection with the consummation of the Chancellor Merger, a Financial
Advisory Agreement among Chancellor, CRBC and HM2/Management Partners, L.P.
("HM2/Management"), an affiliate of Hicks Muse, was terminated. In consideration
thereof, in lieu of any payments required to be made under the Financial
Advisory Agreement in respect of the transactions contemplated by the Chancellor
Merger, HM2/Management was paid a fee of $10,000 in cash upon consummation of
the Chancellor Merger which was accounted for as a direct acquisition cost.
Notwithstanding the termination of the Financial Advisory Agreement, the Company
paid Hicks Muse Partners $1,500 for financial advisory services in connection
with the Katz Acquisition which was accounted for as a direct acquisition cost.
Vernon E. Jordan, Jr., a director of the Company, also serves on the board
of directors of Bankers Trust Company and Bankers Trust New York Corporation.
Affiliates of Bankers Trust Company and Bankers Trust New York Corporation have
provided a variety of commercial banking, investment banking and financial
advisory services to the Company, and expect to continue to provide such
services to the Company in the future.
(15) SEGMENT DATA
The Company operated in two principal business segments -- radio
broadcasting and media representation -- in 1997. The Company's radio
broadcasting segment included a portfolio of 96 stations (68 FM and 28 AM) for
which the Company owned at December 31, 1997 in 21 large markets, including each
of the nation's 12 largest radio revenue markets. The Company entered into the
media representation segment with the acquisition of Katz on October 28, 1997.
Katz is a full-service media representation firm serving multiple types of
electronic media, with leading market share in the representation of radio and
television stations and cable television systems. Katz is retained on an
exclusive basis by radio stations, television stations and cable television
systems in over 200 designated market areas throughout the United States,
including at least one radio or television station in each of the 50 largest
designated market areas, to sell national spot advertising air time. The media
representation segment data for 1997 includes the results of operations of Katz
from the date of acquisition.
<TABLE>
<CAPTION>
DEPRECIATION
NET OPERATING AND IDENTIFIABLE CAPITAL
1997 REVENUES INCOME AMORTIZATION ASSETS EXPENDITURES
---- -------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Radio broadcasting............... $548,856 $52,219 $182,314 $4,465,526 $11,430
Media representation............. 33,222 6,187 3,668 495,951 436
-------- ------- -------- ---------- -------
Total.................. $582,078 $58,406 $185,982 $4,961,477 $11,866
======== ======= ======== ========== =======
</TABLE>
F-30
<PAGE> 173
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(16) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
1996:
Net revenues............................ $ 53,371 $ 72,991 $ 78,768 $ 88,720
Operating income (loss)................. (8,223) 7,062 9,351 9,770
Net income (loss) attributable to common
stock................................ (14,273) (2,222) (793) 1,094
1997:
Net revenues............................ $ 81,897 $106,364 $145,022 $248,795
Operating income........................ 568 16,968 15,002 25,868
Income (loss) before extraordinary
item................................. (6,011) 9,870 (3,221) (15,132)
Net income (loss) attributable to common
stock................................ (6,011) 5,520 (6,000) (25,254)
</TABLE>
F-31
<PAGE> 174
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Chancellor Media Corporation of Los Angeles:
Our report on the consolidated financial statements of Chancellor Media
Corporation of Los Angeles and subsidiaries is included in this Registration
Statement. In connection with our audit of such financial statements, we have
also audited the related financial statement schedule of Chancellor Media
Corporation of Los Angeles and subsidiaries as of and for the year ended
December 31, 1997 included herein.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
February 10, 1998, except for notes 2(b)
paragraphs 1 and 3-5 as to which the date
is February 20, 1998 and 9(a) as to
which the date is March 13, 1998
F-32
<PAGE> 175
SCHEDULE II
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS ADDITIONS
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS WRITEOFFS OF PERIOD
----------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1997............. $ 2,292 5,174 7,049(1) 1,864 $12,651
======= ===== ======= ===== =======
Year ended December 31, 1996............. $ 2,000 2,179 156(1) 2,043 $ 2,292
======= ===== ======= ===== =======
Year ended December 31, 1995............. $ 835 904 1,644(1) 1,383 $ 2,000
======= ===== ======= ===== =======
Deferred tax asset valuation allowance:
Year ended December 31, 1997............. $ -- -- -- -- $ --
======= ===== ======= ===== =======
Year ended December 31, 1996............. $ -- -- -- -- $ --
======= ===== ======= ===== =======
Year ended December 31, 1995............. $14,458 -- (14,458) -- $ --
======= ===== ======= ===== =======
</TABLE>
- ---------------
(1) Additions (deductions) result from the application of purchase accounting
relating to the BPI Acquisition in 1995, the Pyramid Acquisition in 1996
and the Chancellor Merger, the Viacom Acquisition and the Katz Acquisition
in 1997.
F-33
<PAGE> 176
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Chancellor Radio Broadcasting Company:
We have audited the accompanying consolidated balance sheets of Chancellor
Radio Broadcasting Company and Subsidiaries (collectively the "Company") as of
December 31, 1995 and 1996 and the related consolidated statements of
operations, changes in common stockholder's equity, and cash flows for each of
the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 1995 and 1996 and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
February 13, 1997,
except for Note 15 as
to which the date is
February 19, 1997
F-34
<PAGE> 177
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash...................................................... $ 1,314,214 $ 3,788,546
Accounts receivable, net of allowance for doubtful
accounts of $263,528 and $1,023,660, respectively...... 13,243,292 46,584,705
Prepaid expenses and other................................ 546,405 2,753,731
------------ ------------
Total current assets.............................. 15,103,911 53,126,982
Restricted cash........................................... -- 20,363,329
Property and equipment, net............................... 17,925,845 49,122,932
Intangibles and other, net................................ 203,808,395 551,406,094
Deferred financing costs, net............................. 4,284,413 16,723,346
------------ ------------
Total assets...................................... $241,122,564 $690,742,683
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,873,888 $ 4,409,389
Accrued liabilities....................................... 4,692,948 12,529,831
Accrued interest.......................................... 2,710,891 6,868,839
Current portion of long-term debt......................... 4,062,500 400,000
------------ ------------
Total current liabilities......................... 13,340,227 24,208,059
Long-term debt............................................ 168,107,242 354,913,499
Deferred income taxes..................................... 4,952,361 2,606,314
Other..................................................... -- 801,572
------------ ------------
Total liabilities................................. 186,399,830 382,529,444
------------ ------------
Commitments (Note 11)
Redeemable senior cumulative exchangeable preferred stock,
par value $.01 per share; 1,000,000 shares authorized,
none and 1,000,000 shares issued and outstanding,
respectively; preference in liquidation of $109,110,301... -- 107,222,416
Common stockholder's equity:
Common stock, par value $.01 per share; 2,000 shares
authorized, 1,000 shares issued and outstanding,
respectively........................................... 10 10
Additional paid-in capital................................ 66,359,990 219,520,102
Accumulated deficit....................................... (11,637,266) (18,529,289)
------------ ------------
Total common stockholder's equity................. 54,722,734 200,990,823
------------ ------------
Total liabilities and stockholder's equity........ $241,122,564 $690,742,683
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-35
<PAGE> 178
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1994 1995 1996
----------- ------------ ------------
<S> <C> <C> <C>
Gross broadcasting revenues............. $30,080,829 $ 73,278,860 $203,188,125
Less agency commissions................. 3,763,734 8,956,717 24,786,594
----------- ------------ ------------
Net revenues.................. 26,317,095 64,322,143 178,401,531
----------- ------------ ------------
Operating expenses:
Programming, technical and news....... 5,678,829 11,734,285 40,987,411
Sales and promotion................... 7,137,039 17,556,256 47,026,490
General and administrative............ 2,844,284 8,174,189 23,195,565
Depreciation and amortization......... 2,954,159 8,256,268 20,877,374
Corporate expenses.................... 599,657 1,815,535 4,844,985
Stock option compensation............. -- 6,360,000 3,800,000
----------- ------------ ------------
19,213,968 53,896,533 140,731,825
----------- ------------ ------------
Income from operations........ 7,103,127 10,425,610 37,669,706
Other (income) expense:
Interest expense...................... 5,246,827 18,114,549 35,703,862
Other, net............................ (19,265) 42,402 68,419
----------- ------------ ------------
Income (loss) before provision
for income taxes and
extraordinary loss.......... 1,875,565 (7,731,341) 1,897,425
Provision for income taxes.............. 1,163,716 3,799,955 4,612,551
----------- ------------ ------------
Net income (loss) before
extraordinary loss.......... 711,849 (11,531,296) (2,715,126)
Extraordinary loss on early
extinguishment of debt, net of income
tax benefit........................... 817,819 -- 4,176,897
----------- ------------ ------------
Net loss...................... (105,970) (11,531,296) (6,892,023)
Dividends and accretion on preferred
stock................................. -- -- 11,556,943
Loss on repurchase of preferred stock... -- -- 16,570,065
----------- ------------ ------------
Net loss attributable to
common stock................ $ (105,970) $(11,531,296) $(35,019,031)
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-36
<PAGE> 179
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------- ADDITIONAL ACCUMULATED
SHARES AMOUNT PAID-IN CAPITAL DEFICIT TOTAL
------ ------ --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993.............. -- -- -- -- --
Issuance of common stock on January
10, 1994........................... 1,000 $ 10 $ 25,499,990 -- $ 25,500,000
Issuance of common stock on October
12, 1994........................... 1,000 10 34,499,990 -- 34,500,000
Net loss.............................. -- -- -- $ (105,970) (105,970)
------ ---- ------------ ------------ ------------
Balance, December 31, 1994.............. 2,000 20 59,999,980 (105,970) 59,894,030
Stock option compensation............. -- -- 6,360,000 -- 6,360,000
Contribution of stock held by
affiliate of Hicks, Muse, Tate &
Furst.............................. (1,000) (10) 10 -- --
Net loss.............................. -- -- -- (11,531,296) (11,531,296)
------ ---- ------------ ------------ ------------
Balance, December 31, 1995.............. 1,000 10 66,359,990 (11,637,266) 54,722,734
Loss on repurchase of preferred
stock.............................. -- -- (16,570,065) -- (16,570,065)
Dividends and accretion on preferred
stock.............................. -- -- (11,556,943) -- (11,556,943)
Capital contributions................. -- -- 181,287,120 -- 181,287,120
Net loss.............................. -- -- -- (6,892,023) (6,892,023)
------ ---- ------------ ------------ ------------
Balance, December 31, 1996.............. 1,000 $ 10 $219,520,102 $(18,529,289) $200,990,823
====== ==== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-37
<PAGE> 180
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1994 1995 1996
------------- ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $ (105,970) $(11,531,296) $ (6,892,023)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................. 2,954,159 8,256,268 20,877,374
Amortization of deferred financing costs...... 226,000 791,000 2,633,583
Stock option compensation..................... -- 6,360,000 3,800,000
Deferred income taxes......................... 1,490,716 3,788,877 4,548,481
Extraordinary loss............................ 490,819 -- 4,176,897
Changes in assets and liabilities, net of the
effects of acquired businesses:
Accounts receivable, net.................... (9,675,567) (2,343,520) (13,408,364)
Prepaids and other.......................... 216,036 (214,868) (982,637)
Accounts payable............................ 1,509,064 (541,914) 1,429,070
Accrued liabilities......................... 1,334,397 447,196 3,706,725
Accrued interest............................ 2,251,654 459,237 4,157,948
------------- ------------ -------------
Net cash provided by operating
activities............................. 691,308 5,470,980 24,047,054
------------- ------------ -------------
Cash flows from investing activities:
Purchases of broadcasting properties............. (204,509,849) (24,351,529) (439,533,609)
Purchases of other property and equipment........ (238,648) (1,709,897) (3,208,553)
------------- ------------ -------------
Net cash used in investing activities.... (204,748,497) (26,061,426) (442,742,162)
------------- ------------ -------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt......... 168,910,299 -- 277,627,630
Proceeds from borrowings under revolving debt
facility...................................... 5,639,237 54,458,819 101,966,762
Repayment of long-term debt...................... (25,000,000) (2,437,500) (109,816,233)
Repayments of borrowings under revolving debt
facility...................................... (3,975,539) (31,633,467) (105,540,183)
Issuance of preferred stock...................... -- -- 175,412,322
Repurchase of preferred stock.................... -- -- (95,462,423)
Additional capital contributions................. 60,000,000 -- 178,525,254
Distribution of additional paid in capital....... -- -- (1,038,134)
Payment of preferred stock dividends............. -- -- (505,555)
------------- ------------ -------------
Net cash provided by financing
activities............................. 205,573,997 20,387,852 421,169,440
------------- ------------ -------------
Net increase (decrease) in cash.......... 1,516,808 (202,594) 2,474,332
Cash, at beginning of year......................... -- 1,516,808 1,314,214
------------- ------------ -------------
Cash, at end of year............................... $ 1,516,808 $ 1,314,214 $ 3,788,546
============= ============ =============
Supplemental Disclosure of Cash Flow Information
(Note 5):
Cash paid during the period for:
Interest......................................... $ 2,769,173 $ 16,864,312 $ 28,912,331
Income taxes..................................... $ -- $ -- $ 62,407
Non-cash financing:
Dividends and accretion on preferred stock....... $ -- $ -- $ 11,556,943
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-38
<PAGE> 181
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Chancellor Radio Broadcasting Company, formerly Chancellor Broadcasting
Company ("Chancellor Radio Broadcasting") and its wholly owned subsidiaries
(collectively, the "Company") operate in a single industry segment, which
segment encompasses the ownership and management of radio broadcast stations
located in markets throughout the United States. Chancellor Radio Broadcasting,
a wholly owned subsidiary of Chancellor Broadcasting Company, formerly
Chancellor Corporation ("Chancellor"), was formed in June 1994 to acquire and
operate radio stations owned by American Media, Inc. and two corporations and
one partnership affiliated with American Media, Inc. (collectively, the
"American Media Station Group") and by Chancellor Communications Corporation
("Chancellor Communications"). That transaction was consummated on October 12,
1994. Chancellor Communications was formed in 1993 to acquire and operate radio
stations KGBY-FM and KFBK-AM. That transaction closed on January 10, 1994 and
the consolidated financial statements include the activity of all the stations
since their respective dates of acquisition.
In June 1995, the 1,000 shares of common stock of Chancellor Communications
held by an affiliate of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse")
were exchanged for additional shares of common stock of Chancellor, which
subsequently contributed these shares to Chancellor Radio Broadcasting as an
additional capital contribution. As a result, Chancellor Communications became a
wholly owned subsidiary of Chancellor Radio Broadcasting. Chancellor
Communications was then merged with the Company. The transactions had no effect
on the financial position or results of operations of the Company.
Chancellor Broadcasting Licensee Company is a wholly-owned non-operating
legal entity formed to hold title to the Company's broadcast licenses. Such
entity has no significant other assets and no material liabilities,
contingencies or commitments. Consistent with industry practice for financial
reporting purposes, no material value has been specifically allocated to the
licenses. Accordingly, no financial statement information has been provided
herein due to its immateriality to investors.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Chancellor
and its subsidiaries Chancellor Broadcasting and Chancellor Broadcasting
Licensee Company for all periods presented, and its subsidiaries Trefoil
Communications, Inc., Shamrock Broadcasting Inc., Shamrock Radio Licenses, Inc.,
Shamrock Broadcasting Licenses of Denver, Inc. and Shamrock Broadcasting of
Texas, Inc. from their date of acquisition. All significant intercompany
accounts and transactions have been eliminated.
Cash
The Company maintains cash in demand deposits with financial institutions.
The Company had no cash equivalents during the periods presented. All highly
liquid investments with an original maturity of less than Six months are
considered cash equivalents.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation and
amortization. Depreciation is determined using the straight-line method over the
estimated useful lives of the various classes of assets, which range from three
to twenty-five years. Leasehold improvements are amortized over the shorter of
their useful lives or the terms of the related leases. Costs of repairs and
maintenance are charged to operations as incurred.
F-39
<PAGE> 182
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Intangibles
Goodwill represents the excess of cost over the fair values of the
identifiable tangible and other intangible net assets acquired and is being
amortized over the straight-line method over forty years. Other intangible
assets comprise amounts paid for pending acquisitions, agreements not to
compete, a tower lease advantage and organization costs incurred in the
incorporation of the Company. Other intangibles, excluding pending acquisition
costs, are being amortized by the straight-line method over their estimated
useful lives ranging from three to ten years. Pending acquisition costs are
deferred and capitalized as part of completed acquisitions or expensed in the
period in which the pending acquisition is terminated.
The Company evaluates intangible assets for potential impairment by
analyzing the operating results, future cash flows on an undiscounted basis,
trends and prospects of the Company's stations, as well as by comparing them to
their competitors. The Company also takes into consideration recent acquisition
patterns within the broadcast industry, the impact of recently enacted or
potential FCC rules and regulations and any other events or circumstances which
might indicate potential impairment.
Deferred Financing Costs
Costs associated with obtaining debt financing are capitalized and
amortized using the interest method over the term of the related debt. As a
result of refinancing the Company's original credit facility, during the year
ended December 31, 1994 unamortized deferred financing costs of approximately
$818,000 were expensed as an extraordinary item in the consolidated statements
of operations. As a result of refinancing the Company's second credit facility,
the early redemption of $20.0 million of its existing notes (defined) and the
prepayment of $18.7 million of it's a Term Loan Facility (defined) from its
third credit facility, during the year ended December 31, 1996 unamortized
deferred financing costs of $3.4 million, less $543,500 of tax benefit, were
expensed as an extraordinary item in the consolidated statements of operations.
Approximately $5.1 million, $118,000 and $18.6 million of new financing costs
were incurred for the years ended December 31, 1994, 1995 and 1996,
respectively. Accumulated amortization at December 31, 1995 and 1996, amounted
to approximately $959,000 and $2.8 million, respectively.
Revenue Recognition
Broadcasting operations derive revenue primarily from the sale of program
time and commercial announcements to local, regional and national advertisers.
Revenue is recognized when the programs and commercial announcements are
broadcast.
Barter Transactions
Barter transactions represent advertising time exchanged for promotional
items, advertising, supplies, equipment, and services. Barter revenue is
recorded at the fair value of the goods or services received and is recognized
in income when the advertisements are broadcast. Goods or services are charged
to expense when received or used. Advertising time owed and goods or services
due the Company are included in accounts payable and accounts receivable,
respectively.
Advertising Costs
The Company incurs various marketing and promotional costs to add and
maintain listenership. These costs are expensed as incurred and totaled
approximately $1.4 million, $4.2 million and $16.2 million for the years ended
December 31, 1994, 1995 and 1996, respectively.
F-40
<PAGE> 183
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock Option Compensation
Stock option compensation expense is recognized in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees".
Income Taxes
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each 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 tax payable for the period and the change
during the period in deferred tax assets and liabilities.
Chancellor, Chancellor Radio Broadcasting and Chancellor Broadcasting
Licensee Company have elected to file consolidated federal income tax returns
(the "Chancellor Group") and Trefoil Communications, Inc., Shamrock Broadcasting
Inc., Shamrock Radio Licenses, Inc., Shamrock Broadcasting Licenses of Denver,
Inc. and Shamrock Broadcasting of Texas, Inc. have elected to file consolidated
federal income tax returns (the "Shamrock Group"). Each of these groups have
entered into a tax sharing agreement governing the allocation of any
consolidated federal income tax liability among its members. In general, each
subsidiary allocates and pays income taxes computed as if each subsidiary filed
a separate federal income tax return. Similar principles apply to any
consolidated state and local income tax liabilities.
Concentration of Credit Risk
The Company's revenue and accounts receivable primarily relate to
advertising of products and services within the radio stations' broadcast areas.
The Company performs ongoing credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers. Credit
losses have been within management's expectations and adequate allowances for
any uncollectible trade receivables are maintained.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Land....................................................... $ 1,572,229 $ 3,036,663
Building and building improvements......................... 3,159,848 9,202,378
Towers and antenna systems................................. 3,689,972 14,476,104
Studio, technical and transmitting equipment............... 7,830,375 23,026,564
Office equipment, furniture and fixtures................... 2,484,261 5,521,010
Record library............................................. 1,800,510 2,193,236
Vehicles................................................... 362,787 1,117,908
Construction in progress................................... 503,504 78,877
----------- -----------
21,403,486 58,652,740
Less accumulated depreciation.............................. (3,477,641) (9,529,808)
----------- -----------
$17,925,845 $49,122,932
=========== ===========
</TABLE>
F-41
<PAGE> 184
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation expense for the years ended December 31, 1994, 1995 and 1996
was $0.9 million, $2.6 million and $6.5 million, respectively.
4. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
Goodwill................................................. $205,971,820 $567,377,120
Noncompete agreements.................................... 1,950,000 2,025,000
Tower lease advantage.................................... 305,000 305,000
Pending acquisition costs................................ 3,246,265 2,620,474
Other.................................................... 45,718 626,220
------------ ------------
211,518,803 572,953,814
Less accumulated amortization............................ (7,710,408) (21,547,720)
------------ ------------
$203,808,395 $551,406,094
============ ============
</TABLE>
Amortization expense for intangible assets for the years ended December 31,
1994, 1995 and 1996 was $2.0 million, $5.7 million and $14.3 million,
respectively.
5. ACQUISITIONS AND DISPOSITIONS OF BROADCASTING PROPERTIES
On January 9, 1994, Chancellor Communications purchased substantially all
the assets and assumed certain liabilities of KGBY-FM and KFBK-AM for
approximately $49.5 million, including acquisition costs. Liabilities assumed
were limited to certain ongoing contractual rights and obligations. The
acquisition has been accounted for as a purchase and, accordingly, the results
of operations associated with the acquired assets have been included in the
accompanying statements from the date of acquisition.
The acquisition is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired and liabilities assumed:
Property and equipment.................................... $ 4,921
Goodwill and other intangibles............................ 44,401
Prepaid expenses and other assets......................... 413
Accrued liabilities....................................... (205)
-------
Total acquisition................................. $49,530
=======
</TABLE>
On October 12, 1994, Chancellor Radio Broadcasting purchased substantially
all the assets and assumed certain liabilities consisting solely of accrued
expenses and future payments under ongoing contracts of the American Media
Station Group (other than KHYL-FM in Sacramento, California) for approximately
$139.5 million in cash, including acquisition costs and payments in respect of
agreements not to compete. On the same date, Chancellor Communications purchased
all the assets and certain liabilities consisting solely of accrued expenses and
future payments under ongoing contracts of KHYL-FM for approximately $15.5
million in cash, including acquisition costs and payments in respect of an
agreement not to compete. These acquisitions have been accounted for as
purchases and, accordingly, the results of operations associated with the
acquired assets have been included in the accompanying statements from the date
of acquisition.
F-42
<PAGE> 185
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisition is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired and liabilities assumed:
Property and equipment.................................... $ 12,671
Goodwill and other intangibles............................ 142,618
Prepaid expenses and other assets......................... 353
Accrued liabilities....................................... (662)
--------
Total acquisition................................. $154,980
========
</TABLE>
Simultaneously with the closing of these transactions, Chancellor acquired
all of Chancellor Communications' outstanding nonvoting stock in exchange for
newly issued shares of Chancellor's nonvoting stock. Chancellor contributed all
the acquired shares of Chancellor Communication's nonvoting stock to Chancellor
Radio Broadcasting, as a result of which Chancellor Communications became a
subsidiary of Chancellor Radio Broadcasting. Because these entities are under
common management and control, this exchange has been accounted for at
historical cost in a manner similar to a pooling of interests.
On July 31, 1995, the Company purchased substantially all the assets and
assumed certain liabilities of KDWB-FM for approximately $22.6 million,
including acquisition costs. Liabilities assumed were limited to certain ongoing
contractual rights and obligations. The acquisition has been accounted for as a
purchase and, accordingly, the results of operations associated with the
acquired assets have been included in the accompanying statements from the date
of acquisition.
The acquisition is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired and liabilities assumed:
Property and equipment................ $ 1,866
Goodwill and other intangibles........ 21,032
Prepaid expenses and other assets..... 82
Other liabilities..................... (383)
-------
Total acquisition............. $22,597
=======
</TABLE>
On February 14, 1996, the Company acquired all of the outstanding capital
stock of Trefoil Communications, Inc. ("Trefoil") for approximately $408.0
million, including acquisition costs. Trefoil is a holding company, the sole
asset of which is the capital stock of Shamrock Broadcasting, Inc. ("Shamrock
Broadcasting"). The acquisition of Trefoil was financed through a new credit
agreement, new senior subordinated notes, Chancellor's initial public stock
offering, senior exchangeable preferred stock and the issuance of unregistered
common stock of Chancellor. The acquisition of Trefoil was accounted for as a
purchase for financial accounting purposes and a non-taxable business
combination for tax purposes and, accordingly, the results of operations
associated with the acquired assets have been included in the accompanying
statements from the date of acquisition.
F-43
<PAGE> 186
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisition is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired and liabilities assumed:
Cash.................................. $ 38
Accounts receivable, net.............. 18,636
Prepaid expenses and other assets..... 1,274
Property and equipment................ 36,429
Goodwill and other intangibles........ 361,425
Deferred tax asset.................... 5,464
Accrued liabilities................... (14,564)
Other noncurrent liabilities.......... (702)
--------
Total acquisition............. $408,000
========
</TABLE>
Simultaneously with the acquisition of Trefoil, the Company entered into a
time brokerage agreement with Evergreen Media Corporation for the outsourcing of
certain limited functions of WWWW-FM and WDFN-AM, both Detroit stations acquired
with Trefoil, and an option to purchase such stations for $30.0 million of cash.
These stations were operated pursuant to this agreement until January 30, 1997,
the date on which the disposition of these stations occurred. Subsequent to the
acquisition of Trefoil, KTBZ-FM, a Houston station acquired with Trefoil, was
operated by Secret Communications, L.P. ("Secret") under a Local Marketing
Agreement ("LMA")/Exchange Agreement with the Company. In March 1996, the
Company entered into an agreement to exchange KTBZ-FM and $5.6 million of cash
to Secret for KALC-FM and KIMN-FM, Denver, Colorado. The Company began managing
certain limited functions of these stations, pursuant to an LMA, effective April
1, 1996 and closed on the exchange of the stations effective July 31, 1996. The
exchange has been accounted for using the fair values of the assets exchanged
plus the $5.6 million of additional cash and $0.8 million of additional
acquisition costs, and was allocated to the net assets acquired based upon their
estimated fair market values. The excess of the purchase price over the
estimated fair value of net assets acquired amounted to approximately $28.7
million, which has been accounted for as goodwill and is being amortized over 40
years using the straight line method.
The exchange is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired and liabilities assumed:
Prepaid expenses and other assets......................... $ 163
Property and equipment.................................... 2,363
Goodwill and other intangibles............................ 28,657
Accrued liabilities....................................... (138)
-------
Total acquisition................................. $31,045
=======
</TABLE>
On May 15, 1996, the Company entered into an agreement to acquire
substantially all the assets and certain liabilities of OmniAmerica Group
("Omni") for an aggregate price of $178.0 million, including $163.0 million of
cash and $15.0 million of Chancellor's Class A Common Stock. On June 24, 1996,
the Company entered into an agreement with American Radio Systems Corporation
("American Radio") whereby it will exchange the West Palm Beach, Florida
stations acquired from Omni for American Radio's KSTE-AM and $33.0 million of
cash. KSTE-AM is located in Rancho Cordova, California and is part of the
Sacramento market. On July 1, 1996, Chancellor entered into an agreement with
SFX Broadcasting, Inc. ("SFX") whereby it will exchange the Jacksonville,
Florida stations being acquired pursuant to the Omni acquisition agreement and
$11.0 million of cash for SFX's WBAB-FM, WBLI-FM, WGBB-AM and WHFM-FM,
Nassau-Suffolk, New York. Pursuant to various agreements, the Company began
managing certain limited functions of the remaining Omni stations and the SFX
stations beginning July 1, 1996, and station KSTE-AM beginning August 1, 1996.
F-44
<PAGE> 187
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On November 22, 1996, the Company acquired substantially all the assets of
WKYN-AM, Florence, Kentucky, for approximately $1.4 million, including
transaction costs. WKYN-AM serves the Cincinnati, Ohio market.
On January 23, 1997, the Company acquired substantially all the assets and
certain liabilities of Colfax Communications ("Colfax") for an aggregate price
of $373.0 million. Liabilities assumed were limited to certain ongoing
contractual rights and obligations. The acquisition will be accounted for as a
purchase. Pursuant to the acquisition agreement, at December 31, 1996 the
Company had $20.4 million of cash in a restricted escrow account which was
remitted to Colfax at closing. On January 29, 1997, the Company entered into an
agreement to sell WMIL-FM and WOKY-AM, Milwaukee, Wisconsin stations acquired
from Colfax, to Clear Channel Radio, Inc. for $40.0 million in cash.
On February 13, 1997, the Company acquired substantially all the assets and
certain liabilities of Omni. Liabilities assumed were limited to certain ongoing
contractual rights and obligations. The acquisition will be accounted for as a
purchase.
The following summarizes the unaudited consolidated pro forma data as
though the acquisitions of KDWB-FM, Shamrock Broadcasting Company and KIMN-FM
and KALC-FM had occurred as of the beginning of 1995 (in thousands):
<TABLE>
<CAPTION>
1995 1996
------------------------ ------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- ----------- ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue............................... $ 64,322 $162,360 $178,402 $187,198
Net income (loss) before extraordinary
loss.................................... (11,531) (8,319) (2,715) (310)
Net loss.................................. (11,531) (8,319) (6,892) (310)
</TABLE>
The following summarizes the unaudited consolidated pro forma balance sheet
as of December 31, 1996 as though the acquisition of Colfax, the issuance of the
Exchangeable Preferred Stock, the issuance of Chancellor's Convertible Preferred
Stock (including the over-allotment), and the New Credit Agreement had occurred
on that date (in thousands):
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------- -----------
(UNAUDITED)
<S> <C> <C>
Total assets................................................ $690,743 $1,053,833
======== ==========
Current liabilities......................................... $ 24,208 $ 40,598
Long-term liabilities....................................... 358,322 410,359
Preferred stock............................................. 107,222 404,585
Common stockholder's equity................................. 200,991 198,291
-------- ----------
Total liabilities and stockholders' equity.................. $690,743 $1,053,833
======== ==========
</TABLE>
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
---------- -----------
<S> <C> <C>
Salaries................................................... $ 534,297 $ 3,697,072
Sales commissions.......................................... 889,010 2,149,167
Rep commissions............................................ 561,189 1,549,048
Other...................................................... 2,708,452 5,134,544
---------- -----------
$4,692,948 $12,529,831
========== ===========
</TABLE>
F-45
<PAGE> 188
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
Term loan............................................... $ 67,562,500 $ 74,968,527
Revolving credit loan................................... 24,607,242 20,344,972
Subordinated notes due 2004............................. 80,000,000 260,000,000
------------ ------------
172,169,742 355,313,499
Less current portion.................................... 4,062,500 400,000
------------ ------------
$168,107,242 $354,913,499
============ ============
</TABLE>
The Company's term and revolving credit facilities were refinanced on
January 23, 1997, in conjunction with the acquisition of Colfax Communications
under a new bank credit agreement (the "New Credit Agreement") with Bankers
Trust Company, as administrative agent, and other institutions party thereto.
The New Credit Agreement includes a $225.0 million term loan facility (the "Term
Loan Facility") and a revolving loan facility (the "Revolving Loan Facility"
and, together with the Term Loan, the "New Bank Financing"). The Revolving Loan
Facility originally provides for borrowings up to $120.0 million, which is
subsequently reduced as and when the Company receives the net cash proceeds of
the pending station swaps and dispositions. In connection with the refinancing
of the term and revolving loan facilities, the Company incurred an extraordinary
charge to write-off deferred finance costs of approximately $4.5 million.
The New Bank Financing is collateralized by (i) a first priority perfected
pledge of all capital stock and notes owned by the Company and (ii) a first
priority perfected security interest in all other assets (including receivables,
contracts, contract rights, securities, patents, trademarks, other intellectual
property, inventory, equipment and real estate) owned by the Company, excluding
FCC licenses, leasehold interests in studio or office space and leasehold and
partnership interests in tower or transmitter sites in which necessary consents
to the granting of a security interest cannot be obtained without payments to
any other party or on a timely basis. The New Bank Financing also is guaranteed
by the subsidiaries of Chancellor and Chancellor Radio Broadcasting, whose
guarantees are collateralized by a first priority perfected pledge of the
capital stock Chancellor Radio Broadcasting.
The Term Loan Facility is due in increasing quarterly installments
beginning in 1997 and matures in January 2003. All outstanding borrowings under
the Revolving Facility mature in January 2003. The facilities bear interest at a
rate equal to, at the Company's option, the prime rate of Bankers Trust Company,
as announced from time to time, or the London Inter-Bank Offered Rate ("LIBOR")
in effect from time to time, plus an applicable margin rate. The Company pays
quarterly commitment fees in arrears equal to either .375% or .250% per annum on
the unused portion of the Revolving Facility, depending upon whether the
Company's leverage ratio is equal to or greater than 4.5:1 or less than 4.5:1,
respectively. The bank financing facilities which existed on December 31, 1996
accrued interest at the prime rate plus 1.25% (9.5%) on $3.3 million and the
LIBOR rate plus 2.50% (8.125%) on $92.0 million of borrowings.
In connection with the IPO (defined), the Company redeemed 25% of its
Existing Notes (defined) for approximately $22.2 million. The redemption was
completed in March 1996 and resulted in an extraordinary charge of $2.8 million.
The remaining $60.0 million 12 1/2% Senior Subordinated Notes due 2004 (the
"Existing Notes") mature October 1, 2004, and bear interest at 12.5% per annum.
On February 14, 1996, in conjunction with the acquisition of Trefoil
Communications, Inc., the Company issued $200.0 million aggregate principal
amount of 9 3/8% Senior Subordinated Notes due 2004 (the "New Notes" and,
together with the Existing Notes, the "Notes"), which mature on October 1, 2004,
and bear interest at 9.375% per annum. Interest on the Notes is paid
semi-annually. The Existing and New Notes are redeemable, in whole or in part,
at the option of the Company on or after October 1, 1999 and February 1, 2000,
respectively, at redemption prices expressed as a percentage of the principal
amount, ranging from 100.000% to 105.556%,
F-46
<PAGE> 189
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
plus accrued interest thereon to the date of acquisition. In addition, prior to
January 31, 1999, the Company may redeem up to 25% of the original aggregate
principal amount of the New Notes with the net proceeds of one or more public
equity offerings. The Notes are unsecured obligations of the Company, ranking
subordinate in right of payment to all senior debt of the Company. The New Notes
rank pari passu in right of payment to the Existing Notes. The Notes are
guaranteed on a senior subordinated basis by Chancellor Radio Broadcasting
Company's subsidiaries.
Scheduled debt maturities for the Company's outstanding long-term debt at
December 31, 1996 for each of the next five years and thereafter are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 400,000
1998........................................................ 400,000
1999........................................................ 9,874,886
2000........................................................ 11,296,119
2001........................................................ 17,469,864
Thereafter.................................................. 315,872,630
------------
$355,313,499
============
</TABLE>
See Note 5 for pro forma effects of the New Bank Financing subsequent to
year end. Both the New Bank Financing and Notes indentures contain certain
covenants, including, among others, limitations on the incurrence of additional
debt, in the case of the New Bank Financing; requirements to maintain certain
financial ratios; and restrictions on the payment of dividends to stockholders
and from the subsidiaries to Chancellor.
8. CAPITAL STRUCTURE
In February 1996, Chancellor sold 7.7 million shares of its Class A Common
Stock, par value $.01 per share (the "Class A Common Stock"), in an initial
public offering, (the "IPO"), which generated net proceeds of $142.4 million,
and in a private placement, issued $100.0 million of exchangeable redeemable
preferred stock (the "Acquisition Preferred Stock") of Chancellor Radio
Broadcasting and 742,192 shares of Class A common stock of Chancellor to an
affiliated entity and other investors.
Immediately prior to the IPO, Chancellor effected a recapitalization of its
current capital stock. Pursuant to the recapitalization, each six shares of
Chancellor's Nonvoting Stock were reclassified into one share of Class A Common
Stock. Each six shares of Chancellor's Voting Stock were reclassified into one
share of Class B Common Stock and each six shares of Convertible Nonvoting Stock
were reclassified into one share of Class C Common Stock. In connection with the
recapitalization, 63,334 shares of Class A Common Stock were exchanged for an
equal number of shares of Class B Common Stock, and an additional 8,484,410
shares of Class A Common Stock were exchanged for an equal number of shares of
Class C Common Stock. The recapitalization has been given retroactive effect in
the financial statements.
In February 1996, subsequent to the IPO, the Company completed a private
placement of $100.0 million of newly authorized Senior Cumulative Exchangeable
Preferred Stock (the "Old Preferred Stock"). Upon completion, the proceeds of
the Old Preferred Stock were used to redeem the Acquisition Preferred Stock and
55,664 shares of Class A Common Stock. The redemption resulted in a charge to
net loss attributable to common stock of approximately $16.6 million and an
additional reduction of paid-in capital of approximately $1.0 million.
In June 1996, the holders of Chancellor's Class C Common Stock filed an
application with the FCC to convert the stock into Chancellor's Class B Common
Stock. The holders of Class C Common Stock received approval of their
applications and subsequently converted their stock on October 22, 1996.
F-47
<PAGE> 190
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In August 1996 pursuant to an agreement entered into at the time of the
IPO, Chancellor sold 1.2 million shares of Class A Common Stock in a private
placement to an affiliated entity, which generated proceeds of $23.0 million
which were contributed to Chancellor Radio Broadcasting.
In September 1996, the Company completed an exchange offering whereby it
exchanged the Old Preferred Stock for 1,000,000 shares of 12 1/4% Series A
Senior Cumulative Exchangeable Preferred Stock (the "Senior Exchangeable
Preferred Stock") in a transaction registered under the Securities Act of 1933,
as amended. The terms of the Senior Exchangeable Preferred Stock are
substantially identical to those of the Old Preferred Stock. Dividends on the
Senior Exchangeable Preferred Stock accrue from its date of issuance and are
payable quarterly commencing November 15, 1996, at a rate per annum of 12 1/4%
of the then effective liquidation preference per share. Dividends may be paid,
at the Company's option, on any dividend payment date occurring on or prior to
February 15, 2001 either in cash or by adding such dividends to the then
effective liquidation preference of the Senior Exchangeable Preferred Stock. The
Senior Exchangeable Preferred Stock is redeemable at the Company's option, in
whole or in part at any time on or after February 15, 2001, at various
redemption prices, plus, accumulated and unpaid dividends to the date of
redemption. In addition, prior to February 15, 1999, the Company may, at its
option, redeem the Senior Exchangeable Preferred Stock with the net cash
proceeds from one or more Public Equity Offerings (as defined), at various
redemption prices, plus, accumulated and unpaid dividends to the redemption
date; provided, however, that after any such redemption there is outstanding at
least 75% of the number of shares of Senior Exchangeable Preferred Stock
originally issued.
