<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1997
Commission File No. 0-21570 Commission File No. 333-32259
EVERGREEN MEDIA CORPORATION EVERGREEN MEDIA CORPORATION
OF LOS ANGELES
(Exact Name of Registrant (Exact Name of Registrant
as Specified in its Charter) as Specified in its Charter)
DELAWARE DELAWARE
(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
75-2247099 75-2451687
(I.R.S. Employer Identification (I.R.S. Employer Identification
Number) Number)
433 EAST LAS COLINAS BOULEVARD, SUITE 1130, IRVING, TEXAS 75039
(Address of principal executive offices, including zip code)
(972) 869-9020
(Registrant's telephone number, including area code)
Indicate by check mark whether Evergreen Media Corporation and Evergreen Media
Corporation of Los Angeles (1) have filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Evergreen Media Corporation Yes X No
----- -----
Evergreen Media Corporation of Los Angeles Yes No X
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of July 31, 1997,
39,138,235 shares of Class A Common Stock and 3,114,066 shares of Class B
Common Stock of Evergreen Media Corporation were outstanding and 1,000 shares
of Common Stock of Evergreen Media Corporation of Los Angeles were outstanding.
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INDEX
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Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
EVERGREEN MEDIA CORPORATION
Consolidated Balance Sheets (unaudited)....................... 2
Consolidated Statements of Operations (unaudited)............. 4
Consolidated Statements of Cash Flows (unaudited)............. 5
Notes to Consolidated Financial Statements (unaudited)........ 6
EVERGREEN MEDIA CORPORATION OF LOS ANGELES
Consolidated Balance Sheets (unaudited)....................... 12
Consolidated Statements of Operations (unaudited)............. 14
Consolidated Statements of Cash Flows (unaudited)............. 15
Notes to Consolidated Financial Statements (unaudited)........ 16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. 27
Item 2. Changes in Securities......................................... 27
Item 4. Submission of Matters to a Vote of Security Holders........... 28
Item 6. Exhibits and Reports on Form 8-K.............................. 29
</TABLE>
1
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PART I
ITEM 1 FINANCIAL STATEMENTS
EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and Cash equivalents $ 3,060 $ 4,886
Accounts receivable, net 85,159 99,654
Prepaid expenses and other assets 6,352 7,799
---------- ----------
Total current assets 94,571 112,339
Property and equipment, net 48,193 64,817
Intangible assets, net 853,643 1,183,569
Assets held for sale -- 50,000
Other assets 24,552 72,788
---------- ----------
$1,020,959 $1,483,513
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
2
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EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 26,366 $ 32,895
Current portion of long-term debt 26,500 --
Other current liabilities 284 99
----------- -----------
Total current liabilities 53,150 32,994
Long-term debt, excluding current portion 331,500 525,000
Deferred tax liability 86,098 88,014
Other liabilities 800 902
----------- -----------
Total liabilities 471,548 646,910
----------- -----------
Stockholders' equity:
Preferred Stock, Authorized 6,000,000 shares; issued
5,990,000 shares of $3.00 Convertible Exchangeable
Preferred Stock in 1997 -- 299,500
Class A common stock, $.01 par value
Authorized 75,000,000 shares; issued and outstanding
39,038,848 shares in 1996 and 39,131,735 in 1997 390 391
Class B common stock, $.01 par value
Authorized 4,500,000 shares; issued and outstanding
3,116,066 shares in 1996 and 3,114,066 in 1997 31 31
Paid-in capital 662,502 651,383
Accumulated deficit (113,512) (114,702)
----------- -----------
Total stockholders' equity 549,411 836,603
----------- -----------
$ 1,020,959 $ 1,483,513
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands, except for per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1996 1997 1996 1997
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Gross revenues $ 83,832 $ 122,365 $ 144,614 $ 216,177
Less agency commissions 10,841 16,001 18,252 27,916
-------- --------- --------- ---------
Net revenues 72,991 106,364 126,362 188,261
Station operating expenses excluding depreciation
and amortization 42,887 58,178 80,313 111,162
Depreciation and amortization 21,336 27,897 44,012 53,912
Corporate general and administrative 1,706 3,321 3,198 5,651
-------- --------- --------- ---------
Operating expenses 65,929 89,396 127,523 170,725
-------- --------- --------- ---------
Operating income (loss) 7,062 16,968 (1,161) 17,536
-------- --------- --------- ---------
Nonoperating expenses (income):
Interest expense, net 10,066 14,853 19,039 22,741
Gain on disposition of assets -- (13,323) -- (13,323)
-------- --------- --------- ---------
Income (loss) before income taxes and
extraordinary item (3,004) 15,438 (20,200) 8,118
Income tax expense (benefit) (782) 5,568 (3,705) 4,259
-------- --------- --------- ---------
Income (loss) before extraordinary item (2,222) 9,870 (16,495) 3,859
-------- --------- --------- ---------
Extraordinary item - loss on extinguishment of
debt, net of income tax benefit -- (4,350) -- (4,350)
-------- --------- --------- ---------
Net income (loss) (2,222) 5,520 (16,495) (491)
Preferred stock dividends (1,207) (699) (2,415) (699)
-------- --------- --------- ---------
Net income (loss) attributable to common
stockholders $ (3,429) $ 4,821 $ (18,910) $ (1,190)
======== ========= ========= =========
Income (loss) per common share:
Before extraordinary item $ (0.12) $ 0.21 $ (0.67) $ 0.07
Extraordinary item -- (0.10) -- (0.10)
-------- --------- --------- ---------
Net income (loss) $ (0.12) $ 0.11 $ (0.67) $ (0.03)
======== ========= ========= =========
Weighted average common shares outstanding 28,082 42,228 28,070 42,208
======== ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1996 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (16,495) $ (491)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation 3,479 5,074
Amortization of goodwill, intangible
assets and other assets 40,533 48,838
Provisions for doubtful accounts 723 2,388
Deferred income tax expense (benefit) (3,705) 4,259
Gain on disposition of assets -- (13,323)
Loss on extinguishment of debt -- 4,350
Changes in certain assets and liabilities
net of effects of acquisitions:
Accounts receivable (9,448) (14,893)
Prepaid expenses and other current assets (2,798) (5,102)
Accounts payable and accrued expenses 5,669 4,992
Other assets (604) (29)
Other liabilities 11 102
--------- ---------
Net cash provided by operating activities 17,365 36,165
--------- ---------
Cash flows from investing activities:
Acquisitions, net of cash acquired (348,826) (447,240)
Assets held for sale -- (50,000)
Escrow deposits on pending acquisitions (13,000) (62,100)
Proceeds from sale of assets -- 99,750
Capital expenditures (1,761) (3,547)
Other (2,382) (15,270)
--------- ---------
Net cash used by investing activities (365,969) (478,407)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 365,750 584,250
Principal payments on long-term debt (12,750) (417,250)
Payments on other liabilities (227) (185)
Proceeds from issuance of common stock and preferred
stock 528 288,382
Dividend payments on preferred stock (2,415) (699)
Payments for debt issuance costs (3,835) (10,430)
--------- ---------
Net cash provided by financing activities 347,051 444,068
--------- ---------
Increase (decrease) in cash and cash equivalents (1,553) 1,826
Cash and cash equivalents at beginning of period 3,430 3,060
--------- ---------
Cash and cash equivalents at end of period $ 1,877 $ 4,886
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 7
EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
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 Evergreen Media Corporation and its subsidiaries
(the "Company") for the periods presented.