The Company is required, subject to certain conditions, to redeem all of
the Senior Exchangeable Preferred Stock outstanding on February 15, 2008, at a
redemption price equal to 100% of the then effective liquidation preference
thereof, plus, accumulated and unpaid dividends to the date of redemption. Upon
the occurrence of a change of control (as defined), the Company must offer to
purchase all of the then outstanding shares of Senior Exchangeable Preferred
Stock at a price equal to 101% of the then effective liquidation preference
thereof, plus, accumulated and unpaid dividends to the date of purchase. Subject
to certain conditions, the Senior Exchangeable Preferred Stock is exchangeable
in whole, but not in part, at the option of the Company, on any dividend payment
date for the Company's 12 1/4% subordinated exchange debentures due 2008.
On January 23, 1997, Chancellor completed a private placement of $100.0
million of newly authorized 7% Convertible Preferred Stock (the "Convertible
Preferred Stock") and Chancellor Radio Broadcasting completed a private
placement of $200.0 million of newly authorized 12% Exchangeable Preferred Stock
(the "Exchangeable Preferred Stock").
Dividends on the Convertible Preferred Stock accrue from its date of
issuance and are payable quarterly commencing April 15, 1997, at a rate per
annum of 7% of the liquidation preference per share. The liquidation preference
of the Convertible Preferred Stock is $50.00 per share, and requires cash
dividends of $7.7 million per year. Because Chancellor is a holding company with
no assets other than the common stock of the Company, Chancellor will rely
solely on the dividends from the Company to satisfy its dividend payment
obligation on the 7% Convertible Preferred Stock. The Convertible Preferred
Stock is convertible at the option of the holder at any time after March 23,
1997, unless previously redeemed, into Class A Common Stock of Chancellor at a
conversion price of $32.90 per share of Class A Common Stock, subject to
adjustment in certain events. In addition, after January 19, 2000, the Company
may, at its option, redeem the Convertible Preferred Stock, in whole or in part,
at specified redemption prices plus accrued and unpaid dividends through the
redemption date. Upon the occurrence of a change of control (as defined),
Chancellor must, subject to certain conditions, offer to purchase all of the
then outstanding shares of Convertible Preferred Stock at a price equal to 101%
of the liquidation preference thereof, plus accrued and unpaid dividends to the
date of purchase.
F-48
<PAGE> 191
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Dividends on the Exchangeable Preferred Stock will accrue from the date of
its issuance and will be payable semi-annually commencing July 15, 1997, at a
rate per annum of 12% of the liquidation preference per share. Dividends may be
paid, at the Company's option, on any dividend payment date occurring on or
prior to January 15, 2002 either in cash or in additional shares of Exchangeable
Preferred Stock. The liquidation preference of the Exchangeable Preferred Stock
will be $100.00 per share. The Exchangeable Preferred Stock is redeemable at the
Company's option, in whole or in part at any time on or after January 15, 2002,
at the redemption prices set forth herein, plus accrued and unpaid dividends to
the date of redemption. In addition, prior to January 15, 2000, the Company may,
at its option, redeem the Exchangeable Preferred Stock with the net cash
proceeds from one or more Public Equity Offerings (as defined), at various
redemption prices plus accrued and unpaid dividends to the redemption date;
provided, however, that after any such redemption there is outstanding at least
$150.0 million aggregate liquidation preference of Exchangeable Preferred Stock.
The Company is required, subject to certain conditions, to redeem all of the
Exchangeable Preferred Stock outstanding on January 15, 2009, at a redemption
price equal to 100% of the liquidation preference thereof, plus accrued and
unpaid dividends to the date of redemption. Upon the occurrence of a Change of
Control (as defined), the Company will, subject to certain conditions, offer to
purchase all of the then outstanding shares of Exchangeable Preferred Stock at a
price equal to 101% of the liquidation preference thereof, plus accrued and
unpaid dividends to the repurchase date. In addition, prior to January 15, 1999,
upon the occurrence of a Change of Control, the Company will have the option to
redeem the Exchangeable Preferred Stock in whole but not in part at a redemption
price equal to 112% of the liquidation preference thereof, plus accrued and
unpaid dividends to the date of redemption. The Exchangeable Preferred Stock
will, with respect to dividend rights and rights on liquidation, rank junior to
the Senior Exchangeable Preferred Stock. Subject to certain conditions, the
Exchangeable Preferred Stock is exchangeable in whole, but not in part, at the
option of the Company, on any dividend payment date for the Company's 12%
subordinated exchange debentures due 2009, including any such securities paid in
lieu of cash interest.
In addition to the accrued dividends discussed above, the recorded value of
the Senior Exchangeable Preferred Stock, the Convertible Preferred Stock and the
Exchangeable Preferred Stock includes or will include an amount for the
accretion of the difference between the stock's fair value at date of issuance
and its mandatory redemption amount, calculated using the effective interest
method.
9. INCOME TAXES
All of the Company's revenues were generated in the United States. The
provision for income taxes for continuing operations consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current:
State.................................................... $ -- $ 11,098 $ 64,070
Deferred:
Federal.................................................. 1,267,109 3,220,528 3,866,209
State.................................................... 223,607 568,329 682,272
---------- ---------- ----------
Total provision.................................. $1,490,716 $3,799,955 $4,612,551
========== ========== ==========
</TABLE>
F-49
<PAGE> 192
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense differs from the amount computed by applying the federal
statutory income tax rate of 34% to income before income taxes for the following
reasons:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996
---------- ----------- ----------
<S> <C> <C> <C>
U.S. federal income tax at statutory
rate.................................. $ 637,692 $(2,628,656) $ 645,125
State income taxes, net of federal
benefit............................... 112,533 (463,880) 113,846
Valuation allowance provided for loss
carryforward generated during the
current period........................ 720,490 6,589,750 307,000
Reconciliation of return to estimate.... -- 71,510 --
Permanent difference.................... 20,001 231,231 3,546,580
---------- ----------- ----------
$1,490,716 $ 3,799,955 $4,612,551
========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
----------- ------------
<S> <C> <C>
The deferred tax assets (liabilities)
consist of the following:
Loss carryforwards expiring 2009 and
2010............................... $ 4,766,240 $ 11,806,985
Deferred stock option compensation
deduction.......................... 2,544,000 4,064,000
Tax credits........................... -- 2,951,555
Other................................. 105,411 680,819
----------- ------------
Gross deferred tax assets.......... 7,415,651 19,503,359
----------- ------------
Depreciation and amortization......... (5,057,772) (21,488,463)
----------- ------------
Deferred tax assets valuation
allowance.......................... (7,310,240) (621,210)
----------- ------------
Net deferred tax liabilities....... $(4,952,361) $ (2,606,314)
=========== ============
</TABLE>
The deferred tax valuation allowance was originally established due to the
uncertainty surrounding the realizability of the Company's deferred tax assets
using the "more likely than not" criteria. During the fourth quarter of 1996,
the Company revised its estimate of the likelihood that it will realize the
majority of its deferred tax assets and adjusted its valuation allowance
accordingly. This revised estimate was the direct result of the acquisition of
Trefoil. Reversal of the valuation allowance related to deferred tax assets
which existed on the date of acquisition or which were acquired as a result of
the Trefoil acquisition were credited against the original purchase accounting
allocation to goodwill. The reversal of the valuation allowance related to
deferred tax assets generated subsequent to the acquisition were credited as a
reduction of income tax expense and extraordinary losses as appropriate.
The Company's tax credits and net operating loss carryforwards at December
31, 1996 begin expiring in 1997 and 2001, respectively. The Company has provided
a valuation allowance for those tax credits which do not meet a "more likely
than not" realizability test.
10. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) Savings Plan, whereby eligible employees can
contribute up to either 15% of their salary, per year, subject to certain
maximum contribution amounts. Prior to 1996, the Company had not made any
contributions to the plan, nor is it required to in future periods. However, the
Company did elect to make a discretionary match for 1996 of approximately
$250,000. Employees become eligible to participate in the plan after the
completion of one year of service and the attainment of age twenty-one.
F-50
<PAGE> 193
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMITMENTS
The Company leases real property, office space, broadcasting equipment and
office equipment under various noncancellable operating leases. Certain of the
Company's leases contain escalation clauses, renewal options and/or purchase
options. In addition, the Company assumed lease obligations in connection with
the acquisition of Trefoil on February 14, 1996. The Company also has employment
and rating survey agreements in excess of one year, and has entered into a
twelve-year financial monitoring and oversight agreement with Hicks Muse & Co.
Partners, L.P., which is an affiliate of Hicks, Muse, Tate & Furst Incorporated.
Future minimum payments under the noncancellable operating lease agreements
at December 31, 1996 are approximately as follows:
<TABLE>
<S> <C>
1997........................................................ $ 6,023,586
1998........................................................ 4,865,095
1999........................................................ 4,277,779
2000........................................................ 3,564,247
2001........................................................ 2,805,282
Thereafter.................................................. 13,080,261
-----------
$34,616,250
===========
</TABLE>
Rent expense was approximately $227,000, $1.3 million and $4.8 million for
the years ended December 31, 1994, 1995 and 1996, respectively.
12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
For cash, short-term debt, and other current amounts receivable and
payable, and the variable-rate term debt, the carrying amount approximates fair
value.
For the fixed-rate long-term debt, the fair value is estimated based on
quoted market prices. The carrying values at December 31, 1995 and 1996 was
$80.0 million and $260.0 million, respectively, and the estimated fair values at
each date were $85.4 million and $267.8 million, respectively.
For Chancellor Radio Broadcasting's Senior Exchangeable Preferred Stock,
the fair value of $113.75 per share at December 31, 1996 is estimated based on
quoted market prices.
13. STOCK-BASED COMPENSATION
During 1994, Chancellor's Board of Directors granted options to purchase
996,068 shares of its common stock to the senior management of the Company at
exercise prices of $6.00 and $7.50. The option agreements vest over a five year
period and originally contained certain performance criteria and indexed
exercise prices. On September 30, 1995, Chancellor entered into an agreement
with its senior management to substantially revise and amend these option
agreements to eliminate certain of the performance criteria provisions and to
adjust and fix the exercise prices at $7.50 and $8.40, respectively. Management
developed an estimate of the fair value of the stock options in the amount of
$19.0 million. Based upon this estimate and the applicable vesting periods, the
Company recognized stock option compensation expense and a corresponding credit
to equity of $6.4 million in 1995, with the remaining amount to be amortized
over an approximate four year period.
During 1994, Chancellor's Board of Directors adopted a stock option plan
for its non-employee directors providing for the grant of options and stock
awards for up to 480,000 shares of its common stock. Upon
F-51
<PAGE> 194
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
election to the Board of Directors, each person shall be granted a stock option
to purchase a number of shares of common stock equal to the number of shares of
common stock acquired by purchase by such person upon their initial election to
the Board of Directors. Each option shall be immediately vested, will have a
maximum term of ten years and an exercise price, as determined by the plan
committee, equal to or greater than the fair market value of the common stock on
the respective dates of grant.
In February 1996, Chancellor's Board of Directors adopted a stock award
plan for the Company's management, employees and non-employee directors, elected
after the date of adoption of the plan, providing for the grant of options and
stock awards for up to 916,456 shares of Chancellor's Class A Common Stock. The
Company's compensation committee has the sole authority to grant stock options
and to establish option exercise prices and vesting schedules. However,
per-share exercise prices shall not be less than the fair market value of the
stock on the respective date of grant and if the compensation committee does not
determine a vesting schedule, such option shall vest 20% on the first
anniversary of the respective date of grant and the remaining 80% shall vest pro
rata on a monthly basis over the four-year period following the first
anniversary of the date of grant. Non-employee directors elected after the
effective date of this plan automatically are granted a fully-vested option to
purchase 5,000 shares of Chancellor's Class A Common Stock on the date he or she
first becomes a member of the Board of Directors. Terms of all options are
limited to ten years.
A summary of the Company's option activity follows. The Company has elected
to continue expense recognition under Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and accordingly, has included
certain required pro forma information. Estimates of weighted-average grant-
date fair values of options granted and pro forma option compensation amounts
were determined using the Black-Scholes Single Option approach assuming an
expected option term of 6 years, interest rates ranging from 5.5% to 7.2%, a
dividend yield of zero and a volatility factor of .4 (zero for options issued
prior to the Company's initial public offering in February 1996).
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------
1994 1995 1996
-------------------------- ---------------------------- ----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------- ---------------- --------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year.... -- $ -- 996,068 $7.27 1,022,734 $ 7.89
Granted:
Exercise price:
equals FMV...... 996,068 7.27 26,666 7.50 713,916 26.03
less than FMV... -- -- 996,068 7.90 -- --
Exercised.......... -- -- -- -- -- --
Canceled........... -- -- (996,068) 7.27 (9,000) 24.51
------- ----- --------- ----- --------- ------
End of year.......... 996,068 $7.27 1,022,734 $7.89 1,727,650 $15.30
======= ===== ========= ===== ========= ======
Exercisable as of end
of year............ -- $ -- 225,879 $7.85 431,758 $ 8.06
======= ===== ========= ===== ========= ======
Weighted-average
grant-date fair
value of options
granted:
Exercise price:
equals FMV...... -- 3.59 12.69
less than FMV... -- 21.56 --
</TABLE>
F-52
<PAGE> 195
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- ---------------------------
WEIGHTED AVERAGE
---------------------------
RANGE OF REMAINING EXERCISE WEIGHTED AVERAGE
EXERCISE PRICES SHARES CONTRACTUAL LIFE PRICE SHARES EXERCISE PRICE
- --------------- --------- ---------------- -------- ------- -----------------
<S> <C> <C> <C> <C> <C>
$ 7.50 -- $ 7.50 577,971 7.06 $ 7.50 247,188 $7.50
8.40 -- 8.40 444,763 7.83 8.40 177,904 8.40
20.00 -- 25.25 431,916 9.14 20.51 6,666 20.00
31.00 -- 36.75 273,000 9.75 34.81 -- --
--------- ---- ------ ------- -----
$ 7.50 -- $36.75 1,727,650 8.20 $15.30 431,758 $8.06
========= ==== ====== ======= =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Historical net loss................................. $(11,531,296) $(6,892,023)
Pro forma adjustment for stock option
compensation...................................... (781,465) (1,524,302)
Pro forma tax benefit............................... 312,586 609,721
------------ -----------
Pro forma net loss.................................. $(12,000,175) $(7,806,604)
============ ===========
</TABLE>
14. RELATED PARTY TRANSACTIONS
The Company has entered into a twelve-year agreement (the "Financial
Monitoring and Oversight Agreement") with Hicks Muse & Co. Partners, L.P.
("Hicks Muse Partners") and HM2/Management Partners, L.P. ("HM2"), each of which
is an affiliate of Hicks Muse. Chancellor and the Company paid Hicks Muse
Partners an annual fee of $82,000, $200,000 and $408,000 for financial oversight
and monitoring services for the years ended December 31, 1994, 1995 and 1996,
respectively. The annual fee is adjustable each December 31, according to a
formula based on changes in the consumer price index. HM2 received fees of
approximately $0.3 million, $2.4 million and $6.2 million upon consummation of
the acquisitions of KDWB-FM, the American Media Station Group and Trefoil
Communications, Inc., respectively, and is entitled to receive a fee equal to
1.5% of the transaction value (as defined) upon the consummation of each add-on
transaction (as defined) involving Chancellor or any of its subsidiaries.
Effective April 1, 1996, the Company entered into a revised financial
monitoring and oversight agreement with Hicks & Muse & Co. Partners, L.P. and
HM2/Management Partners, L.P., each of which is an affiliate of Hicks, Muse,
Tate & Furst Incorporated. The annual fee for financial oversight and monitoring
services to the Company has been adjusted to $500,000. The annual fee is
adjustable each January 1, to an amount equal to the budgeted consolidated
annual net sales of the Company for the then-current fiscal year, multiplied by
0.25%, provided, however, that in no event shall the annual fee be less than
$500,000.
The Financial Monitoring and Oversight Agreement makes available the
resources of HM2 and Hicks Muse Partners concerning a variety of financial
matters. The services that have been and will continue to be provided by HM2 and
Hicks Muse Partners could not otherwise be obtained by Chancellor and the
Company without the addition of personnel or the engagement of outside
professional advisors.
In February of 1996, the Company lent $200,000 to an affiliate of the
Company. The loan is unsecured, does not bear interest and will be forgiven
during the next three years.
15. SUBSEQUENT EVENTS
On February 14, 1997, Chancellor Radio Broadcasting completed a private
placement of an additional $10.0 million of Convertible Preferred Stock pursuant
to its over-allotment option. The net proceeds of this offering were used to
repay borrowings under the Revolving Credit Facility.
F-53
<PAGE> 196
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On February 19, 1997, Chancellor and Chancellor Radio Broadcasting entered
into an agreement to merge with Evergreen Media Corporation ("Evergreen") in a
stock-for-stock transaction (the "Merger"), with Evergreen remaining as the
surviving corporation (the "Surviving Company"). Pursuant to the agreement,
shareholders of the Company's common stock will receive 0.9091 shares of
Evergreen's common stock. Consummation of the merger is subject to shareholder
approval and certain other closing conditions including regulatory approval.
On February 19, 1997, the Company and Evergreen entered into a joint
purchase agreement whereby in the event that consummation of the stock purchase
agreement between Evergreen and Viacom International, Inc. ("Viacom") occurs
prior to the consummation of the Merger, the Company will be required to
purchase the Viacom subsidiaries which own four of the ten Viacom stations for
$480.0 million and Evergreen will be required to purchase the Viacom
subsidiaries which own six of the ten Viacom stations for $595.0 million. In the
event that consummation of the stock purchase agreement between Evergreen and
Viacom occurs after the consummation of the Merger, the Surviving Company will
acquire the stock of certain Viacom subsidiaries which own and operate ten radio
stations in five major markets. Consummation of the transaction is dependent
upon certain closing conditions, including regulatory approval.
16. UNCERTAINTIES AND THE USE OF ESTIMATES AND ASSUMPTIONS
On February 8, 1996, the President signed into law the Telecommunications
Act of 1996. Among other things, this legislation requires the Federal
Communications Commission (the "FCC"), to relax its numerical restrictions on
local ownership and affords renewal applicants significant new protections from
competing applications for their broadcast licenses. The new legislation will
enable the Company to retain all of its radio stations and to acquire more
properties; at the same time, this legislation will also allow other broadcast
entities to increase their ownership in markets where the Company currently
operates stations. The Company's management is unable to determine the ultimate
effect of this legislation on its competitive environment.
The pending acquisition, exchange and merger agreements are subject to
various governmental approvals, including the Department of Justice under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
Federal Communications Commission.
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 dates of financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual amounts could differ from those estimates.
17. RECENT ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per
Share" in March 1997, which establishes standards for computing and presenting
earnings per share. The disclosure requirements of SFAS No. 128 will be
effective for the Company's financial statements beginning in 1997. Management
has not yet determined the impact that the adoption of SFAS No. 128 will have on
the financial statements of the Company.
F-54
<PAGE> 197
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 3,789 $ 5,889
Accounts receivable, net of allowance for doubtful
accounts of $1,024 and $1,182, respectively............ 46,585 63,576
Prepaid expenses and other................................ 2,754 2,887
-------- ----------
Total current assets.............................. 53,128 72,352
Restricted cash............................................. 20,363 53,750
Property and equipment, net................................. 49,123 69,581
Intangibles and other, net.................................. 551,406 970,080
Deferred financing costs, net............................... 16,723 16,827
Deferred income tax benefit................................. -- 1,183
-------- ----------
Total assets...................................... $690,743 $1,183,773
======== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 4,409 $ 4,989
Accrued liabilities....................................... 12,530 16,248
Accrued interest.......................................... 6,869 5,702
Current portion of long-term debt......................... 400 1,928
-------- ----------
Total current liabilities......................... 24,208 28,867
Long-term debt.............................................. 354,914 545,335
Deferred income taxes....................................... 2,606 --
Other....................................................... 802 997
-------- ----------
Total liabilities................................. 382,530 575,199
-------- ----------
Redeemable senior cumulative exchangeable preferred stock,
par value $.01 per share; 1,000,000 shares authorized,
issued and outstanding; preference in liquidation of
$117,670.................................................. 107,222 114,271
Redeemable cumulative exchangeable preferred stock, par
value $.01 per share; none and 3,600,000 shares
authorized, respectively, none and 2,000,000 shares issued
and outstanding, respectively; preference in liquidation
of $210,774............................................... -- 202,891
Common stockholder's equity:
Common stock, par value $.01 per share; 2,000 shares
authorized, 1,000 shares issued and outstanding........ 1 1
Additional paid-in capital................................ 219,519 322,216
Accumulated deficit....................................... (18,529) (30,805)
-------- ----------
Total stockholder's equity........................ 200,991 291,412
-------- ----------
Total liabilities and stockholder's equity........ $690,743 $1,183,773
======== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-55
<PAGE> 198
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- -------------------------
1996 1997 1996 1997
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Gross broadcasting revenues................. $ 50,759 $ 83,538 $ 79,848 $ 147,015
Less agency commissions..................... 6,333 10,450 9,780 18,073
---------- ---------- ---------- ----------
Net revenues........................... 44,426 73,088 70,068 128,942
---------- ---------- ---------- ----------
Operating expenses:
Programming, technical and news........... 7,865 12,829 13,010 26,700
Sales and promotion....................... 12,367 20,785 19,310 36,748
General and administrative................ 6,002 8,051 10,405 16,404
Depreciation and amortization............. 5,148 8,605 9,675 16,714
Corporate expenses........................ 832 2,222 1,839 3,934
Merger expense............................ -- 459 -- 2,515
Stock option compensation................. 950 950 1,900 1,900
---------- ---------- ---------- ----------
33,164 53,901 56,139 104,915
---------- ---------- ---------- ----------
Income from operations................. 11,262 19,187 13,929 24,027
Other (income) expense:
Interest expense.......................... 9,680 12,488 17,327 23,908
Other, net................................ 92 25 98 (1,607)
---------- ---------- ---------- ----------
Income (loss) before provision for
income taxes and extraordinary
loss................................. 1,490 6,674 (3,496) 1,726
Provision for income taxes.................. 662 3,727 1,601 3,327
---------- ---------- ---------- ----------
Income (loss) before extraordinary
loss................................. 828 2,947 (5,097) (1,601)
Extraordinary loss on early extinguishment
of debt, net of income tax benefit........ -- 7,926 4,646 10,675
---------- ---------- ---------- ----------
Net Income (loss)...................... 828 (4,979) (9,743) (12,276)
Loss on repurchase of preferred stock....... -- -- 16,570 --
Dividends and accretion on preferred
stock..................................... 3,183 9,987 4,843 18,122
---------- ---------- ---------- ----------
Net loss attributable to common
stock................................ $ (2,355) $ (14,966) $ (31,156) $ (30,398)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-56
<PAGE> 199
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997.................... 1,000 $1 $219,519 $(18,529) $200,991
Dividends and accretion on preferred
stock.................................. -- -- (18,122) -- (18,122)
Capital contributions, net................ -- -- 120,819 -- 120,819
Net loss.................................. -- -- -- (12,276) (12,276)
----- -- -------- -------- --------
Balance, June 30, 1997...................... 1,000 $1 $322,216 $(30,805) $291,412
===== == ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-57
<PAGE> 200
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (9,743) $ (12,276)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 9,675 16,714
Amortization of deferred financing costs............... 1,393 1,236
Stock option compensation.............................. 1,900 1,900
Deferred income taxes.................................. 1,539 3,327
Gain on disposition of stations........................ -- (1,409)
Extraordinary loss..................................... 4,646 10,675
Changes in assets and liabilities, net of the effects
of acquired businesses:
Accounts receivable.................................. (2,632) (3,741)
Prepaids and other................................... (1,380) 365
Accounts payable..................................... (87) (806)
Accrued liabilities.................................. (66) 1,564
Accrued interest..................................... 4,243 (1,167)
--------- ---------
Net cash provided by operating activities......... 9,488 16,382
--------- ---------
Cash flows from investing activities:
Purchases of broadcasting properties...................... (406,140) (582,383)
Dispositions of broadcasting properties................... -- 103,259
Purchases of other property and equipment................. (1,374) (3,690)
--------- ---------
Net cash used in investing activities............. (407,514) (482,814)
Cash flows from financing activities:
Proceeds from issuance of long-term debt.................. 277,628 417,632
Proceeds from borrowings under revolving debt facility.... 46,764 255,441
Repayments of long-term debt.............................. (90,885) (342,856)
Repayments of borrowings under revolving debt facility.... (68,432) (157,399)
Issuances of preferred stock.............................. 175,119 191,817
Repurchase of preferred stock............................. (95,462) --
Additional capital contributions.......................... 155,475 105,672
Distribution of additional paid in capital................ (1,038) (1,775)
Payment of preferred stock dividends...................... (506)
--------- ---------
Net cash provided by financing activities......... 398,663 468,532
--------- ---------
Net increase in cash.............................. 637 2,100
Cash, at beginning of period................................ 1,314 3,789
--------- ---------
Cash, at end of period...................................... $ 1,951 $ 5,889
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-58
<PAGE> 201
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Chancellor
Radio Broadcasting Company ("Chancellor Radio Broadcasting") and its
subsidiaries (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 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 (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and six month periods ended June 30, 1997 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1997.
Chancellor Radio Broadcasting is a direct subsidiary of Chancellor Broadcasting
Company ("Chancellor"). Certain prior year amounts have been reclassified to
conform with the current year's presentation, which had no effect on net income
or stockholder's equity.
2. ACQUISITIONS AND DISPOSITIONS
On January 23, 1997, the Company acquired substantially all the assets and
certain liabilities of Colfax Communications, Inc. and its affiliates ("Colfax")
for an aggregate price of $383.7 million. Liabilities assumed were limited to
certain ongoing contractual rights and obligations. The acquisition was
accounted for as a purchase. Pursuant to the acquisition agreement, at December
31, 1996 the Company had $20.4 million of cash in a restricted escrow account
which was remitted to Colfax at closing. On January 29, 1997, the Company
entered into an agreement to sell WMIL-FM and WOKY-AM, Milwaukee stations
acquired in this transaction, to Clear Channel Radio, Inc. for $41.3 million in
cash. Accordingly, theses stations were recorded as assets held for sale with no
results of operations or gain or loss recognized. Interest capitalized on this
investment amounted to $580,000. The disposition of these stations was completed
on March 31, 1997.
The acquisition is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired and liabilities assumed:
Accounts receivable, net.................................. $ 13,234
Prepaid and other assets.................................. 470
Property and equipment.................................... 14,624
Goodwill and other intangibles............................ 317,894
Other noncurrent assets................................... 46
Assets held for sale...................................... 41,253
Accrued liabilities....................................... (3,821)
--------
$383,700
</TABLE>
On January 31, 1997, the Company completed the sale of WWWW-FM and WDFN-AM
in Detroit to Evergreen Media Corporation ("Evergreen") for $30.0 million in
cash. The pre-tax gain of $1.4 million is included in other income.
On February 13, 1997, the Company acquired substantially all the assets and
certain liabilities of OmniAmerica Group ("Omni") for $166.0 million of cash and
$15.0 million of Chancellor Class A Common Stock. Liabilities assumed were
limited to certain ongoing contractual rights and obligations. The acquisition
was accounted for as a purchase.
F-59
<PAGE> 202
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisition is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired and liabilities assumed:
Property and equipment.................................... $ 9,209
Goodwill and other intangibles............................ 171,837
--------
$181,046
</TABLE>
On February 19, 1997, Chancellor and Chancellor Radio Broadcasting entered
into an agreement to merge with Evergreen in a stock-for-stock transaction (the
"Merger"), with Evergreen remaining as the surviving corporation. Pursuant to
the agreement, shareholders of the Company's common stock will receive 0.9091
shares of Evergreen's common stock. Consummation of the merger is subject to
shareholder approval and certain other closing conditions including regulatory
approval. The Company has incurred certain costs related to the Merger which
have been expensed in the period incurred.
On February 19, 1997, the Company and Evergreen entered into a joint
purchase agreement whereby in the event that consummation of the stock purchase
agreement between Evergreen and Viacom International, Inc. ("Viacom") occurred
prior to the consummation of the Merger, the Company would be required to
purchase the Viacom subsidiaries which own four of the ten Viacom stations for
$480.0 million, plus net working capital, and Evergreen would be required to
purchase the Viacom subsidiaries which own six of the ten Viacom stations for
$595.0 million, plus net working capital. On July 2, 1997, the Company acquired
KIBB-FM and KYSR-FM in Los Angeles, WLIT-FM in Chicago and WDRQ-FM in Detroit
from Viacom for approximately $489.8 million, plus various other direct
acquisition costs (the "Chancellor Viacom Acquisition").
On March 24, 1997, the Company exchanged the West Palm Beach stations
acquired from Omni for one AM station in Sacramento and approximately $33.0
million in cash from American Radio Systems Corporation (the "American Radio
Exchange").
On July 7, 1997, the Company entered into a time brokerage agreement with
Evergreen whereby Evergreen began managing certain limited functions of the
Company's station in San Francisco which broadcasts on frequency 94.9 (formerly
KSAN-FM).
On July 14, 1997, the Company and Evergreen entered into an agreement
pursuant to which a jointly-owned affiliate of Evergreen and the Company will
acquire Katz Media Group, Inc. ("Katz"), a full-service media representation
firm, in a tender offer transaction valued at approximately $373.0 million. Debt
of Katz of approximately $218.0 million will also be assumed in the transaction.
On July 21, 1997, the Company entered into a time brokerage agreement with
Evergreen whereby Evergreen began managing certain limited functions of the
Company's stations KBGG-FM, KNEW-AM and KABL-AM in San Francisco.
On July 30, 1997, the Company entered into an agreement to acquire KXPK-FM
in Denver from Evergreen Wireless LLC (which is unrelated to Evergreen) for
$26.0 million in cash (including $1.7 million paid by the Company in escrow).
The Company also entered into an agreement to operate KXPK-FM under a time
brokerage agreement to be effective upon receipt of HSR Act approval. Although
there can be no assurance, the Company expects that the acquisition will be
completed in the first quarter of 1998, after completion of the Merger.
On August 7, 1997, the Company and Evergreen announced that they had
acquired, for $3.0 million, an option from Bonneville International Corporation
("Bonneville") to exchange Evergreen's station WTOP-AM in Washington, the
Company's stations KZLA-FM in Los Angeles and WGMS-FM in Washington and $57.0
million of cash for Bonneville's stations WDBZ-FM in New York, KLDE-FM in
Houston and KBIG-FM in Los Angeles. The option expires on December 31, 1997.
F-60
<PAGE> 203
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On August 11, 1997, the Company completed the sale of WDRQ-FM in Detroit to
Capital Cities/ABC for $37.0 million. The proceeds were used to repay borrowings
under Chancellor's Interim Loan (as defined).
The following summarizes the unaudited consolidated pro forma data as
though the acquisitions of Shamrock Broadcasting Company, KIMN-FM and KALC-FM,
Colfax, Omni and KSTE-AM, the dispositions of KTBZ-FM, WWWW-FM and WDFN-AM and
the related financing transactions had occurred as of the beginning of 1996 (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1997
---------------------- ----------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net revenue.................................. $ 70,068 $109,422 $128,942 $131,149
Loss before extraordinary loss............... (5,097) (9,428) (1,601) (1,687)
Net loss attributable to common stock........ (31,156) (28,148) (30,398) (22,687)
</TABLE>
3. LONG-TERM DEBT
The Company's term and revolving credit facilities were refinanced on
January 23, 1997, in conjunction with the acquisition of Colfax under a new bank
credit agreement. In connection with the refinancing of the term and revolving
loan facilities in January 1997, the Company incurred an extraordinary charge to
write-off deferred finance costs of $4.6 million.
On June 5, 1997, the Company closed on the tender offer for all $60.0
million of its outstanding 12 1/2% Senior Subordinated Notes for approximately
$70.1 million, which included a premium. The redemption was funded through
additional borrowings under the bank credit agreement and resulted in an
extraordinary charge of $11.8 million.
On June 24, 1997, the Company completed its private offering of $200.0
million of Chancellor Radio Broadcasting Company's 8 3/4% Senior Notes, which
mature on June 15, 2007 and bear interest at 8.75% per annum. The proceeds were
used to pay down borrowings under the bank credit agreement, which resulted in
an extraordinary charge to write-off deferred finance costs of $1.4 million.
On July 2, 1997, the Company entered into a restated credit agreement (the
"Restated Credit Agreement") in order to finance the Chancellor Viacom
Acquisition. The Restated Credit Agreement consists of a $400.0 million term
loan facility and a $350.0 million revolving loan facility. Also, Chancellor
received an interim loan of $170.0 million (the "Interim Loan"), the proceeds
from which were contributed to Chancellor Radio Broadcasting in connection with
the Viacom acquisition.
The Restated Credit Agreement is collateralized by (i) a first priority
perfected pledge of all capital stock and notes owned by the Company and (ii) a
first priority perfected security interest in all other assets (including
receivables, contracts, contract rights, securities, patents, trademarks, other
intellectual property, inventory, equipment and real estate) owned by the
Company, excluding FCC licenses, leasehold interests in studio or office space
and leasehold and partnership interests in tower or transmitter sites in which
necessary consents to the granting of a security interest cannot be obtained
without payments to any other party or on a timely basis. The Restated Credit
Agreement is also guaranteed by the subsidiaries of Chancellor and Chancellor
Radio Broadcasting, whose guarantees are collateralized by a first priority
perfected pledge of the capital stock of Chancellor Radio Broadcasting. The term
loan facility is due in increasing quarterly installments beginning in 1997 and
matures in June 2004. All outstanding borrowings under the revolving facility
mature in June 2004. The facilities bear interest at a rate equal to, at the
Company's option, the prime rate of Bankers Trust Company, as announced from
time to time, or the London Inter-Bank Offered Rate ("LIBOR") in effect from
time to time, plus an applicable margin rate. The Company pays quarterly
commitment fees in arrears equal to either .375% or .250% per annum on the
unused portion of the Revolving Facility, depending upon whether the Company's
leverage ratio is equal to or greater than 4.5:1 or less than
F-61
<PAGE> 204
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4.5:1, respectively. The bank financing facilities which existed on June 30,
1997 accrued interest at the prime rate plus 1.00% (9.50%) on $11.9 million and
the LIBOR rate plus 2.00% (7.6875%) on $135.4 million of borrowings.
The Interim Loan is an unsecured obligation of Chancellor and is due on the
earlier of the consummation of the Merger or July 2, 1999. Outstanding
borrowings under the Interim Loan bear interest at a rate equal to the
three-month LIBOR plus an applicable margin rate beginning at 3.25% and
increasing to 9.00% at various intervals during the loan period.
Scheduled debt maturities for the Company's outstanding long-term debt
under the Restated Credit Agreement as of July 2, 1997, after completion of the
Chancellor Viacom Acquisition, for each of the next five calendar years and
thereafter were as follows, in thousands:
<TABLE>
<S> <C>
1997........................................................ $ --
1998........................................................ 20,000
1999........................................................ 50,000
2000........................................................ 60,000
2001........................................................ 60,000
2002........................................................ 70,000
Thereafter.................................................. 153,000
--------
$413,000
========
</TABLE>
4. CAPITAL STRUCTURE
During the first quarter of 1997, Chancellor completed a private placement
of $110.0 million of newly authorized 7% Convertible Preferred Stock (the
"Convertible Preferred Stock") and Chancellor Radio Broadcasting completed a
private placement of $200.0 million of newly authorized 12% Exchangeable
Preferred Stock (the "Exchangeable Preferred Stock").
Dividends on the Convertible Preferred Stock accrue from its date of
issuance and are payable quarterly commencing April 15, 1997, at a rate per
annum of 7% of the liquidation preference per share. The Convertible Preferred
Stock is convertible at the option of the holder at any time after March 23,
1997, unless previously redeemed, into Class A Common Stock of Chancellor at a
conversion price of $32.90 per share of Class A Common Stock, subject to
adjustment in certain events. In addition, after January 19, 2000, the Company
may, at its option, redeem the Convertible Preferred Stock, in whole or in part,
at specified redemption prices plus accrued and unpaid dividends through the
redemption date. Upon the occurrence of a change of control (as defined),
Chancellor must, subject to certain conditions, offer to purchase all of the
then outstanding shares of Convertible Preferred Stock at a price equal to 101%
of the liquidation preference thereof, plus accrued and unpaid dividends to the
date of purchase.
Dividends on the Exchangeable Preferred Stock will accrue from the date of
its issuance and will be payable semi-annually commencing July 15, 1997, at a
rate per annum of 12% of the liquidation preference per share. Dividends may be
paid, at the Company's option, on any dividend payment date occurring on or
prior to January 15, 2002 either in cash or in additional shares of Exchangeable
Preferred Stock. The Exchangeable Preferred Stock is redeemable at the Company's
option, in whole or in part at any time on or after January 15, 2002, at the
redemption prices set forth herein, plus accrued and unpaid dividends to the
date of redemption. In addition, prior to January 15, 2000, the Company may, at
its option, redeem the Exchangeable Preferred Stock with the net cash proceeds
from one or more Public Equity Offerings (as defined), at various redemption
prices plus accrued and unpaid dividends to the redemption date; provided,
however, that after any such redemption there is outstanding at least $150.0
million aggregate liquidation preference of Exchangeable Preferred Stock. The
Company is required, subject to certain conditions, to
F-62
<PAGE> 205
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
redeem all of the Exchangeable Preferred Stock outstanding on January 15, 2009,
at a redemption price equal to 100% of the liquidation preference thereof, plus
accrued and unpaid dividends to the date of redemption. Upon the occurrence of a
Change of Control (as defined), the Company will, subject to certain conditions,
offer to purchase all of the then outstanding shares of Exchangeable Preferred
Stock at a price equal to 101% of the liquidation preference thereof, plus
accrued and unpaid dividends to the repurchase date. In addition, prior to
January 15, 1999, upon the occurrence of a Change of Control, the Company will
have the option to redeem the Exchangeable Preferred Stock in whole but not in
part at a redemption price equal to 112% of the liquidation preference thereof,
plus accrued and unpaid dividends to the date of redemption. The Exchangeable
Preferred Stock will, with respect to dividend rights and rights on liquidation,
rank junior to the Company's 12 1/4% Senior Cumulative Exchangeable Preferred
Stock (the "Senior Exchangeable Preferred Stock"). Subject to certain
conditions, the Exchangeable Preferred Stock is exchangeable in whole, but not
in part, at the option of the Company, on any dividend payment date for the
Company's 12% subordinated exchange debentures due 2009, including any such
securities paid in lieu of cash interest.
In addition to the accrued dividends discussed above, the recorded value of
the Senior Exchangeable Preferred Stock and the Exchangeable Preferred Stock
includes an amount for the accretion of the difference between the stock's fair
value at date of issuance and its mandatory redemption amount, calculated using
the effective interest method.
5. INCOME TAXES
Income tax expense (benefit) differs from the amount computed by applying
the federal statutory income tax rate of 34% to income (loss) before income
taxes and extraordinary loss for the following reasons, dollars in thousands:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS ENDED
ENDED JUNE 30, JUNE 30,
-------------- -----------------
1996 1997 1996 1997
---- ------ ------- ------
<S> <C> <C> <C> <C>
U.S. federal income tax at statutory rate....... $507 $2,269 $(1,189) $ 587
State income taxes, net of federal benefit...... 89 401 (210) 104
Valuation allowance provided for loss
carryforward generated during the current
period........................................ (59) -- 2,750 --
Permanent difference............................ -- 1,072 -- 2,636
Other........................................... 125 (15) 250 --
---- ------ ------- ------
$662 $3,727 $ 1,601 $3,327
==== ====== ======= ======
</TABLE>
6. SUBSEQUENT EVENT
In July 1997, the Company incurred non-cash stock option and severance
compensation of approximately $685,000 and $1.4 million, respectively, for
terminations associated with the Merger. In addition, the Company paid $945,000
for a two year consulting and non-compete agreement which will be deferred and
amortized over the related period.
7. NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standard No. 128, "Earnings per Share"
was issued in February 1997, which establishes standards for computing and
presenting earnings per share (EPS) and applies to entities with publicly held
common stock or potential common stock. The disclosure requirements of SFAS No.
128 will be effective for the Company's financial statements beginning with the
annual report for 1997. Management does not believe that the implementation of
SFAS 128 will have a material effect on its financial statements.
F-63
<PAGE> 206
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Statement of Financial Accounting Standard No. 130, "Reporting
Comprehensive Income" was issued in June 1997, which establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose financial
statements. The reporting and display requirements of SFAS No. 130 will be
effective for the Company's financial statements beginning with the first
quarterly report for 1998. Management does not believe that the implementation
of SFAS 130 will have a material effect on its financial statements.
F-64
<PAGE> 207
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Evergreen Media Corporation:
We have audited the accompanying combined balance sheets of Riverside
Broadcasting Co., Inc. and WAXQ Inc. as of December 31, 1995 and 1996, and the
related combined statements of earnings and cash flows for each of the years in
the three-year period ended December 31, 1996. These combined financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Riverside
Broadcasting Inc. and WAXQ Inc. as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
March 14, 1997
F-65
<PAGE> 208
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Accounts receivable, less allowance
for doubtful accounts of $99 in
1995, $208 in 1996 and $170 in
1997............................... $ 5,507 $ 9,713 $10,489
Prepaid expenses and other current
assets............................. 178 381 162
Deferred income taxes................. 45 829 829
------- ------- -------
Total current assets.......... 5,730 10,923 11,480
Property and equipment, net (note 4).... 1,075 4,177 2,668
Intangible assets, net (note 5)......... 47,422 66,626 74,038
------- ------- -------
$54,227 $81,726 $88,186
======= ======= =======
LIABILITIES AND EQUITY
Current liabilities -- accounts payable
and accrued expenses.................. $ 1,167 $ 3,669 $2,894
Deferred income taxes................... 222 4,373 4,373
Equity (note 9)......................... 52,838 73,684 80,919
Commitments and contingencies (note
10)...................................
------- ------- -------
$54,227 $81,726 $88,186
======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-66
<PAGE> 209
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
COMBINED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross revenues.......................... $28,254 $25,862 $36,121 $14,274 $25,135
Less agency commissions and national
rep fees........................... 4,700 4,342 5,892 2,107 3,652
------- ------- ------- ------- -------
Net revenues.................. 23,554 21,520 30,229 12,167 21,483
------- ------- ------- ------- -------
Operating expenses:
Station operating expenses excluding
depreciation and amortization...... 9,212 9,069 12,447 5,192 8,893
Depreciation and amortization......... 1,662 1,676 4,528 838 1,290
Corporate general and
administrative..................... 945 980 943 510 442
------- ------- ------- ------- -------
Operating expenses................. 11,819 11,725 17,918 6,540 10,625
------- ------- ------- ------- -------
Operating income................... 11,735 9,795 12,311 5,627 10,858
Other (income) expense (note 3)......... -- -- (741) -- --
------- ------- ------- ------- -------
Earnings before income taxes....... 11,735 9,795 13,052 5,627 10,858
Income tax expense (note 6)............. 6,053 5,154 6,683 2,881 4,336
------- ------- ------- ------- -------
Net earnings.................. $ 5,682 $ 4,641 $ 6,369 $ 2,746 $ 6,522
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-67
<PAGE> 210
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows provided by operating activities:
Net earnings................................... $ 5,682 $ 4,641 $ 6,369 $ 2,746 $ 6,522
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation................................ 153 168 286 84 266
Amortization of goodwill.................... 1,509 1,508 1,811 754 1,024
Changes in certain assets and liabilities:
Deferred income taxes..................... 32 110 (603) -- --
Accounts receivable, net.................. (676) 659 (4,172) (984) (776)
Prepaid expenses and other current
assets................................. 12 103 (203) 128 219
Accounts payable and accrued expenses..... (192) (483) 2,502 765 (775)
------- ------- ------- ------- -------
Net cash provided by operating
activities........................... 6,520 6,706 5,990 3,493 6,480
------- ------- ------- ------- -------
Cash flows used by investing activities --capital
expenditures................................... (150) (129) (695) (250) (417)
------- ------- ------- ------- -------
Net cash used by financing
activities -- distribution to parent........... (6,370) (6,577) (5,295) (3,243) (6,063)
------- ------- ------- ------- -------
Increase (decrease) in cash...................... -- -- -- -- --
Cash at beginning of period...................... -- -- -- -- --
------- ------- ------- ------- -------
Cash at end of period............................ $ -- $ -- $ -- $ -- $ --
======= ======= ======= ======= =======
Noncash financing activities -- contribution of
radio station net assets by parent (note 3).... $ -- $ -- $19,772 $ -- $ --
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-68
<PAGE> 211
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of
Riverside Broadcasting Co., Inc. and WAXQ Inc. (collectively, the "Company").
The Company owns and operates two commercial radio stations in the New York City
market -- WLTW-FM and WAXQ-FM and is wholly owned by Viacom International Inc.
("Viacom" or "Parent"), a wholly owned subsidiary of Viacom, Inc. Significant
intercompany accounts and transactions have been eliminated in combination.
On February 16, 1997, Viacom entered into a stock purchase agreement to
sell all the issued and outstanding shares of capital stock of WAXQ Inc. and
Riverside Broadcasting Co., Inc. in the New York City market, KYSR Inc. and KIBB
Inc. in the Los Angeles market, Viacom Broadcasting East Inc. and WMZQ Inc. in
the Washington, DC market, WLIT Inc. in the Chicago market and WDRQ Inc. in the
Detroit market (collectively, the "Viacom Radio Properties") to Evergreen Media
Corporation of Los Angeles ("Evergreen"), for $1.075 billion in cash ("Proposed
Transaction"). The Proposed Transaction is expected to close after the
expiration or termination of the applicable waiting periods under the HSR Act
and approval by the Federal Communications Commission ("FCC"). Contemporaneous
with this transaction, Evergreen entered into a joint purchase agreement with
Chancellor Broadcasting Company ("Chancellor") under which Chancellor agreed to
acquire the Chicago, Detroit and Los Angeles Viacom radio properties referred to
above for $480 million from Evergreen or from Viacom directly.
The accompanying combined financial statements reflect the carve-out
historical results of operations and financial position of Riverside
Broadcasting Co., Inc. and WAXQ Inc. These financial statements are not
necessarily indicative of the results that would have occurred if the Company
had been a separate stand-alone entity during the periods presented.
The financial statements do not include Viacom's corporate assets or
liabilities not specifically identifiable to the Company. Corporate overhead
allocations have been included in the accompanying statements of earnings in
corporate general and administrative expense and station operating expenses.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) 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.
(b) Intangible Assets
Intangible assets consist primarily of broadcast licenses. The Company
amortizes such intangible assets using the straight-line method over 40 years.
The Company continually evaluates the propriety of the carrying amount of
intangible assets as well as the amortization period to determine whether
current events or circumstances warrant adjustments to the carrying value and/or
revised estimates of useful lives. This evaluation consists of the projection of
undiscounted operating income before depreciation, amortization, nonrecurring
charges and interest over the remaining amortization periods of the related
intangible assets. At this time, the Company believes that no significant
impairment of intangible assets has occurred and that no reduction of the
estimated useful lives is warranted.
(c) Barter Transactions
The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. An asset and
liability are recorded at the fair market value of the goods or
F-69
<PAGE> 212
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
services to be received. Barter revenue is recorded and the liability relieved
when commercials are broadcast and barter expense is recorded and the asset
relieved when goods or services are received or used.
(d) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each 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.
(f) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
(g) Fair Value
The carrying amount of accounts receivable and accounts payable
approximates fair value because of the short maturity of these instruments.
(h) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of management, credit risk with respect to trade receivables
is limited due to the large number of diversified customers in the Company's
customer base. The Company performs ongoing credit evaluations of its customers
and believes that adequate allowances for any uncollectible trade receivables
are maintained. No one customer accounted for more than 10% of net revenues in
1994, 1995, or 1996.
(i) Unaudited Interim Financial Information
In the opinion of management, the unaudited interim combined financial
statements as of and for the six months ended June 30, 1996 and 1997, reflect
all adjustments, consisting of only normal and recurring items,
F-70
<PAGE> 213
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
which are necessary for a fair presentation of the results for the interim
periods presented. The results for the interim periods ended June 30, 1996 and
1997 are not necessarily indicative of results to be expected for any other
interim period or for the full year.
(3) ACQUISITIONS AND DISPOSITIONS
On August 1, 1996, Viacom exchanged the assets of KBSG-AM/FM and KNDD-FM in
Seattle for the assets of WAXQ-FM in New York. The transaction was accounted for
as a nonmonetary exchange and was based on the recorded amounts of the
nonmonetary assets relinquished. For the period from July 1, 1996 to July 31,
1996, Viacom operated WAXQ-FM under a time brokerage agreement.
Station start-up costs, including fees paid pursuant to the time brokerage
agreement, amounting to $2,431,000, were capitalized and amortized during 1996.
Acquisition-related costs are reflected in the accompanying financial statements
as other expense.
A summary of net assets relinquished by Viacom in connection with the
exchange is as follows:
<TABLE>
<S> <C>
Working capital............................................. $ 34
Property and equipment...................................... 2,693
Intangible assets........................................... 21,015
Deferred taxes.............................................. (3,970)
-------
$19,772
=======
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1995 and
1996:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1995 1996
----------- ------ ------
<S> <C> <C> <C>
Broadcast facilities.................................. 8-20 years $1,971 $4,783
Office equipment and other............................ 5-8 years 557 754
Construction in progress.............................. 10 389
------ ------
2,538 5,926
Accumulated depreciation.............................. 1,463 1,749
------ ------
$1,075 $4,177
====== ======
</TABLE>
(5) INTANGIBLE ASSETS
Intangible assets at December 31, 1995 and 1996 consist of broadcast
licenses which are being amortized over forty years and are presented net of
accumulated amortization of $13,177 and $14,988, respectively.
(6) INCOME TAXES
The Company's results of operations are included in the combined U.S.
federal and certain combined and separate state income tax returns of Viacom
International Inc.
The tax provisions and deferred tax liabilities presented have been
determined as if the Company were a stand-alone business filing separate tax
returns. Current tax liabilities are recorded through the equity account with
Viacom.
F-71
<PAGE> 214
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Current:
Federal.................................................. $3,889 $3,258 $4,672
State and local.......................................... 2,132 1,786 2,614
Deferred:
Federal.................................................. 21 71 (356)
State.................................................... 11 39 (247)
------ ------ ------
$6,053 $5,154 $6,683
====== ====== ======
</TABLE>
A reconciliation of the U.S. Federal statutory tax rate to the Company's
effective tax rate on earnings before income taxes is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. tax rate..................................... 35.0% 35.0% 35.0%
Amortization of intangibles................................. 4.6 5.4 4.3
State and local taxes, net of federal tax benefit........... 11.9 12.1 11.8
Other, net.................................................. 0.1 0.1 0.1
---- ---- ----
Effective tax rate........................................ 51.6% 52.6% 51.2%
==== ==== ====
</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. These temporary differences are primarily the result
of fixed asset basis differences and bad debt expense.
(7) DEBT AND INTEREST COST
Viacom has not allocated any portion of its debt or related interest cost
to the Company, and no portion of Viacom's debt is specifically related to the
operations of the Company. Accordingly, the Company's financial statements
include no charges for interest.
(8) RELATED PARTY TRANSACTIONS
Intercompany balances between the Company and Viacom resulting from normal
trade activity are reflected in Equity in the accompanying combined financial
statements (see note 9).
Viacom provides services for the Company in management, accounting and
financial reporting, human resources and information systems. The allocation of
these expenses, which is generally based on revenue dollars, is reflected in the
accompanying combined financial statements as corporate general and
administrative expense. Management believes that the method of allocation of
corporate overhead is reasonable.
Viacom has a noncontributory pension plan covering substantially all of its
employees, including the employees of the Company. Costs related to these plans
are allocated to the Company based on payroll dollars. The Company recognized
expense related to these costs in the amounts of $63, $41 and $97 for 1994, 1995
and 1996, respectively. The assets and the related benefit obligation of the
plans will not be transferred to the Company upon consummation of the Proposed
Transaction, therefore, such assets and obligations are not included in the
notes to the Company's combined financial statements.
Viacom utilizes a centralized cash management system. As a result, the
Company carries minimal cash. Disbursements are funded by the Parent upon demand
and cash receipts are transferred to the Parent daily.
F-72
<PAGE> 215
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company, from time to time, enters into transactions with companies
owned by or affiliated with Viacom. Generally, services received from such
related parties are charged to the Company at amounts which would be incurred in
transactions between unrelated entities.
(9) EQUITY
Equity represents Viacom's ownership interest in the recorded net assets of
the Company. All cash transactions and intercompany transactions flow through
the equity account. A summary of the activity is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of period.......... $ 55,462 $ 54,774 $ 52,838
Net earnings............................ 5,682 4,641 6,369
Net intercompany activity............... (6,370) (6,577) 14,477
-------- -------- --------
Balance at end of period................ $ 54,774 $ 52,838 $ 73,684
======== ======== ========
</TABLE>
(10) COMMITMENTS AND CONTINGENCIES
The Company has noncancelable operating leases, primarily for office space.
These 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 $192, $155
and $442 during 1994, 1995 and 1996, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1996
are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1997.................................... $ 709
1998.................................... 722
1999.................................... 759
2000.................................... 795
2001.................................... 818
Thereafter.............................. 2,411
------
$6,214
======
</TABLE>
F-73
<PAGE> 216
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Evergreen Media Corporation:
We have audited the accompanying combined balance sheets of WMZQ Inc. and
Viacom Broadcasting East Inc. as of December 31, 1995 and 1996, and the related
combined statements of earnings and cash flows for each of the years in the
three-year period ended December 31, 1996. These combined financial statements
are the responsibility of the Companies' management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of WMZQ Inc.
and Viacom Broadcasting East Inc. as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
March 14, 1997, except for note 10,
which is as of April 14, 1997
F-74
<PAGE> 217
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------ JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Accounts receivable, less allowance
for doubtful accounts of $150 in
1995, $235 in 1996 and $136 in
1997............................... $ 4,893 $ 5,401 $ 5,407
Prepaid expenses and other current
assets............................. 467 629 55
Deferred income taxes (note 5)........ 60 94 94
------- ------- -------
Total current assets.......... 5,420 6,124 5,556
Property and equipment, net (note 3).... 2,407 2,316 2,408
Intangible assets, net (note 4)......... 50,204 48,695 50,399
------- ------- -------
$58,031 $57,135 $58,363
======= ======= =======
LIABILITIES AND EQUITY
Current liabilities -- accounts payable
and accrued expenses.................. $ 2,411 $ 2,458 $ 1,814
Deferred income taxes (note 5).......... 1,899 2,121 2,123
Equity (note 8)......................... 53,721 52,556 54,426
Commitments and contingencies (note
9)....................................
------- ------- -------
$58,031 $57,135 $58,363
======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-75
<PAGE> 218
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
COMBINED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross revenues................................... $21,389 $25,656 $26,584 $13,422 $13,837
Less agency commissions and national rep
fees........................................ 3,321 4,131 4,075 1,624 1,818
------- ------- ------- ------- -------
Net revenues........................... 18,068 21,525 22,509 11,798 12,019
------- ------- ------- ------- -------
Operating expenses:
Station operating expenses excluding
depreciation and amortization............... 10,398 11,445 11,362 6,394 6,043
Depreciation and amortization.................. 1,798 1,814 1,884 906 989
Corporate general and administrative........... 694 940 674 436 240
------- ------- ------- ------- -------
Operating expenses.......................... 12,890 14,199 13,920 7,736 7,272
------- ------- ------- ------- -------
Earnings before income taxes................ 5,178 7,326 8,589 4,062 4,747
Income tax expense (note 5)...................... 2,607 3,437 3,929 1,858 1,556
------- ------- ------- ------- -------
Net earnings........................... $ 2,571 $ 3,889 $ 4,660 $ 2,204 $ 3,191
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-76
<PAGE> 219
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows provided by operating
activities:
Net earnings.......................... $ 2,571 $ 3,889 $ 4,660 $ 2,204 $ 3,191
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation....................... 289 305 375 150 237
Amortization of goodwill........... 1,509 1,509 1,509 756 752
Deferred income tax expense........ 323 302 188 -- --
Changes in certain assets and
liabilities, net of effects of
acquisitions:
Accounts receivable, net......... 179 (1,485) (508) (445) (6)
Prepaid expenses and other
current assets................ 14 (121) (162) (730) 574
Accounts payable and accrued
expenses...................... (559) 20 47 2,446 (644)
------- ------- ------- ------- -------
Net cash provided by operating
activities.................. 4,326 4,419 6,109 4,381 4,104
------- ------- ------- ------- -------
Cash flows used by investing
activities -- capital expenditures.... (194) (491) (284) (142) (232)
------- ------- ------- ------- -------
Cash flows used by financing
activities -- distribution to
Parent................................ (4,132) (3,928) (5,825) (4,239) (3,872)
------- ------- ------- ------- -------
Increase (decrease) in cash............. -- -- -- -- --
Cash at beginning of period............. -- -- -- -- --
------- ------- ------- ------- -------
Cash at end of period................... $ -- $ -- $ -- $ -- $ --
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-77
<PAGE> 220
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of WMZQ
Inc. and Viacom Broadcasting East Inc. (collectively, the "Company"). The
Company owns and operates four commercial radio stations in the Washington, DC
market, WMZQ-FM, WJZW-FM, WBZS-AM and WZHF-AM, and is wholly owned by Viacom
International Inc. ("Viacom" or "Parent"), a wholly owned subsidiary of Viacom,
Inc. Significant intercompany accounts and transactions have been eliminated in
combination.
On February 16, 1997, Viacom International Inc. entered into a stock
purchase agreement to sell all the issued and outstanding shares of capital
stock of WAXQ Inc. and Riverside Broadcasting Co., Inc. in the New York City
market, KYSR Inc. and KIBB Inc. in the Los Angeles market, Viacom Broadcasting
East Inc. and WMZQ Inc. in the Washington, DC market, WLIT Inc. in the Chicago
market and WDRQ Inc. in the Detroit market (collectively the "Viacom Radio
Properties") to Evergreen Media Corporation for $1.075 billion in cash
("Proposed Transaction"). The Proposed Transaction is expected to close after
the expiration or termination of the applicable waiting periods under the HSR
Act and approval by the Federal Communications Commission ("FCC").
Contemporaneous with this transaction, Evergreen entered into a joint purchase
agreement with Chancellor Broadcasting Company ("Chancellor"), under which
Chancellor agreed to acquire the Chicago, Detroit and Los Angeles Viacom Radio
Properties referred to above for $480 million from Evergreen or from Viacom
directly.
The accompanying combined financial statements reflect the carve-out
historical results of operations and financial position of WMZQ Inc. and Viacom
Broadcasting East, Inc. These financial statements are not necessarily
indicative of the results that would have occurred if the Company had been a
separate stand-alone entity during the periods presented.
The financial statements do not include Viacom's corporate assets or
liabilities not specifically identifiable to the Company. Corporate overhead
allocations have been included in the accompanying statements of earnings in
corporate general and administrative expense and station operating expenses.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) 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.
(b) Intangible Assets
Intangible assets consist primarily of broadcast licenses. The Company
amortizes such intangible assets using the straight-line method over 40 years.
The Company continually evaluates the propriety of the carrying amount of
intangible assets as well as the amortization period to determine whether
current events or circumstances warrant adjustments to the carrying value and/or
revised estimates of useful lives. This evaluation consists of the projection of
undiscounted operating income before depreciation, amortization, nonrecurring
charges and interest over the remaining amortization periods of the related
intangible assets. At this time, the Company believes that no significant
impairment of intangible assets has occurred and that no reduction of the
estimated useful lives is warranted.
(c) Barter Transactions
The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. An asset and
liability are recorded at the fair market value of the goods or
F-78
<PAGE> 221
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
services to be received. Barter revenue is recorded and the liability relieved
when commercials are broadcast and barter expense is recorded and the asset
relieved when goods or services are received or used.
(d) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each 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.
(f) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
(g) Fair Value
The carrying amount of accounts receivable and accounts payable
approximates fair value because of the short maturity of these instruments.
(h) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of management, credit risk with respect to trade receivables
is limited due to the large number of diversified customers in the Company's
customer base. The Company performs ongoing credit evaluations of its customers
and believes that adequate allowances for any uncollectible trade receivables
are maintained. No one customer accounted for more than 10% of net revenues in
1994, 1995, or 1996.
(i) Unaudited Interim Financial Information
In the opinion of management, the unaudited interim combined financial
statements as of and for the six months ended June 30, 1996 and 1997, reflect
all adjustments, consisting of only normal and recurring items,
F-79
<PAGE> 222
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
which are necessary for a fair presentation of the results for the interim
periods presented. The results for the interim periods ended June 30, 1996 and
1997 are not necessarily indicative of results to be expected for any other
interim period or for the full year.
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1995 and
1996:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1995 1996
--------------- ------ ------
<S> <C> <C> <C>
Broadcast facilities................................... 8 - 20 years $2,268 $2,366
Land................................................... 440 440
Building............................................... 30 - 40 years 146 146
Office equipment and other............................. 5 - 8 years 1,866 1,808
Construction in progress............................... -- 5
------ ------
4,720 4,765
------ ------
Accumulated depreciation............................... 2,313 2,449
------ ------
$2,407 $2,316
====== ======
</TABLE>
(4) INTANGIBLE ASSETS
Intangible assets at December 31, 1995 and 1996 consist of broadcast
licenses which are being amortized over forty years and are presented net of
accumulated amortization of $10,714 and $12,223, respectively.
(5) INCOME TAXES
The Company's results of operations are included in the U.S. federal and
certain combined and separate state income tax returns of Viacom International
Inc.
The tax provisions and deferred tax liabilities presented have been
determined as if the Company were a stand-alone business filing separate tax
returns. Current tax liabilities are recorded through the equity account with
Viacom.
Income tax expense consists of:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Current:
Federal................................................... $1,704 $2,434 $2,943
State and local........................................... 580 701 798
Deferred federal and state.................................. 323 302 188
------ ------ ------
$2,607 $3,437 $3,929
====== ====== ======
</TABLE>
F-80
<PAGE> 223
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the U.S. Federal statutory tax rate to the Company's
effective tax rate on earnings before income taxes is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. tax rate................. 35.0% 35.0% 35.0%
Amortization of intangibles............. 7.4 5.2 4.5
State and local taxes, net of federal
tax benefit........................... 7.9 6.7 6.2
Other, net.............................. 0.0 0.0 0.0
---- ---- ----
Effective tax rate.................... 50.3% 46.9% 45.7%
==== ==== ====
</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. These temporary differences are primarily the result
of fixed asset basis differences and bad debt expense. Deferred tax assets and
liabilities relating to state income taxes are not material.
(6) DEBT AND INTEREST COST
Viacom has not allocated any portion of its debt or related interest cost
to the Company, and no portion of Viacom's debt is specifically related to the
operations of the Company. Accordingly, the Company's financial statements
include no charges for interest.
(7) RELATED PARTY TRANSACTIONS
Intercompany balances between the Company and Viacom resulting from normal
trade activity are reflected in Equity in the accompanying combined financial
statements (see note 8).
Viacom provides services for the Company in management, accounting and
financial reporting, human resources, information systems, legal, taxes and
other corporate services. The allocation of these expenses, which is generally
based on revenue dollars, is reflected in the accompanying financial statements
as corporate general and administrative expense. Management believes that the
method of allocation of corporate overhead is reasonable.
Viacom has a noncontributory pension plan covering substantially all of its
employees, including the employees of the Company. Costs related to these plans
are allocated to the Company based on payroll dollars and are included in
station operating expenses. The Company recognized expense related to these
costs in the amounts of $77, $74 and $242 for 1994, 1995 and 1996, respectively.
The assets and the related benefit obligation of the plans will not be
transferred to the Company upon consummation of the Proposed Transaction,
therefore, such assets and obligations are not included in the notes to the
Company's financial statements.
Viacom utilizes a centralized cash management system. As a result, the
Company carries minimal cash. Disbursements are funded centrally upon demand and
cash receipts are transferred to the Parent daily.
The Company, from time to time, enters into transactions with companies
owned by or affiliated with Viacom. Generally, services received from such
related parties are charged to the Company at amounts which would be incurred in
transactions between unrelated entities.
F-81
<PAGE> 224
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(8) EQUITY
Equity represents Viacom's ownership interest in the recorded net assets of
the Company. All cash transactions and intercompany transactions flow through
the equity account. A summary of the activity is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of period............................ $55,321 $53,760 $53,721
Net earnings.............................................. 2,571 3,889 4,660
Net intercompany activity................................. (4,132) (3,928) (5,825)
------- ------- -------
Balance at end of period.................................. $53,760 $53,721 $52,556
======= ======= =======
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES
The Company has noncancelable operating leases, primarily for office space.
These leases generally contain renewal options for periods ranging from 1 to 10
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 $332, $356 and
$373 during 1994, 1995 and 1996, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1996
are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1997........................................................ $ 506
1998........................................................ 523
1999........................................................ 310
2000........................................................ 222
2001........................................................ 200
Thereafter.................................................. 814
------
$2,575
======
</TABLE>
(10) SUBSEQUENT EVENT
On April 14, 1997, Evergreen Media Corporation and Chancellor Broadcasting
Company entered into an agreement with ABC Radio ("ABC"), a division of The Walt
Disney Company, whereby ABC will purchase from Evergreen and Chancellor two
radio stations, WDRQ-FM and WJZW-FM for a total of $105 million.
F-82
<PAGE> 225
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Beasley FM Acquisition Corp.:
We have audited the accompanying balance sheet of WDAS-AM/FM (station owned
and operated by Beasley FM Acquisition Corp.) as of December 31, 1996, and the
related statements of earnings and station equity and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of WDAS-AM/FM as of December
31, 1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
St. Petersburg, Florida
March 28, 1997
F-83
<PAGE> 226
WDAS-AM/FM
(STATION OWNED AND OPERATED BY
BEASLEY FM ACQUISITION CORP.)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash...................................................... $ 2,111 $ 2,805
Accounts receivable, less allowance for doubtful accounts
of $166 and $138 in 1996 and 1997...................... 3,693 2,938
Trade sales receivable.................................... 359 29
Prepaid expense and other................................. 150 130
------- -------
Total current assets.............................. 6,313 5,902
Property and equipment, net (note 2)........................ 3,297 3,523
Notes receivable from related parties (note 5).............. 2,766 3,625
Intangibles, less accumulated amortization.................. 17,738 17,122
------- -------
$30,114 $30,172
======= =======
LIABILITIES AND STATION EQUITY
Current liabilities:
Current installments of long-term debt (note 3)........... $ 49 $ 49
Notes payable to related parties (note 5)................. 352 494
Accounts payable.......................................... 269 191
Accrued expenses.......................................... 515 313
Trade sales payable....................................... 39 12
------- -------
Total current liabilities......................... 1,224 1,059
Long-term debt, less current installments (note 3).......... 627 627
------- -------
Total liabilities................................. 1,851 1,686
Station equity.............................................. 28,263 28,486
Commitments and related party transactions (notes 4 and
5)........................................................
------- -------
$30,114 $30,172
======= =======
</TABLE>
See accompanying notes to financial statements.
F-84
<PAGE> 227
WDAS-AM/FM
(STATION OWNED AND OPERATED BY
BEASLEY FM ACQUISITION CORP.)
STATEMENTS OF EARNINGS AND STATION EQUITY
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED MARCH 31,
DECEMBER 31, ------------------
1996 1996 1997
------------ ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues............................................... $14,667 $ 2,623 $ 3,000
------- ------- -------
Costs and expenses:
Program and production................................... 2,028 445 620
Technical................................................ 212 59 50
Sales and advertising.................................... 3,514 660 802
General and administrative............................... 2,005 497 459
------- ------- -------
7,759 1,661 1,931
------- ------- -------
Operating income, excluding items shown
separately
below.......................................... 6,908 962 1,069
Management fees (note 5)................................... (620) (156) (128)
Depreciation and amortization.............................. (2,763) (651) (657)
Interest income (expense), net............................. (40) (13) 7
Other...................................................... -- -- (78)
------- ------- -------
Net income....................................... 3,485 142 213
Station equity, beginning of period........................ 25,367 25,367 28,273
Forgiveness of related party note receivable (note 5)...... (589) -- --
------- ------- -------
Station equity, end of period.............................. $28,263 $25,509 $28,486
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-85
<PAGE> 228
WDAS-AM/FM
(STATION OWNED AND OPERATED BY BEASLEY FM ACQUISITION CORP.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED MARCH 31,
DECEMBER 31, -------------------------------
1996 1996 1997
------------ --------------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 3,485 $ 142 $ 213
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 2,763 651 657
Allowance for doubtful accounts................... 8 (56) (28)
Decrease (increase) in receivables................ (398) 792 1,113
(Increase) decrease) in prepaid expense and other
assets.......................................... (96) (104) 20
Decrease in payables and accrued expenses......... (507) (331) (297)
------- ----- ------
Net cash provided by operating activities.... 5,255 1,094 1,678
------- ----- ------
Cash flows from investing activities -- capital
expenditures for property and equipment.............. (775) (572) (267)
------- ----- ------
Cash flows from financing activities:
Proceeds from issuance of indebtedness............... 676 - -
Principal payments on indebtedness................... (820) - -
Payment of loan fees................................. (6) - -
Net change in borrowings to/from affiliates.......... (2,647) (305) (717)
------- ----- ------
Net cash used in financing activities........ (2,797) (305) (717)
------- ----- ------
Net increase in cash................................... 1,683 217 694
Cash at beginning of period............................ 428 428 2,111
------- ----- ------
Cash at end of period.................................. $ 2,111 $ 645 $2,805
======= ===== ======
Noncash transactions:
Forgiveness of related note receivable
Release of WDAS-AM/FM's obligations under a note
payable which related to obtaining an easement.
WDAS-AM/FM is now directly responsible for the costs
necessary to obtain this easement and has included
these costs in accrued expenses in the accompanying
balance sheet........................................ $ 350
=======
</TABLE>
See accompanying notes to financial statements.
F-86
<PAGE> 229
WDAS-AM/FM
(STATION OWNED AND OPERATED BY BEASLEY FM ACQUISITION CORP.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(IN THOUSANDS)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
WDAS-AM/FM (the Station) is a radio station operating in Philadelphia,
Pennsylvania. The assets, liabilities and operations of WDAS-AM/FM are part of
Beasley FM Acquisition Corp. (BFMA). These financial statements reflect only the
assets, liabilities and operations relating to radio station WDAS-AM/FM and are
not representative of the financial statements of BFMA.
(b) Revenue Recognition
Revenue is recognized as advertising air time is broadcast and is net of
advertising agency commissions.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method over the estimated lives of the assets, which range
from 5 to 31 years.
(d) Intangibles
Intangibles consist primarily of FCC licenses, which are amortized
straight-line over ten years. Other intangibles are amortized straight-line over
5 to 10 years.
(e) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
BFMA adopted the provisions of Statement of Financial Accounting Standards
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, on January 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Adoption of this Statement did not have
a material impact on the Station's financial position, results of operations, or
liquidity.
(f) Barter Transactions
Trade sales are recorded at the fair value of the products or services
received and totaled approximately $676 for the year ended December 31, 1996.
Products and services received and expensed totaled approximately $449 for the
year ended December 31, 1996.
(g) Income Taxes
BFMA has elected to be treated as an "S" Corporation under provisions of
the Internal Revenue Code. Under this corporate status, the stockholders of BFMA
are individually responsible for reporting their share of taxable income or
loss. Accordingly, no provision for federal or state income taxes has been
reflected in the accompanying financial statements.
F-87
<PAGE> 230
WDAS-AM/FM
(STATION OWNED AND OPERATED BY BEASLEY FM ACQUISITION CORP.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(h) Defined Contribution Plan
BFMA has a defined contribution plan which conforms with Section 401(k) of
the Internal Revenue Code. Under this plan, employees may contribute a minimum
of 1% of their compensation (no maximum) to the Plan. The Internal Revenue Code,
however, limited contributions to $9,500 in 1996. There are no employer matching
contributions.
(i) 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 amount of revenues and expenses during the
reporting period. Actual results could differ from these estimates. To the
extent management's estimates prove to be incorrect, financial results for
future periods may be adversely affected.
(j) Interim Financial Statements
In the opinion of management, the accompanying unaudited interim financial
statements contain all adjustments, consisting of normal recurring accruals,
necessary to present fairly the financial position, results of operations, and
cash flows of the Station for the three-month periods ended March 31, 1997 and
1996 and as of June 30, 1997.
(2) PROPERTY AND EQUIPMENT
Property and equipment, at cost, is comprised of the following at December
31, 1996:
<TABLE>
<S> <C>
Land, buildings, and improvements........................... $2,204
Broadcast equipment......................................... 1,200
Office equipment and other.................................. 477
Transportation equipment.................................... 79
------
3,960
Less accumulated depreciation..................... (663)
------
$3,297
======
</TABLE>
(3) LONG-TERM DEBT
BFMA and six affiliates (the Group) refinanced their $100,000 revolving
credit loan on June 24, 1996. Under terms of the new agreement, the Group was
provided a revolving credit loan with an initial maximum commitment of $115,000.
The credit agreement was subsequently amended and the maximum commitment was
increased to $120,000. The Group's borrowings under the revolving credit loan
totaled $115,784 at December 31, 1996, of which $676 was allocated to
WDAS-AM/FM. The loan bears interest at either the base rate or LIBOR plus a
margin which is determined by the Group's debt to cash flow ratio. The base rate
is equal to the higher of the prime rate or the overnight federal funds
effective rate plus 0.5%. At December 31, 1996, the revolving credit loan
carried interest at an average rate of 8.61%. Interest is generally payable
monthly. The Group has entered into interest rate hedge agreements as discussed
in note 6.
The amount available under the Group's revolving credit loan will be
reduced quarterly beginning September 30, 1997 through its maturity on December
31, 2003. The loan agreement includes restrictive covenants and requires the
Group to maintain certain financial ratios. The loans are secured by the common
stock and substantially all assets of the Group.
F-88
<PAGE> 231
WDAS-AM/FM
(STATION OWNED AND OPERATED BY BEASLEY FM ACQUISITION CORP.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Annual maturities on the Group's revolving credit loan for the next five
years are as follows:
<TABLE>
<CAPTION>
DEBT
MATURITIES
----------
<S> <C>
1997........................................................ $ 8,434
1998........................................................ 12,650
1999........................................................ 13,800
2000........................................................ 14,950
2001........................................................ 15,525
Thereafter.................................................. 50,425
--------
Total............................................. $115,784
========
</TABLE>
S-AM/FM paid interest of approximately $79 in 1996.
(4) COMMITMENTS
On September 19, 1996, BFMA entered into an asset purchase agreement (APA)
with Evergreen Media Corporation of Los Angeles (Evergreen) for the sale of
WDAS-AM/FM. Under the terms of the APA, BFMA will convey substantially all of
the assets used in the operation of the station to Evergreen in exchange for a
purchase price of $103,000, subject to adjustment, to be paid in cash. BFMA
expects to close on this sale before July 1, 1997.
WDAS-AM/FM leases facilities and a tower under 10-year operating leases
which expire in July 2004 and January 2007, respectively. WDAS-AM/FM also leases
certain other office equipment on a month-to-month basis. Lease expense was
approximately $215 in 1996. Future minimum lease payments by year are summarized
as follows:
<TABLE>
<S> <C>
1997........................................................ $ 236
1998........................................................ 247
1999........................................................ 258
2000........................................................ 270
2001........................................................ 283
Thereafter.................................................. 1,275
------
$2,569
======
</TABLE>
In the normal course of business, the Station is party to various legal
matters. The ultimate disposition of these matters will not, in management's
judgment, have a material adverse effect on the Station's financial position.
(5) RELATED PARTY TRANSACTIONS
The Company has a management agreement with Beasley Management Company, an
affiliate of the Company's principal stockholder. Management fee expense under
the agreement was $620 in 1996.
The notes receivable from/payable to related parties are non-interest
bearing and are due on demand. A note receivable due from a related party of
$589 was forgiven in 1996.
F-89
<PAGE> 232
WDAS-AM/FM
(STATION OWNED AND OPERATED BY BEASLEY FM ACQUISITION CORP.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) FINANCIAL INSTRUMENTS
WDAS-AM/FM's significant financial instruments and the methods used to
estimate their fair value are as follows:
Revolving credit loan -- The fair value approximates carrying value
due to the loan being refinanced on June 24, 1996 and the interest rate
being based on current market rates.
Notes receivable from/payable to related parties -- It is not
practicable to estimate the fair value of these notes payable due to their
related party nature.
Interest rate swap, cap and collar agreements -- The Group entered
into an interest rate swap agreement with a notional amount of $15,000, an
interest rate cap agreement with a notional amount of $3,100, and an
interest rate collar agreement with a notional amount of $15,000 to act as
a hedge by reducing the potential impact of increases in interest rates on
the revolving credit loan. These agreements expire on various dates in
1999. The Group is exposed to credit loss in the event of nonperformance by
the other parties to the agreements. The Group, however, does not
anticipate nonperformance by the counterparties. The fair value of the
interest rate swap agreement is estimated using the difference between the
present value of discounted cash flows using the base rate stated in the
swap agreement (5.37%) and the present value of discounted cash flows using
the LIBOR rate at December 31, 1996. The fair values of the interest rate
cap agreement, which establishes a maximum base rate of 7.50%, and the
interest rate collar agreement, which establishes a minimum base rate of
4.93% and a maximum base rate of 6%, are estimated based on the amounts the
Group would expect to receive or pay to terminate the agreement. The
estimated fair value of each of these agreements is negligible.