Interim periods are not necessarily indicative of results to be
expected for the year. It is suggested that these financial statements be read
in conjunction with the consolidated financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
The consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly-owned. All significant
intercompany balances and transactions have been eliminated in consolidation.
On August 8, 1996, the Company declared a three-for-two stock split
effected in the form of a stock dividend payable on August 26, 1996 to
shareholders of record at the close of business on August 19, 1996. All share
and per share data (other than authorized share data) contained in the
accompanying financial statements have been retroactively adjusted to give
effect to the stock dividend.
Income (loss) per common share is based on the weighted average number
of common shares outstanding during the periods after giving retroactive effect
to the stock split. For the quarter ended June 30, 1997, fully diluted earnings
per share is considered to be the same as primary earnings per share, since the
effect of certain potentially dilutive securities would be antidilutive.
2. Acquisitions, Dispositions, and Financings
1996 COMPLETED TRANSACTIONS
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 $316.3 million in cash.
On May 3, 1996, the Company acquired WKLB-FM in Boston from Fairbanks
Communications for $34.0 million 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 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.
On July 19, 1996, the Company sold WHTT-FM and WHTT-AM in Buffalo to
Mercury Radio for $19.5 million in cash, and on August 1, 1996, the Company
sold WSJZ-FM in Buffalo to American Radio Systems for $12.5 million 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 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.
6
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On August 14, 1996, the Company acquired KYLD-FM in San Francisco from
Crescent Communications for $44.0 million 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 17, 1996, the Company completed a secondary public offering
of 9,000,000 shares of its Class A Common Stock (the "1996 Offering"). The net
proceeds of approximately $264.2 million were used to reduce borrowings under
the Company's senior credit facility.
On October 18, 1996, the Company acquired WEDR-FM in Miami from
affiliates of the Rivers Group for $65.0 million in cash plus various other
direct acquisition costs.
The Company converted 1,608,297 shares of its formerly outstanding
convertible exchangeable preferred stock into 5,025,916 shares of the Company's
Class A Common Stock and redeemed the remaining 1,703 shares of convertible
preferred exchangeable stock at $52.70 per share in 1996 (the "1996 Preferred
Stock Conversion").
1997 COMPLETED TRANSACTIONS
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 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 are classified as assets held for sale at June 30, 1997 in
connection with the purchase price allocation of the acquisition of
KKSF-FM/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 swapped WQRS-FM in Detroit (which the
Company acquired from Secret on April 3, 1997 for $32.0 million in cash), in
exchange for Greater Media's 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 April 25, 1997, the Company amended and restated its senior credit
facility with a group of commercial banks and financial institutions (as
amended on June 26, 1997, the "Senior Credit Facility") to, among other things,
provide for a total commitment of $1.75 billion. Upon consummation of the
Chancellor Merger (see Pending Transactions below), it is expected that the
total commitment under the Senior Credit Facility will be increased to $2.50
billion. In connection with the amendment and restatement of the Senior Credit
Facility, on April 25, 1997, the Company repaid all amounts outstanding under
its 11.59% Senior Secured Notes due 1999.
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.
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") 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.
7
<PAGE> 9
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 ("Crawford") for $14.8 million in cash and recognized a
gain of $9.3 million.
On June 16, 1997, the Company issued 5,500,000 shares of $3.00
Convertible Exchangeable Preferred Stock ("Convertible Preferred Stock") for
net proceeds of approximately $264.2 million in a private placement. On June
20, 1997, the initial purchasers of the Convertible Preferred Stock exercised
an over-allotment option granted by the Company to acquire an additional
490,000 shares of Convertible Preferred Stock for additional net proceeds of
approximately $23.6 million. The combined net proceeds from the sale of
Convertible Preferred Stock of approximately $287.8 million were used to repay
borrowings under the Company's Senior Credit Facility and subsequently were
reborrowed as part of the financing of the Viacom Acquisition (discussed
below). The liquidation preference of each share of Convertible Preferred Stock
is $50.00 plus accrued and unpaid dividends. Annual dividends of $3.00 per
share are cumulative and payable quarterly when, as and if declared by the
Board of Directors of the Company.