F-90
<PAGE> 233
INDEPENDENT AUDITORS' REPORT
---------------------------------------------
The Board of Directors
Chancellor Broadcasting Company:
We have audited the accompanying combined balance sheets of KYSR Inc. and
KIBB Inc. as of December 31, 1995 and 1996, and the related combined statements
of operations and cash flows for each of the years in the three-year period
ended December 31, 1996. These combined financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these combined 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 combined financial position of KYSR Inc.
and KIBB Inc. as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Dallas, Texas
March 14, 1997
F-91
<PAGE> 234
KYSR INC. AND KIBB INC.
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Accounts receivable, less allowance for doubtful
accounts of $218 in 1995 and $246 in 1996 and $321 in
1997................................................. $ 6,253 $ 7,283 $ 7,403
Prepaid expenses and other.............................. 412 609 18
Deferred income taxes (note 5).......................... 89 101 101
-------- -------- --------
Total current assets............................ 6,754 7,993 7,522
Property and equipment, net (note 3)...................... 4,172 4,082 4,195
Intangible assets, net (note 4)........................... 116,946 113,644 111,984
Other assets, net......................................... 22 22 22
-------- -------- --------
$127,894 $125,741 $123,723
======== ======== ========
LIABILITIES AND EQUITY
Current liabilities -- accounts payable and accrued
expenses................................................ $ 3,883 $ 3,624 $ 2,082
Deferred income taxes (note 5)............................ 9,683 11,027 11,027
Equity (note 8)........................................... 114,328 111,090 110,614
Commitments and contingencies (note 9)....................
-------- -------- --------
$127,894 $125,741 $123,723
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-92
<PAGE> 235
KYSR INC. AND KIBB INC.
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross revenues.......................... $28,590 $30,571 $33,769 $15,762 $16,784
Less agency commissions and national
rep fees........................... 4,490 4,882 5,462 2,196 2,385
------- ------- ------- ------- -------
Net revenues.................. 24,100 25,689 28,307 13,566 14,399
------- ------- ------- ------- -------
Operating expenses:
Station operating expenses, excluding
depreciation and amortization...... 13,407 12,901 13,378 6,834 7,119
Depreciation and amortization......... 3,640 3,661 3,627 1,826 1,844
Corporate general and
administrative..................... 892 1,094 844 542 302
------- ------- ------- ------- -------
Operating expenses................. 17,939 17,656 17,849 9,202 9,265
------- ------- ------- ------- -------
Operating income................... 6,161 8,033 10,458 4,364 5,134
Interest expense (note 7)............... 6,374 6,374 6,374 3,187 3,178
------- ------- ------- ------- -------
Earnings (loss) before income taxes... (213) 1,659 4,084 1,177 1,956
Income tax expense (benefit) (note 5)... (70) 699 1,694 494 296
------- ------- ------- ------- -------
Net earnings (loss)........... $ (143) $ 960 $ 2,390 $ 683 $ 1,660
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-93
<PAGE> 236
KYSR INC. AND KIBB INC.
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------ -----------------
1994 1995 1996 1996 1997
------ ------ ------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows provided by operating activities:
Net earnings (loss)........................... $ (143) $ 960 $2,390 $ 683 $ 1,660
Adjustments to reconcile net earnings (loss)
to net cash provided by operating
activities:
Depreciation............................... 338 359 325 175 193
Amortization of intangibles................ 3,302 3,302 3,302 1,651 1,651
Deferred tax expense....................... 1,597 1,412 1,332 -- --
Changes in certain assets and liabilities:
Accounts receivable, net................. (1,452) (120) (1,030) (330) (120)
Prepaid expenses and other current
assets................................ 372 (149) (197) (1,468) 591
Accounts payable and accrued expenses.... (345) 265 (259) 2,236 (1,542)
------ ------ ------ ------- -------
Net cash provided by operating
activities.......................... 3,669 6,029 5,863 2,947 2,433
------ ------ ------ ------- -------
Cash used by investing activities -- capital
expenditures.................................. (280) (223) (235) (80) (296)
------ ------ ------ ------- -------
Cash flows used by financing
activities -- distributions to Parent......... (3,389) (5,806) (5,628) (2,867) (2,137)
------ ------ ------ ------- -------
Increase (decrease) in cash..................... -- -- -- -- --
Cash at beginning of period..................... -- -- -- -- --
------ ------ ------ ------- -------
Cash at end of period........................... $ -- $ -- $ -- $ -- $ --
====== ====== ====== ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-94
<PAGE> 237
KYSR INC. AND KIBB INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of KYSR
Inc. and KIBB Inc. (collectively, the "Company"). The Company owns and operates
two commercial radio stations in the Los Angeles market, KYSR-FM and KIBB-FM,
and is wholly owned by Viacom International Inc. ("Viacom" or "Parent"), a
wholly owned subsidiary of Viacom, Inc. Significant intercompany balances and
transactions have been eliminated in combination.
On February 16, 1997, Viacom entered into a stock purchase agreement to
sell all the issued and outstanding shares of capital stock of WAXQ Inc. and
Riverside Broadcasting Co., Inc. in the New York City market, KYSR Inc. and KIBB
Inc. in the Los Angeles market, Viacom Broadcasting East Inc. and WMZQ Inc. in
the Washington, DC market, WLIT Inc. in the Chicago market and WDRQ Inc. in the
Detroit market (collectively, the "Viacom Radio Properties") to Evergreen Media
Corporation of Los Angeles ("Evergreen"), for $1.075 billion in cash ("Proposed
Transaction"). The Proposed Transaction is expected to close after the
expiration or termination of the applicable waiting periods under the HRS Act
and approval by the Federal Communications Commission ("FCC"). Contemporaneous
with this transaction, Evergreen entered into a joint purchase agreement with
Chancellor Broadcasting Company ("Chancellor") under which Chancellor agreed to
acquire the Chicago, Detroit and Los Angeles Viacom Radio Properties referred to
above for $480 million from Evergreen or from Viacom directly.
The accompanying combined financial statements reflect the carve-out
historical results of operations and financial position of KYSR Inc. and KIBB
Inc. These financial statements are not necessarily indicative of the results
that would have occurred if the Company had been a separate stand-alone entity
during the period presented.
The combined financial statements do not include Viacom's corporate assets
or liabilities not specifically identifiable to the Company. Corporate overhead
allocations have been included in the accompanying combined statements of
earnings in corporate general and administrative expense and station operating
expenses.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) 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.
(b) Intangible Assets
Intangible assets consist primarily of broadcast licenses. The Company
amortizes such intangible assets using the straight-line method over 40 years.
The Company continually evaluates the propriety of the carrying amount of
intangible assets as well as the amortization period to determine whether
current events or circumstances warrant adjustments to the carrying value and/or
revised estimates of useful lives. This evaluation consists of the projection of
undiscounted operating income before depreciation, amortization, nonrecurring
charges and interest over the remaining amortization periods of the related
intangible assets. At this time, the Company believes that no significant
impairment of intangible assets has occurred and that no reduction of the
estimated useful lives is warranted.
F-95
<PAGE> 238
KYSR INC. AND KIBB INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Barter Transactions
The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. An asset and
liability are recorded at the fair market value of the goods or services to be
received. Barter revenue is recorded and the liability relieved when commercials
are broadcast and barter expense is recorded and the asset relieved when goods
or services are received or used.
(d) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each 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.
(f) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
(g) Fair Value
The carrying amount of accounts receivable and accounts payable
approximates fair value because of the short maturity of these instruments.
(h) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of management, credit risk with respect to trade receivables
is limited due to the large number of diversified customers in the Company's
customer base. The Company performs ongoing credit evaluations of its customers
and believes that adequate allowances for any uncollectible trade receivables
are maintained. No one advertiser accounted for more than 10% of net revenues in
1994, 1995, or 1996. Certain
F-96
<PAGE> 239
KYSR INC. AND KIBB INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
advertisers purchase the advertising of the stations through a third party
buying service. Approximately 22%, 20% and 19% of total revenue was derived
through the use of this service in 1994, 1995 and 1996, respectively.
(i) Unaudited Interim Financial Information
In the opinion of management, the unaudited interim combined financial
statements as of and for the six months ended June 30, 1996 and 1997, reflect
all adjustments, consisting of only normal and recurring items, which are
necessary for a fair presentation of the results for the interim periods
presented. The results for the interim periods ended June 30, 1996 and 1997 are
not necessarily indicative of results to be expected for any other interim
period or for the full year.
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1995 and
1996:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1995 1996
----------- ------ ------
<S> <C> <C> <C>
Land.................................................. $2,875 $2,875
Building.............................................. 40 years 474 474
Broadcast facilities.................................. 8-20 years 1,501 1,572
Office equipment and other............................ 5-8 years 725 902
Construction in progress.............................. 36 24
------ ------
5,611 5,847
Accumulated depreciation.............................. 1,439 1,765
------ ------
$4,172 $4,082
====== ======
</TABLE>
(4) INTANGIBLE ASSETS
Intangible assets at December 31, 1995 and 1996 consist of broadcast
licenses which are being amortized over forty years and are presented net of
accumulated amortization of $15,148 and $18,450, respectively.
(5) INCOME TAXES
The Company's results of operations are included in the combined U.S.
federal and certain combined and separate state income tax returns of Viacom
International Inc.
The tax provisions and deferred tax liabilities presented have been
determined as if the Company were a stand-alone business filing separate tax
returns. Current tax liabilities are recorded through the equity account with
Viacom.
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
1994 1995 1996
------- ----- ------
<S> <C> <C> <C>
Current:
Federal................................................ $(1,289) $(551) $ 278
State and local........................................ (378) (162) 84
Deferred federal......................................... 1,597 1,412 1,332
------- ----- ------
$ (70) $ 699 $1,694
======= ===== ======
</TABLE>
F-97
<PAGE> 240
KYSR INC. AND KIBB INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the U.S. Federal statutory tax rate to the Company's
effective tax rate on earnings (loss) before income taxes is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----- ---- ----
<S> <C> <C> <C>
Statutory U.S. tax rate..................................... (35.0)% 35.0% 35.0%
State and local taxes, net of federal tax benefit........... 6.2 6.2 6.1
Other, net.................................................. (8.3) 0.9 0.4
----- ---- ----
Effective tax rate.......................................... (32.9)% 42.1% 41.5%
===== ==== ====
</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. These temporary differences are primarily the result
of fixed asset basis differences and bad debt expense. Deferred tax assets and
liabilities relating to state income taxes are not material.
(6) DEBT AND INTEREST COST
Viacom has not allocated any portion of its debt or related interest cost
to the Company, and no portion of Viacom's debt is specifically related to the
operations of the Company.
(7) RELATED PARTY TRANSACTIONS
Intercompany balances between the Company and Viacom resulting from normal
trade activity are reflected in Equity in the accompanying combined financial
statements (see note 8).
On January 25, 1990, KYSR, Inc., formerly KXEZ, Inc., issued an
intercompany demand note to Viacom in the amount of $66,400. The note bears
interest at 9.6% per year payable on the last day of each calendar year. The
principal and final interest payment are payable on January 25, 2000. However,
immediately prior to closing of the Proposed Transaction, all debts between the
Company and Viacom will be canceled. As such, the promissory note issued to
Viacom is reflected as an increase to equity and included in intercompany
activity in the amount of $66,400 at December 31, 1995 and 1996 (see note 8).
Viacom provides services for the Company in management, accounting and
financial reporting, human resources, information systems, legal, taxes and
other corporate services. The allocation of these expenses, which is generally
based on revenue dollars, is reflected in the accompanying combined financial
statements as corporate general and administrative expense. Management believes
that the method of allocation of overhead is reasonable.
Viacom has a noncontributory pension plan covering substantially all of its
employees, including the employees of the Company. Costs related to this plan
are allocated to the Company based on payroll dollars and are included in
station operating expenses. The Company recognized expense related to this plan
in the amounts of $70, $56 and $191 for 1994, 1995 and 1996, respectively. The
assets and the related benefit obligation of the plan will not be transferred to
the Company upon consummation of the Proposed Transaction, therefore, such
assets and obligations are not included in the notes to the Company's combined
financial statements.
Viacom utilizes a centralized cash management system. As a result, the
Company carries minimal cash. Disbursements are funded by the Parent upon demand
and cash receipts are transferred to the Parent daily.
The Company, from time to time, enters into transactions with companies
owned by or affiliated with Viacom. Generally, services rendered from such
related parties are charged to the Company at amounts which would be incurred in
transactions between unrelated entities.
F-98
<PAGE> 241
KYSR INC. AND KIBB INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(8) EQUITY
Equity represents Viacom's ownership interest in the recorded net assets of
the Company. All cash transactions and intercompany transactions flow through
the equity account. A summary of the activity is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of period..................... $122,706 $119,174 $114,328
Net earnings (loss)................................ (143) 960 2,390
Net intercompany activity.......................... (3,389) (5,806) (5,628)
-------- -------- --------
Balance at end of period........................... $119,174 $114,328 $111,090
======== ======== ========
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES
The Company has noncancelable operating leases, primarily for office space.
These 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 $377, $365
and $405 during 1994, 1995 and 1996, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1996
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- ------------------------
<S> <C> <C>
1997............................................................... $ 365
1998............................................................... 366
1999............................................................... 312
2000............................................................... 19
Thereafter......................................................... --
------
$1,062
======
</TABLE>
F-99
<PAGE> 242
INDEPENDENT AUDITORS' REPORT
---------------------------------------------
The Board of Directors
Chancellor Broadcasting Company:
We have audited the accompanying balance sheets of WLIT Inc. as of December
31, 1995 and 1996, and the related statements of earnings and cash flows for
each of the years in the three-year period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of WLIT Inc. as of December 31,
1995 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, 1996, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
March 14, 1997
F-100
<PAGE> 243
WLIT INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Accounts receivable, less allowance for doubtful accounts
of $79 in 1995 and $87 in 1996 and $110 in 1997........ $ 3,110 $ 3,627 $ 3,836
Prepaid expenses and other current assets................. 592 490 200
Deferred income taxes (note 5)............................ 37 44 44
------- ------- -------
Total current assets.............................. 3,739 4,161 4,080
Property and equipment, net (note 3)........................ 461 457 545
Intangible assets, net (note 4)............................. 16,958 16,415 16,143
------- ------- -------
$21,158 $21,033 $20,768
======= ======= =======
LIABILITIES AND EQUITY
Current liabilities -- accounts payable and accrued
expenses.................................................. $ 1,442 $ 1,195 $ 1,376
Deferred income taxes (note 5).............................. 58 53 53
Equity (note 8)............................................. 19,658 19,785 19,339
Commitment and contingencies (note 9).......................
------- ------- -------
$21,158 $21,033 $20,768
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-101
<PAGE> 244
WLIT INC.
STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross revenues................................ $14,367 $16,720 $18,294 $8,080 $10,035
Less agency commissions and national rep
fees..................................... 2,523 2,848 3,071 1,144 1,410
------- ------- ------- ------ -------
Net revenues........................ 11,844 13,872 15,223 6,936 8,625
------- ------- ------- ------ -------
Operating expenses:
Station operating expenses excluding
depreciation and amortization............ 6,555 6,977 7,508 3,839 4,221
Depreciation and amortization............... 655 653 659 327 340
Corporate general and administrative........ 478 630 479 274 172
------- ------- ------- ------ -------
Operating expenses....................... 7,688 8,260 8,646 4,440 4,733
------- ------- ------- ------ -------
Earnings before income taxes............. 4,156 5,612 6,577 2,496 3,892
Income tax expense (note 5)................... 1,804 2,359 2,728 1,048 1,280
------- ------- ------- ------ -------
Net earnings........................ $ 2,352 $ 3,253 $ 3,849 $1,448 $ 2,612
======= ======= ======= ====== =======
</TABLE>
See accompanying notes to financial statements.
F-102
<PAGE> 245
WLIT INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows provided by operating
activities:
Net earnings.......................... $ 2,352 $ 3,253 $ 3,849 $ 1,448 $ 2,612
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation....................... 114 114 116 55 68
Amortization of intangibles........ 541 539 543 272 272
Deferred income taxes.............. (13) 5 (8) -- --
Changes in certain assets and
liabilities:
Accounts receivable, net......... (73) (460) (517) (476) (209)
Prepaid expenses and other
current assets................ (101) (181) 98 (577) 295
Accounts payable and accrued
expenses...................... (384) 173 (247) 1,461 (1,542)
------- ------- ------- ------- -------
Net cash provided by operating
activities.................. 2,436 3,443 3,834 2,183 1,496
------- ------- ------- ------- -------
Cash flows used by investing
activities -- capital expenditures.... (180) (110) (112) (45) (156)
------- ------- ------- ------- -------
Cash flows used by financing
activities -- distributions to
Parent................................ (2,256) (3,333) (3,722) (2,138) (1,340)
------- ------- ------- ------- -------
Increase (decrease) in cash............. -- -- -- -- --
Cash at beginning of period............. -- -- -- -- --
------- ------- ------- ------- -------
Cash at end of period................... $ -- $ -- $ -- $ -- $ --
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-103
<PAGE> 246
WLIT INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying financial statements include the accounts of WLIT Inc.
(the "Company"). The Company owns and operates a commercial radio station in the
Chicago market, WLIT-FM, and is wholly owned by Viacom International Inc.
("Viacom" or "Parent"), a wholly owned subsidiary of Viacom, Inc.
On February 16, 1997, Viacom International Inc. entered into a stock
purchase agreement to sell all the issued and outstanding shares of capital
stock of WAXQ Inc. and Riverside Broadcasting Co., Inc. in the New York City
market, KYSR Inc. and KIBB Inc. in the Los Angeles market, Viacom Broadcasting
East Inc. and WMZQ Inc. in the Washington, DC market, WLIT Inc. in the Chicago
market and WDRQ Inc. in the Detroit market (collectively, the "Viacom Radio
Properties") to Evergreen Media Corporation ("Evergreen") for $1.075 billion in
cash ("Proposed Transaction"). The Proposed Transaction is expected to close
after the expiration or termination of the applicable waiting periods under the
HSR Act and approval by the Federal Communications Commission ("FCC").
Contemporaneous with this transaction, Evergreen entered into a joint purchase
agreement with Chancellor Broadcasting Company ("Chancellor"), under which
Chancellor agreed to acquire the Chicago, Detroit and Los Angeles Viacom Radio
Properties referred to above for $480 million from Evergreen or from Viacom
directly.
The accompanying financial statements reflect the carve-out historical
results of operations and financial position of WLIT Inc. These financial
statements are not necessarily indicative of the results that would have
occurred if the Company had been a separate stand-alone entity during the
periods presented.
The financial statements do not include Viacom's corporate assets or
liabilities not specifically identifiable to the Company. Corporate overhead
allocations have been included in the accompanying statements of earnings in
corporate general and administrative expense and station operating expenses.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) 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.
(b) Intangible Assets
Intangible assets consist primarily of broadcast licenses. The Company
amortizes such intangible assets using the straight-line method over 40 years.
The Company continually evaluates the propriety of the carrying amount of
intangible assets as well as the amortization period to determine whether
current events or circumstances warrant adjustments to the carrying value and/or
revised estimates of useful lives. This evaluation consists of the projection of
undiscounted operating income before depreciation, amortization, nonrecurring
charges and interest over the remaining amortization periods of the related
intangible assets. At this time, the Company believes that no significant
impairment of intangible assets has occurred and that no reduction of the
estimated useful lives is warranted.
(c) Barter Transactions
The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. An asset and
liability are recorded at the fair market value of the goods or services to be
received. Barter revenue is recorded and the liability relieved when commercials
are broadcast and barter expense is recorded and the asset relieved when goods
or services are received or used.
F-104
<PAGE> 247
WLIT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(d) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each 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.
(f) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
(g) Fair Value
The carrying amount of accounts receivable and accounts payable
approximates fair value because of the short maturity of these instruments.
(h) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of management, credit risk with respect to trade receivables
is limited due to the large number of diversified customers in the Company's
customer base. The Company performs ongoing credit evaluations of its customers
and believes that adequate allowances for any uncollectible trade receivables
are maintained. No one customer accounted for more than 10% of net revenues in
1994, 1995, or 1996.
(i) Unaudited Interim Financial Information
In the opinion of management, the unaudited interim combined financial
statements as of and for the six months ended June 30, 1996 and 1997, reflect
all adjustments, consisting of only normal and recurring items, which are
necessary for a fair presentation of the results for the interim periods
presented. The results for the interim periods ended June 30, 1996 and 1997 are
not necessarily indicative of results to be expected for any other interim
period or for the full year.
F-105
<PAGE> 248
WLIT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1995 and
1996:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1995 1996
----------- ------ ------
<S> <C> <C> <C>
Broadcast facilities.................................. 8-20 years $1,116 $1,141
Office equipment and other............................ 5-8 years 791 868
Construction in progress.............................. 13 13
------ ------
1,920 2,022
Accumulated depreciation.............................. 1,459 1,565
------ ------
$ 461 $ 457
====== ======
</TABLE>
(4) INTANGIBLE ASSETS
Intangible assets at December 31, 1995 and 1996 consist of broadcast
licenses which are being amortized over forty years and are presented net of
accumulated amortization of $5,585 and $6,128, respectively.
(5) INCOME TAXES
The Company's results of operations are included in the U.S. federal and
certain combined and separate state income tax returns of Viacom International
Inc.
The tax provisions and deferred tax liabilities presented have been
determined as if the Company were a stand-alone business filing separate tax
returns. Current tax liabilities are recorded through the equity account with
Viacom.
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Current:
Federal................................................ $1,588 $2,058 $2,391
State and local........................................ 229 296 345
Deferred federal......................................... (13) 5 (8)
------ ------ ------
$1,804 $2,359 $2,728
====== ====== ======
</TABLE>
A reconciliation of the U.S. Federal Statutory tax rate to the Company's
effective tax rate on earnings before income taxes is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. tax rate..................................... 35.0% 35.0% 35.0%
Amortization of intangibles................................. 4.7 3.4 2.9
State and local taxes, net of federal tax benefit........... 3.6 3.4 3.4
Other, net.................................................. 0.2 0.2 0.2
---- ---- ----
Effective tax rate................................ 43.5% 42.0% 41.5%
==== ==== ====
</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. These temporary differences are primarily the result
of fixed asset basis differences and bad debt expense. Deferred tax assets and
liabilities relating to state income taxes are not material.
F-106
<PAGE> 249
WLIT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) DEBT AND INTEREST COST
Viacom has not allocated any portion of its debt or related interest cost
to the Company, and no portion of Viacom's debt is specifically related to the
operations of the Company. Accordingly, the Company's financial statements
include no charges for interest.
(7) RELATED PARTY TRANSACTIONS
Intercompany balances between the Company and Viacom resulting from normal
trade activity are reflected in Equity in the accompanying financial statements
(see note 8).
Viacom provides services for the Company in management, accounting and
financial reporting, human resources, information systems, legal, tax and other
corporate services. The allocation of these expenses, which is generally based
on revenue dollars, is reflected in the accompanying financial statements as
corporate general and administrative expense. Management believes that the
method of allocation of corporate overhead is reasonable.
Viacom has a noncontributory pension plan covering substantially all of its
employees, including the employees of the Company. Costs related to this plan
are allocated to the Company based on payroll dollars. The Company recognized
expense related to this plan in the amounts of $67, $46 and $126 for 1994, 1995
and 1996, respectively. The assets and the related benefit obligation of the
plan will not be transferred to the Company upon consummation of the Proposed
Transaction, therefore, such assets and obligations are not included in the
notes to the Company's financial statements.
Viacom utilizes a centralized cash management system. As a result, the
Company carries minimal cash. Disbursements are funded by the Parent upon demand
and cash receipts are transferred to the Parent daily.
The Company, from time to time, enters into transactions with companies
owned by or affiliated with Viacom. Generally, services received from such
related parties are charged to the Company at amounts which would be incurred in
transactions between unrelated entities.
(8) EQUITY
Equity represents Viacom's ownership interest in the recorded net assets of
the Company. All cash transactions and intercompany transactions flow through
the equity account. A summary of the activity is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of period........................ $19,642 $19,738 $19,658
Net earnings.......................................... 2,352 3,253 3,849
Net intercompany activity............................. (2,256) (3,333) (3,722)
------- ------- -------
Balance at end of period.............................. $19,738 $19,658 $19,785
======= ======= =======
</TABLE>
F-107
<PAGE> 250
WLIT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(9) COMMITMENTS AND CONTINGENCIES
The Company has noncancelable operating leases, primarily for office space.
These leases generally contain renewal options for periods ranging from 1 to 10
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 $319, $337 and
$327 during 1994, 1995 and 1996, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1996
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- ------------------------
<S> <C> <C>
1997............................................................... $ 266
1998............................................................... 291
1999............................................................... 298
2000............................................................... 287
2001............................................................... 296
Thereafter......................................................... 103
------
$1,541
======
</TABLE>
F-108
<PAGE> 251
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Colfax Communications, Inc. Radio Group:
We have audited the accompanying combined balance sheets of the Colfax
Communications, Inc. Radio Group (the "Company") as of December 31, 1996, 1995,
and 1994, and the related combined statements of income (loss), changes in
partners' equity and cash flows for each of the three years in the period ended
December 31, 1996. These combined financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an 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 January 1997, substantially all of the assets and liabilities of the
Company were sold.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Colfax
Communications, Inc. Radio Group as of December 31, 1996, 1995, and 1994, and
the results of its operations and its cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
Washington, D.C.
March 31, 1997
F-109
<PAGE> 252
COLFAX COMMUNICATIONS, INC. RADIO GROUP
COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Current assets:
Cash............................................. $ 1,718,589 $ 682,672 $ 216,414
Accounts receivable, net of allowance for
doubtful accounts of $710,813, $441,889, and
$238,801, respectively........................ 15,514,187 7,626,579 8,978,881
Prepaid expenses and other current assets........ 520,358 286,774 343,441
------------ ----------- -----------
Total current assets..................... 17,753,134 8,596,025 9,538,736
Property and equipment at cost, net of
depreciation..................................... 14,508,097 8,675,724 9,608,603
Intangibles and other noncurrent assets at cost,
net of amortization.............................. 147,579,599 32,383,587 37,653,803
------------ ----------- -----------
Total assets............................. $179,840,830 $49,655,336 $56,801,142
============ =========== ===========
Liabilities:
Accounts payable and accrued expenses............ $ 5,116,890 $ 3,224,139 $ 3,883,242
Current maturities of long-term debt............. -- -- 900,000
------------ ----------- -----------
Total current liabilities................ 5,116,890 3,224,139 4,783,242
Long-term debt................................... 55,650,000 39,225,000 7,100,000
------------ ----------- -----------
Total liabilities........................ 60,766,890 42,449,139 11,883,242
------------ ----------- -----------
Commitments (Note 8):
Partners' equity:
Radio Acquisition Associates..................... (1,141,558) (2,783,226) (3,121,671)
Equity Group Holdings............................ 119,013,080 9,888,902 47,558,478
Colfax Communications, Inc....................... 1,202,418 100,521 481,093
Class B Limited Partners......................... -- -- --
------------ ----------- -----------
Total partners' equity................... 119,073,940 7,206,197 44,917,900
------------ ----------- -----------
Total liabilities and partners' equity... $179,840,830 $49,655,336 $56,801,142
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-110
<PAGE> 253
COLFAX COMMUNICATIONS, INC. RADIO GROUP
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Advertising revenues:
Local sponsors.................................... $37,496,454 $23,425,588 $24,147,363
National sponsors................................. 12,885,713 9,151,724 8,221,228
Other............................................. 2,518,200 1,910,483 2,090,737
----------- ----------- -----------
Gross advertising revenues................ 52,900,367 34,487,795 34,459,328
Less -- Commissions............................... (6,785,322) (4,345,062) (4,283,386)
----------- ----------- -----------
Net advertising revenues.................. 46,115,045 30,142,733 30,175,942
----------- ----------- -----------
Operating expenses:
Programming....................................... 7,675,793 5,461,691 9,604,067
Sales and advertising............................. 14,507,662 11,360,597 10,885,717
General and administrative........................ 5,793,377 4,332,286 3,651,832
Engineering....................................... 1,260,447 1,014,375 1,084,282
Depreciation and amortization..................... 4,617,958 6,505,492 7,599,901
----------- ----------- -----------
Total operating expenses.................. 33,855,237 28,674,441 32,825,799
----------- ----------- -----------
Income (loss) from operations............. 12,259,808 1,468,292 (2,649,857)
Interest expense.................................... 4,368,669 655,795 531,387
Loss on sale of fixed assets........................ -- 770,689 --
Other expense (income).............................. (184,289) -- 75,364
----------- ----------- -----------
Net income (loss)......................... $ 8,075,428 $ 41,808 $(3,256,608)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-111
<PAGE> 254
COLFAX COMMUNICATIONS, INC. RADIO GROUP
COMBINED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
RADIO EQUITY CLASS B
ACQUISITION COLFAX GROUP LIMITED
ASSOCIATES COMM., INC. HOLDINGS PARTNERS TOTAL
----------- ----------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1993..................... $(2,464,398) $ 528,938 $ 52,305,936 $-- $ 50,370,476
Capital contributions
from partners......... 368,281 60,023 5,949,744 -- 6,378,048
Capital distributions to
partners.............. (1,678,638) (68,618) (6,826,760) -- (8,574,016)
Net income (loss)........ 653,084 (39,250) (3,870,442) -- (3,256,608)
----------- ---------- ------------ --- ------------
Balance, December 31,
1994..................... (3,121,671) 481,093 47,558,478 -- 44,917,900
Capital contributions
from partners......... -- 5,735 567,746 -- 573,481
Capital distributions to
partners.............. (1,031,464) (372,709) (36,922,819) -- (38,326,992)
Net income (loss)........ 1,369,909 (13,598) (1,314,503) -- 41,808
----------- ---------- ------------ --- ------------
Balance, December 31,
1995..................... (2,783,226) 100,521 9,888,902 -- 7,206,197
Capital contributions
from partners......... 5,104 1,130,725 111,941,654 -- 113,077,483
Capital distributions to
partners.............. (981,106) (82,845) (8,221,217) -- (9,285,168)
Net income (loss)........ 2,617,670 54,017 5,403,741 -- 8,075,428
----------- ---------- ------------ --- ------------
Balance, December 31,
1996..................... $(1,141,558) $1,202,418 $119,013,080 $-- $119,073,940
=========== ========== ============ === ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-112
<PAGE> 255
COLFAX COMMUNICATIONS, INC. RADIO GROUP
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................. $ 8,075,428 $ 41,808 $(3,256,608)
Adjustments to reconcile net loss to net cash
used in operating activities --
Depreciation and amortization............... 4,617,958 6,505,492 7,599,901
Loss on asset disposal...................... -- 770,689 57,398
Restructuring charge........................ -- 737,729 --
Change in assets and liabilities:
(Increase) decrease in accounts
receivable............................. (7,888,416) 1,352,302 (1,664,323)
(Increase) decrease in prepaid expenses
and other current assets............... (233,584) 56,667 170,619
Increase (decrease) in accounts payable
and accrued expenses................... 1,892,751 (1,396,832) 708,448
------------- ------------ -----------
Net cash provided by operating
activities........................... 6,464,137 8,067,855 3,615,435
------------- ------------ -----------
Cash flows from investing activities:
Cash paid for acquisition of intangibles and
other noncurrent assets..................... (126,017,951) (363,174) (12,944)
Payments for additions to property and
equipment................................... (5,907,584) (823,737) (968,929)
Disposal of intangible assets.................. 6,280,000 -- --
Disposal of fixed assets....................... -- 113,825 --
------------- ------------ -----------
Net cash used in investing
activities........................... (125,645,535) (1,073,086) (981,873)
------------- ------------ -----------
Cash flows from financing activities:
Repayment of note payable...................... (5,800,000) (8,000,000) (800,000)
Loan proceeds.................................. 22,225,000 39,225,000 --
Capital contributions from partners............ 113,077,483 573,481 6,378,048
Capital distributions to partners.............. (9,285,168) (38,326,992) (8,190,101)
------------- ------------ -----------
Net cash provided by (used in)
financing activities................. 120,217,315 (6,528,511) (2,612,053)
------------- ------------ -----------
Net increase (decrease) in cash.................. 1,035,917 466,258 21,509
Cash, beginning of period........................ 682,672 216,414 194,905
------------- ------------ -----------
Cash, end of period.............................. $ 1,718,589 $ 682,672 $ 216,414
============= ============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest......... $ 4,391,300 $ 615,900 $ 514,213
============= ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-113
<PAGE> 256
COLFAX COMMUNICATIONS, INC. RADIO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996, 1995, AND 1994
1. BASIS OF PRESENTATION:
The accompanying combined financial statements include the radio station
holdings of Colfax Communications, Inc. ("Colfax"), a Maryland Corporation.
Three of the stations serve the Washington, D.C., market: WGMS-FM (classical
format), WBIG-FM (oldies format), and WTEM(AM) (all-sports format). Two
stations, WBOB-FM (country format) and KQQL(FM) (oldies format), serve the
Minneapolis-St. Paul market. Five of the stations serve the Phoenix market:
KOOL-FM (oldies format), KOY(AM) (nostalgia format), KZON-FM (alternative
format), KISO(AM) (urban adult contemporary format), and KYOT-FM (new adult
contemporary format). Two stations serve the Milwaukee market: WMIL-FM (country
format) and WOKY(AM) (adult standard format). Three stations serve the Boise
market: KIDO(AM) (news/talk format), KLTB(FM) (oldies format), and KARO(FM)
(class rock format). All stations are owned by entities under the common control
of Colfax and its affiliates.
2. DESCRIPTION OF COLFAX COMMUNICATIONS, INC., RADIO GROUP:
Classical Acquisition Limited Partnership
Classical Acquisition Limited Partnership ("CALP") is a Maryland limited
partnership formed to acquire and operate radio stations WGMS(AM) (currently
WTEM(AM)) and WGMS-FM. Radio Acquisition Associates Limited Partnership, a
Maryland limited partnership, had a 98.04 percent general partner interest and
Equity Group Holdings, a District of Columbia general partnership, had a 1.96
percent limited partner interest in CALP prior to the admission of the Class B
Limited Partners as discussed below. Radio Acquisition Associates Limited
Partnership has Colfax as a 1 percent general partner and Equity Group Holdings
as a 99 percent limited partner.
Certain Class B Limited Partners were admitted to the partnership on
January 1, 1993 and on January 1, 1995. The Class B Limited Partners have a
13.25 percent interest in CALP and Equity Group Holdings' limited partnership
interest in CALP was reduced to 1.813 percent effective January 1, 1993. Radio
Acquisition Associates' Limited Partnership general partnership interest was
reduced to 90.687 percent and 84.937 percent effective January 1, 1993 and
January 1, 1995, respectively.
Radio 570 Limited Partnership
Radio 570 Limited Partnership ("Radio 570") is a Maryland limited
partnership formed on December 10, 1991, to operate radio station WTEM-AM
(formerly WGMS-AM). Radio 570 was formed by Colfax as the 1 percent general
partner and Equity Group Holdings as the 99 percent limited partner. WTEM began
broadcasting on May 24, 1992.
Effective January 1, 1993, certain Class B Limited Partners were admitted
to the partnership. On September 15, 1995, a Class B Limited Partner was
redeemed of his partnership interest. As of December 31, 1996 and 1995, the
Class B Limited Partners had a 9.25 percent interest and Equity Group Holdings
had an 89.75 percent Class A Limited Partnership interest.
Radio 100 Limited Partnership
Radio 100 Limited Partnership ("Radio 100") was formed on August 11, 1992,
to acquire and operate radio stations. Radio 100 was formed by Colfax as the 1
percent general partner and Equity Group Holdings as the 99 percent limited
partner.
In 1993, Radio 100 completed its acquisition of two radio stations in
Minnesota for $25,500,000. WBOB-FM (formerly WCTS-FM) and KQQL(FM) began on-air
operations under Radio 100 ownership on May 7, 1993, and February 18, 1993,
respectively.
F-114
<PAGE> 257
COLFAX COMMUNICATIONS, INC. RADIO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Effective January 1, 1993, certain Class B Limited Partners were admitted
to the partnership. The Class B Limited Partners have a 10.25 percent interest
and the Equity Group Holdings Class A Limited Partnership interest was reduced
to 88.75 percent.
Radio 100 of Maryland Limited Partnership
Radio 100 of Maryland Limited Partnership ("Radio 100 of Maryland") was
formed on December 2, 1992 to acquire and operate radio stations. Radio 100 of
Maryland was formed by Colfax as the 1 percent general partner and Equity Group
Holdings as the 99 percent limited partner.
On June 3, 1993, Radio 100 of Maryland acquired WBIG-FM (formerly WJZE-FM)
in Washington, D.C. for $19,500,000.
Effective January 1, 1993, certain Class B Limited Partners were admitted
to the partnership. On September 15, 1995, a Class B Limited Partner was
redeemed of his partnership interest. On October 1, 1995, a Class B Limited
Partner was admitted to the partnership. As of December 31, 1996 and 1995, the
Class B Limited Partners had an 11.25 percent interest and Equity Group Holdings
had an 87.75 percent Class A Limited Partnership interest.
Radio 94 of Phoenix Limited Partnership
Radio 94 of Phoenix Limited Partnership ("Radio 94") was formed on January
3, 1996, to acquire and operate radio stations. Radio 94 was formed by Colfax as
the 1 percent general partner and Equity Group Holdings as the 99 percent
limited partner. On April 1, 1996, Radio 94 acquired KOOL(AM) and KOOL-FM in
Phoenix, Arizona for $35,000,000. Effective April 5, 1996, certain Class B
Limited Partners were admitted to the partnership. The Class B Limited Partners
have an 8.25 percent interest and the Equity Group Holdings Class A Limited
Partnership interest was reduced to 90.75 percent. On October 4, 1996, Radio 94
sold KOOL(AM) to Salem Media of Arizona, Inc.
Radio 95 of Phoenix Limited Partnership
Radio 95 of Phoenix Limited Partnership ("Radio 95") was formed on May 3,
1996, to acquire and operate radio stations. Radio 95 was formed by Colfax as
the 1 percent general partner and Equity Group Holdings as the 99 percent
limited partner. On September 12, 1996, Radio 95 acquired KYOT-FM, KZON-FM,
KOY(AM), and KISO(AM), each in Phoenix, Arizona; KIDO(AM) and KLTB(FM), each in
Boise, Idaho; KARO(FM) in Caldwell, Idaho; WMIL-FM in Waukesha, Wisconsin; and
WOKY(AM) in Milwaukee, Wisconsin, for $95,000,000.
F-115
<PAGE> 258
COLFAX COMMUNICATIONS, INC. RADIO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Sale of Stations
On August 24, 1996, Chancellor Radio Broadcasting Company ("Chancellor"), a
Delaware Corporation, agreed to purchase substantially all of the assets of
CALP, Radio 570, Radio 100, Radio 100 of Maryland, Radio 94 (with the exception
of KOOL(AM)), and Radio 95 (with the exception of KIDO(AM), KLTB(FM), and
KARO(FM)) for total consideration of $365,000,000 plus the net working capital
of the stations. The transaction closed on January 23, 1997. The agreement
stipulates that the purchase price for the assets be allocated among the limited
partnerships as follows:
<TABLE>
<CAPTION>
<S> <C>
CALP........................................................ $ 50,000,000
Radio 570................................................... 21,000,000
Radio 100................................................... 85,000,000
Radio 100 of Maryland....................................... 90,000,000
Radio 94.................................................... 30,000,000
Radio 95.................................................... 89,000,000
------------
$365,000,000
============
</TABLE>
On October 28, 1996, Jacor Broadcasting of Idaho, Inc., an Ohio
corporation, entered into an agreement to purchase substantially all of the
assets of radio stations KIDO(AM), KLTB(FM), and KARO(FM) for $11,000,000. The
transaction closed on January 31, 1997.
Partnership Allocations
The partnerships distribute cash from operations and allocate net profits
or losses to the partners, in general, in accordance with their stated interests
except that no partner shall receive any distribution from a partnership until
such time as the net invested capital of the general partner and Class A Limited
Partner have been distributed, along with a cumulative priority return on the
average net invested capital at an annual rate equal to the prime rate plus one
quarter of one percent compounded monthly.
In accordance with the Company's debt agreement (described below)
distributions to partners may be permitted on a quarterly basis if certain
requirements are met.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Accounting
The accompanying financial statements are prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles.
Barter Transactions
The partnerships enter into barter transactions in which they provide
on-air advertising in exchange for goods and services. Revenues and expenses
from barter transactions are presented in the accompanying statement of revenues
and expenses based on the estimated fair market value of the goods or services
received. Barter revenue approximated $1,925,000, $1,590,000, and $1,870,000 for
the years ended December 31, 1996, 1995, and 1994, respectively; while barter
expense approximated $1,763,000, $1,486,000, and $1,520,000 for the years ended
December 31, 1996, 1995, and 1994, respectively.
Income Taxes
Provision for Federal and state income taxes has not been made in the
accompanying financial statements since the partnerships do not pay Federal and
state income taxes but rather allocate profits and losses to the partners for
inclusion in their respective income tax returns.
F-116
<PAGE> 259
COLFAX COMMUNICATIONS, INC. RADIO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Buildings and Leasehold Improvements
Buildings and leasehold improvements are recorded at cost or appraised
value at acquisition. Depreciation is recorded using the straight-line method
over 31.5 or 40 years as prescribed by the Internal Revenue Code.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are recorded at cost or appraised value
at acquisition. Depreciation is recorded using the straight-line method over the
estimated useful life of the assets, which is typically 5 to 7 years.
Intangible Assets
Intangible assets are recorded at cost or appraised value at acquisition.
Amortization is recorded over their useful lives. The estimated useful lives of
intangible assets as of December 31, 1996, are as follows:
<TABLE>
<CAPTION>
USEFUL LIFE
-----------
<S> <C>
FCC Licenses................................................ 7-25 years
Covenants Not to Compete.................................... 3 years
Employment Agreements....................................... 2 years
Organizational Costs........................................ 5 years
Start-up Costs.............................................. 5 years
</TABLE>
Land
Certain partners have contributed to Radio 570 a parcel of land in
Germantown, Maryland which is being used as the site for a new array of
broadcasting towers. The land has been recorded at its original purchase price
plus costs related to preparing the land for its intended use.
Radio 100 of Maryland acquired a parcel of land and property in Washington,
D.C., in connection with the acquisition of WJZE-FM. This parcel of land was
recorded at its appraised value at acquisition. This land was sold in February
1995.
Radio 100 acquired a parcel of land in Nowthen, Minnesota, through the
purchase of KQQL-FM. This parcel of land was recorded at its appraised value at
acquisition.
Radio 95 acquired various parcels of land located in Phoenix, Milwaukee,
and Boise in connection with its purchase of nine stations during 1996. These
parcels of land were recorded at their estimated market value at acquisition.
Estimates
The preparation of financial statements 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.
Fair Value of Financial Instruments
In 1995 the Company adopted Statement of Financial Accounting Standard
("SFAS") No. 107, "Disclosure about Fair Value of Financial Instruments," which
requires disclosures of fair value information about financial instruments,
whether or not recognized in the balance sheet.
F-117
<PAGE> 260
COLFAX COMMUNICATIONS, INC. RADIO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying amount reported in the balance sheets for cash, accounts
receivable, accounts payable and accrued liabilities, approximate their fair
value due to the immediate or short-term maturity of such instruments. The
carrying amount reported for long-term debt approximates fair value due to the
debt being priced at floating rates (see Note 7 for additional information).
4. PROPERTY AND EQUIPMENT:
The components of property and equipment at December 31, 1996 and 1995, are
summarized below:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Land.................................... $ 3,719,572 $ 1,901,663 $ 2,233,341
Buildings............................... 1,372,161 26,453 604,927
Construction in progress................ 27,660 27,232 201,404
Furniture, fixtures and equipment....... 11,323,175 8,520,853 7,690,841
Leasehold improvements.................. 835,407 816,031 522,806
----------- ----------- -----------
17,277,975 11,292,232 11,253,319
Less -- Accumulated depreciation........ (2,769,878) (2,616,508) (1,644,716)
----------- ----------- -----------
$14,508,097 $ 8,675,724 $ 9,608,603
=========== =========== ===========
</TABLE>
5. FCC LICENSES AND OTHER NONCURRENT ASSETS:
The components of FCC licenses and other noncurrent assets at December 31,
1996 and 1995, are summarized below:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
FCC licenses............................ $163,988,330 $ 39,505,773 $ 39,505,773
Covenants not to compete................ 1,931,834 8,493,147 8,493,147
Start-up and organization costs......... 2,489,973 2,132,587 2,153,036
Other................................... 1,376,763 958,245 1,891,395
------------ ------------ ------------
169,786,900 51,089,752 52,043,351
Less -- Accumulated amortization........ (22,207,301) (18,706,165) (14,389,548)
------------ ------------ ------------
$147,579,599 $ 32,383,587 $ 37,653,803
============ ============ ============
</TABLE>
6. RELATED-PARTY TRANSACTIONS:
Each partnership is involved in certain transactions with other
partnerships in the radio group related to sharing of services and purchasing.
These transactions are settled on a current basis through adjustments to
partners' equity accounts.
On January 18, 1995, CALP and Radio 100 of Maryland each entered into a 10
year agreement to lease tower space from Colfax Towers, Inc. The annual rental
payment for CALP equaled $31,200 and $30,000 for the years ended December 31,
1996 and 1995, respectively. The annual rental payment for Radio 100 of Maryland
equaled $37,200 and $36,000 for the years ended December 31, 1996 and 1995,
respectively. Colfax Towers, Inc., is owned by the shareholders of Colfax
Communications, Inc.
Employees of Colfax perform activities on behalf of and oversee the
operations of the radio stations included in the radio group. Colfax does not
charge any fees to the radio stations for the performance of such services.
Corporate expenses of $1,240,253, $1,354,296, and $1,144,082 related to those
services are not included in the financial statements of the radio group for the
years ending December 31, 1996, 1995, and 1994, respectively. These corporate
expenses were funded directly by the owners of Colfax Communications, Inc.
F-118
<PAGE> 261
COLFAX COMMUNICATIONS, INC. RADIO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT:
On December 27, 1995, CALP, Radio 570, Radio 100, and Radio 100 of Maryland
entered into a $40 million revolving loan agreement. On April 2, 1996, under an
amendment to the loan agreement, CALP, Radio 570, Radio 100, Radio 100 of
Maryland, and Radio 94 (collectively, the "Borrowers") increased the amount
available under the revolving loan agreement to $60 million. At December 31,
1996, $55,650,000 was outstanding under this agreement. The proceeds were
allocated to each borrower on the basis of each station's capital account as
follows:
<TABLE>
<S> <C>
CALP........................................................ $ 5,702,360
Radio 570................................................... 4,156,587
Radio 100................................................... 16,423,860
Radio 100 of Maryland....................................... 9,214,544
Radio 94.................................................... 20,152,649
-----------
$55,650,000
===========
</TABLE>
The initial proceeds were used to repay the indebtedness of CALP to make
certain permitted distributions to partners of the Borrowers, and for working
capital purposes in the operations of the Borrowers. Borrowings under this
agreement bear interest at floating rates equal to prime and/or LIBOR (as
defined in the loan agreement) plus an applicable margin determined by a
leverage ratio. The expiration date of the loan agreement is December 31, 2002.
Under the loan agreement, the Borrowers are required to maintain a specific
leverage ratio and certain ratios pertaining to cash flow coverage.
In connection with the sale of the stations (discussed in Note 2), the debt
was repaid in full in January 1997.
8. COMMITMENTS:
The Radio Group has entered into various contracts for exclusive radio
broadcasting rights and other programming. In addition, the partnerships lease
office space and have entered into various service contracts, including certain
personal service contracts. These broadcasting rights, leases and service
contracts expire over periods ranging from 1997 to 2012. The minimum future
commitments under these agreements, leases and service contracts are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 3,766,028
1998........................................................ 2,826,433
1999........................................................ 1,178,594
2000........................................................ 1,140,345
2001........................................................ 646,234
Thereafter.................................................. 2,077,616
-----------
$11,635,250
===========
</TABLE>
9. RESTRUCTURING CHARGES:
During 1995, the Radio Group recorded restructuring costs of $737,729 at
certain radio stations. These costs included severance and salary payments to
terminated employees of $357,563, costs related to hiring a new general manager
at one of the radio stations of $135,519 and costs related to a loss on space
vacated by one of the radio stations of $244,647.
F-119
<PAGE> 262
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL IN CONNECTION WITH THE EXCHANGE OFFER
COVERED BY THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL. IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS AND THE ACCOMPANYING LETTER OF
TRANSMITTAL DO NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER
TO BUY, THE EXCHANGE NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN
ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................. v
Prospectus Summary..................... 1
Risk Factors........................... 14
The Exchange Offer..................... 23
Use of Proceeds........................ 32
Capitalization......................... 32
Selected Consolidated Historical
Financial Data....................... 34
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 36
Business............................... 41
Management and Board of Directors...... 61
Security Ownership of Certain
Beneficial
Owners and Management................ 72
Certain Relationships and Related
Transactions......................... 74
Description of the Exchange Notes...... 75
Book-Entry; Delivery and Form.......... 97
Description of Certain Indebtedness.... 98
Description of Capital Stock........... 105
Material United States Federal Income
Tax Considerations................... 116
Plan of Distribution................... 117
Legal Matters.......................... 117
Experts................................ 118
Pro Forma Financial Information........ P-1
Index to Financial Statements.......... F-1
</TABLE>
======================================================
======================================================
CHANCELLOR MEDIA CORPORATION OF
LOS ANGELES
OFFER TO EXCHANGE
8 1/8% SENIOR SUBORDINATED
NOTES DUE 2007, SERIES B
FOR ALL OUTSTANDING 8 1/8%
SENIOR SUBORDINATED NOTES
DUE 2007, SERIES A
---------------------------
PROSPECTUS
---------------------------
MAY 8, 1998
======================================================
<PAGE> 263
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law empowers a Delaware
corporation to indemnify any person who is, or is threatened to be made, a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of such corporation) by reason of the fact that such person is or was
an officer or director of such corporation, or is or was serving at the request
of such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided that he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. A Delaware corporation may indemnify officers
and directors in an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation. Where an officer
or director is successful on the merits or otherwise in the defense of any
action referred to above, the corporation must indemnify him against the
expenses which he actually and reasonably incurred in connection therewith.
The Company's Certificate of Incorporation provides that no director of the
Company shall be liable to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit.
The Company's Bylaws provide that the Company shall indemnify every person
who is or was a party or is or was threatened to be made a party to any action
suit, or proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that he is or was a director or officer of the Corporation
or, while a director or officer or employee of the Corporation, is or was
serving at the request of the Corporation as a director, officer, employee,
agent or trustee of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses (including counsel
fees), judgments, fines and amounts paid in settlement actually and reasonable
incurred by him in connection with such action, suit or proceeding, to the full
extent permitted by applicable law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
A. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1** -- Securities Purchase Agreement, dated as of December 22,
1997, by and among Chancellor Media Corporation of Los
Angeles, BT Alex. Brown, Credit Suisse First Boston,
Goldman, Sachs & Co., Morgan Stanley Dean Witter and
Salomon Smith Barney.
2.11(h) -- Agreement and Plan of Merger by and among Pyramid
Communications, Inc., Evergreen Media Corporation and
Evergreen Media/Pyramid Corporation dated as of July 14,
1995 (see table of contents for list of omitted exhibits
and schedules).
2.11A(i) -- Amendment to Plan and Agreement of Merger by and among
Pyramid Communications, Inc., Evergreen Media Corporation
and Evergreen Media/Pyramid Corporation dated September
7, 1995.
</TABLE>
II-1
<PAGE> 264
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.11B(i) -- Amendment to Plan and Agreement of Merger by and among
Pyramid Communications, Inc., Evergreen Media Corporation
and Evergreen Media/Pyramid Corporation dated January 11,
1996.
2.12(j) -- Purchase Agreement between Fairbanks Communications, Inc.
and Evergreen Media Corporation dated October 12, 1995
(see table of contents for list of omitted exhibits and
schedules).
2.13(n) -- Option Agreement dated as of January 9, 1996 between
Chancellor Broadcasting Company and Evergreen Media
Corporation (including Form of Advertising Brokerage
Agreement and Form of Asset Purchase Agreement).
2.14(o) -- Asset Purchase Agreement dated April 4, 1996 between
American Radio Systems Corporation and Evergreen Media
Corporation of Buffalo (see table of contents for list of
omitted exhibits and schedules).
2.15(o) -- Asset Purchase Agreement dated April 11, 1996 between
Mercury Radio Communications, L.P. and Evergreen Media
Corporation of Los Angeles, Evergreen Media/Pyramid
Holdings Corporation, WHTT (AM) License Corp. and WHTT
(FM) License Corp. (see table of contents for list of
omitted exhibits and schedules).
2.16(o) -- Asset Purchase Agreement dated April 19, 1996 between
Crescent Communications L.P. and Evergreen Media
Corporation of Los Angeles (see table of contents for
list of omitted exhibits and schedules).
2.17(p) -- Asset Purchase Agreement dated June 13, 1996 between
Evergreen Media Corporation of Los Angeles and Greater
Washington Radio, Inc. (see table of contents for list of
omitted exhibits and schedules).
2.18(p) -- Asset Exchange Agreement dated June 13, 1996 among
Evergreen Media Corporation of Los Angeles, Evergreen
Media Corporation of the Bay State, WKLB License Corp.,
Greater Media Radio, Inc. and Greater Washington Radio,
Inc. (see table of contents for list of omitted exhibits
and schedules).
2.19(p) -- Purchase Agreement dated June 27, 1996 between WEDR,
Inc., and Evergreen Media Corporation of Los Angeles.
(See table of contents for list of omitted schedules)
2.20(p) -- Time Brokerage Agreement dated July 10, 1996 by and
between Evergreen Media Corporation of Detroit, as
Licensee, and Kidstar Interactive Media Incorporated, as
Time Broker.
2.21(p) -- Asset Purchase Agreement dated July 15, 1996 by and among
Century Chicago Broadcasting L.P., Century Broadcasting
Corporation, Evergreen Media Corporation of Los Angeles
and Evergreen Media Corporation of Chicago.
2.22(p) -- Asset Purchase Agreement dated August 12, 1996 by and
among Chancellor Broadcasting Company, Shamrock
Broadcasting, Inc. and Evergreen Media Corporation of the
Great Lakes.
2.23(p) -- Asset Purchase Agreement dated as of August 12, 1996
between Secret Communications Limited Partnership and
Evergreen Media Corporation of Los Angeles (WQRS-FM).
(See table of contents for list of omitted exhibits and
schedules)
2.24(p) -- Asset Purchase Agreement dated as of August 12, 1996
between Secret Communications Limited Partnership and
Evergreen Media Corporation of Los Angeles. (See table of
contents for list of omitted schedules)
2.25(q) -- Letter of intent dated August 27, 1996 between EZ
Communications, Inc. and Evergreen Media Corporation.
</TABLE>
II-2
<PAGE> 265
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.26(q) -- Asset Purchase Agreement dated September 19, 1996 between
Beasley-FM Acquisition Corp., WDAS License Limited
Partnership and Evergreen Media Corporation of Los
Angeles.
2.27(q) -- Asset Purchase Agreement dated September 19, 1996 between
The Brown Organization and Evergreen Media Corporation of
Los Angeles.
2.28(r) -- Stock Purchase Agreement by and between Viacom
International Inc. and Evergreen Media Corporation of Los
Angeles, dated February 16, 1997 (See table of contents
for omitted schedules and exhibits).
2.29(r) -- Agreement and Plan of Merger, by and among Evergreen
Media Corporation, Chancellor Broadcasting Company and
Chancellor Radio Broadcasting Company, dated as of
February 19, 1997.
2.30(r) -- Stockholders Agreement, by and among Chancellor
Broadcasting Company, Evergreen Media Corporation, Scott
K. Ginsburg (individually and as custodian for certain
shares held by his children), HM2/Chancellor, L.P.,
Hicks, Muse, Tate & First Equity Fund II, L.P., HM2/HMW,
L.P., The Chancellor Business Trust, HM2/HMD Sacramento
GP, L.P., Thomas O. Hicks, as Trustee of the William Cree
Hicks 1992 Irrevocable Trust, Thomas O. Hicks, as Trustee
of the Catherine Forgave Hicks 1993 Irrevocable Trust,
Thomas O. Hicks, as Trustee of the John Alexander Hicks
1984 Trust, Thomas O. Hicks, as Trustee of the Mack
Hardin Hicks 1984 Trust, Thomas O. Hicks, as Trustee of
Robert Bradley Hicks 1984 Trust, Thomas O. Hicks, as
Trustee of the Thomas O. Hicks, Jr. 1984 Trust, Thomas O.
Hicks and H. Rand Reynolds, as Trustees for the Muse
Children's GS Trust, and Thomas O. Hicks, dated as of
February 19, 1997.
2.31(r) -- Joint Purchase Agreement, by and among Chancellor Radio
Broadcasting Company, Chancellor Broadcasting Company,
Evergreen Media Corporation of Los Angeles, and Evergreen
Media Corporation, dated as of February 19, 1997.
2.32(s) -- Asset Exchange Agreement, by and among EZ Communications,
Inc., Professional Broadcasting Incorporated, EZ
Philadelphia, Inc., Evergreen Media Corporation of Los
Angeles, Evergreen Media Corporation of Charlotte,
Evergreen Media Corporation of the East, Evergreen Media
Corporation of Carolinaland, WBAV/WBAV-FM/WPEG License
Corp. and WRFX License Corp., dated as of December 5,
1996 (See table of contents for list of omitted
schedules).
2.33(s) -- Asset Purchase Agreement, by and among EZ Communications,
Inc., Professional Broadcasting Incorporated, EZ
Charlotte, Inc., Evergreen Media Corporation of Los
Angeles, Evergreen Media Corporation of the East and
Evergreen Media Corporation of Carolinaland, dated as of
December 5, 1996 (See table of contents for list of
omitted schedules).
2.34(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: WGCI-AM and WGCI-FM), dated as of April
4, 1997 (see table of contents for list of omitted
schedules and exhibits)
2.35(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: KKBQ-AM and KKBQ-FM), dated as of April
4, 1997 (see table of contents for list of omitted
schedules and exhibits)
2.36(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: KHKS-FM), dated as of April 4, 1997 (see
table of contents for list of omitted schedules and
exhibits).
</TABLE>
II-3
<PAGE> 266
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.41(y) -- Amended and Restated Agreement and Plan of Merger among
Chancellor Broadcasting Company, Chancellor Radio
Broadcasting Company, Evergreen Media Corporation,
Evergreen Mezzanine Holdings Corporation and Evergreen
Media Corporation of Los Angeles, dated as of February
19, 1997, amended and restated as of July 31, 1997.
2.42(gg) -- Option Agreement, by and among Evergreen Media
Corporation, Chancellor Broadcasting Company, Bonneville
International Corporation and Bonneville Holding Company,
dated as of August 6, 1997.
2.43(ss) -- Letter Agreement, dated February 20, 1998, between the
Company and Capstar Broadcasting Corporation.
3.3(ff) -- Certificate of Incorporation of Chancellor Media
Corporation of Los Angeles (formerly known as Evergreen
Media Corporation of Los Angeles).
3.3A(pp) -- Amendment to Certificate of Incorporation of Chancellor
Media Corporation of Los Angeles, filed September 5,
1997.
3.3B(tt) -- Amendment to Certificate of Incorporation of Chancellor
Media Corporation of Los Angeles, filed October 28, 1997.
3.4(ff) -- Bylaws of Chancellor Media Corporation of Los Angeles.
4.10(t) -- Second Amended and Restated Loan Agreement dated as of
April 25, 1997 among Evergreen Media Corporation of Los
Angeles, the financial institutions whose names appear as
Lenders on the signature pages thereof (the "Lenders"),
Toronto Dominion Securities, Inc., as Arranging Agent,
The Bank of New York and Bankers Trust Company, as
Co-Syndication Agents, NationsBank of Texas, N.A. and
Union Bank of California, as Co-Documentation Agents, and
Toronto Dominion (Texas), Inc., as Administrative Agent
for the Lenders, together with certain collateral
documents attached thereto as exhibits, including
Assignment of Partnership Interests, Assignment of Trust
Interests, Borrower's Pledge Agreement, Parent Company
Guaranty, Stock Pledge Agreement, Subsidiary Guaranty and
Subsidiary Pledge Agreement (see table of contents for
list of omitted schedules and exhibits.
4.11(z) -- First Amendment to Second Amended and Restated Loan
Agreement, dated June 26, 1997, among Evergreen Media
Corporation of Los Angeles, the Lenders, the Agents and
the Administrative Agent.
4.15(aa) -- Indenture, dated as of February 14, 1996, governing the
9 3/8% Senior Subordinated Notes due 2004 of the Company.
4.16(bb) -- First Supplemental Indenture, dated as of February 14,
1996, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of the
Company.
4.17(cc) -- Indenture, dated as of February 26, 1996, governing the
12 1/4% Subordinated Exchange Debentures due 2008 of the
Company.
4.18(dd) -- Indenture, dated as of January 23, 1997, governing the
12% Subordinated Exchange Debentures due 2009 of the
Company.
4.19(ee) -- Indenture, dated as of June 24, 1997, governing the
8 3/4% Senior Subordinated Notes due 2007 of the Company.
4.21(ff) -- Specimen of the 12 1/4% Series A Senior Cumulative
Exchangeable Preferred Stock Certificate of the Company.
4.22(ff) -- Specimen of the 12% Exchangeable Preferred Stock
Certificate of the Company.
</TABLE>
II-4
<PAGE> 267
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4.23(ff) -- Form of Certificate of Designation for the 12 1/4% Series
A Senior Cumulative Exchangeable Preferred Stock of the
Company.
4.24(ff) -- Form of Certificate of Designation for the 12%
Exchangeable Preferred Stock of the Company.
4.25(pp) -- Second Amendment to Second Amended and Restated Loan
Agreement, dated August 7, 1997, among Evergreen Media
Corporation of Los Angeles, the Lenders, the Agents and
the Administrative Agent.
4.26(hh) -- Second Supplemental Indenture, dated as of April 15,
1997, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of the
Company.
4.27(pp) -- Third Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of the
Company.
4.28(pp) -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated June 24, 1997, governing the
8 3/4% Senior Subordinated Notes due 2007 of the Company.
4.29(pp) -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated February 26, 1997, governing
the 12 1/4% Subordinated Exchange Debentures due 2008 of
the Company.
4.30(pp) -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated January 23, 1997, governing
the 12% Subordinated Exchange Debentures due 2009 of the
Company.
4.34(tt) -- Amended and Restated Indenture, dated as of October 28,
1997, governing the 10 1/2% Senior Subordinated Notes due
2007 of the Company.
4.35(tt) -- Second Supplement Indenture, dated as of October 28,
1997, to the Amended and Restated Indenture dated October
28, 1997 governing the 10 1/2% Senior Subordinated Notes
due 2007 of the Company.
4.36(tt) -- Third Amendment to Second Amended and Restated Loan
Agreement, dated October 28, 1997, among the Company, the
Lenders, the Agents and the Administrative Agent.
4.37(tt) -- Fourth Amendment to Second Amended and Restated Loan
Agreement, dated February 10, 1998, among the Company,
the Lenders, the Agents and the Administrative Agent.
4.38** -- Indenture, dated as of December 22, 1997, governing the
8 1/8% Senior Subordinated Notes due 2007 of the Company.
5.1** -- Opinion of Latham & Watkins.
8.1** -- Tax Matters Opinion of Latham & Watkins.
10.23(f) -- Evergreen Media Corporation Stock Option Plan for
Non-employee Directors.
10.26(n) -- Employment Agreement dated February 9, 1996 by and
between Evergreen Media Corporation and Kenneth J.
O'Keefe.
10.28(o) -- 1995 Stock Option Plan for executive officers and key
employees of Evergreen Media Corporation.
10.30(pp) -- First Amendment to Employment Agreement dated March 1,
1997 by and between Evergreen Media Corporation and
Kenneth J. O'Keefe.
10.31(pp) -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and Scott K. Ginsburg.
</TABLE>
II-5
<PAGE> 268
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.32(pp) -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and James de Castro.
10.33(pp) -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and Matthew E. Devine.
10.34(pp) -- Second Amendment to Employment Agreement dated September
4, 1997 by and among Evergreen Media Corporation,
Evergreen Media Corporation of Los Angeles and Kenneth J.
O'Keefe.
10.35(ii) -- Employment Agreement dated February 14, 1996 by and among
Chancellor Broadcasting Company, Chancellor Radio
Broadcasting Company and Steven Dinetz.
10.36(jj) -- Chancellor Broadcasting Company 1996 Stock Award Plan.
10.37(kk) -- Chancellor Holdings Corp. 1994 Director Stock Option
Plan.
10.38(ll) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Steven Dinetz.
10.39(mm) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Eric W. Neumann.
10.40(nn) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Marvin Dinetz.
10.41(oo) -- Stock Option Grant Letter dated February 14, 1997 from
Chancellor Broadcasting Company to Carl M. Hirsch.
10.43** -- Registration Rights Agreement, dated December 22, 1997,
by and among Chancellor Media Corporation of Los Angeles
and the initial purchasers of the 8 1/8% Senior
Subordinated Notes due 2007.
10.44+ -- Agreement dated April 20, 1998 by and among Chancellor
Media Corporation, Chancellor Media Corporation of Los
Angeles and Scott K. Ginsburg.
10.45+ -- Employment Agreement dated April 29, 1998 by and among
Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and Jeffrey A. Marcus.
12.1** -- Chancellor Media Corporation of Los Angeles Computation
of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends.
21.2(tt) -- Subsidiaries of Chancellor Media Corporation of Los
Angeles.
23.1** -- Consent of Latham & Watkins (included as part of their
opinion listed as Exhibit 5.1).
23.2+ -- Consent of Coopers & Lybrand L.L.P., independent
accountants.
23.3+ -- Consent of KPMG Peat Marwick LLP, independent
accountants.
23.4+ -- Consent of Coopers & Lybrand L.L.P., independent
accountants.
23.5+ -- Consent of KPMG Peat Marwick LLP, independent
accountants.
23.6+ -- Consent of Arthur Andersen LLP, independent accountants.
23.7** -- Consent of Latham & Watkins (included as part of their
opinion listed as Exhibit 8.1).
24.1 -- Powers of Attorney (included on signature pages)
25.1** -- Statement of Eligibility on Form T-1 of The Bank of New
York under the Indenture.
99.1+ -- Letter Of Transmittal for the Exchange Offer.
99.2+ -- Notice of Guaranteed Delivery for the Exchange Offer.
</TABLE>
II-6
<PAGE> 269
B. Financial Statements
1. Consolidated Financial Statements of Chancellor Media Corporation of
Los Angeles and Subsidiaries as of December 31, 1996 and 1997 and for
the years ended December 31, 1995, 1996 and 1997.
2. Consolidated Financial Statements of Chancellor Radio Broadcasting
Company and Subsidiaries as of December 31, 1995 and 1996 and June
30, 1997 and for the years ended December 31, 1994, 1995 and 1996 and
for the three and six months ended June 30, 1996 and 1997.
3. Combined Financial Statements of Riverside Broadcasting Co., Inc. and
WAXQ Inc. as of December 31, 1995 and 1996 and June 30, 1997 and for
the years ended December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1996 and 1997.
4. Combined Financial Statements of WMZQ Inc. and Viacom Broadcasting
East Inc. as of December 31, 1995 and 1996 and June 30, 1997 and for
the years ended December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1996 and 1997.
5. Financial Statements of WDAS-AM/FM (Station owned and operated by
Beasley FM Acquisition Corp.) as of December 31, 1996 and March 31,
1997 and for the year ended December 31, 1996 and the three months
ended March 31, 1996 and 1997.
6. Combined Financial Statements of KYSR Inc. and KIBB Inc. as of
December 31, 1995 and 1996 and June 30, 1997 and for the years ended
December 31, 1994, 1995 and 1996 and the six months ended June 30,
1996 and 1997.
7. Financial Statements of WLIT Inc. as of December 31, 1995 and 1996
and June 30, 1997 and for the years ended December 31, 1994, 1995 and
1996 and the six months ended June 30, 1996 and 1997.
8. Combined Financial Statements of Colfax Communications, Inc. Radio
Group as of December 31, 1996, 1995 and 1994 and for the years ended
December 31, 1996, 1995 and 1994.
- ---------------
** Previously filed.
+ Filed herewith.
(a) Incorporated by reference to the identically numbered exhibit to
Evergreen's Registration Statement on Form S-1, as amended (Reg. No.
33-60036).
(f) Incorporated by reference to the identically numbered exhibit to
Evergreen's Registration Statement on Form S-4, as amended (Reg. No.
33-89838).
(h) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated July 14, 1995.
(i) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated January 17, 1996.
(j) Incorporated by reference to the identically numbered exhibit to
Evergreen's Quarterly Report on Form 10-Q for the quarterly period ending
June 30, 1995.
(k) Incorporated by reference to the identically numbered exhibit to
Evergreen's Registration Statement on Form S-1, as amended (Reg. No.
33-69752).
(n) Incorporated by reference to the identically numbered exhibit to
Evergreen's Annual Report on Form 10-K for the fiscal year ended December
31, 1995.
(o) Incorporated by reference to the identically numbered exhibit to
Evergreen's Quarterly Report on Form 10-Q for the quarterly period ending
March 31, 1996.
(p) Incorporated by reference to the identically numbered exhibit to
Evergreen's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1996.
II-7
<PAGE> 270
(q) Incorporated by reference to the identically numbered exhibit to
Evergreen's Registration Statement on Form S-3, as amended (Reg. No.
333-12453).
(r) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated February 16, 1997 and filed
March 9, 1997.
(s) Incorporated by reference to the identically numbered exhibit to
Evergreen's Annual Report on Form 10-K for the fiscal year ended December
31, 1996.
(t) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated April 1, 1997 and filed May
9, 1997.
(y) Incorporated by reference to the identically numbered exhibit of
Evergreen's Registration Statement on Form S-4, filed August 1, 1997.
(z) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated July 7, 1997 and filed July
31, 1997.
(aa) Incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company, as filed on February 29, 1996.
(bb) Incorporated by reference to Exhibit 4.5 to the Annual Report on Form 10-K
of Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company
and Chancellor Broadcasting Licensee Company for the fiscal year ended
December 31, 1995.
(cc) Incorporated by reference to Exhibit 4.6 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company, as filed on February 29, 1996.
(dd) Incorporated by reference to Exhibit 4.7 to the Current Report on Form 8-K
of Chancellor Radio Broadcasting Company, as filed on February 6, 1997.
(ee) Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company as filed on July 17, 1997.
(ff) Incorporated by reference to the identically-numbered exhibit to EMCLA's
Registration Statement on Form S-4 (Reg. No. 333-32259), dated July 29,
1997, as amended.
(gg) Incorporated by reference to the identically-numbered exhibit to the
Quarterly Report on Form 10-Q of Evergreen and EMCLA for the quarterly
period ending June 30, 1997.
(hh) Incorporated by reference to Exhibit 4.8 to the Quarterly Report on Form
10-Q of Chancellor and CRBC for the quarterly period ending March 31,
1997.
(ii) Incorporated by reference to Exhibit 10.6 to Chancellor's Registration
Statement on Form S-1 (Reg. No. 333-02782) filed February 9, 1996.
(jj) Incorporated by reference to Exhibit 4.22 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(kk) Incorporated by reference to Exhibit 4.23 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(ll) Incorporated by reference to Exhibit 4.24 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(mm) Incorporated by reference to Exhibit 4.25 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(nn) Incorporated by reference to Exhibit 4.26 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(oo) Incorporated by reference to Exhibit 4.27 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(pp) Incorporated by reference to the identically numbered exhibit to the
Company's Registration Statement on Form S-4 (Reg. No. 333-36451), dated
September 26, 1997, as amended.
(ss) Incorporated by reference to the identically numbered exhibit to the
Current Report on Form 8-K of Chancellor Media and the Company, dated as
of February 23, 1998 and filed as of February 27, 1998.
II-8
<PAGE> 271
(tt) Incorporated by reference to the identically numbered exhibit to the
Annual Report on Form 10-K of Chancellor Media and the Company for the
fiscal year ended December 31, 1997.
The Company hereby agrees to furnish supplementarily a copy of any omitted
schedule or exhibit to the Commission upon request.
ITEM 22. UNDERTAKINGS.
A. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described under Item 20 above, 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 Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expense 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 Act and will be governed by the final adjudication of such
issue.
B. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's Annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's Annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
D. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
E. (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145, the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-9
<PAGE> 272
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Irving, State of Texas,
on May 7, 1998.
CHANCELLOR MEDIA CORPORATION
OF LOS ANGELES
By: /s/ MATTHEW E. DEVINE
----------------------------------
Matthew E. Devine
Senior Vice President and
Chief Financial Officer
POWERS OF ATTORNEY
Each person whose signature appears below constitutes and appoints Matthew
E. Devine as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for such person and in his name, place and
stead, in any and all capacities, to sign any or all further amendment
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF 1933, AS
AMENDED, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
* Chairman of the Board and interim May 7, 1998
- ----------------------------------------------------- Chief Executive Officer
Thomas O. Hicks (Principal Executive Officer)
* Chief Operating Officer and May 7, 1998
- ----------------------------------------------------- Director
James E. de Castro
/s/ MATTHEW E. DEVINE Senior Vice President and Chief May 7, 1998
- ----------------------------------------------------- Financial Officer (Principal
Matthew E. Devine Financial Officer and Principal
Accounting Officer)
* Director May 7, 1998
- -----------------------------------------------------
Thomas J. Hodson
* Director May 7, 1998
- -----------------------------------------------------
Perry J. Lewis
* Director May 7, 1998
- -----------------------------------------------------
Eric C. Neuman
* Director May 7, 1998
- -----------------------------------------------------
John H. Massey
</TABLE>
II-10
<PAGE> 273
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
* Director May 7, 1998
- -----------------------------------------------------
Jeffrey A. Marcus
* Director May 7, 1998
- -----------------------------------------------------
Lawrence D. Stuart, Jr.
* Director May 7, 1998
- -----------------------------------------------------
Steven Dinetz
* Director May 7, 1998
- -----------------------------------------------------
Vernon E. Jordan, Jr.
*By: /s/ MATTHEW E. DEVINE
-------------------------------------------------
Matthew E. Devine
Attorney-in-Fact
</TABLE>
II-11
<PAGE> 274
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each
co-registrant listed on Attachment A hereto has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Irving, State of Texas, on May 7, 1998.
THE CO-REGISTRANTS LISTED ON
ATTACHMENT A HERETO
By: /s/ MATTHEW E. DEVINE
----------------------------------
Matthew E. Devine
Vice President
of Each Co-Registrant
POWERS OF ATTORNEY
Each person whose signature appears below constitutes and appoints Matthew
E. Devine as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for such person and in his name, place and
stead, in any and all capacities, to sign any or all further amendment
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF 1933, AS
AMENDED, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
* Chief Executive Officer of Each May 7, 1998
- ----------------------------------------------------- Co-Registrant (Principal
Thomas O. Hicks Executive Officer of Each
Co-Registrant)
/s/ MATTHEW E. DEVINE Vice President and Director of May 7, 1998
- ----------------------------------------------------- Each Co-Registrant (Principal
Matthew E. Devine Financial Officer and Principal
Accounting Officer of Each
Co-Registrant)
* Director of Each Co-Registrant May 7, 1998
- -----------------------------------------------------
Eric C. Neuman
Director of Each Co-Registrant May 7, 1998
- -----------------------------------------------------
Lawrence D. Stuart, Jr.
*By: /s/ MATTHEW E. DEVINE
-------------------------------------------------
Matthew E. Devine
Attorney-in-Fact
</TABLE>
II-12
<PAGE> 275
ATTACHMENT A
<TABLE>
<CAPTION>
NAME
<S> <C> <C> <C>
Chancellor Media Corporation of the Lone Star
State
Chancellor KZPS/KDGE License Corp.
Chancellor Media Corporation of the Bay Area
KIOI License Corp.
Chancellor Media Corporation of Illinois
WRCX License Corp.
Chancellor Media Corporation of Chicago AM
WMVP-AM License Corp.
Chancellor Media Corporation of Dade County
WVCG License Corp.
Chancellor Media/Pyramid Corporation
Chancellor Media/Pyramid Holdings Corporation
Broadcast Architecture, Inc.
Chancellor Media Corporation of Massachusetts
WJMN License Corp.
Chancellor Media Corporation of the Nation's
Capital
WWRC License Corp.
Chancellor Media Partners Corporation
Chancellor Media Corporation of Gotham
Chancellor Media Corporation of New York
WYNY License Corp.
Chancellor Media Corporation of Detroit
WKQI/WDOZ/WNIC License Corp.
Chancellor Media Corporation of Chicagoland
WEJM/WEJM-FM/WVAZ License Corp.
Chancellor Media Corporation of Charlotte
WIOQ License Corp.