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. (collectively,
the "Viacom Acquisition") for approximately $607.7 million in cash plus various
other direct acquisition costs. The Viacom Acquisition was financed with (i)
net proceeds of approximately $287.8 million from the private placement of the
Company's Convertible Preferred Stock; (ii) additional bank borrowings under
the Senior Credit Facility of approximately $266.1 million and (iii) $53.8
million in escrow funds paid by the Company on February 19, 1997 and classified
as other assets at June 30, 1997. 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 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 sale.
On July 7, 1997, the Company sold the 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. Simultaneously therewith, Chancellor Radio Broadcasting Company, a direct
operating subsidiary of Chancellor, ("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,
which has an improved broadcast signal in the San Francisco market, and on July
7, 1997, CRBC changed the call letters of KSAN-FM to KYLD-FM.
On July 14, 1997, the Company completed the disposition of WLUP-FM in
Chicago to Bonneville and it is expected that this transaction will result in a
deferred exchange for one or more radio stations within 180 days after July 14,
1997. In the event such exchange does not take place, the Company will receive
gross proceeds from the disposition of WLUP-FM of $80.0 million in cash.
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.
On August 13, 1997, the Company sold KDFC-AM in San Francisco and
WBZS-AM and WZHF-AM in Washington, D.C. to affiliates of Douglas Broadcasting
("Douglas") for $18.0 million in the form of a promissory note. The promissory
note will bear interest at 7 3/4%, with a balloon principal payment due four
years after closing. Douglas presented a $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.
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PENDING TRANSACTIONS
On August 12, 1996, the Company entered into an agreement to acquire
WFLN-FM in Philadelphia from Secret for $37.8 million in cash (the
"Secret/Philadelphia Acquisition"). The Company also entered into an agreement
to operate WFLN-FM under a time brokerage agreement effective September 1,
1996. The Company has also entered into an agreement to sell WFLN-FM in
Philadelphia to Greater Media for $41.8 million in cash. On May 1, 1997, the
Company assigned its time brokerage agreement to operate WFLN-FM to Greater
Media. The Company has received a communication from Secret purporting to
terminate the Secret/Philadelphia Acquisition. The Company believes that this
purported termination is without merit, and is pursuing legal remedies in order
to consummate the transaction. Any inability to consummate the
Secret/Philadelphia Acquisition, or the subsequent disposition of WFLN-FM to
Greater Media, which is contingent upon the consummation of the
Secret/Philadelphia Acquisition, is not expected to have a material adverse
effect on the Company.
Evergreen Media Corporation ("Evergreen"), Evergreen Mezzanine
Holdings Corporation, a Delaware corporation and direct, wholly-owned
subsidiary of Evergreen ("EMHC") and Evergreen Media Corporation of Los
Angeles, a Delaware corporation and direct, wholly-owned subsidiary of
Evergreen ("EMCLA") have entered into an Agreement and Plan of Merger, dated
February 19, 1997, as amended and restated on July 31, 1997 (the "Chancellor
Merger Agreement") with Chancellor and CRBC. Pursuant to the Chancellor Merger
Agreement, Chancellor will merge with and into EMHC, and thereafter CRBC will
merge with and into EMCLA, in a stock-for-stock transaction (the "Chancellor
Merger"). Upon consummation of the Chancellor Merger Agreement, Evergreen will
change its name to "Chancellor Media Corporation," EMHC will change its name to
"Chancellor Mezzanine Holdings Corporation" and EMCLA will change its name to
"Chancellor Media Corporation of Los Angeles." Assuming the consummation of
transactions of Chancellor and CRBC pending as of August 8, 1997, Chancellor
and CRBC will own 53 radio stations (37 FM and 16 AM) in sixteen markets. The
Company expects that the Chancellor Merger will be completed in the third
quarter of 1997.
On March 19, 1997, the Company entered into an agreement to sell
WEJM-AM in Chicago to Douglas for $7.5 million in cash. The Company expects
that the sale of WEJM-AM will be completed in the third quarter of 1997.
On April 4, 1997, the Company entered into agreements with Pacific and
Southern Company, Inc., a subsidiary of Gannett Co., Inc. ("P&S"), pursuant to
which the Company will acquire WGCI-AM and WGCI-FM in Chicago for $140.0
million, KKBQ-AM and KKBQ-FM 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 (the "Gannett Acquisition"). The aggregate purchase price is subject to an
upward adjustment of up to $10.0 million depending on the timing of the
closings. The agreements are independent with respect to each market and may be
consummated at different times. On April 10, 1997, the Company issued letters
of credit for the benefit of P&S in the aggregate amount of $34.0 million to
secure the Company's obligations under the Gannett Agreements. Although there
can be no assurances, the Company expects that the Gannett Acquisition will be
completed in the third or fourth quarter of 1997.
On June 24, 1997, the Company entered into an agreement to acquire
KZPS-FM and KDGE-FM in Dallas from Bonneville for $83.5 million in cash (the
"Bonneville Acquisition"). On June 29, 1997, the Company paid $8.4 million in
escrow funds which have been classified as other assets in the accompanying
balance sheet at June 30, 1997. The Company also entered into an agreement
to operate KZPS-FM and KDGE-FM under a time brokerage agreement effective
August 1, 1997. Although there can be no assurances, the Company expects that
the acquisition of KZPS-FM and KDGE-FM will be completed in the third or
fourth quarter of 1997.
On July 14, 1997, Evergreen, Chancellor and Katz Media Group, Inc.
("Katz") entered into an agreement pursuant to which a jointly owned affiliate
of Evergreen and Chancellor would acquire Katz, a full-service media
representation firm, in a transaction valued at approximately $373
million (the "Katz Acquisition"). Under the terms of the Katz Acquisition,
shareholders of Katz would be offered in a tender offer $11.00 in cash per
share for each share of common stock held. Shares not purchased in the tender
offer would be converted in a second-step merger into the right to receive
$11.00 in cash per share, subject to applicable statutory appraisal and
dissenters' rights. In connection with the execution of the Katz Agreement on
July 14, 1997, holders of approximately 51.6% of Katz's outstanding common
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stock agreed to tender their shares in the offer and vote in favor of the
transaction. Assuming completion of the Katz Acquisition, debt of Katz of
approximately $218 million will also be assumed in the transaction. Consummation
of the Katz Acquisition is subject to the tender of a majority of the shares of
common stock of Katz on a fully diluted basis, approval of the Katz shareholders
and receipt of the necessary regulatory approvals, including the expiration or
termination of the required waiting period under the HSR Antitrust Division of
the United States Act. In connection with its review under the Hart-Scott Rodeno
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), on August 5,
1997, the Antitrust Division of the United States Department of Justice (the
"DOJ") requested additional information concerning the Katz Acquisition.
Evergreen and Chancellor are in the process of providing that information.
Subject to the foregoing, and although there can be no assurances, Evergreen and
Chancellor expect that the Katz Acquisition will be completed in the third or
fourth quarter of 1997.
On August 6, 1997, the Company and Chancellor announced that they had
paid $3.0 million to Bonneville for an option to exchange the Company's station
WTOP-AM in Washington, Chancellor's stations KZLA-FM in Los Angeles and WGMS-FM
in Washington and $57.0 million in cash for Bonneville's stations WDBZ-FM in New
York, KLDE-FM in Houston and KBIG-FM in Los Angeles (the "Bonneville Option").
As of August 13, 1997, the Bonneville Option had not been exercised. The
Bonneville Option expires on December 31, 1997.
Consummation of each of the transactions discussed above is subject to
various conditions, including approval from the FCC (other than the Katz
Acquisition, for which no FCC approval is necessary) 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.
Escrow funds of $62.1 million paid by the Company in connection with
the Viacom Acquisition and the pending acquisitions of KZPS-FM and KDGE-FM in
Dallas have been classified as other assets in the accompanying balance sheet
at June 30, 1997.
Summary of Net Assets Acquired
The Pyramid Acquisition and the acquisitions of WKLB-FM, KYLD-FM,
WEDR-FM, WWWW-FM, WDFN-FM, KKSF-FM, KDFC-FM/AM, WJLB-FM, WMXD-FM, WWRC-AM,
WDAS-FM/AM and WPNT-FM 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>
Six
Year Ended Months Ended
December 31, June 30,
1996 1997
------------ ------------
<S> <C> <C>
Working capital, including cash of $1,011 in 1996 $ 11,218 $ 1,990
Property and equipment 11,519 18,603
Assets held for sale 32,000 50,000
Intangible assets 465,824 443,647
Deferred tax liability 61,218 --
-------- --------
$459,343 $514,240
======== ========
</TABLE>
The consolidated condensed results of operations data for the six months ended
June 30, 1997 and 1996, as if the 1996 Completed Transactions and the 1997
Completed Transactions discussed above occurred at January 1, 1996, follow:
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1996 1997
---------- ----------
<S> <C> <C>
Net revenues $ 171,484 $ 212,646
Operating income (loss) (12,276) 12,942
Net loss (39,039) (19,314)
Net loss per common share $ (0.92) $(0.46)
</TABLE>
10
<PAGE> 12
3. Contingencies
The Company is involved in several lawsuits that are incidental to its
business. A discussion of certain of these lawsuits is contained in Part II,
Item 1, "Legal Proceedings", of this Form 10-Q. The Company believes that the
ultimate resolution of the lawsuits will not have a material effect on its
financial position or results of operations.
4. Long-Term Debt
On April 25, 1997, the Company entered into the Senior Credit Facility
which amended and restated its prior senior credit facility. Under the amended
and restated agreement, as amended on June 26, 1997, 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"). 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.
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 $50.0
million outstanding under the Term Loan at June 30, 1997 was 6.83% on a blended
basis, based on Eurodollar rates, and the interest rates on $10.0 million and
$15.0 million of advances outstanding under the Revolving Loan were 6.88% and
8.63% at June 30, 1997, based on the Eurodollar and prime rates, respectively.
The Company pays fees of 1/2% per annum on the aggregate unused portion of the
loan commitment, 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 the fixing or placing a cap on the Company's floating
rate debt so that not less than 50% of the principal amount of total debt
outstanding has a fixed or capped rate.
The capital stock of the subsidiaries of the Company is pledged to
secure performance of the Company's obligations under the Senior Credit
Facility. At August 1, 1997, the Company had drawn $500.0 million of the Term
Loan Facility and $410.0 million of the Revolving Loan Facility. Required
principal repayments of amounts outstanding under the Term Loan Facility and
commitment reductions under the Revolving Loan Facility commence on September
30, 2000. The Company's ability to make additional borrowings under the Senior
Credit Facility is subject to compliance with certain financial ratios and other
conditions set forth in the Senior Credit Facility.