Chancellor Media Corporation of Dallas
KSKY License Corp.
Chancellor Media Corporation of San Francisco
KMEL License Corp.
Chancellor Media Corporation of Houston
Chancellor Media of Houston Limited Partnership
(through its general partner, Chancellor Media
Corporation of Houston)
KLOL License Limited Partnership (through its
general partner, Chancellor Media Corporation of
Houston)
Chancellor Media Corporation of Tiburon
KKSF License Corp.
Chancellor Media Corporation of Washington, D.C.
Chancellor Media Corporation of St. Louis
WTOP License Limited Partnership (through its
general partner, Chancellor Media Corporation of
Washington, D.C.)
Chancellor Media Corporation of the Motor City
WJLB License Corp.
Chancellor Media Corporation of Michigan
WMXD License Corp.
Chancellor Media/WAXQ Inc.
WAXQ License Corp.
Chancellor Media/WMZQ Inc.
WMZQ License Corp.
</TABLE>
II-13
<PAGE> 276
ATTACHMENT A -- (CONTINUED)
<TABLE>
<CAPTION>
NAME
<S> <C> <C> <C>
Chancellor Media Corporation of the Liberty City
WDAS (FM) License Corp.
WDAS (AM) License Corp.
Chancellor Media/Riverside Broadcasting Co. Inc.
WLTW License Corp.
Chancellor Media Corporation of the Great Lakes
WWWW/WDFN License Corp.
Chancellor Media Corporation of the Capital City
WGAY License Corp.
Chancellor Media Licensee Company
Chancellor Media/Trefoil Communications, Inc.
Chancellor Media/Shamrock Broadcasting, Inc.
Chancellor Media/Shamrock Radio Licenses, Inc.
Chancellor Media/Shamrock Broadcasting of Texas,
Inc.
Chancellor Media/Shamrock Broadcasting Licenses of
Denver, Inc.
Chancellor Media/KCMG Inc.
Chancellor Media/KYSR Inc.
Chancellor Media/WLIT Inc.
Radio 100 L.L.C. (through its sole member,
Chancellor Media Corporation of Los Angeles)
Chancellor Media Corporation of Pennsylvania
WJJZ License Corp.
Chancellor Media Corporation of Miami
WEDR License Corp.
Chancellor Media Corporation of Boston
WXKS (AM) License Corp.
WXKS (FM) License Corp.
Chancellor Media Corporation of the Windy City
WNUA License Corp.
Chancellor Media Corporation of Philadelphia
Chancellor Media Corporation of the Keystone State
WYXR License Corp.
WUSL License Corp.
KKBT License Corp.
</TABLE>
II-14
<PAGE> 277
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
co-registrant identified below has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Irving, State of Texas, on May 7, 1998.
KATZ MEDIA CORPORATION
By: /s/ RICHARD E. VENDIG
----------------------------------
Richard E. Vendig
Senior Vice President, Chief
Financial and Administrative
Officer, Treasurer
POWERS OF ATTORNEY
Each person whose signature appears below constitutes and appoints Matthew
E. Devine as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for such person and in his name, place and
stead, in any and all capacities, to sign any or all further amendment
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF 1933, AS
AMENDED, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
* Chief Executive Officer, May 7, 1998
- ----------------------------------------------------- President and Director
Thomas F. Olson (Principal Executive
Officer)
* Senior Vice President, Chief May 7, 1998
- ----------------------------------------------------- Financial and
Richard E. Vendig Administrative Officer,
Treasurer (Principal
Financial Officer and
Principal Accounting
Officer)
* Director May 7, 1998
- -----------------------------------------------------
James E. de Castro
/s/ MATTHEW E. DEVINE Director May 7, 1998
- -----------------------------------------------------
Matthew E. Devine
* Director May 7, 1998
- -----------------------------------------------------
Kenneth J. O'Keefe
* Director May 7, 1998
- -----------------------------------------------------
James E. Beloyianis
* Director May 7, 1998
- -----------------------------------------------------
Stuart O. Olds
*By /s/ MATTHEW E. DEVINE
-------------------------------------------------
By: Matthew E. Devine
Attorney-in-Fact
</TABLE>
II-15
<PAGE> 278
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each of the
co-registrants listed on Attachment B hereto has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on May 7, 1998.
THE CO-REGISTRANTS LISTED ON
ATTACHMENT B HERETO.
By: /s/ RICHARD E. VENDIG
----------------------------------
Richard E. Vendig
Senior Vice President, Chief
Financial and Administrative
Officer, Treasurer of Each
Co-Registrant Listed on
Attachment B
POWERS OF ATTORNEY
Each person whose signature appears below constitutes and appoints Matthew
E. Devine as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for such person and in his name, place and
stead, in any and all capacities, to sign any or all further amendment
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF 1933, AS
AMENDED, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
* Chief Executive Officer, May 7, 1998
- ----------------------------------------------------- President and Director
Thomas F. Olson (Principal Executive
Officer of Each
Co-Registrant Listed on
Attachment B)
* Senior Vice President, Chief May 7, 1998
- ----------------------------------------------------- Financial and
Richard E. Vendig Administrative Officer,
Treasurer (Principal
Financial Officer and
Principal Accounting
Officer of Each
Co-Registrant Listed on
Attachment B)
* Director of Each May 7, 1998
- ----------------------------------------------------- Co-Registrant Listed on
James E. De Castro Attachment B
/s/ MATTHEW E. DEVINE Director of Each May 7, 1998
- ----------------------------------------------------- Co-Registrant Listed on
Matthew E. Devine Attachment B
* Director of Each May 7, 1998
- ----------------------------------------------------- Co-Registrant Listed on
Kenneth J. O'Keefe Attachment B
*By /s/ MATTHEW E. DEVINE
-------------------------------------------------
By: Matthew E. Devine
Attorney-in-Fact
</TABLE>
II-16
<PAGE> 279
ATTACHMENT B
<TABLE>
<CAPTION>
NAME
<S> <C>
Seltel, Inc.
The National Payroll Company, Inc.
Katz Cable Corporation
Katz Communications, Inc.
Christal Radio Sales, Inc.
Eastman Radio Sales, Inc.
Amcast Radio Sales, Inc.
Katz Millennium Marketing, Inc.
</TABLE>
II-17
<PAGE> 280
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1** -- Securities Purchase Agreement, dated as of December 22,
1997, by and among Chancellor Media Corporation of Los
Angeles, BT Alex. Brown, Credit Suisse First Boston,
Goldman, Sachs & Co., Morgan Stanley Dean Witter and
Salomon Smith Barney.
2.11(h) -- Agreement and Plan of Merger by and among Pyramid
Communications, Inc., Evergreen Media Corporation and
Evergreen Media/Pyramid Corporation dated as of July 14,
1995 (see table of contents for list of omitted exhibits
and schedules).
2.11A(i) -- Amendment to Plan and Agreement of Merger by and among
Pyramid Communications, Inc., Evergreen Media Corporation
and Evergreen Media/Pyramid Corporation dated September
7, 1995.
2.11B(i) -- Amendment to Plan and Agreement of Merger by and among
Pyramid Communications, Inc., Evergreen Media Corporation
and Evergreen Media/Pyramid Corporation dated January 11,
1996.
2.12(j) -- Purchase Agreement between Fairbanks Communications, Inc.
and Evergreen Media Corporation dated October 12, 1995
(see table of contents for list of omitted exhibits and
schedules).
2.13(n) -- Option Agreement dated as of January 9, 1996 between
Chancellor Broadcasting Company and Evergreen Media
Corporation (including Form of Advertising Brokerage
Agreement and Form of Asset Purchase Agreement).
2.14(o) -- Asset Purchase Agreement dated April 4, 1996 between
American Radio Systems Corporation and Evergreen Media
Corporation of Buffalo (see table of contents for list of
omitted exhibits and schedules).
2.15(o) -- Asset Purchase Agreement dated April 11, 1996 between
Mercury Radio Communications, L.P. and Evergreen Media
Corporation of Los Angeles, Evergreen Media/Pyramid
Holdings Corporation, WHTT (AM) License Corp. and WHTT
(FM) License Corp. (see table of contents for list of
omitted exhibits and schedules).
2.16(o) -- Asset Purchase Agreement dated April 19, 1996 between
Crescent Communications L.P. and Evergreen Media
Corporation of Los Angeles (see table of contents for
list of omitted exhibits and schedules).
2.17(p) -- Asset Purchase Agreement dated June 13, 1996 between
Evergreen Media Corporation of Los Angeles and Greater
Washington Radio, Inc. (see table of contents for list of
omitted exhibits and schedules).
2.18(p) -- Asset Exchange Agreement dated June 13, 1996 among
Evergreen Media Corporation of Los Angeles, Evergreen
Media Corporation of the Bay State, WKLB License Corp.,
Greater Media Radio, Inc. and Greater Washington Radio,
Inc. (see table of contents for list of omitted exhibits
and schedules).
2.19(p) -- Purchase Agreement dated June 27, 1996 between WEDR,
Inc., and Evergreen Media Corporation of Los Angeles.
(See table of contents for list of omitted schedules)
2.20(p) -- Time Brokerage Agreement dated July 10, 1996 by and
between Evergreen Media Corporation of Detroit, as
Licensee, and Kidstar Interactive Media Incorporated, as
Time Broker.
2.21(p) -- Asset Purchase Agreement dated July 15, 1996 by and among
Century Chicago Broadcasting L.P., Century Broadcasting
Corporation, Evergreen Media Corporation of Los Angeles,
and Evergreen Media Corporation of Chicago.
</TABLE>
<PAGE> 281
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.22(p) -- Asset Purchase Agreement dated August 12, 1996 by and
among Chancellor Broadcasting Company, Shamrock
Broadcasting, Inc. and Evergreen Media Corporation of the
Great Lakes.
2.23(p) -- Asset Purchase Agreement dated as of August 12, 1996
between Secret Communications Limited Partnership and
Evergreen Media Corporation of Los Angeles (WQRS-FM).
(See table of contents for list of omitted exhibits and
schedules)
2.24(p) -- Asset Purchase Agreement dated as of August 12, 1996
between Secret Communications Limited Partnership and
Evergreen Media Corporation of Los Angeles. (See table of
contents for list of omitted schedules)
2.25(q) -- Letter of intent dated August 27, 1996 between EZ
Communications, Inc. and Evergreen Media Corporation.
2.26(q) -- Asset Purchase Agreement dated September 19, 1996 between
Beasley-FM Acquisition Corp., WDAS License Limited
Partnership and Evergreen Media Corporation of Los
Angeles.
2.27(q) -- Asset Purchase Agreement dated September 19, 1996 between
The Brown Organization and Evergreen Media Corporation of
Los Angeles.
2.28(r) -- Stock Purchase Agreement by and between Viacom
International Inc. and Evergreen Media Corporation of Los
Angeles, dated February 16, 1997 (See table of contents
for omitted schedules and exhibits).
2.29(r) -- Agreement and Plan of Merger, by and among Evergreen
Media Corporation, Chancellor Broadcasting Company and
Chancellor Radio Broadcasting Company, dated as of
February 19, 1997.
2.30(r) -- Stockholders Agreement, by and among Chancellor
Broadcasting Company, Evergreen Media Corporation, Scott
K. Ginsburg (individually and as custodian for certain
shares held by his children), HM2/Chancellor, L.P.,
Hicks, Muse, Tate & First Equity Fund II, L.P., HM2/HMW,
L.P., The Chancellor Business Trust, HM2/HMD Sacramento
GP, L.P., Thomas O. Hicks, as Trustee of the William Cree
Hicks 1992 Irrevocable Trust, Thomas O. Hicks, as Trustee
of the Catherine Forgave Hicks 1993 Irrevocable Trust,
Thomas O. Hicks, as Trustee of the John Alexander Hicks
1984 Trust, Thomas O. Hicks, as Trustee of the Mack
Hardin Hicks 1984 Trust, Thomas O. Hicks, as Trustee of
Robert Bradley Hicks 1984 Trust, Thomas O. Hicks, as
Trustee of the Thomas O. Hicks, Jr. 1984 Trust, Thomas O.
Hicks and H. Rand Reynolds, as Trustees for the Muse
Children's GS Trust, and Thomas O. Hicks, dated as of
February 19, 1997.
2.31(r) -- Joint Purchase Agreement, by and among Chancellor Radio
Broadcasting Company, Chancellor Broadcasting Company,
Evergreen Media Corporation of Los Angeles, and Evergreen
Media Corporation, dated as of February 19, 1997.
2.32(s) -- Asset Exchange Agreement, by and among EZ Communications,
Inc., Professional Broadcasting Incorporated, EZ
Philadelphia, Inc., Evergreen Media Corporation of Los
Angeles, Evergreen Media Corporation of Charlotte,
Evergreen Media Corporation of the East, Evergreen Media
Corporation of Carolinaland, WBAV/WBAV-FM/WPEG License
Corp. and WRFX License Corp., dated as of December 5,
1996 (See table of contents for list of omitted
schedules).
</TABLE>
<PAGE> 282
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.33(s) -- Asset Purchase Agreement, by and among EZ Communications,
Inc., Professional Broadcasting Incorporated, EZ
Charlotte, Inc., Evergreen Media Corporation of Los
Angeles, Evergreen Media Corporation of the East and
Evergreen Media Corporation of Carolinaland, dated as of
December 5, 1996 (See table of contents for list of
omitted schedules).
2.34(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: WGCI-AM and WGCI-FM), dated as of April
4, 1997 (see table of contents for list of omitted
schedules and exhibits).
2.35(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: KKBQ-AM and KKBQ-FM), dated as of April
4, 1997 (see table of contents for list of omitted
schedules and exhibits)
2.36(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: KHKS-FM), dated as of April 4, 1997 (see
table of contents for list of omitted schedules and
exhibits).
2.41(y) -- Amended and Restated Agreement and Plan of Merger among
Chancellor Broadcasting Company, Chancellor Radio
Broadcasting Company, Evergreen Media Corporation,
Evergreen Mezzanine Holdings Corporation and Evergreen
Media Corporation of Los Angeles, dated as of February
19, 1997, amended and restated as of July 31, 1997.
2.42(gg) -- Option Agreement, by and among Evergreen Media
Corporation, Chancellor Broadcasting Company, Bonneville
International Corporation and Bonneville Holding Company,
dated as of August 6, 1997.
2.43(ss) -- Letter Agreement, dated February 20, 1998, between the
Company and Capstar Broadcasting Corporation.
3.3(ff) -- Certificate of Incorporation of Chancellor Media
Corporation of Los Angeles formerly known as Evergreen
Media Corporation of Los Angeles.
3.3A(pp) -- Amendment to Certificate of Incorporation of Chancellor
Media Corporation of Los Angeles, filed September 5,
1997.
3.3B(tt) -- Amendment to the Certificate of Incorporation of
Chancellor Media Corporation of Los Angeles, filed
October 28, 1997.
3.4(ff) -- Bylaws of Chancellor Media Corporation of Los Angeles.
4.10(t) -- Second Amended and Restated Loan Agreement dated as of
April 25, 1997 among Evergreen Media Corporation of Los
Angeles, the financial institutions whose names appear as
Lenders on the signature pages thereof (the "Lenders"),
Toronto Dominion Securities, Inc., as Arranging Agent,
The Bank of New York and Bankers Trust Company, as
Co-Syndication Agents, NationsBank of Texas, N.A. and
Union Bank of California, as Co-Documentation Agents, and
Toronto Dominion (Texas), Inc., as Administrative Agent
for the Lenders, together with certain collateral
documents attached thereto as exhibits, including
Assignment of Partnership Interests, Assignment of Trust
Interests, Borrower's Pledge Agreement, Parent Company
Guaranty, Stock Pledge Agreement, Subsidiary Guaranty and
Subsidiary Pledge Agreement (see table of contents for
list of omitted schedules and exhibits).
4.11(z) -- First Amendment to Second Amended and Restated Loan
Agreement, dated June 26, 1997, among Evergreen Media
Corporation of Los Angeles, the Lenders, the Agents and
the Administrative Agent.
</TABLE>
<PAGE> 283
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4.15(aa) -- Indenture, dated as of February 14, 1996, governing the
9 3/8% Senior Subordinated Notes due 2004 of the Company.
4.16(bb) -- First Supplemental Indenture, dated as of February 14,
1996, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of the
Company.
4.17(cc) -- Indenture, dated as of February 26, 1996, governing the
12 1/4% Subordinated Exchange Debentures due 2008 of the
Company.
4.18(dd) -- Indenture, dated as of January 23, 1997, governing the
12% Subordinated Exchange Debentures due 2009 of the
Company.
4.19(ee) -- Indenture, dated as of June 24, 1997, governing the
8 3/4% Senior Subordinated Notes due 2007 of the Company.
4.21(ff) -- Specimen of the 12 1/4% Series A Senior Cumulative
Exchangeable Preferred Stock Certificate of the Company.
4.22(ff) -- Specimen of the 12% Exchangeable Preferred Stock
Certificate of the Company.
4.23(ff) -- Form of Certificate of Designation for the 12 1/4% Series
A Senior Cumulative Exchangeable Preferred Stock of the
Company.
4.24(ff) -- Form of Certificate of Designation for the 12%
Exchangeable Preferred Stock of the Company.
4.25(pp) -- Second Amendment to Second Amended and Restated Loan
Agreement, dated August 7, 1997, among Evergreen Media
Corporation of Los Angeles, the Lenders, the Agents and
the Administrative Agent.
4.26(hh) -- Second Supplemental Indenture, dated as of April 15,
1997, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of the
Company.
4.27(pp) -- Third Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of the
Company.
4.28(pp) -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated June 24, 1997, governing the
8 3/4% Senior Subordinated Notes due 2007 of the Company.
4.29(pp) -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated February 26, 1997, governing
the 12 1/4% Subordinated Exchange Debentures due 2008 of
the Company.
4.30(pp) -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated January 23, 1997, governing
the 12% Subordinated Exchange Debentures due 2009 of the
Company.
4.34(tt) -- Amended and Restated Indenture, dated as of October 28,
1997, governing the 10 1/2% Senior Subordinated Notes due
2007 of the Company.
4.35(tt) -- Second Supplemental Indenture, dated as of October 28,
1997, to the Amended and Restated Indenture dated October
28, 1997 governing the 10 1/2% Senior Subordinated Notes
due 2007 of the Company.
4.36(tt) -- Third Amendment to Second Amended and Restated Loan
Agreement dated October 28, 1997, among the Company, the
Lenders, the Agents and the Administrative Agent.
</TABLE>
<PAGE> 284
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4.37(tt) -- Fourth Amendment to Second Amended and Restated Loan
Agreement, dated February 10, 1998, among the Company,
the Lenders, the Agents and the Administrative Agent.
4.38** -- Indenture, dated as of December 22, 1997, governing the
8 1/8% Senior Subordinated Notes due 2007 of the Company.
5.1** -- Opinion of Latham & Watkins.
8.1** -- Tax Matters Opinion of Latham & Watkins.
10.23(f) -- Evergreen Media Corporation Stock Option Plan for
Non-employee Directors.
10.26(n) -- Employment Agreement dated February 9, 1996 by and
between Evergreen Media Corporation and Kenneth J.
O'Keefe.
10.28(o) -- 1995 Stock Option Plan for executive officers and key
employees of Evergreen Media Corporation.
10.30(pp) -- First Amendment to Employment Agreement dated March 1,
1997 by and between Evergreen Media Corporation and
Kenneth J. O'Keefe.
10.31(pp) -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and Scott K. Ginsburg.
10.32(pp) -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and James de Castro.
10.33(pp) -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and Matthew E. Devine.
10.34(pp) -- Second Amendment to Employment Agreement dated September
4, 1997 by and among Evergreen Media Corporation,
Evergreen Media Corporation of Los Angeles and Kenneth J.
O'Keefe.
10.35(ii) -- Employment Agreement dated February 14, 1996 by and among
Chancellor Broadcasting Company, Chancellor Radio
Broadcasting Company and Steven Dinetz.
10.36(jj) -- Chancellor Broadcasting Company 1996 Stock Award Plan.
10.37(kk) -- Chancellor Holdings Corp. 1994 Director Stock Option
Plan.
10.38(ll) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Steven Dinetz.
10.39(mm) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Eric W. Neumann.
10.40(nn) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Marvin Dinetz.
10.41(oo) -- Stock Option Grant Letter dated February 14, 1997 from
Chancellor Broadcasting Company to Carl M. Hirsch.
10.43** -- Registration Rights Agreement, dated December 22, 1997,
by and among Chancellor Media Corporation of Los Angeles
and the initial purchasers of the 8 1/8% Senior
Subordinated Notes due 2007.
10.44+ -- Agreement dated April 20, 1998 by and among Chancellor
Media Corporation, Chancellor Media Corporation of Los
Angeles and Scott K. Ginsburg.
10.45+ -- Employment Agreement dated April 29, 1998 by and among
Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and Jeffrey A. Marcus.
12.1** -- Chancellor Media Corporation of Los Angeles Computation
of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends.
</TABLE>
<PAGE> 285
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
21.2(tt) -- Subsidiaries of Chancellor Media Corporation of Los
Angeles.
23.1** -- Consent of Latham & Watkins (included as part of their
opinion listed as Exhibit 5.1).
23.2+ -- Consent of Coopers & Lybrand L.L.P., independent
accountants.
23.3+ -- Consent of KPMG Peat Marwick LLP, independent
accountants.
23.4+ -- Consent of Coopers & Lybrand L.L.P., independent
accountants.
23.5+ -- Consent of KPMG Peat Marwick LLP, independent
accountants.
23.6+ -- Consent of Arthur Andersen LLP, independent accountants.
23.7** -- Consent of Latham & Watkins (included as part of their
opinion listed as Exhibit 8.1).
24.1 -- Powers of Attorney (included on signature pages)
25.1** -- Statement of Eligibility on Form T-1 of U.S. Trust
Company of Texas, N.A. under the Indenture.
99.1+ -- Letter Of Transmittal for the Exchange Offer.
99.2+ -- Notice of Guaranteed Delivery for the Exchange Offer.
</TABLE>
- ---------------
** Previously filed
+ Filed herewith
(a) Incorporated by reference to the identically numbered exhibit to
Evergreen's Registration Statement on Form S-1, as amended (Reg. No.
33-60036).
(f) Incorporated by reference to the identically numbered exhibit to
Evergreen's Registration Statement on Form S-4, as amended (Reg. No.
33-89838).
(h) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated July 14, 1995.
(i) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated January 17, 1996.
(j) Incorporated by reference to the identically numbered exhibit to
Evergreen's Quarterly Report on Form 10-Q for the quarterly period ending
September 30, 1995.
(k) Incorporated by reference to the identically numbered exhibit to
Evergreen's Registration Statement on Form S-1, as amended (Reg. No.
33-69752).
(n) Incorporated by reference to the identically numbered exhibit to
Evergreen's Annual Report on Form 10-K for the fiscal year ended December
31, 1995.
(o) Incorporated by reference to the identically numbered exhibit to
Evergreen's Quarterly Report on Form 10-Q for the quarterly period ending
March 31, 1996.
(p) Incorporated by reference to the identically numbered exhibit to
Evergreen's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1996.
(q) Incorporated by reference to the identically numbered exhibit to
Evergreen's Registration Statement on Form S-3, as amended (Reg. No.
333-12453).
(r) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated February 16, 1997 and filed
March 9, 1997.
(s) Incorporated by reference to the identically numbered exhibit to
Evergreen's Annual Report on Form 10-K for the fiscal year ended December
31, 1996.
(t) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated April 1, 1997 and filed May
9, 1997.
<PAGE> 286
(y) Incorporated by reference to the identically numbered exhibit of
Evergreen's Registration Statement on Form S-4, filed August 1, 1997.
(z) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated July 7, 1997 and filed July
31, 1997.
(aa) Incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company, as filed on February 29, 1996.
(bb) Incorporated by reference to Exhibit 4.5 to the Annual Report on Form 10-K
of Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company
and Chancellor Broadcasting Licensee Company for the fiscal year ended
December 31, 1995.
(cc) Incorporated by reference to Exhibit 4.6 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company, as filed on February 29, 1996.
(dd) Incorporated by reference to Exhibit 4.7 to the Current Report on Form 8-K
of Chancellor Radio Broadcasting Company, as filed on February 6, 1997.
(ee) Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company as filed on July 17, 1997.
(ff) Incorporated by reference to the identically-numbered exhibit to EMCLA's
Registration Statement on Form S-4 (Reg. No. 333-32259), dated July 29,
1997, as amended.
(gg) Incorporated by reference to the identically-numbered exhibit to the
Quarterly Report on Form 10-Q of Evergreen and EMCLA for the quarterly
period ending June 30, 1997.
(hh) Incorporated by reference to Exhibit 4.8 to the Quarterly Report on Form
10-Q of Chancellor and CRBC for the quarterly period ending March 31,
1997.
(ii) Incorporated by reference to Exhibit 10.6 to Chancellor's Registration
Statement on Form S-1 (Reg. No. 333-02782) filed February 9, 1996.
(jj) Incorporated by reference to Exhibit 4.22 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(kk) Incorporated by reference to Exhibit 4.23 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(ll) Incorporated by reference to Exhibit 4.24 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(mm) Incorporated by reference to Exhibit 4.25 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(nn) Incorporated by reference to Exhibit 4.26 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(oo) Incorporated by reference to Exhibit 4.27 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(pp) Incorporated by reference to the identically numbered exhibit to the
Company's Registration Statement on Form S-4 (Reg. No. 333-36451), dated
September 26, 1997, as amended.
(ss) Incorporated by reference to the identically numbered exhibit to the
Current Report on Form 8-K of Chancellor Media and the Company, dated as
of February 23, 1998 and filed as of February 27, 1998.
(tt) Incorporated by reference to the identically numbered exhibit to the
Annual Report on Form 10-K of Chancellor Media and the Company for the
fiscal year ended December 31, 1997.
<PAGE> 1
EXHIBIT 10.44
EXECUTION COPY
AGREEMENT
Agreement dated as of April 20, 1998 (the "Agreement") between
Scott K. Ginsburg ("Executive"), Chancellor Media Corporation (the "Company")
and Chancellor Media Corporation of Los Angeles ("Los Angeles").
WHEREAS, the Executive and the Company are parties to an
agreement, dated as of September 4, 1997, pursuant to which the Company has
employed the Executive as President and Chief Executive Officer of the Company
and Executive has held a position as a member of the Boards of Directors of the
Company and certain of its subsidiaries (the "Employment Agreement");
WHEREAS, Executive resigned as President and Chief Executive
Officer of the Company on April 14, 1998 and the Company's Chairman, Thomas O.
Hicks, has been elected to such positions on an interim basis while the Company
seeks a successor chief executive officer;
WHEREAS, Executive has performed his responsibilities in an
exemplary manner as one of the premier executives in the radio industry (as
reflected by the performance of the Company's common stock in the market) and
the Company desires to retain Executive's strategic planning and executive
abilities notwithstanding Executive's resignation; and
<PAGE> 2
WHEREAS, Executive fully supports, and desires to assist the
Company in implementing, the business strategy espoused by Mr. Hicks, including
expansion into smaller radio markets and other media and media-related
businesses in transactions which will be accretive to the Company's after-tax
cash flow;
NOW THEREFORE, for and in consideration of the mutual
covenants, agreements, promises set forth herein, and for other good and
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, Executive and the Company agree as follows:
1. Termination: The effective date of the Executive's
termination of employment with the Company pursuant to the Employment Agreement
shall be April 14, 1998 (the "Termination Date"). Executive further agrees to
and does hereby resign effective as of the Termination Date from any other
appointments or positions which he may hold with or at the request of the
Company or any of its subsidiaries, including without limitation, his position
on the Company's Board of Directors and the Boards of Directors of each of its
subsidiaries and his position as an officer of the Company and each of its
subsidiaries. Executive agrees to execute all further documents which the
Company may request of him to effectuate such resignations.
2. Termination Payments: In connection with such
termination of employment and the execution of this Agreement, as soon as
practicable after the execution and delivery of this Agreement (but in the case
of clause (a) below, not later than one (1) day after the date hereof, and, in
the case of clause (b) below, not later than two (2) days
2
<PAGE> 3
following the stockholders meeting), the Company shall deliver to Executive the
following payments and compensation:
a. a lump sum severance payment in the gross
amount such that the net payments retained by Executive after payment
of any Excise Tax (as defined in the Employment Agreement) with
respect to such payment shall equal Twenty Million Dollars
($20,000,000); and
b. subject to obtaining stockholder's approval
of the 1998 Chancellor Media Corporation Stock Option Plan (which will
be submitted to the Company's stockholders at the 1998 annual meeting
of stockholders with the recommendation of the Board of Directors of
the Company, which recommendation shall not be withdrawn or amended)
and in lieu of all other rights to stock options set forth in the
Employment Agreement, stock options for 800,000 shares of common stock
of the Company shall be granted in accordance with the terms of
Section 4(c)(iii) and (iv) of the Employment Agreement, except that
the exercise price of the options granted pursuant to this paragraph
2(b) shall be $23.25 per share and such options shall be exercisable
as follows:
i) 266,666 shares shall be immediately exercisable for a
period of seven (7) years from the date hereof;
ii) 266,667 shares shall be exercisable beginning one (1)
year from the date hereof for a period of six (6)
years thereafter; and
3
<PAGE> 4
iii) 266,667 shares shall be exercisable beginning two (2)
years from the date hereof for a period of five (5)
years thereafter.
In the event the stockholders shall fail to approve such stock option
plan, the Company shall grant to Executive contractual stock
appreciation rights providing for the same economic benefits (and
exercisable on the same basis) as Executive would have obtained had
the options under this paragraph 2 been granted. The options referred
to in clauses (b)(ii) and (b)(iii) hereinabove shall become
immediately and remain exercisable in full at least five (5) business
days prior to the record date (and, if applicable, closing or
expiration date) for any extraordinary dividend, distribution,
recapitalization, merger, sale of substantially all of the Company's
assets, liquidation, issuer or third party tender offer or similar
event.
3. Taxes: The cash payments set forth in paragraphs 2,
4 and 10 shall be subject to applicable federal, state and local withholding
taxes.
4. Vested Benefits: Vested benefits that the Executive
is otherwise entitled to receive under the Company's benefit plans and policies
which cover Executive, on or after the Termination Date, based upon services
rendered prior to the Termination Date, shall be payable in accordance with the
terms of each such plan, except as expressly modified by this Agreement. All
Base Salary (as defined in the Employment Agreement) earned but not paid
through the Termination Date and any 1997 Annual Bonus (as defined in the
Employment Agreement) earned but not paid as of the Termination Date, shall be
payable to Executive not later than ten (10) days after the date of this
Agreement. Stock
4
<PAGE> 5
options to acquire shares of the Company were previously granted to Executive
under Section 4(c)(i) of the Employment Agreement and under prior employment
agreements pursuant to the Company's 1995 Non-Qualified Stock Option Plan (the
"Prior Options"). The Prior Options are hereby acknowledged to be exercisable
in full until the tenth (10th) anniversary of the date of grant thereof. The
Company, its Board of Directors and/or its compensation committee shall not
take or assert any position contrary to the foregoing.
5. Mitigation: Executive shall not be required to
mitigate the amount of any payment provided for hereunder by seeking other
employment or otherwise, nor shall the amount of any such payment be reduced by
any compensation earned by the Executive as the result of employment by another
employer after the Termination Date.
6. Mutual Releases and Covenants Not to Sue: The
Executive, on behalf of himself, his attorneys, heirs, executors,
administrators and assigns (together the "Executive Co-Releasors") and the
Company on behalf of its predecessors, successors, and assigns, affiliates and
subsidiaries, and their respective past and present shareholders, directors,
officers, employees, agents, and attorneys (together the "Company
Co-Releasors") hereby release and forever discharge each other and the
Executive Co-Releasors and the Company Co-Releasors, respectively, from any and
all claims, demands, liabilities, suits, damages, losses, expenses, attorneys'
fees, obligations or causes of action, known or unknown of any kind and every
nature whatsoever, and whether or not accrued or matured, which any of them may
have, arising out of or relating to (a) any transaction, dealing, relationship,
conduct, act or omission, or any other matters or things occurring or existing
at
5
<PAGE> 6
any time prior to and including the Termination Date, including but not limited
to the Executive's employment by the Company or his services as a director or
officer of the Company or its subsidiaries, or otherwise relating to the
termination of such employment or services, and any claim against the Company
based on, relating to or arising under wrongful discharge, breach of contract,
tort, fraud, defamation, Title VII of the Civil Rights Act of 1964, as amended,
any other civil or human rights law, the Age Discrimination in Employment Act,
Americans with Disabilities Act, Employee Retirement Income Security Act of
1974, as amended, or any other federal, state or local law relating to
employment or discrimination in employment, or otherwise, and (b) subject to
clause (i) through (iv) below, the execution, delivery and performance of this
Agreement, but such general release will not limit or release (i) the Company
or Executive's rights or obligations under this Agreement, (ii) Executive's
rights to indemnification from the Company in respect of his services as an
officer or director of the Company or any of its subsidiaries as provided by
law or the certificates of incorporation or by-laws (or like constitutive
documents) of the Company or any subsidiary thereof, (iii) the Company's rights
against Executive with respect to any fraudulent or criminal activity and (iv)
the Company's rights against Executive respecting the repayment of any loan
owing to the Company or any of its subsidiaries by Executive in accordance with
the terms of such loan (the repayment terms in existence as of the date hereof
remaining unchanged, but the Company and its subsidiaries having no further
obligation to Executive to make any further advances). The Executive on behalf
of himself and the Executive Co-Releasors and the Company on behalf of itself
and the Company Co-
6
<PAGE> 7
Releasors, hereby covenant forever not to assert, file, prosecute, commence,
institute (or sponsor or purposely facilitate any person in connection with the
foregoing), any complaint or lawsuit or any legal, equitable or administrative
proceeding of any nature, against the other or their respective Co-Releasors in
connection with any matter released in this paragraph 6, and represent and
warrant that no other person or entity has initiated or will initiate any such
proceeding on their behalf.
7. Non-Disparagement: Executive shall not, directly or
indirectly, make or cause to be made and shall cause the officers, directors,
employees, agents and representatives of any entity or person controlled by
Executive not to make or cause to be made, any disparaging, denigrating,
derogatory or other negative or false statement orally or in writing to any
person or entity about the Company, Hicks, Muse, Tate & Furst Incorporated, its
or their respective parents, subsidiaries or affiliates, its or their
respective executive officers and the members of its or their Board of
Directors or the business strategy or plans of the Company, Hicks, Muse, Tate &
Furst Incorporated, and its or their respective parents, subsidiaries or
affiliates. Executive hereby confirms that Executive specifically endorses and
supports, and agrees to publicly and privately state his support of, the
Company's business strategy as espoused by Mr. Hicks, including expansion into
smaller radio markets and other media and media related businesses in
transactions that will be accretive to the Company's after-tax cash flow. The
Company shall not, directly or indirectly, make or cause to be made and shall
cause its officers, directors, employees, agents, affiliates and
representatives not to, directly or indirectly, make or cause to be made,
7
<PAGE> 8
any disparaging, denigrating, derogatory or other negative or false statement
orally or in writing to any person or entity about Executive.
8. Standstill: Executive agrees that, for a period of
three years from the date of this Agreement, neither Executive nor any of
Executive's affiliates will (or will cause or assist others to), without the
prior written consent of the Company or its Board of Directors: (i) acquire,
offer to acquire, or agree to acquire, directly or indirectly, by purchase or
otherwise, any voting securities or direct or indirect rights to acquire any
voting securities of and issued by, the Company or any parent or subsidiary
thereof, or of any Successor (as defined below), or any assets of the Company
or any parent or subsidiary or division thereof or of any such Successor, which
may be outstanding on the date hereof or subsequently issued during such three
year period (except as provided herein in paragraph 2(b) with respect to stock
options to be granted to Executive and any other securities of the Company
currently held by the Executive as of the date hereof); (ii) make or any in way
participate in, directly or indirectly, any "solicitation" of "proxies" (as
such terms are used in the rules of the Securities Exchange Commission) to
vote, or seek to advise or influence any person or entity with respect to the
voting of, any voting securities of the Company (or any parent or subsidiary
thereof); (iii) make any public announcement with respect to, or submit a
proposal for, or offer of (with or without conditions) any extraordinary
transaction involving the Company (or any parent or subsidiary thereof) or its
(or their) securities or assets; (iv) form join or in any way participate in a
"group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended) in connection with any of the
8
<PAGE> 9
foregoing; (v) otherwise act, alone or in concert with others, to seek control
or influence the management, Board of Directors or policies of the Company (or
any parent or subsidiary thereof); (vi) disclose any intention, plan or
arrangement inconsistent with the foregoing; (vii) advise, assist or encourage
any other persons in connection with any of the foregoing, or (viii) contact,
discuss, make comments to or otherwise provide information to any analysts,
major stockholders, reporters or other members of the media respecting the
Company (or its parents or subsidiaries), or its (or their) plans. Executive
also agrees during such period not to request the Company or any of its
representatives, directly or indirectly, to amend or waive any provision of
this paragraph (including this sentence) or take any action which might require
the Company to make a public announcement regarding the possibility of an
extraordinary transaction involving the Company or its securities or assets.
Notwithstanding the foregoing, Executive shall be entitled to receive and own
all securities distributed in respect of, or issued in exchange for any voting
securities owned by him which were not acquired in violation of this Agreement.
As used herein, "Successor" shall mean any entity which in a transaction
succeeds to substantially all of the Company's assets or which acquires
substantially all of its stock so long as, in either case, holders of a
majority of the Company's voting securities immediately prior to such
transaction beneficially own a majority of the voting securities of such entity
immediately thereafter.
9. Non-Solicitation; Non-Hire: Executive shall not
solicit or induce any employee of any of the Protected Companies (as that term
is defined in Section 8(b)(i) of the Employment Agreement) to terminate such
employment or to become employed by any other
9
<PAGE> 10
company or entity for a period of three years after the date of this Agreement.
Executive shall not hire or cause to be hired by any other person, company or
entity or permit any other person, company, or entity, over which Executive has
control to hire any employee of the Protected Companies for a period of three
years after the date of the Agreement.
10. Consultancy: Subject to Executive's continuing
compliance with the terms and provisions of this Agreement, Executive shall be
retained as a consultant to the Company from the Termination Date through April
13, 2003, (the "Consulting Period"). Executive shall be compensated in an
amount equivalent to $2,500,000 for each full year (or such prorated portion
thereof for a period less than a year) he is retained as a consultant pursuant
to this paragraph. Payments shall be made in equal quarterly installments of
$625,000 each on the 15th day of each July, October, January and April during
the Consulting Period, beginning on July 15, 1998. Executive shall perform
such consulting services to the Company from time to time during the Consulting
Period as the Company may reasonably request; provided, that nothing shall
require Executive to travel outside of Dallas, Texas; provided, further, that
the Company shall reimburse Executive for all reasonably documented
out-of-pocket expenses incurred in connection with the provision of such
services. For all purposes of the Company's health benefit and medical
insurance plans and for tax purposes (to the extent permitted pursuant to such
plans), until the earlier to occur of (i) the end of the Consulting Period and
(ii) such time as Executive obtains employment and is eligible for similar
coverages provided by such new employer, Executive shall be deemed to be an
employee of the Company.