11
<PAGE> 13
EVERGREEN MEDIA CORPORATION OF LOS ANGELES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and Cash equivalents $ 3,060 $ 4,886
Accounts receivable, net 85,159 99,654
Prepaid expenses and other assets 6,352 7,799
---------- ----------
Total current assets 94,571 112,339
Property and equipment, net 48,193 64,817
Intangible assets, net 853,643 1,183,569
Assets held for sale -- 50,000
Other assets 24,552 72,788
---------- ----------
$1,020,959 $1,483,513
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE> 14
EVERGREEN MEDIA CORPORATION OF LOS ANGELES
CONSOLIDATED BALANCE SHEETS, CONTINUED (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 26,366 $ 32,895
Current portion of long-term debt 26,500 --
Other current liabilities 284 99
----------- -----------
Total current liabilities 53,150 32,994
Long-term debt, excluding current portion 331,500 525,000
Deferred tax liability 86,098 88,014
Other liabilities 800 902
----------- -----------
Total liabilities 471,548 646,910
----------- -----------
Stockholder's equity:
Common stock, $.01 par value
Authorized 1,000 shares; issued and outstanding
1,000 shares in 1996 and 1,000 in 1997 1 1
Paid-in capital 662,922 951,304
Accumulated deficit (113,512) (114,702)
----------- -----------
Total stockholder's equity 549,411 836,603
----------- -----------
$ 1,020,959 $ 1,483,513
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE> 15
EVERGREEN MEDIA CORPORATION OF LOS ANGELES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands, except for per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1996 1997 1996 1997
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Gross revenues $ 83,832 $ 122,365 $ 144,614 $ 216,177
Less agency commissions 10,841 16,001 18,252 27,916
-------- --------- --------- ---------
Net revenues 72,991 106,364 126,362 188,261
Station operating expenses excluding
depreciation and amortization 42,887 58,178 80,313 111,162
Depreciation and amortization 21,336 27,897 44,012 53,912
Corporate general and administrative 1,706 3,321 3,198 5,651
-------- --------- --------- ---------
Operating expenses 65,929 89,396 127,523 170,725
-------- --------- --------- ---------
Operating income (loss) 7,062 16,968 (1,161) 17,536
-------- --------- --------- ---------
Nonoperating expenses (income):
Interest expense, net 10,066 14,853 19,039 22,741
Gain on disposition of assets -- (13,323) -- (13,323)
-------- --------- --------- ---------
Income (loss) before income taxes and
extraordinary item (3,004) 15,438 (20,200) 8,118
Income tax expense (benefit) (782) 5,568 (3,705) 4,259
-------- --------- --------- ---------
Income (loss) before extraordinary item (2,222) 9,870 (16,495) 3,859
-------- --------- --------- ---------
Extraordinary item - loss on extinguishment of
debt, net of income tax benefit -- (4,350) -- (4,350)
-------- --------- --------- ---------
Net income (loss) attributable to common stock $ (2,222) $ 5,520 $ (16,495) $ (491)
======== ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statement
14
<PAGE> 16
EVERGREEN MEDIA CORPORATION OF LOS ANGELES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1996 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (16,495) $ (491)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation 3,479 5,074
Amortization of goodwill, intangible
assets and other assets 40,533 48,838
Provisions for doubtful accounts 723 2,388
Deferred income tax (benefit) expense (3,705) 4,259
Gain on disposition of assets -- (13,323)
Loss on extinguishment of debt -- 4,350
Changes in certain assets and liabilities
net of effects of acquisitions:
Accounts receivable (9,448) (14,893)
Prepaid expenses and other current assets (2,798) (5,102)
Accounts payable and accrued expenses 5,669 4,992
Other assets (604) (29)
Other liabilities 11 102
--------- ---------
Net cash provided by operating activities 17,365 36,165
--------- ---------
Cash flows from investing activities:
Acquisitions, net of cash acquired (348,826) (447,240)
Assets held for sale -- (50,000)
Escrow deposits on pending acquisitions (13,000) (62,100)
Proceeds from sale of assets -- 99,750
Capital expenditures (1,761) (3,547)
Other (2,382) (15,270)
--------- ---------
Net cash used by investing activities (365,969) (478,407)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 365,750 584,250
Principal payments on long-term debt (12,750) (417,250)
Payments on other liabilities (227) (185)
Cash contributed by parent 528 288,382
Dividend to parent (2,415) (699)
Payments for debt issuance costs (3,835) (10,430)
--------- ---------
Net cash provided by financing activities 347,051 444,068
--------- ---------
Increase (decrease) in cash and cash equivalents (1,553) 1,826
Cash and cash equivalents at beginning of period 3,430 3,060
--------- ---------
Cash and cash equivalents at end of period $ 1,877 $ 4,886
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE> 17
EVERGREEN MEDIA CORPORATION OF LOS ANGELES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
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 Evergreen Media Corporation of Los Angeles and
subsidiaries (collectively, the "Company") for the periods presented. Evergreen
Media Corporation of Los Angeles is a wholly owned subsidiary of Evergreen
Media Corporation ("Evergreen" or "Parent").
Interim periods are not necessarily indicative of results to be
expected for the year. It is suggested that these financial statements be read
in conjunction with the consolidated financial statements and the notes thereto
included in Evergreen's Annual Report on Form 10-K for the year ended December
31, 1996.
The consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly-owned. All significant
intercompany balances and transactions have been eliminated in consolidation.
2. Acquisitions, Dispositions, and Financings
1996 COMPLETED TRANSACTIONS
On January 17, 1996, the Company and Evergreen 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 $316.3 million in cash.
On May 3, 1996, the Company acquired WKLB-FM in Boston from Fairbanks
Communications for $34.0 million 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 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.
On July 19, 1996, the Company sold WHTT-FM and WHTT-AM in Buffalo to
Mercury Radio for $19.5 million in cash, and on August 1, 1996, the Company
sold WSJZ-FM in Buffalo to American Radio Systems for $12.5 million 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 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 $44.0 million 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 $65.0 million in cash plus various other
direct acquisition costs.
16
<PAGE> 18
Evergreen converted 1,608,297 shares of convertible exchangeable
preferred stock into 5,025,916 shares of Evergreen's formerly outstanding Class
A Common Stock and redeemed the remaining 1,703 shares of convertible preferred
exchangeable stock at $52.70 per share in 1996 (the "1996 Preferred Stock
Conversion").