10
<PAGE> 11
11. Notices: Any notice required or permitted by this
Agreement shall be in writing, sent by registered or certified mail, return
receipt requested, addressed to the Board of Directors and the Company at its
then principal office, or to the Executive at the address set forth on the
signature page hereof, as the case may be, or to such other address or
addresses as any party hereto may from time to time specify in writing for the
purpose in a notice given to the other parties in compliance with this
paragraph 11. Notices shall be deemed given when received.
12. Executive's Acknowledgments: Executive acknowledges
that before entering into this Agreement he has had the opportunity to consult
with any attorney or other advisor of his choice, and has done so, and has not
relied in connection herewith on legal counsel for the Company. Executive
acknowledges that he has entered into this Agreement of his own free will, that
no promises or representations have been made to him by any person to induce
him to enter into this Agreement other than the terms expressly set forth
herein.
13. Authorization By The Company: The Company represents
and warrants to Executive that (i) it has the corporate power and authority to
enter into this Agreement and to carry out its respective obligations
hereunder; (ii) the execution, delivery and performance of this Agreement by
the Company and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary action on the part of the Company; and
(iii) this Agreement is a valid and binding obligation of the Company,
enforceable against it in accordance with its terms, except as the
enforceability
11
<PAGE> 12
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium,
and other laws now or hereafter in effect relating to the enforcement of
creditors' rights generally.
14. Prior Agreements: From and after the
Termination Date, this Agreement shall supersede the Employment Agreement
(which is hereby terminated and rendered null and void), except insofar as
certain provisions of the Employment Agreement are expressly continued or
incorporated by reference herein.
15. Survival of other Employment Agreement Provisions:
The provisions of Employment Agreement Sections 8(a), 8(c) (insofar as it
relates to Section 8(a)), 8(d) (insofar as it relates to Section 8(a)), 9, 13
(references therein to the Employment Term which relate to liability insurance
shall be to April 30, 2008 (to the extent available to cover prior officers and
directors), and such indemnification shall apply to any and all claims,
actions, suits and proceedings relating to or arising out of this Agreement,
the transactions contemplated hereby or Executive's services as a consultant)
and 15 are incorporated herein by reference, shall survive the Termination Date
and shall continue in full force and effect through the 10th anniversary of the
termination date of the Consulting Period defined in paragraph 10, above except
with respect to Section 15 which shall survive without limitation and shall
apply to all disputes arising hereunder (except with respect to the parties'
rights to an injunction as set forth in paragraph 21 hereof). Except as
specifically described herein, all of Executive's rights and obligations under
the Employment Agreement are extinguished upon the effectiveness of this
Agreement.
12
<PAGE> 13
16. Modification: This Agreement may not be modified or
amended except in writing signed by the parties. No term or condition of this
Agreement will be deemed to have been waived except in writing by the party
charged with waiver. A waiver shall operate only as to the specific term or
condition waived and will not constitute a waiver for the future or act on
anything other than that which is specifically waived.
17. Counterparts: This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which,
together shall constitute one and the same instrument. Any counterpart of this
Agreement that has attached to it separate signature pages which together
contain the signature of all parties hereto shall for all purposes be deemed a
fully executed original. Facsimile signatures shall constitute original
signatures.
18. Successors and Assigns: All the terms and provisions
of this Agreement shall be binding upon and inure to the benefit of the parties
hereto and to their respective successors and permitted assigns. Neither this
Agreement nor any rights or obligations hereunder may be assigned by the
Executive, other than by will or the laws of descent or distribution.
19. Separability: All provisions of this Agreement are
intended to be severable. In the event any provision or restriction contained
herein is held to be invalid or unenforceable in any respect, in whole or in
part, such finding shall in no way affect the validity or enforceability of any
other provision of this Agreement. The parties hereto further agree that any
such invalid or unenforceable provision shall be deemed modified so
13
<PAGE> 14
that it shall be enforced to the greatest extent permissible under law, and to
the extent that any court or arbitrator of competent jurisdiction determines
any restriction herein to be unreasonable in any respect, such court or
arbitrator may limit this Agreement to render it reasonable in the light of the
circumstances in which it was entered into and specifically enforce this
Agreement as limited.
20. Governing Law: The terms of this Agreement shall be
governed by the laws of the State of New York without regard to conflict of law
principles.
21. Injunction: Executive and the Company hereby
expressly acknowledge that any breach or threatened breach by the other of any
of their respective obligations set forth in paragraph 7 (Non-Disparagement),
paragraph 8 (Standstill), and paragraph 9 (Non-Solicitation; Non-Hire) may
result in significant and continuing injury to the Company or the Executive, as
the case may be, the monetary value of which would be impossible to establish.
Therefore, Executive and the Company agree that the non-breaching party shall
be entitled to apply for injunctive relief in a court of appropriate
jurisdiction and to an award of attorneys' fees, costs and expenses incurred in
connection with such proceeding.
22. Facility of Payment: All cash payments to be made by
the Company to or on behalf of Executive hereunder shall be an obligation of
and made by Los Angeles.
23. Joint Press Release: Upon execution of this
Agreement, Executive and the Company shall issue a joint press release in the
form attached hereto as Exhibit A. None of the parties hereto will make any
public statements that are inconsistent with, or are otherwise contrary to, the
statements in such joint press release.
14
<PAGE> 15
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed in its corporate name by a director thereof thereunto duly
authorized, and Executive has hereunto set his hand, as of the day and year
first above written.
CHANCELLOR MEDIA CORPORATION
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES
By:
-------------------------------
Thomas O. Hicks
Chairman of the Board
Interim President and Chief
Executive Officer
-----------------------------------
SCOTT K. GINSBURG
Address: 17340 Club Hill Drive
Dallas, Texas 75248
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EXHIBIT A
PRESS RELEASE
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EXHIBIT 10.45
EXECUTION COPY
EMPLOYMENT AGREEMENT
BETWEEN
CHANCELLOR MEDIA CORPORATION
AND
JEFFREY A. MARCUS
This Employment Agreement (this "Agreement") is made and
entered into this 29th day of April, 1998 (the "Execution Date"), to be
effective as of June 1, 1998 (the "Effective Date"), between Chancellor Media
Corporation, a Delaware corporation (the "Company"), and Chancellor Media
Corporation of Los Angeles, a Delaware corporation ("Los Angeles") and Jeffrey
A. Marcus (the "Executive"), residing at 6901 Turtle Creek Blvd., Dallas, Texas
75205.
W I T N E S S E T H:
WHEREAS, the Company has a need for executive management
services; and
WHEREAS, the Executive is qualified and willing to render such
services to the Company; and
WHEREAS, the parties hereto desire to enter into an employment
agreement for the services of the Executive, on the terms and conditions as set
forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and obligations hereinafter set forth, the parties agree as
follows:
1. DEFINITIONS
The following terms used in this Agreement shall have the
meaning specified below unless the context clearly indicates the contrary:
"Annual Bonus" shall mean the annual incentive bonus payable
to the Executive described in Section 4.
"Average Bonus" shall mean the greater of (a) (i) the total of
the Annual Bonuses paid hereunder with respect to the Employment Term, divided
by (ii) the length of such portion of the Employment Term in years (including
fractions) as falls on or prior to the last December 31 thereof and (b) Two
Million Dollars ($2,000,000).
<PAGE> 2
"Base Salary" shall mean the annual base salary payable to the
Executive at the rate set forth in Section 4.
"Board" shall mean the Board of Directors of the Company.
"Cause" shall mean the Executive's (a) habitual neglect of his
material duties or failure to perform his material obligations under this
Agreement, (b) refusal or failure to follow lawful directives of the Board, (c)
commission of an act of fraud, theft or embezzlement, or (d) conviction of a
felony or other crime involving moral turpitude; provided, however, that the
Company shall give the Executive written notice of any actions alleged to
constitute Cause under subsections (a) and (b) above, and the Executive shall
have a reasonable opportunity (as specified by the Compensation Committee) to
cure any such alleged Cause.
"Change in Control" shall mean (a) the sale, lease or other
transfer of all or substantially all of the assets of the Company to any person
or group (as such term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended); (b) the adoption by the stockholders of the Company
of a plan relating to the liquidation or dissolution of the Company; (c) the
merger or consolidation of the Company with or into another entity or the
merger of another entity into the Company or any subsidiary thereof with the
effect that immediately after such transaction the stockholders of the Company
immediately prior to such transaction (or their Related Parties) hold less than
fifty percent (50%) of the total voting power of all securities generally
entitled to vote in the election of directors, managers or trustees of the
entity surviving such merger or consolidation; (d) the acquisition by any
person or group of more than fifty percent (50%) of the voting power of all
securities of the Company generally entitled to vote in the election of
directors of the Company; or (e) the majority of the Board is composed of
members who (i) have served less than twelve (12) months and (ii) were not
approved by a majority of the Board at the time of their election or
appointment.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Common Stock" shall mean $0.01 par value common stock of the
Company.
"Compensation Committee" shall mean the Compensation Committee
of the Board.
"Consumer Price Index" shall mean the Consumer Price Index for
All Urban Consumers (1982-84=100) for all cities as reported by the United
States Bureau of Labor Statistics.
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"Contract Year" shall mean each twelve (12) consecutive month
period during the Employment Term, which begins on the Effective Date and each
annual anniversary thereof.
"Employment Inducements" shall mean any compensation,
including, without limitation, signing bonuses and stock options, that are paid
or granted to other senior officers of the Company in connection with such
officers' initial hiring by the Company, or in connection with the extension of
the term of such senior officers' employment agreements with the Company.
"Employment Term" shall mean the period beginning on the
Effective Date and ending on the close of business on the effective date of the
Executive's termination of employment with the Company.
"Excise Tax" shall mean the taxes imposed by Code Section
4999.
"Expiration Date" shall have the meaning ascribed to such term
in Section 2.
"Good Reason" shall mean (a) the Company's material breach of
any provision hereof, (b) any adverse change in the Executive's job
responsibilities, duties, functions, status, offices, title, perquisites or
support staff, (c) relocation of the Executive's regular work address without
his consent, (d) the Executive's failure, at any time, to be permitted to serve
as a member of the Board or (e) a Change in Control, provided, however, that
the Executive shall give the Company written notice of any actions (other than
those set out in subsections (c) (only as it relates to a location outside of
the Dallas/Fort Worth area), (d) or (e) above) alleged to constitute Good
Reason and the Company shall have a reasonable opportunity to cure any such
alleged Good Reason.
"Option Agreement" shall mean the agreement between the
Executive and the Company pursuant to which any Option is granted to the
Executive.
"Option Plan" shall mean the 1998 Chancellor Media Corporation
Stock Option Plan, as amended from time to time, and any successor thereto,
subject to obtaining stockholder's approval of the Option Plan (which will be
submitted to the Company's stockholders at the 1998 annual meeting of
stockholders with the recommendation of the Board).
"MCC" shall have the meaning ascribed to such term in Section
3(c)(ii).
"Options" shall mean the non-qualified stock options to be
granted to the Executive hereunder.
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"Permanent Disability" shall mean the Executive's inability to
perform the duties contemplated by this Agreement by reason of a physical or
mental disability or infirmity which has continued for more than ninety (90)
working days (excluding vacation) in any twelve (12) consecutive month period
as determined by the Board. The Executive agrees to submit such medical
evidence regarding such disability or infirmity as is reasonably requested by
the Board.
"Related Parties" shall mean with respect to any person (a)
the spouse and lineal ascendants and descendants of such person, and any
sibling of any of such persons and (b) any trust, corporation, partnership or
other entity, the beneficiaries, stockholders, partners, owners or persons
beneficially holding an eighty percent (80%) or more controlling interest of
which consist of persons referred to in subsection (a) above.
"Termination of Employment" shall mean the first to occur of
the following events:
(a) the date of death of the Executive;
(b) the effective date specified in the Company's
written notice to the Executive of the termination of his employment
as a result of his Permanent Disability, which effective date shall
not be earlier than the ninety-first (91st) working day (excluding
vacation) following the commencement of the Executive's inability to
perform his duties hereunder;
(c) the effective date specified in the Company's
written notice to the Executive of the Company's termination of his
employment without Cause;
(d) the effective date specified in the Company's
written notice to the Executive of the Company's termination of his
employment for Cause;
(e) the effective date specified in the
Executive's written notice to the Company of the Executive's
termination of his employment for Good Reason;
(f) the effective date specified in the
Executive's written notice to the Company of the Executive's
termination of his employment without Good Reason; and
(g) the date the Executive's employment
terminates pursuant to Section 2.
"Termination without Cause" shall mean a termination by the
Company of the Executive's employment without Cause.
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2. EMPLOYMENT
The Executive's Employment Term shall become effective and
begin as of the Effective Date hereof, and shall continue until the close of
business on the fifth (5th) anniversary of the Effective Date (the "Expiration
Date"), unless the Executive's employment is earlier terminated pursuant to a
Termination of Employment. The Executive will serve the Company subject to the
general supervision, advice and direction of the Board and upon the terms and
conditions set forth in this Agreement.
3. TITLE AND DUTIES
(a) The Executive's job title shall be President and
Chief Executive Officer of the Company. During the Employment Term the
Executive shall have such authority and duties as are usual and customary for
such position, and shall perform such other services and duties as the Board
may from time to time designate consistent with such position, including,
without limitation, general charge of the Company's business and the strategic
direction of the Company's business, subject to the direction and control of
the Board. Throughout the Employment Term, the Company shall also nominate the
Executive to serve as a member of the Board and upon such nomination Executive
shall agree to so serve.
(b) The Executive shall report solely to the Board. All
senior officers of the Company shall report directly or indirectly through
other senior officers, to the Executive, and the Executive shall be responsible
for reviewing the performance of other senior officers of the Company, and
shall from time to time advise the Board of his recommendations for any
adjustments to the salaries of and bonus payments to such officers. The
Executive shall be responsible for and, subject to discussion with and
ratification by the Board, have the authority to enter into, employment
contracts on behalf of the Company with other executives of the Company.
(c) The Executive shall devote his best efforts and such
business time to the business affairs of the Company as may be reasonably
necessary for the discharge of his duties as President and Chief Executive
Officer. The Executive may not engage in any other venture which is directly
or indirectly in conflict or competition with the then existing business of the
Company, nor may the Executive accept employment with any other individual or
other entity; provided, however, the Executive may devote reasonable time and
attention to:
(i) serving as a director of, or member of a
committee of the directors of, any not-for-profit organization or
engaging in other charitable or community activities;
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(ii) serving as (A) Chairman, President and
Chief Executive Officer of Marcus Cable Company, L.P., and any of its
affiliated companies ("MCC") and (B) an officer, director and
stockholder of Marcus Cable Properties, Inc., the ultimate general
partner of MCC; provided, however, the Executive shall no longer serve
as President and Chief Executive Officer of MCC following the earlier
to occur of (i) six (6) months after the Execution Date (subject to an
additional six (6) month extension at the reasonable discretion of the
Chairman of the Board), or (ii) a replacement President and Chief
Executive Officer of MCC is appointed; and
(iii) serving as a member of the board of
directors (or other governing body) of MCC (or any successor entity)
and other corporations and organizations, so long as such activities
do not interfere unreasonably with the Executive's duties hereunder.
4. COMPENSATION AND BENEFITS
(a) Base Compensation. Subject to Section 4(c) hereof,
during the Employment Term, the Company shall pay the Executive, in
installments according to the Company's regular payroll practice, Base Salary
at the annual rate of One Million One Hundred Twenty-Five Thousand Dollars
($1,125,000) for the first (1st) Contract Year; and for each subsequent
Contract Year an amount equal to the product of
(i) the Base Salary for the immediately
preceding Contract Year; and
(ii) the ratio of the Consumer Price Index for
the last complete calendar month in such preceding Contract Year to
the Consumer Price Index for the same month in the year preceding such
preceding Contract Year.
(b) Annual Incentive Bonus. Subject to Section 4(c)
hereof, the Executive shall be entitled to an Annual Bonus for each calendar
year of which he is employed hereunder on the last day thereof and also for the
calendar year, if any, in which this contract expires pursuant to Section 2.
Such Annual Bonus for any such calendar year shall be as determined by the
Compensation Committee in its reasonable discretion; provided, however, the
Annual Bonus shall in no event be less than Two Million Dollars ($2,000,000)
nor greater than Four Million Dollars ($4,000,000); provided, further, the
Annual Bonus for any partial calendar year shall be adjusted pro rata for the
portion of the calendar year contained within the Employment Term. The
Executive's Annual Bonus earned with respect to each calendar year shall be
paid at the same time as annual incentive bonuses with respect to that calendar
year
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are paid to other senior executives of the Company generally, but in no event
later than March 31 of the following calendar year.
(c) Agreed Salary Adjustment. Notwithstanding the
provisions of Sections 4(a) and 4(b) hereinabove, in the event any other
employee of the Company shall be paid total gross cash compensation (exclusive
of Employment Inducements) in any calendar year after the Execution Date that
is greater than eighty percent (80%) of the total gross cash compensation in
such calendar year paid to the Executive pursuant to Sections 4(a) and 4(b)
hereinabove (the "Agreed Ratio"), the amounts paid to the Executive pursuant to
Sections 4(a) and 4(b) hereinabove, shall be increased so that such employee's
total gross cash compensation does not exceed the Agreed Ratio.
(d) Stock Options.
(i) On the Execution Date hereof the Executive
shall be granted Options to purchase One Million Two Hundred Fifty
Thousand (1,250,000) shares of Common Stock.
(ii) All Options described in paragraph (i)
shall be granted subject to the following terms and conditions: (A)
the Options shall be granted under and subject to the Option Plan; (B)
the exercise price of the Options shall be $42.125 per share (the
price per share at the close of trading on April 28, 1998); (C)
one-half of the Options under paragraph (i) shall be vested on the
date of grant, and one-half of the Options under paragraph (i) shall
be vested on the eighteenth (18th) month anniversary of the date of the
grant; (D) each Option shall be exercisable for the ten (10) year
period following the date of the grant, subject, however, to such
approval by the shareholders of the Company as is sufficient to
satisfy the requirements for listing of the Common Stock on the Nasdaq
National Market System; and (E) each Option shall be evidenced by, and
subject to, an Option Agreement.
(iii) Subject to paragraph (vi) hereinbelow, on
each annual anniversary of the Effective Date hereof on which the
Executive remains employed hereunder, the Executive shall be granted
Options to purchase Two Hundred Thousand (200,000) shares of Common
Stock. In the event the Executive's employment hereunder is
terminated by the Company without Cause or by the Executive for Good
Reason prior to the Expiration Date, the Executive shall be granted,
as of the date of such Termination of Employment, a number of Options
equal to One Million (1,000,000) minus the number of Options
previously granted pursuant to the immediately preceding sentence. If
the Employment Term continues beyond the Expiration Date, the
Compensation Committee shall have the discretion to grant additional
Options to the Executive with respect to such continued employment.
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(iv) All Options described in paragraph (iii)
shall be granted subject to the following terms and conditions: (A)
the Options shall be granted under and subject to the Option Plan; (B)
the exercise price of the Options shall be the last reported sale
price of the Common Stock on the Nasdaq National Market System (or
other principal trading market for the Common Stock) at the close of
the trading day immediately preceding the date as of which the grant
is made; (C) each Option shall be vested on the date of grant; (D)
each Option shall be exercisable for the ten (10) year period
following the date of the grant subject, however, to such approval by
the shareholders of the Company as is sufficient to satisfy the
requirements for listing of the Common Stock on the Nasdaq National
Market System; and (E) each Option shall be evidenced by, and subject
to, an Option Agreement.
(v) The Option Agreements shall specify that
the Options shall remain exercisable for the periods described in
paragraphs (ii) and (iv) above notwithstanding any Termination of
Employment.
(vi) Notwithstanding the provisions of paragraph
(iii) hereinabove, in the event any other employee of the Company
shall be granted Options (exclusive of Employment Inducements) in any
calendar year that are greater than eighty percent (80%) of the total
Options in such calendar year granted to the Executive (the "Agreed
Option Ratio"), the Options granted to the Executive pursuant to
paragraph (iii) hereinabove, shall be increased so that the grant of
such Options (exclusive of Employment Inducements) to such other
employee does not exceed the Agreed Option Ratio.
(e) Vacation. During each complete twelve (12) month
period of the Employment Term, the Executive shall be entitled to no fewer than
four (4) weeks of paid vacation (unless, based on his length of service with
the Company and his position with the Company, the Executive is entitled to a
greater number of weeks of paid vacation under the Company's generally
applicable vacation policy, as determined by the Compensation Committee).
(f) Employee Benefit Plans. During the Employment Term,
the Executive shall be entitled to participate in all pension, profit sharing
and other retirement plans, all incentive compensation plans and all group
health, hospitalization and disability insurance plans and other employee
welfare benefit plans (in the case of any group health, hospitalization and
disability plans and other employee welfare benefit plans currently provided to
the Executive by MCC, after the Executive no longer participates in such plan
or plans) in which other senior executives of the Company may participate, on
terms and conditions no less favorable than those which apply to such other
senior executives of the Company.
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(g) Company Payment of Health Benefit Coverage. During
the Employment Term, the Company shall pay the amount of premiums or other cost
incurred for coverage of the Executive and his eligible spouse and dependent
family members under the applicable Company health benefits arrangement
(consistent with the terms of such arrangement).
(h) Life Insurance Policy. In addition to the insurance
coverage contemplated by Section 4(f), during the Employment Term the Company
shall maintain in effect term life insurance coverage for the Executive with a
death benefit of at least Five Hundred Thousand Dollars ($500,000), subject to
the Executive's insurability at standard rates and with the beneficiary or
beneficiaries thereof designated by the Executive. Notwithstanding Section 9 of
this Agreement, such life insurance policy or policies may be assigned to a
trust for the benefit of any beneficiary designated by the Executive.
(i) Automobile and Parking Allowance. During the
Employment Term, the Company shall (A) after the Executive no longer has use of
any automobile provided by MCC, (i) provide the Executive with the use of a
luxury automobile selected by the Executive with a retail sales price of not
more than One Hundred Thousand Dollars ($100,000), which automobile may be
traded, in Executive's discretion, every two (2) years during the Employment
Term, and (ii) pay all insurance and all other expenses related to the business
operation of such automobile, and (B) provide the Executive with a parking
space at the Executive's offices maintained in Dallas County, Texas.
(j) Use of Company Aircraft. During the Employment Term,
the Company shall provide the Executive with (i) priority use of aircraft
operated by or for the Company which shall be equal to or better than the
quality of a Gulfstream III airplane (the "Company Aircraft"), for all business
uses, and (ii) subject at all times to the Company's priority for business
purposes, unlimited priority use of the Company Aircraft for personal use at
the then most favorable applicable hourly charge being charged to other users
of the Company Aircraft.
(k) Office Facilities. As soon as practicable after the
Effective Date, and at all times during the Employment Term, the Company shall
(to the extent practicable) provide the Executive with office space in the same
building as the offices of Hicks, Muse, Tate & Furst Incorporated, or, if such
office space is not available, in a comparable location of the Executive's
choosing. Such office space shall be of a layout and include furnishings that
are similar to offices utilized by presidents and chief executive officers of
comparable companies in the area, and shall include private bathroom
facilities.
(l) Execution Bonus. Within fifteen (15) days after the
execution and delivery of this Agreement, the Company shall pay to the
Executive a one-time execution bonus in the gross amount of One Million Dollars
($1,000,000).
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(m) Other Benefits. During the Employment Term, the
Company shall provide the Executive with, or pay or reimburse the Executive
for:
(i) the cost incurred for membership of the
Executive in a metropolitan lunch club of the Executive's choosing,
and for membership of the Executive and his spouse and dependent
family members in the athletic club of the Executive's choosing and in
the country club of the Executive's choosing.
(ii) the actual cost for year-round personal
security services that are, in the Executive's reasonable judgment,
necessary or desirable to ensure the safety and security of the
Executive and the Executive's family.
(iii) the actual cost of annual preparation of
the Executive's federal income tax returns.
(iv) the actual cost of two (2) secretaries or
assistants at an aggregate annual gross salary for both such persons
of approximately One Hundred Twenty Seven Thousand Dollars ($127,000)
and one (1) personal accountant at a gross salary of approximately
Sixty-One Thousand Dollars ($61,000), subject in all cases to annual
salary increases consistent with those available to the other members
of the Company's support staff.
5. REIMBURSEMENT OF EXPENSES
In addition to the compensation provided for under Section 4
hereof, upon submission of proper vouchers, the Company will pay or reimburse
the Executive for all normal and reasonable travel and entertainment expenses
incurred by the Executive during the Employment Term in connection with the
Executive's responsibilities to the Company. The Company shall also reimburse
the Executive for all reasonable attorneys' fees incurred in connection with
the negotiation and execution of this Agreement.
6. TERMINATION BENEFITS
(a) Upon the termination of the Executive's employment
with the Company for any reason, the Company shall provide the Executive (or,
in the case of his death, his estate or other legal representative), any Annual
Bonus earned but not yet paid with respect to the preceding calendar year, all
benefits due him under the Company's benefits plans and policies for his
services rendered to the Company prior to the date of such termination
(according to the terms of such plans and policies), and, not later than ninety
(90) days after
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such termination, in a lump sum, all Base Salary earned through the date of
such termination. The Executive shall be entitled to the payments and benefits
described below only as each is applicable to such termination of employment.
(b) In the event that the Executive's employment
hereunder is terminated by the Company without Cause or by the Executive for
Good Reason (but not by reason of expiration or non-renewal of this Agreement),
and subject to the last sentence of this subsection (b), the Company shall make
a one-time cash payment to the Executive in a gross amount such that the net
payments retained by the Executive after payment of any applicable Excise Tax
with respect to such payment, and the payment of any income taxes on the amount
over Six Million Two Hundred Fifty Thousand Dollars ($6,250,000) that is so
grossed-up and paid to the Executive on account of any applicable Excise Tax,
shall equal Six Million Two Hundred Fifty Thousand Dollars ($6,250,000). Such
payment shall be made at the time of any such termination without Cause or
within thirty (30) days of any such resignation for Good Reason. Such payment
shall be in full satisfaction of all obligations of the Company to the
Executive hereunder (other than those obligations set forth in subsection (a))
and shall be conditioned on the Executive giving a general release of the
Company and affiliates in the form used generally by the Company in the case of
the termination of employment of senior executives.
(c) Notwithstanding the provisions of Section 6(b)
hereinabove, in the event the Company shall at any time after the Execution
Date agree to pay cash termination benefits to any other employee of the
Company that are greater than eighty percent (80%) of the cash termination
benefits agreed to be paid to the Executive pursuant to Section 6(b)
hereinabove (the "Agreed Termination Ratio"), the amounts agreed to be paid to
the Executive pursuant to Section 6(b) hereinabove, shall be increased so that
such employee's cash termination benefits do not exceed the Agreed Termination
Ratio.
(d) (i) In the event that the Executive elects to
terminate his employment hereunder other than for Good Reason, the
Company, in consideration for the Executive's agreement in Section
7(b), shall continue to pay him his Base Salary as set forth in
Section 4(a) through the fifth (5th) anniversary of the Effective
Date.
(ii) In addition, in such event, the Company
may, by written notice to the Executive given no later than fifteen
(15) days following his termination of employment, elect to require
the Executive to observe the provisions of Section 7(c) hereof. In
such event, the Company shall, on the last day of each calendar year
through December 31, 2003 make a payment to him equal to the product
of his Average Bonus and the fraction of such calendar year which
precedes the Expiration Date.
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(e) In the event that the Executive's employment is
terminated by reason of expiration or non-renewal of this Agreement the Company
shall make a (1) one-time cash payment to the Executive equal to two (2) times
the amount of his annual Base Salary payable for the Contract Year ending on
(or in which falls) the date of Termination of Employment. Such payment shall
be made at the time of such Termination of Employment. Such payment shall be
in full satisfaction of all obligations of the Company to the Executive
hereunder (other than those obligations set forth in subsection (a)) and shall
be conditioned on the Executive giving a general release of the Company and
affiliates in the form used generally by the Company in the case of the
termination of employment of senior executives.
(f) In the event of any Termination of Employment, the
Executive shall not be required to seek other employment to mitigate damages,
and any income earned by the Executive from other employment or self-employment
shall not be offset against any obligations of the Company to the Executive
under this Agreement.
7. PROTECTED INFORMATION; PROHIBITED SOLICITATION
(a) The Executive hereby recognizes and acknowledges that
during the course of his employment by the Company, the Company will furnish,
disclose or make available to the Executive confidential or proprietary
information related to the Company's business, including, without limitation,
customer lists, ideas and formatting and programming concepts and plans, that
such confidential or proprietary information has been developed and will be
developed through the Company's expenditure of substantial time and money, and
that all such confidential information could be used by the Executive and
others to compete with the Company. The Executive hereby agrees that all such
confidential or proprietary information shall constitute trade secrets, and
further agrees to use such confidential or proprietary information only for the
purpose of carrying out his duties with the Company and not to disclose such
information unless required to do so by subpoena or other legal process. No
information otherwise in the public domain (other than by an act of the
Executive in violation hereof) shall be considered confidential.
The Executive further agrees that all memoranda, notices,
files, records and other documents concerning the business of the Company, made
or compiled by the Executive during the period of his employment or made
available to him, shall be the Company's property and shall be delivered to the
Company upon its request therefor and in any event upon the termination of the
Executive's employment with the Company, provided, however, that the Executive
shall be permitted to retain copies of personal correspondence generated or
received by him during the Employment Term, subject to the use restrictions of
this Section 7(a).
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(b) The Executive hereby agrees, in consideration of his
employment hereunder and in view of the confidential position to be held by the
Executive hereunder, that after any Termination of Employment, and through the
Expiration Date the Executive will not directly or indirectly induce any
employee of any of the Protected Companies (as defined below) to terminate such
employment or to become employed by any other radio broadcasting station.
(c) Should the Company make the election set forth in
Section 6(d)(ii), the Executive further agrees that, from and after the
Termination of Employment and through the Expiration Date, he shall not be
employed by or perform activities on behalf of, or have an ownership interest
in, (i) any radio or television broadcasting station serving the same "Area of
Dominant Influence" (as reported by Arbitron) as any of the radio or television
broadcasting stations owned by the Company or its subsidiaries or affiliates,
or the subsidiaries or affiliates of the Company's direct or indirect
stockholders (collectively the "Protected Companies"), or (ii) any person,
firm, corporation or other entity, or in connection with any business
enterprise, that is directly or indirectly engaged in any of the business
activities in which the Protected Companies have significant involvement
(collectively, the "Competing Business Areas"), in each case at the effective
time of such Termination of Employment (other than beneficial ownership of up
to five percent (5%) of the outstanding voting stock of a publicly traded
company that owns such a competitor); provided, however, the foregoing shall
not prohibit the Executive from being employed by or performing activities on
behalf of, or having an ownership interest in, any entity that principally is
in the business of owning or operating cable television systems or otherwise
providing multi-channel video service, two-way return interactive high speed
data service, or telephony service.
(d) The restrictions in this Section 7, to the extent
applicable, shall survive the termination of this Agreement and shall be in
addition to any restrictions imposed upon the Executive by statute or at common
law.
(e) The parties hereby acknowledge that the restrictions
in this Section 7 have been specifically negotiated and agreed to by the
parties hereto and are limited only to those restrictions necessary to protect
the Protected Companies from unfair competition. The parties hereby agree that
if the scope or enforceability of any provision, paragraph or subparagraph of
this Section 7 is in any way disputed at any time, and should a court find that
such restrictions are overly broad, the court may modify and enforce the
covenant to the extent that it believes to be reasonable under the
circumstances. Each provision, paragraph and subparagraph of this Section 7 is
separable from every other provision, paragraph, and subparagraph and
constitutes a separate and distinct covenant. The Executive acknowledges that
the Protected Companies operate in major and medium sized markets throughout
the United States and that the effect of Section 7(c) may be to prevent him
from working in the Competing Business Areas after his termination of
employment hereunder.
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8. INJUNCTIVE RELIEF
The Executive hereby expressly acknowledges that any breach or
threatened breach by the Executive of any of the terms set forth in Section 7
of this Agreement may result in significant and continuing injury to the
Company, the monetary value of which would be impossible to establish.
Therefore, the Executive agrees that the Company shall be entitled to apply for
injunctive relief in a court of appropriate jurisdiction. The provisions of
this Section 8 shall survive the Employment Term.
9. PARTIES BENEFITED; ASSIGNMENTS
This Agreement shall be binding upon the Executive, his heirs
and his personal representative or representatives, and upon the Company and
Los Angeles and their respective successors and assigns. Neither this
Agreement nor any rights or obligations hereunder may be assigned by the
Executive, other than by will or by the laws of descent and distribution.
10. NOTICES
Any notice required or permitted by this Agreement shall be in
writing, sent by registered or certified mail, return receipt requested,
addressed to the Board and the Company at its then principal office, or to the
Executive at the address set forth in the preamble, as the case may be, or to
such other address or addresses as any party hereto may from time to time
specify in writing for the purpose in a notice given to the other parties in
compliance with this Section 10. Notices shall be deemed given when received.
11. GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
CONFLICT OF LAW PRINCIPLES.
12. INDEMNIFICATION AND INSURANCE; LEGAL EXPENSES
The Company shall indemnify the Executive to the fullest
extent permitted by the laws of the State of Delaware, as in effect at the time
of the subject act or omission, and shall advance to the Executive reasonable
attorneys' fees and expenses as such fees and
14
<PAGE> 15
expenses are incurred (subject to an undertaking from the Executive to repay
such advances if it shall be finally determined by a judicial decision which is
not subject to further appeal that the Executive was not entitled to the
reimbursement of such fees and expenses) and he will be entitled to the
protection of any insurance policies the Company may elect to maintain
generally for the benefit of its directors and officers ("Directors and
Officers Insurance") against all costs, charges and expenses incurred or
sustained by him in connection with any action, suit or proceeding to which he
may be made a party by reason of his being or having been a director, officer
or employee of the Company or any of its subsidiaries or his serving or having
served any other enterprise as a director, officer or employee at the request
of the Company (other than any dispute, claim or controversy arising under or
relating to this Agreement). The Company covenants to maintain during the
Employment Term for the benefit of the Executive (in his capacity as an officer
and director of the Company) Directors and Officers Insurance providing
benefits to the Executive no less favorable, taken as a whole, than the
benefits provided to the Executive by the Directors and Officers Insurance
maintained by the Company on the date hereof; provided, however, that the Board
may elect to terminate Directors and Officers Insurance for all officers and
directors, including the Executive, if the Board determines in good faith that
such insurance is not available or is available only at unreasonable expense.
13. REPRESENTATIONS AND WARRANTIES OF THE EXECUTIVE
The Executive represents and warrants to the Company that (a)
the Executive is under no contractual or other restriction which is
inconsistent with the execution of this Agreement, the performance of his
duties hereunder or the other rights of Company hereunder, and (b) the
Executive is under no physical or mental disability that would hinder the
performance of his duties under this Agreement.
14. DISPUTES
Any dispute or controversy arising under, out of, in
connection with or in relation to this Agreement shall, at the election and
upon written demand of either the Executive or the Company, be finally
determined and settled by arbitration in the city of the Company's headquarters
in accordance with the rules and procedures of the American Arbitration
Association, and judgment upon the award may be entered in any court having
jurisdiction thereof. The Company shall pay the costs and expenses of such
arbitration and the fees of the Executive's counsel and experts unless the
finder of fact determines that the Company is the prevailing party in such
arbitration.
15
<PAGE> 16
15. FACILITY OF PAYMENT
All cash payments to be made by the Company to or on behalf of
the Executive hereunder shall be an obligation of and made by Los Angeles.
16. MISCELLANEOUS
The provisions of this Agreement shall survive the termination
of the Executive's employment with the Company. This Agreement contains the
entire agreement of the parties relating to the subject matter hereof. This
Agreement supersedes any prior written or oral agreements or understandings
between the parties relating to the subject matter hereof. No modification or
amendment of this Agreement shall be valid unless in writing and signed by or
on behalf of the parties hereto. A waiver of the breach of any term or
condition of this Agreement shall not be deemed to constitute a waiver of any
subsequent breach of the same or any other term or condition. This Agreement
is intended to be performed in accordance with, and only to the extent
permitted by, all applicable laws, ordinances, rules and regulations. If any
provision of this Agreement, or the application thereof to any person or
circumstance, shall, for any reason and to any extent, be held invalid or
unenforceable, such invalidity and unenforceability shall not affect the
remaining provisions hereof and the application of such provisions to other
persons or circumstances, all of which shall be enforced to the greatest extent
permitted by law. The compensation provided to the Executive pursuant to this
Agreement shall be subject to any withholdings and deductions required by any
applicable tax laws. Any amounts payable under this Agreement to the Executive
after the death of the Executive shall be paid to the Executive's estate or
legal representative. The headings in this Agreement are inserted for
convenience of reference only and shall not be a part of or control or affect
the meaning of any provision hereof.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
16
<PAGE> 17
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first written above.
CHANCELLOR MEDIA CORPORATION
CHANCELLOR MEDIA CORPORATION OF
LOS ANGELES
By:
---------------------------------------------
Thomas O. Hicks
Chairman of the Board
Interim President and Chief Executive Officer
-------------------------------------------------
Jeffrey A. Marcus
17
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation of Los Angeles:
We consent to the inclusion in this Registration Statement on Form S-4 of
Chancellor Media Corporation of Los Angeles of our reports dated February 10,
1998, except for Notes 2(b) paragraphs 1 and 3-5 as to which the date is
February 20, 1998 and 9(a) as to which the date is March 13, 1998, on our audits
of the consolidated financial statements and financial statement schedule of
Chancellor Media Corporation of Los Angeles and Subsidiaries as of December 31,
1997 and for the year ended December 31, 1997. We also consent to the reference
to our firm under the captions "Experts" and "Selected Consolidated Historical
Financial Data."
Coopers & Lybrand L.L.P.