1997 COMPLETED TRANSACTIONS
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 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 are classified as assets held for sale at June 30, 1997 in
connection with the purchase price allocation of the acquisition of
KKSF-FM/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 swapped WQRS-FM in Detroit (which the
Company acquired from Secret on April 3, 1997 for $32.0 million in cash), in
exchange for Greater Media's 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 April 25, 1997, the Company amended and restated its senior credit
facility with a group of commercial banks and financial institutions (as amended
on June 26, 1997, the "Senior Credit Facility"), to, among other things,
provide for a total commitment of $1.75 billion. Upon consummation of the
Chancellor Merger (see Pending Transactions below), it is expected that the
total commitment under the Senior Credit Facility will be increased to $2.50
billion. In connection with the amendment and restatement of the Senior Credit
Facility, on April 25, 1997, the Company repaid all amounts outstanding under
its 11.59% Senior Secured Notes due 1999.
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.
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") 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 June 16, 1997, Evergreen issued 5,500,000 shares of $3.00
Convertible Exchangeable Preferred Stock ("Convertible Preferred Stock") for
net proceeds of approximately $264.2 million in a private placement. On June
17
<PAGE> 19
20, 1997, the initial purchasers of the Convertible Preferred Stock exercised
an over-allotment option granted by Evergreen to acquire an additional 490,000
shares of Convertible Preferred Stock for additional net proceeds of
approximately $23.6 million. The combined net proceeds from the sale of
Convertible Preferred Stock of approximately $287.8 million were contributed to
the Company and used to repay borrowings under the Company's Senior Credit
Facility and subsequently were reborrowed as part of the financing of the
Viacom Acquisition (discussed below). The liquidation preference of each share
of Convertible Preferred Stock is $50.00 plus accrued and unpaid dividends.
Annual dividends of $3.00 per share are cumulative and payable quarterly when,
as and if declared by the Board of Directors of the Company
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. (collectively, the
"Viacom Acquisition") for approximately $607.7 million in cash plus various
other direct acquisition costs. The Viacom Acquisition was financed with (i) net
proceeds of approximately $287.8 million from the private placement of the
Company's Convertible Preferred Stock; (ii) additional bank borrowings under the
Senior Credit Facility of approximately $266.1 million and (iii) $53.8 million
in escrow funds paid by the Company on February 19, 1997 and classified as other
assets at June 30, 1997. 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 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 sale.
On July 7, 1997, the Company sold the 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. Simultaneously therewith, Chancellor Radio Broadcasting Company, a direct
operating subsidiary of Chancellor, ("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,
which has an improved broadcast signal in the San Francisco market, and on July
7, 1997, CRBC changed the call letters of KSAN-FM to KYLD-FM.
On July 14, 1997, the Company completed the disposition of WLUP-FM in
Chicago to Bonneville and it is expected that this transaction will result in a
deferred exchange for one or more radio stations within 180 days after July 14,
1997. In the event such exchange does not take place, the Company will receive
gross proceeds from the disposition of WLUP-FM of $80.0 million in cash.
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.
On August 13, 1997, the Company sold KDFC-AM in San Francisco and
WBZS-AM and WZHF-AM in Washington, D.C. to affiliates of Douglas Broadcasting
("Douglas") for $18.0 million in the form of a promissory note. The promissory
note will bear interest at 7 3/4%, with a balloon principal payment due four
years after closing. At closing Douglas presented a $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.
PENDING TRANSACTIONS
On August 12, 1996, the Company entered into an agreement to acquire
WFLN-FM in Philadelphia from Secret for $37.8 million in cash (the
"Secret/Philadelphia Acquisition"). The Company also entered into an agreement
to operate WFLN-FM under a time brokerage agreement effective September 1, 1996.
The Company has also entered into an agreement to sell WFLN-FM in Philadelphia
to Greater Media for $41.8 million in cash. On May 1, 1997, the Company assigned
its time brokerage agreement to operate WFLN-FM to Greater Media. The Company
has received a communication from Secret purporting to terminate the
Secret/Philadelphia Acquisition. The Company believes that this purported
termination is without merit, and is pursuing legal remedies in order to
consummate the transaction. Any inability to consummate the Secret/Philadelphia
Acquisition, or the subsequent disposition of WFLN-FM to Greater Media, which is
contingent upon the consummation of the Secret/Philadelphia Acquisition, is not
expected to have a material adverse effect on the Company.
18
<PAGE> 20
Evergreen Media Corporation ("Evergreen"), Evergreen Mezzanine
Holdings Corporation, a Delaware corporation and direct, wholly-owned
subsidiary of Evergreen ("EMHC") and Evergreen Media Corporation of Los
Angeles, a Delaware corporation and direct, wholly-owned subsidiary of
Evergreen ("EMCLA") have entered into an Agreement and Plan of Merger, dated
February 19, 1997, as amended and restated on July 31, 1997 (the "Chancellor
Merger Agreement") with Chancellor and CRBC. Pursuant to the Chancellor Merger
Agreement, Chancellor will merge with and into EMHC, and thereafter CRBC will
merge with and into EMCLA, in a stock-for-stock transaction (the "Chancellor
Merger"). Upon consummation of the Chancellor Merger Agreement, Evergreen will
change its name to "Chancellor Media Corporation," EMHC will change its name to
"Chancellor Mezzanine Holdings Corporation" and EMCLA will change its name to
"Chancellor Media Corporation of Los Angeles." Assuming the consummation of
transactions of Chancellor and CRBC pending as of August 8, 1997, Chancellor
and CRBC will own 53 radio stations (37 FM and 16 AM) in sixteen markets. The
Company expects that the Chancellor Merger will be completed in the third
quarter of 1997.
On March 19, 1997, the Company entered into an agreement to sell
WEJM-AM in Chicago to Douglas for $7.5 million in cash. The Company expects
that the sale of WEJM-AM will be completed in the third quarter of 1997.
On April 4, 1997, the Company entered into agreements with Pacific and
Southern Company, Inc., a subsidiary of Gannett Co., Inc. ("P&S"), pursuant to
which the Company will acquire WGCI-AM and WGCI-FM in Chicago for $140.0
million, KKBQ-AM and KKBQ-FM 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 (the "Gannett Acquisition"). The aggregate purchase price is subject to an
upward adjustment of up to $10.0 million depending on the timing of the
closings. The agreements are independent with respect to each market and may be
consummated at different times. On April 10, 1997, the Company issued letters
of credit for the benefit of P&S in the aggregate amount of $34.0 million to
secure the Company's obligations under the Gannett Agreements. Although there
can be no assurances, the Company expects that the Gannett Acquisition will be
completed in the third or fourth quarter of 1997.
On June 24, 1997, the Company entered into an agreement to acquire
KZPS-FM and KDGE-FM in Dallas from Bonneville for $83.5 million in cash (the
"Bonneville Acquisition"). On June 29, 1997, the Company paid $8.4 million in
escrow funds. The Company also entered into an agreement to operate KZPS-FM and
KDGE-FM under a time brokerage agreement effective August 1, 1997. Although
there can be no assurances, the Company expects that the acquisitions of KZPS-FM
and KDGE-FM will be completed in the third or fourth quarter of 1997.
On July 14, 1997, Evergreen, Chancellor and Katz Media Group, Inc.
("Katz") entered into an agreement pursuant to which a jointly owned affiliate
of Evergreen and Chancellor would acquire Katz, a full-service media
representation firm, in a transaction valued at approximately $373 million (the
"Katz Acquisition"). Under the terms of the Katz Acquisition, shareholders of
Katz would be offered in a tender offer $11.00 in cash per share for each share
of common stock held. Shares not purchased in the tender offer would be
converted in a second-step merger into the right to receive $11.00 in cash per
share, subject to applicable statutory appraisal and dissenters' rights. In
connection with the execution of the Katz Agreement on July 14, 1997, holders
of approximately 51.6% of Katz's outstanding common stock agreed to tender
their shares in the offer and vote in favor of the transaction. The Company
will contribute $155.0 million from borrowings under the Senior Credit
Facility to Evergreen to fund the tender offer. Assuming completion of the Katz
Acquisition, debt of Katz of approximately $218 million will also be assumed in
the transaction. Consummation of the Katz Acquisition is subject to the tender
of a majority of the shares of common stock of Katz on a fully diluted basis,
approval of the Katz shareholders and receipt of the necessary regulatory
approvals, including the expiration or termination of the required waiting
period under the Hart-Scott-Rodeno Antitrust Improvements Act of 1976, as
amended (the "HSR Act"). In connection with its review under the HSR Act, on
August 5, 1997, the Antitrust Division of the United States Department of
Justice (the "DOJ") requested additional information concerning the Katz
Acquisition. Evergreen and Chancellor are in the process of providing that
information. Subject to the foregoing, and although there can be no assurances,
Evergreen and Chancellor expect the Katz Acquisition will be completed in the
third or fourth quarter of 1997.
On August 6, 1997, the Company and Chancellor paid $3.0 million to
Bonneville for an option to exchange the Company's station WTOP-AM in
Washington, Chancellor's stations KZLA-FM in Los Angeles and WGMS-FM in
Washington and $57.0 million in cash for Bonneville's stations WDBZ-FM in New
York, KLDE-FM in Houston and KBIG-FM in Los Angeles (the "Bonneville Option").
As of August 13, 1997, the Bonneville Option had not been exercised. The
Bonneville Option expires on December 31, 1997.
Consummation of each of the transactions discussed above is subject to
various conditions, including approval from the 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.
Escrow funds of $62.1 million paid by the Company in connection with
the Viacom Acquisition and the pending acquisitions of KZPS-FM and KDGE-FM in
Dallas have been classified as other assets in the accompanying balance sheet
at June 30, 1997.
Summary of Net Assets Acquired
The Pyramid Acquisition and the acquisitions of WKLB-FM, KYLD-FM,
WEDR-FM, WWWW-FM, WDFN-FM, KKSF-FM, KDFC-FM/AM, WJLB-FM, WMXD-FM, WWRC-AM,
WDAS-FM/AM and WPNT-FM 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.
19
<PAGE> 21
A summary of the net assets acquired follows:
<TABLE>
<CAPTION>
Six
Year Ended Months Ended
December 31, June 30,
1996 1997
------------ ------------
<S> <C> <C>
Working capital, including cash of $1,011 in 1996 $ 11,218 $ 1,990
Property and equipment 11,519 18,603
Assets held for sale 32,000 50,000
Intangible assets 465,824 443,647
Deferred tax liability 61,218 -
-------- --------
$459,343 $514,240
======== ========
</TABLE>
The consolidated condensed results of operations data for the six months ended
June 30, 1997 and 1996, as if the 1996 Completed Transactions and the 1997
Completed Transactions discussed above occurred at January 1, 1996, follow:
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1996 1997
---------- ----------
<S> <C> <C>
Net revenues $ 171,484 $ 212,646
Operating income (loss) (12,276) 12,942
Net loss (30,054) (10,329)
</TABLE>
3. Contingencies
The Parent and the Company are involved in several lawsuits that are incidental
to their business. A discussion of certain of these lawsuits is contained in
Part II, Item 1, "Legal Proceedings", of this Form 10-Q. The Company believes
that the ultimate resolution of the lawsuits will not have a material effect on
its financial position or results of operations.
4. Long-Term Debt
On April 25, 1997, the Company entered into the Senior Credit Facility
which amended and restated its prior senior credit facility. Under the amended
and restated agreement, as amended on June 26, 1997, 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"). 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.
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
$50.0 million outstanding under the Term Loan at June 30, 1997 was 6.83% on a
blended basis, based on Eurodollar rates, and the interest rates on $10.0
million and $15.0 million of advances outstanding under the Revolving Loan were
6.88% and 8.63% at June 30, 1997, based on the Eurodollar and prime rates,
respectively. The Company pays fees of 1/2% per annum on the aggregate unused
portion of the loan commitment, 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 the fixing or placing a cap on the Company's
floating rate debt so that not less than 50% of the principal amount of total
debt outstanding has a fixed or capped rate.