Dallas, Texas
May 5, 1998
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Chancellor Media Corporation of Los Angeles:
We consent to the use of our reports herein on the following financial
statements: 1) the consolidated balance sheet of Chancellor Media Corporation of
Los Angeles and Subsidiaries as of December 31, 1996 and the related
consolidated statements of operations, stockholder's equity and cash flows for
the years ended December 31, 1995 and 1996; 2) the combined balance sheets of
WMZQ Inc. and Viacom Broadcasting East, Inc. as of December 31, 1995 and 1996
and the related combined statements of earnings and cash flows for each of the
years in the three-year period ended December 31, 1996; 3) the combined balance
sheets of Riverside Broadcasting Co., Inc. and WAXQ Inc. as of December 31, 1995
and 1996 and the related combined statements of earnings and cash flows for each
of the years in the three-year period ended December 31, 1996; 4) the balance
sheets of WLIT Inc. as of December 31, 1995 and 1996 and the related statements
of earnings and cash flows for each of the years in the three-year period ended
December 31, 1996 and 5) the combined balance sheets of KYSR Inc. and KIBB Inc.
as of December 31, 1995 and 1996 and the related combined statements of
operations and cash flows for each of the years in the three-year period ended
December 31, 1996. We also consent to the reference to our firm under the
heading "Experts" in the Registration Statement.
KPMG Peat Marwick LLP
Dallas, Texas
May 5, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation of Los Angeles:
We consent to the inclusion in this Registration Statement on Form S-4 of
Chancellor Media Corporation of Los Angeles of our report dated February 13,
1997, except for Note 15 as to which the date is February 19, 1997, on our
audits of the consolidated financial statements of Chancellor Radio Broadcasting
Company and Subsidiaries as of December 31, 1995 and 1996 and for each of the
three years in the period ended December 31, 1996. We also consent to the
reference to our firm under the caption "Experts".
Coopers & Lybrand L.L.P.
Dallas, Texas
May 5, 1998
<PAGE> 1
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Chancellor Media Corporation of Los Angeles:
We consent to the use of our report dated March 28, 1997, relating to the
balance sheets of WDAS-AM/FM (station owned and operated by Beasley FM
Acquisition Corp.) as of December 31, 1996 and the related statements of
earnings and station equity and cash flows for the year ended December 31, 1996,
and the reference to our firm under the heading "Experts" in the Registration
Statement.
KPMG Peat Marwick LLP
St. Petersburg, Florida
May 5, 1998
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation of Los Angeles:
As independent public accountants, we hereby consent to the use of our
report dated March 31, 1997 (and to all references to our Firm) included in this
Registration Statement on Form S-4 dated April , 1998 of Chancellor Media
Corporation of Los Angeles.
Arthur Andersen LLP
Washington, D.C.
May 5, 1998
<PAGE> 1
LETTER OF TRANSMITTAL
OFFER TO EXCHANGE
8 1/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B
FOR ALL OUTSTANDING
8 1/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A
OF
CHANCELLOR MEDIA CORPORATION
OF LOS ANGELES
PURSUANT TO THE PROSPECTUS DATED MAY 8, 1998
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON JUNE 8,
1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
TO: THE BANK OF NEW YORK, THE EXCHANGE AGENT
<TABLE>
<CAPTION>
<S> <C> <C>
By Hand or Overnight Delivery: Telephone Transmission: By Registered or Certified
The Bank of New York (for Eligible Institutions Mail:
101 Barclay Street Only) The Bank of New York
Corporate Trust Services (212) 815-6339 101 Barclay Street, 7E
Window New York, New York 10286
Ground Level Confirm by Telephone: Attention:
New York, New York 10286 (212) 815-2963 Santino Ginocchietti
Attention:
Santino Ginocchietti
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE FACSIMILE
NUMBER LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS
ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
The undersigned acknowledges receipt of the Prospectus dated May 8, 1998
(the "Prospectus") of Chancellor Media Corporation of Los Angeles, a Delaware
corporation (the "Company"), and this Letter of Transmittal (the "Letter of
Transmittal"), which together constitute (i) the Company's offer (the "Exchange
Offer") to exchange $1,000 principal amount of its 8 1/8% Senior Subordinated
Notes due 2007, Series B (the "Exchange Notes"), which have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to
a Registration Statement of which the Prospectus is a part, for each $1,000
principal amount of its outstanding 8 1/8% Senior Subordinated Notes due 2007,
Series A (the "Original Notes"), of which $500,000,000 principal amount is
outstanding. Capitalized terms used but not defined herein have the meanings
given to them in the Prospectus.
All holders of Original Notes who wish to tender their Original Notes must,
prior to the Expiration Date: (1) complete, sign, date and mail or otherwise
deliver this Letter of Transmittal to the Exchange Agent, in person or to the
address set forth above, or in lieu thereof, indicate assent to the terms of the
Letter of Transmittal by posting an Agent's Message (as defined in the
instructions) through the Automated Tender Offer Program ("ATOP") of The
Depository Trust Company ("DTC"); and (2) tender his or her Original Notes or,
if a tender of Original Notes is to be made by book-entry transfer to the
account maintained by the Exchange Agent at DTC (the "Book-Entry Transfer
Facility"), confirm such book-entry transfer (a "Book-Entry Confirmation"), in
each case in accordance with the procedures for tendering described in the
Instructions to this Letter of Transmittal. Holders of Original Notes whose
certificates are not immediately available, or who are unable to deliver their
certificates or Book-Entry Confirmation and all other documents required by this
Letter of Transmittal to be delivered to the Exchange Agent on or prior to the
Expiration
<PAGE> 2
Date, must tender their Original Notes according to the guaranteed delivery
procedures set forth under the caption "The Exchange Offer -- Procedures for
Tendering Original Notes" in the Prospectus. (See Instruction 1).
The term "Holder" with respect to the Exchange Offer means any person in
whose name the Original Notes are registered on the books of the Company or any
other person who has obtained a properly completed bond power from the
registered holder. The undersigned has completed, executed and delivered this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer. The Instructions included with this Letter
must be followed in their entirety. Questions and requests for assistance or for
additional copies of the Prospectus or this Letter may be directed to the
Exchange Agent, at the address listed above, or to Chancellor Media Corporation
of Los Angeles, 433 East Las Colinas Boulevard, Suite 1130, Irving, TX 75039
(telephone: (972) 869-9020).
<PAGE> 3
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING
THE INSTRUCTIONS TO THIS LETTER OF TRANSMITTAL, CAREFULLY
BEFORE CHECKING ANY BOX BELOW
Capitalized terms used in this Letter of Transmittal and not defined herein
shall have the respective meanings ascribed to them in the Prospectus.
List in Box 1 below the Original Notes of which you are the holder. If the
space provided in Box 1 is inadequate, list the certificate numbers and
principal amount of Original Notes on a separate SIGNED schedule and affix that
schedule to this Letter of Transmittal.
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF 8 1/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
AGGREGATE TENDERED(2)
PRINCIPAL (MUST BE IN
NAMES AND ADDRESS(ES) OF AMOUNT INTEGRAL
REGISTERED HOLDER(S) CERTIFICATE REPRESENTED BY MULTIPLES
(PLEASE FILL IN, IF BLANK) NUMBER(S)(1) CERTIFICATE(S)(1) OF $1,000)
- ------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
TOTAL
- ------------------------------------------------------------------------------------------------------------------------
(1) Need not be completed by holders tendering by book-entry transfer (see below).
(2) Unless otherwise indicated in the column labeled "Principal Amount Tendered," any tendering Holder of 8 1/8% Senior
Subordinated Notes due 2007, Series A will be deemed to have tendered the entire aggregate principal amount
represented by the column labeled "Aggregate Principal Amount Represented by Certificate(s)." If the space provided
above is inadequate, list the certificate numbers and principal amounts on a separate signed schedule and affix the
list to this Letter of Transmittal. The minimum permitted tender is $1,000 in principal amount of 8 1/8% Senior
Subordinated Notes due 2007, Series A. All other tenders must be in integral multiples of $1,000.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 4
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company the principal amount of Original Notes indicated
above. Subject to, and effective upon, the acceptance for exchange of the
principal amount of Original Notes tendered in accordance with this Letter of
Transmittal, the undersigned sells, assigns and transfers to, or upon the order
of, the Company all right, title and interest in and to the Original Notes
tendered hereby. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent its agent and attorney-in-fact (with full knowledge that the
Exchange Agent also acts as the agent of the Company) with respect to the
tendered Original Notes, with full power of substitution, to: (i) deliver
certificates for such Original Notes; (ii) deliver Original Notes and all
accompanying evidence of transfer and authenticity to or upon the order of the
Company upon receipt by the Exchange Agent, as the undersigned's agent, of the
Exchange Notes to which the undersigned is entitled upon the acceptance by the
Company of the Original Notes tendered under the Exchange Offer; and (iii)
receive all benefits and otherwise exercise all rights of beneficial ownership
of such Original Notes, all in accordance with the terms of the Exchange Offer.
The power of attorney granted in this paragraph shall be deemed to be
irrevocable and coupled with an interest.
By executing and delivering this Letter of Transmittal, the undersigned
acknowledges that, upon issuance of the Exchange Notes and payment by the
Company of amounts owing, as liquidated damages, additional interest of $0.01389
per $1,000 principal amount (the "Additional Interest"), under the Registration
Rights Agreement (the "Registration Rights Agreement"), dated December 22, 1997,
among the Company and the Initial Purchasers of the Original Notes, all of the
Company's obligations under the Registration Rights Agreement will have been
satisfied. The Additional Interest will be paid on June 15, 1998, the next
scheduled interest payment date, to holders of record of Exchange Notes on June
1, 1998, as provided in the Registration Rights Agreement.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, exchange, assign and transfer the Original Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim, when the same are acquired by the Company. The
undersigned will, upon request, execute and deliver any additional documents
deemed by the Company to be necessary or desirable to complete the exchange,
assignment and transfer of the Original Notes tendered.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance upon interpretations contained in letters issued to third parties by
the staff of the Securities and Exchange Commission that the Exchange Notes
issued in exchange for the Original Notes pursuant to the Exchange Offer may be
offered for resale, resold and otherwise transferred by Holders thereof (other
than any such Holder that is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such Holders' business and
such Holders have no arrangement with any person to participate in distribution
of such Exchange Notes. If the undersigned is not a broker-dealer, the
undersigned represents that it is not engaged in, and does not intend to engage
in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that
will receive Exchange Notes for its own account in exchange for Original Notes
that were acquired as a result of market-marking activities or other trading
activities, it acknowledges that it will deliver a prospectus in connection with
any resale of such Exchange Notes; however, by so acknowledging and by
delivering a prospectus, the undersigned will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
By tendering Original Notes, the Transferor certifies (a) that it is not an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act, that it is not a broker-dealer that owns Original Notes acquired directly
from the Company or an affiliate of the Company, that it is acquiring the
Exchange Notes offered hereby in the ordinary course of such Transferor's
business and that such Transferor has no arrangement with any person to
participate in the distribution of such Exchange Notes or (b) that it is an
"affiliate" (as so defined) of the Company or of the Initial Purchasers, and
that it will comply with the registration and prospectus delivery requirements
of the Securities Act to the extent applicable to it.
<PAGE> 5
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Original Notes when, as and if the Company has given
oral or written notice thereof to the Exchange Agent, at which time the
undersigned's right to withdraw such tender will terminate.
If any tendered Original Notes are not accepted for exchange pursuant to
the Exchange Offer for any reason, certificates for any such unaccepted Original
Notes will be returned, without expense, to the undersigned at the address shown
below or at a different address as may be indicated herein under "Special
Issuance Instructions" as promptly as practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, legal
representatives, successors, assigns, executors and administrators. Tenders may
be withdrawn only in accordance with the procedures set forth in the
Instructions contained in this Letter of Transmittal.
The undersigned understands that tenders of Original Notes pursuant to the
procedures described under the caption "The Exchange Offer-Procedures for
Tendering Original Notes" in the Prospectus and in the instructions hereto will
constitute a binding agreement between the undersigned and the Company upon the
terms and subject to the conditions of the Exchange Offer.
Unless otherwise indicated under "Special Issuance Instructions," the
Exchange Agent will issue the certificates representing the Exchange Notes
issued in exchange for the Original Notes accepted for exchange and will return
any Original Notes not tendered or not exchanged, in the name(s) of the
undersigned. Similarly, unless otherwise indicated under "Special Delivery
Instructions," the Exchange Agent will send the certificates representing the
Exchange Notes issued in exchange for the Original Notes accepted for exchange
and any certificates for Original Notes not tendered or not exchanged (and
accompanying documents, as appropriate) will be returned to, the undersigned at
the address shown below the undersigned's signature(s). In the event that both
"Special Issuance Instructions" and "Special Delivery Instructions" are
completed, the Exchange Agent will issue the certificates representing the
Exchange Notes issued in exchange for the Original Notes accepted for exchange
in the name(s) of, and will return any Original Notes not tendered or not
exchanged and will send said certificates to, the person(s) so indicated. The
undersigned recognizes that the Company has no obligation pursuant to the
"Special Issuance Instructions" and "Special Delivery Instructions" to transfer
any Original Notes from the name of the registered holder(s) thereof if the
Company does not accept for exchange any of the Original Notes so tendered.
Holders of Original Notes who wish to tender their Original Notes and (i)
whose Original Notes are not immediately available, or (ii) who cannot deliver
their Original Notes, this Letter of Transmittal or any other documents required
hereby to the Exchange Agent prior to the Expiration Date (or who cannot comply
with the book-entry transfer procedure on a timely basis) may tender their
Original Notes according to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery
Procedures." See Instruction 1 regarding the completion of this Letter of
Transmittal, printed below.
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND
COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS (AS HEREINAFTER
DEFINED) ONLY):
Name of Tendering Institution
-----------------------------------------------------------------------------
Account Number
-----------------------------------------------------------------------------
Transaction Code Number
-----------------------------------------------------------------------------
<PAGE> 6
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING
(FOR USE BY ELIGIBLE INSTITUTIONS ONLY):
Name(s) of Registered Original Noteholder(s)
------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
------------------------------------------------------
Window Ticket Number (if available)
---------------------------------------------------------------------
Name of Institution which Guaranteed Delivery
-------------------------------------------------------------
Account Number (if delivered by book-entry transfer)
-------------------------------------------------------
<PAGE> 7
PLEASE SIGN HERE WHETHER OR NOT
ORIGINAL NOTES ARE BEING PHYSICALLY TENDERED HEREBY
<TABLE>
<S> <C>
X
- ----------------------------------------------------------------- ---------------------------
Date
X
- ----------------------------------------------------------------- ---------------------------
Signature(s) of Registered Holder(s) Date or Authorized Signatory Date
</TABLE>
Area Code and Telephone Number:
----------------------------------
The above lines must be signed by the registered holder(s) of Original
Notes as their name(s) appear(s) on the Original Notes or by person(s)
authorized to become registered holder(s) by a properly completed bond power
from the registered holder(s), a copy of which must be transmitted with this
Letter of Transmittal. If Original Notes to which this Letter of Transmittal
relate are held of record by two or more joint holders, then all such holders
must sign this Letter of Transmittal. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, then such person must
(i) set forth his or her full title below and (ii) unless waived by the Company,
submit evidence satisfactory to the Company of such person's authority so to
act. See Instruction 4 regarding the completion of this Letter of Transmittal,
printed below.
Name(s):
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Print)
Capacity:
-----------------------------------------------------------------------
Address:
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
Signature(s) Guaranteed by an Eligible Institution (as hereinafter defined):
(If required by Instruction 4)
- --------------------------------------------------------------------------------
(Authorized Signature)
- --------------------------------------------------------------------------------
(Title)
- --------------------------------------------------------------------------------
(Name of Firm)
Dated:
---------------------------------
<PAGE> 8
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY (i) if certificates for Original Notes in a principal
amount not exchanged, or Exchange Notes issued in exchange for Original Notes
accepted for exchange, are to be issued in the name of someone other than the
undersigned, or (ii) if Original Notes tendered by book-entry transfer which are
not exchanged are to be returned by credit to an account maintained at DTC.
ISSUE CERTIFICATE(S) TO:
Name
--------------------------------------------------------------
(Please Print)
Address
-----------------------------------------------------------
(Including Zip Code)
- -------------------------------------------------------------------
(Tax Identification or Social Security No.)
Credit Original Notes not exchanged and delivered by book-entry transfer to the
DTC account set forth below:
- -------------------------------------------------------------------
DTC Account Number
SPECIAL DELIVERY INSTRUCTIONS 6
(SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certificates for Original Notes in a principal amount
not exchanged, or Exchange Notes issued in exchange for Original Notes accepted
for exchange, are to be sent to someone other than the undersigned, or to the
undersigned at an address other than that shown above.
MAIL TO:
Name
--------------------------------------------------------------
(Please Print)
Address
-----------------------------------------------------------
(Including Zip Code)
- -------------------------------------------------------------------
(Tax Identification or Social Security No.)
<PAGE> 9
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND ORIGINAL NOTES. The tendered
Original Notes or any confirmation of a book-entry transfer (a "Book-Entry
Confirmation"), as well as a properly completed and duly executed copy of this
Letter of Transmittal or facsimile hereof, or an Agent's Message (as defined
below) in lieu thereof, and any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent at its address set forth
herein prior to 5:00 p.m., New York City time, on the Expiration Date. The
method of delivery of the tendered Original Notes, this Letter of Transmittal,
or an Agent's Message (as defined below) in lieu thereof, and all other required
documents to the Exchange Agent is at the election and risk of the Holder and,
except as otherwise provided below, the delivery will be deemed made only when
actually received or confirmed by the Exchange Agent. Instead of delivery by
mail, it is recommended that the Holder use an overnight or hand delivery
service. In all cases, sufficient time should be allowed to assure timely
delivery. No Letter of Transmittal or Original Notes should be sent to the
Company.
The Exchange Agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may utilize DTC's ATOP to tender.
Accordingly, participants in DTC's ATOP may, in lieu of physically completing
and signing the Letter of Transmittal and delivering it to the Exchange Agent,
electronically transmit their acceptance of the Exchange Offer by causing the
DTC to transfer the Original Notes to the Exchange Agent in accordance with the
DTC's ATOP procedures for transfer. The DTC will then send an Agent's Message to
the Exchange Agent.
The term "Agent's Message" means a message transmitted by DTC received by
the Exchange Agent and forming part of the Book-Entry Confirmation, which states
that the DTC has received an express acknowledgment from a participant in DTC's
ATOP that is tendering Original Notes which are the subject of such book entry
confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal (or, in the case of an Agent's Message
relating to guaranteed delivery, that such participant has received and agrees
to be bound by the applicable Notice of Guaranteed Delivery), and that the
agreement may be enforced against such participant.
Holders who wish to tender their Original Notes and (i) whose Original
Notes are not immediately available, (ii) who cannot deliver their Original
Notes or any other documents required hereby to the Exchange Agent prior to the
Expiration Date or (iii) who are unable to complete the procedure for book-entry
transfer on a timely basis, must tender their Original Notes according to the
guaranteed delivery procedures set forth in the Prospectus. Pursuant to such
procedure: (i) such tender must be made by or through an Eligible Institution
(as hereinafter defined); (ii) prior to the Expiration Date, the Exchange Agent
must have received from the Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery (by facsimile transmission, mail or hand delivery) setting forth the
name and address of the Holder of the Original Note, and the principal amount of
Original Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three business days after the date of execution of the
Notice of Guaranteed Delivery, the certificate(s) for all physically tendered
Original Notes, or a Book-Entry Confirmation, and any other required documents
by the Letter of Transmittal will be deposited by the Eligible Institution (as
hereinafter defined) with the Exchange Agent; and (iii) the certificate(s) for
all physically tendered Original Notes, in proper form for transfer, or a Book-
Entry Confirmation, and, as the case may be, all other documents required by the
Letter of Transmittal, are received by the Exchange Agent within three business
days after the date of execution of the Notice of Guaranteed Delivery, all as
provided in the Prospectus under the caption "The Exchange Offer -- Guaranteed
Delivery Procedures." Any Holder of Original Notes who wishes to tender his
Original Notes pursuant to the guaranteed delivery procedures described above
must ensure that the Exchange Agent receives the Notice of Guaranteed Delivery
prior to 5:00 p.m., New York City time, on the Expiration Date. Upon request of
the Exchange Agent, a Notice of Guaranteed Delivery will be sent to Holders who
wish to tender their Original Notes according to the guaranteed delivery
procedures set forth above.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of the Original Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination
<PAGE> 10
shall be final and binding. The Company reserves the absolute right to reject
any and all tenders of any particular Original Notes not properly tendered or to
not accept any particular Original Notes which acceptance might, in the judgment
of the Company or its counsel, be unlawful. The Company also reserves the
absolute right in its sole discretion to waive any defects or irregularities or
conditions of the Exchange Offer as to any particular Original Note either
before or after the Expiration Date (including the right to waive the
ineligibility of any Holder who seeks to tender the Original Notes in the
Exchange Offer). The interpretation of the terms and conditions of the Exchange
Offer as to any particular Original Note either before or after the Expiration
Date (including the Letter of Transmittal and instructions thereto) by the
Company shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Original Notes for exchange must be
cured within such reasonable period of time as the Company shall determine.
Neither the Company, the Exchange Agent nor any other person shall be under any
duty to give notification of any defect or irregularity with respect to any
tender of the Original Notes for exchange, nor shall any of them incur any
liability for failure to give such notification.
2. TENDER BY HOLDER. Only a Registered Holder of Original Notes may tender
such Original Notes in the Exchange Offer. Any beneficial owner whose Original
Notes are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender Original Notes should contact
the Registered Holder promptly and instruct such Registered Holder to tender
Original Notes on such beneficial owner's behalf. If such beneficial owner
wishes to tender such Original Notes himself, such beneficial owner must, prior
to completing and executing this Letter of Transmittal and delivering such
Original Notes in such beneficial owner's name, either make appropriate
arrangements to register ownership of the Original Notes in such beneficial
owner's name or obtain a properly completed bond power from the Registered
Holder of the Original Notes. The transfer of registered ownership may take
considerable time and may not be able to be completed prior to the Expiration
Date.
3. PARTIAL TENDERS; WITHDRAWALS. Tenders of Original Notes will be accepted
only in integral multiples of $1,000. If less than the entire principal amount
of any Original Notes is tendered, the tendering Holder should fill in the
principal amount tendered in the third column of the box entitled "Description
of 8 1/8% Senior Subordinated Notes due 2007, Series A" above. The entire
principal amount of Original Notes delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated. If the entire principal
amount of all Original Notes is not tendered, then Original Notes for the
principal amount of Original Notes not tendered and a certificate or
certificates representing Exchange Notes issued in exchange for any Original
Notes accepted will be sent to the Holder at his or her registered address,
unless a different address is provided in the appropriate box on this Letter of
Transmittal, promptly after the Original Notes are accepted for exchange.
If not yet accepted, a tender pursuant to the Exchange Offer may be
withdrawn prior to the Expiration Date. For a withdrawal to be effective, (i) a
written or facsimile notice of withdrawal must be received by the Exchange Agent
at its address set forth herein or (ii) holders must comply with the appropriate
procedures of DTC's ATOP system. Any such notice of withdrawal must (i) specify
the name of the person having tendered the Original Notes to be withdrawn, (ii)
identify the Original Notes to be withdrawn (including the serial number or
numbers and the principal amount of Original Notes to be withdrawn), (iii) be
signed by the Holder in the same manner as the original signature on the Letter
of Transmittal by which such Original Notes were tendered and (iv) specify the
name in which such Original Notes are to be registered, if different from that
of the withdrawing Holder. If Original Notes have been tendered pursuant to the
procedure for book-entry described above, any notice of withdrawal must specify,
in lieu of certificate numbers, the name and number of the account at DTC to be
credited with the withdrawn Original Notes and otherwise comply with the
procedures of such facility. Any questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties. Any
Original Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer. Any Original Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the Holder thereof without cost to such Holder (or, in the case of
Original Notes tendered by book-entry transfer into the Exchange Agent's account
at DTC pursuant to the book-entry transfer procedures described above, such
Original Notes will be credited to an account
<PAGE> 11
maintained with DTC for the Original Notes) as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Original Notes may be retendered by following one of the procedures
described in "Exchange Offer -- Procedures for Tendering Original Notes" set
forth in the Prospectus.
4. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal (or facsimile hereof) is
signed by the Registered Holder(s) of the Original Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the
Original Notes without alteration, enlargement or any change whatsoever.
If this Letter of Transmittal (or facsimile hereof) is signed by the
Registered Holder or Holders of Original Notes tendered and the certificate or
certificates for Exchange Notes issued in exchange therefor is to be issued (or
any untendered principal amount of Original Notes is to be reissued) to the
Registered holder, the said holder need not and should not endorse any tendered
Original Notes, nor provide a separate bond power. In any other case, such
holder must either properly endorse the Original Notes tendered or transmit a
properly completed separate bond power with this Letter of Transmittal, with the
signatures on the endorsement or bond power guaranteed by an Eligible
Institution (as hereinafter defined).
If the Letter of Transmittal is signed by a person or persons other than
the Registered Holder or Holders of Original Notes, such Original Notes must be
endorsed or accompanied by a properly completed bond power, in either case
signed exactly as the names of the Registered Holder or Holders that appear on
the original Notes with the signature thereon guaranteed by an Eligible
Institution.
If the Letter of Transmittal or any Original Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such person should so indicate when signing and, unless waived by the
Company, proper evidence satisfactory to the Company of their authority to so
act must be submitted with the Letter of Transmittal.
Endorsements on Original Notes or signatures on bond powers required by
this Instruction 4 must be guaranteed by an Eligible Institution.
Except as otherwise provided below, signatures on this Letter of
Transmittal must be guaranteed unless the Original Notes surrendered for
exchange pursuant thereto are tendered (i) by a Registered Holder of the
Original Notes who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution (as defined below). In the event
that signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantees must be by a firm
(an "Eligible Institution") that is a member of a recognized signature guarantee
medallion program (an "Eligible Program") within the meaning of Rule 17Ad-15
under the Exchange Act. If the Exchange Notes and/or Original Notes not
exchanged are to be delivered to an address other than that of the Registered
Holder appearing on the note register for the Original Notes, the signature on
the Letter of Transmittal must be guaranteed by an Eligible Institution. If the
Original Notes are registered in the name of a person other than the person
signing the Letter of Transmittal, the Original Notes surrendered for exchange
must be endorsed by, or accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Company in its
sole discretion, duly executed by the registered Holder with the signature
thereon guaranteed by an Eligible Institution.
5. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering Holders should
indicate, in the applicable box or boxes, the name and address to which Exchange
Notes or substitute Original Notes for principal amounts not tendered or not
accepted for exchange are to be issued or sent, if different from the name and
address of the person signing this Letter of Transmittal. In the case of
issuance in a different owner, the taxpayer identification or social security
number of the person named must also be indicated.
6. TAX IDENTIFICATION NUMBER. Under federal income tax laws, payments that
may be made by the Company on account of Exchange Notes issued pursuant to the
Exchange Offer may be subject to back-up withholding at a rate of 31%. In order
to prevent back-up withholding, each tendering holder must provide his or her
correct TIN by completing the "Substitute Form W- 9" referred to above,
certifying that the TIN
<PAGE> 12
provided is correct (or that the holder is awaiting a TIN) and that: (i) the
holder has not been notified by the Internal Revenue Service that he or she is
subject to back-up withholding as a result of failure to report all interest or
dividends; or (ii) the Internal Revenue Service has notified the holder that he
or she is no longer subject to back-up withholding; or (iii) certify in
accordance with the Guidelines that such holder is exempt from back-up
withholding. If the Exchange Notes are in more than one name or are not in the
name of the actual owner, consult the enclosed Guidelines for information on
which TIN to report.
7. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Original Notes pursuant to the Exchange Offer. If,
however, certificates representing Exchange Notes or Original Notes for
principal amounts not tendered or accepted for exchange are to be delivered to,
or are to be registered or issued in the name of, any person other than the
registered holder of the Original Notes tendered, or if tendered Original Notes
are registered in the name of any person other than the person signing this
Letter of Transmittal, or if a transfer tax is imposed for any reason other than
the exchange of Original Notes pursuant to the Exchange Offer, then the amount
of any such transfer taxes (whether imposed on the registered holder or on any
other persons) will be payable by the tendering holder. If satisfactory evidence
of payment of such taxes or exemption therefrom is not submitted with this
Letter of Transmittal, or in the Agent's Message in lieu thereof, the amount of
such transfer taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Original Notes listed in this Letter of
Transmittal.
8. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend,
waive or modify specified conditions in the Exchange Offer in the case of any
Original Notes tendered.
9. MUTILATED, LOST, STOLEN OR DESTROYED ORIGINAL NOTES. Any tendering
Holder whose Original Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated herein for further
instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance and requests for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Exchange Agent at the address
specified in the Prospectus. Holders may also contact their broker, dealer,
commercial bank, trust company or other nominee for assistance concerning the
Exchange Offer.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF, IF APPLICABLE),
OR AN AGENT'S MESSAGE IN LIEU THEREOF, TOGETHER WITH CERTIFICATES FOR ALL
PHYSICALLY TENDERED ORIGINAL NOTES, OR A BOOK ENTRY CONFIRMATION, OR THE NOTICE
OF GUARANTEED DELIVERY, AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE
EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
<PAGE> 13
IMPORTANT TAX INFORMATION
Under current federal income tax law, a Holder whose tendered Original
Notes are accepted for exchange is required to provide the Company (as payer),
through the Exchange Agent, with such Holder's correct taxpayer identification
number ("TIN") on Substitute Form W-9 or otherwise establish a basis for
exemption from backup withholding for payments made on account of the Exchange
Notes. If such Holder is an individual, the TIN is such Holder's social security
number. If the Exchange Agent is not provided with the correct taxpayer
identification number, the Holder may be subject to a $50 penalty imposed by the
Internal Revenue Service.
Certain Holders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. Exempt Holders should indicate their exempt status on Substitute
Form W-9. A foreign individual may qualify as an exempt recipient by submitting
to the Exchange Agent a properly completed Internal Revenue Service Form W-8
(which the Exchange Agent will provide upon request) signed under penalty of
perjury, attesting to the Holder's exempt status. See the enclosed Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions.
If backup withholding applies, the Company is required to withhold 31% of
any payment made to the Holder or other payee. Backup withholding is not an
additional federal income tax. Rather, the federal income tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a Holder with
respect to payments made on account of the Exchange Notes the Holder is required
to provide the Exchange Agent with either: (i) the Holder's correct TIN by
completing the form below, certifying that the TIN provided on Substitute Form
W-9 is correct (or that such Holder is awaiting a TIN) and that (A) the Holder
has not been notified by the Internal Revenue Service that he or she is subject
to backup withholding as a result of failure to report all interest or dividends
or (B) the Internal Revenue Service has notified the Holder that he or she is no
longer subject to backup withholding; or (ii) an adequate basis for exemption.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The Holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the record owner of the
Exchange Notes. If the Exchange Notes are held in more than one name or are not
held in the name of the actual owner, consult the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional guidance on which number to report.
<PAGE> 14
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
PAYER'S NAME:
THE BANK OF NEW YORK
- --------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE ------------------------------------
FORM W-9 BOX AT RIGHT AND CERTIFY BY SIGNING AND Social Security Number
DATING BELOW OR
------------------------------------
Employer Identification Number
------------------------------------------------------------------------------------
DEPARTMENT OF THE TREASURY PART 2 -- Certification -- Under Penalties of Perjury, I PART 3 --
INTERNAL REVENUE SERVICE certify that: Awaiting TIN [ ]
(1) The number shown on this form is my correct Taxpayer
Identification Number (or I am waiting for a number to
be issued to me) and
(2) I am not subject to backup withholding either because
I have not been notified by the Internal Revenue Service
PAYER'S REQUEST FOR TAXPAYER (the "IRS") that I am subject to backup withholding as
IDENTIFICATION NUMBER (TIN) a result of a failure to report all interest or
dividends, or the IRS has notified me that I am no
longer subject to backup withholding.
-----------------------------------------------------------------------------------
Certificate instruction -- You must cross out item (2) in Part 2 above if you have
been notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding you received
another notification from the IRS stating that you are no longer subject to backup
withholding, do not cross out times (2).
SIGNATURE ---------------------------------- DATE----------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF SUBSTITUTE FORM W-9
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
<S> <C>
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number within (60) days, 31% of all reportable
payments made to me thereafter will be withheld until I provide a number.
Signature Date
----------------------------------------------------------- --------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES
NOTICE OF GUARANTEED DELIVERY
OF 8 1/8% ORIGINAL NOTES DUE 2007
PURSUANT TO THE PROSPECTUS DATED MAY 8, 1998.
THIS FORM, OR ONE SUBSTANTIALLY EQUIVALENT HERETO, MUST BE USED BY A HOLDER OF
8 1/8% SENIOR SUBORDINATED NOTES DUE 2007 (THE "ORIGINAL NOTES") OF CHANCELLOR
MEDIA CORPORATION OF LOS ANGELES, A DELAWARE CORPORATION (THE "COMPANY"), WHO
WISHES TO EXCHANGE HIS OR HER ORIGINAL NOTES PURSUANT TO THE COMPANY'S EXCHANGE
OFFER, AS DEFINED IN THE PROSPECTUS (THE "PROSPECTUS"), DATED MAY 8, 1998 AND
(i) WHOSE ORIGINAL NOTES ARE NOT IMMEDIATELY AVAILABLE, (ii) WHO CANNOT DELIVER
THE ORIGINAL NOTES OR ANY OTHER DOCUMENTS REQUIRED BY THE LETTER OF TRANSMITTAL
ON OR BEFORE THE EXCHANGE OFFER EXPIRATION DATE (AS DEFINED IN THE PROSPECTUS)
OR (iii) WHO CANNOT COMPLETE THE PROCEDURE FOR BOOK ENTRY TRANSFER ON A TIMELY
BASIS. SUCH FORM MAY BE DELIVERED BY FACSIMILE TRANSMISSION, IF APPLICABLE, MAIL
OR HAND DELIVERY TO THE EXCHANGE AGENT. SEE "THE EXCHANGE OFFER -- GUARANTEED
DELIVERY PROCEDURES" IN THE PROSPECTUS.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON JUNE 8,
1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). ORIGINAL NOTES TENDERED IN THE
EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
TO: THE BANK OF NEW YORK, THE EXCHANGE AGENT
<TABLE>
<S> <C> <C>
By Hand or Overnight Delivery: Telephone Transmission: By Registered or Certified
The Bank of New York (for Eligible Institutions Mail:
101 Barclay Street Only) The Bank of New York
Corporate Trust Services Window (212) 815-6339 101 Barclay Street, 7E
Ground Level Confirm by Telephone: New York, New York 10286
New York, New York 10286 (212) 815-2963 Attention: Santino Ginocchietti
Attention: Santino Ginocchietti
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN TO THE ONE
LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE LETTER
OF TRANSMITTAL FOR GUARANTEE OF SIGNATURES.
<PAGE> 2
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby represents that he owns the Original Notes tendered
and hereby tenders to the Company upon the terms and subject to the conditions
set forth in the Prospectus and the related Letter of Transmittal, receipt of
which is hereby acknowledged, the principal amount of Original Notes specified
below pursuant to the guaranteed delivery procedures set forth under the caption
"The Exchange Offer -- Guaranteed Delivery Procedures" in the Prospectus. The
undersigned hereby tenders the Original Notes listed below:
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------
ORIGINAL NOTES CERTIFICATE NUMBERS
(IF AVAILABLE) PRINCIPAL AMOUNT TENDERED
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
=============================================================================================
=============================================================================================
</TABLE>
If Original Notes will be tendered by book entry transfer:
Name of Tendering Institution:
- --------------------------------------------------------------------------------
Account No.
------------------------------------------------------------------,at
The Depository Trust Company
SIGN HERE
- --------------------------------------------------------------------------------
Signature(s)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Name(s) (Please Print)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
Zip Code
- --------------------------------------------------------------------------------
Area Code and Telephone No.
Date:
---------------------------------------------------------------------------
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member of a recognized signature guarantee medallion
program within the meaning of Rule 17A(d)-15 under the Securities Exchange Act
of 1934, as amended, hereby guarantees (a) that the above-named person(s) own(s)
the above-described securities tendered hereby and (b) that delivery to the
Exchange Agent of certificates tendered hereby, in proper form for transfer, or
delivery of such certificates pursuant to the procedure for book-entry transfer,
in either case with delivery of a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) and any other required documents, is being
made within three business days after the date of execution of a Notice of
Guaranteed Delivery of the above-named person.
SIGN HERE
- --------------------------------------------------------------------------------
Name of Firm
- --------------------------------------------------------------------------------
Authorized Signature
- --------------------------------------------------------------------------------
Name (Please print)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
Zip Code
- --------------------------------------------------------------------------------
Area Code and Telephone No.
Date:
- --------------------------------------------------------------------------------
DO NOT SEND ORIGINAL NOTES WITH THIS FORM. ACTUAL SURRENDER OF ORIGINAL
NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A COPY OF THE PREVIOUSLY
EXECUTED LETTER OF TRANSMITTAL.
<PAGE> 4
INSTRUCTIONS
1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other documents
required by this Notice of Guaranteed Delivery must be received by the Exchange
Agent at its address set forth on the cover hereof prior to the Exchange Offer
Expiration Date. The method of delivery of this Notice of Guaranteed Delivery
and all other required documents to the Exchange Agent is at the election and
risk of the Holder but, except as otherwise provided below, the delivery will be
deemed made only when actually received by the Exchange Agent. If such delivery
is by mail, it is recommended that the Holder use properly insured, registered
mail with return receipt requested. For a full description of the guaranteed
delivery procedures, see the Prospectus under the caption "The Exchange
Offer -- Guaranteed Delivery Procedures." In all cases, sufficient time should
be allowed to assure timely delivery. No Notice of Guaranteed Delivery should be
sent to the Company.
2. SIGNATURE ON THIS NOTICE OF GUARANTEED DELIVERY; GUARANTEE OF
SIGNATURES. If this Notice of Guaranteed Delivery is signed by the registered
Holder(s) of the Original Notes referred to herein, the signature must
correspond with the name(s) as written on the face of the Original Notes without
alteration, enlargement or any change whatsoever.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing, and, unless waived by the Company, evidence satisfactory
to the Company of their authority so to act must be submitted with this Notice
of Guaranteed Delivery.
If this Notice of Guaranteed Delivery is signed by a participant of the
Book-Entry Transfer Facility whose name appears on a security position listing
as the owner of the Original Notes, the signature must correspond with the name
shown on the security position listing as the owner of the Original Notes.
If this Notice of Guaranteed Delivery is signed by a person other than the
Registered Holder(s) of any Original Notes listed or a participant of the
Book-Entry Transfer Facility, this Notice of Guaranteed Delivery must be
accompanied by appropriate bond powers, signed as the name of the Registered
Holder(s) appears on the Original Notes or signed as the name of the participant
shown on the Book-Entry Transfer Facility's security position listing.
3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
Exchange Offer or the procedure for tendering as well as requests for assistance
or for additional copies of the Prospectus and the Letter of Transmittal, may be
directed to the Exchange Agent. Holders may also contact their broker, dealer,
commercial bank, trust company, or other nominee for assistance concerning the
Exchange Offer.