The capital stock of the subsidiaries of the Company is pledged to
secure performance of the Company's obligations under the Senior Credit
Facility. At August 1, 1997, the Company had drawn $500.0 million of the Term
Loan Facility and $410.0 million of the Revolving Loan Facility. Required
principal repayments of amounts outstanding under the Term Loan Facility and
commitment reductions under the Revolving Loan Facility commence on September
30, 2000. The Company's ability to make additional borrowings under the Senior
Credit Facility is subject to compliance with certain financial ratios and other
conditions set forth in the Senior Credit Facility.
20
<PAGE> 22
the financing available under the Senior Credit Facility, including the public
or private issuance of debt, common equity or preferred equity activities.
Upon consummation of the Chancellor Merger, the Company will be
required to assume or refinance existing debt and preferred stock of Chancellor
and CRBC. The Company expects to repay all amounts outstanding under CRBC's
senior credit agreement upon consummation of the Chancellor Merger and, at or
prior to the consummation of the Chancellor Merger, the Company expects that
all amounts outstanding under Chancellor's $170 million interim financing will
be repaid. In addition to debt service requirements under the Senior Credit
Facility, the Company will be required to pay interest on CRBC's 9 3/8% Senior
Subordinated Notes due 2004 and CRBC's 8 3/4% Senior Subordinated Notes due
2007 each of which the Company will assume upon consummation of the Chancellor
Merger. CRBC's 12 1/4% Series A Senior Cumulative Exchangeable Preferred Stock
and CRBC's 12% Exchangeable Preferred Stock, in exchange for which the Company
will issue substantially identical securities upon consummation of the
Chancellor Merger, will not require the payment of cash dividends through May
14, 2001 and January 14, 2002, respectively, although in lieu of paying cash
dividends prior to such dates the Company may incur additional accretion or
issue additional shares of such preferred stock, respectively. Chancellor's 7%
Convertible Preferred Stock, in exchange for which the Company will issue
substantially identical securities upon consummation of the Chancellor Merger,
will require cash dividends by the Company of $7.7 million per year.
Additionally, dividends on the Company's Convertible Preferred Stock will
require cash dividends by the company of an additional $16.5 million per year.
Pursuant to the Senior Credit Facility, the Company is required to
enter into interest hedging agreements that result in the fixing or placing a
cap on the Company's floating rate debt so that not less than 50% of the
principal amount of total debt outstanding has a fixed or capped rate
21
<PAGE> 23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Since the acquisition by Evergreen Media Corporation and its
subsidiaries (the "Company") in May of 1995 of Broadcasting Partners, Inc.
("BPI"), an eleven-station radio broadcasting group owning eight stations in the
nation's ten largest radio markets (the "BPI Acquisition"), 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 and to date in 1997
due to passage of the Telecommunications Act of 1996 and the associated
relaxation of national and local ownership limits. For a discussion of the
various transactions completed and agreements entered into since January 1, 1996
as part of the Company's acquisition strategy, see the Notes to the Consolidated
Financial Statements contained in this Quarterly Report on Form 10-Q.
Consummation of the Pending Transactions (including the Chancellor Merger, the
Gannett Acquisition, and Chancellor's pending transactions) will add 19 stations
in the Company's current markets, and 40 stations in 10 markets not currently
served by the Company. The Company's station portfolio will expand to include a
total of 11 radio station clusters of four or five FM stations
("superduopolies"), with seven in the 12 largest radio markets -- Los Angeles,
New York, Chicago, San Francisco, Philadelphia, Washington, D.C. and Detroit --
and four in other large markets -- Denver, Minneapolis-St. Paul, Phoenix and
Orlando.
The Company's results of operations from period to period have not
historically been comparable because of the impact of the various station
acquisitions and dispositions that the Company has completed. The chart below
summarizes the acquisitions and dispositions that the Company has completed
since January 1, 1996 through June 30, 1997:
<TABLE>
<CAPTION>
COST
DATE OF NUMBER OF (PROCEEDS)
TRANSACTION TRANSACTION STATIONS MARKET(S) (IN THOUSANDS)
----------- ----------- --------- -------- --------------
<S> <C> <C> <C> <C>
Pyramid Acquisition 1/96 9 FM Chicago, Philadelphia, Boston, $316,343
3 AM Charlotte, Buffalo
Acquisition 5/96 1 FM Boston $34,000
Disposition 8/96 1 FM Buffalo ($12,500)
Disposition 8/96 1 FM Buffalo ($19,500)
1 AM
Acquisition 8/96 1 FM San Francisco $44,000
Acquisition 10/96 1 FM Miami $65,000
Exchange 11/96 1 FM in return Exchanged Boston for Washington, D.C. N/A
for 1 FM
Acquisition 1/97 1 FM Detroit $30,000
1 AM
Acquisition 1/97 2 FM San Francisco $115,000
1 AM
Acquisition 4/97 2 FM Detroit $168,000
Acquisition/Exchange 4/97 1 AM Washington, D.C. $22,500
Acquisition 5/97 1FM Philadelphia $103,000
1AM
Exchange 5/97 5 FM's in return Exchanged Charlotte for Philadelphia N/A
for 2 FM's
Disposition 5/97 1 FM Charlotte ($10,000)
Acquisition 5/97 1 FM Chicago $75,740
Disposition 6/97 1 FM Chicago ($14,750)
Disposition 6/97 1 FM Chicago ($75,000)
</TABLE>
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<PAGE> 24
In the following analysis, management discusses the broadcast cash
flow of its radio station group. 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
and corporate general and administrative expense). 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.
Data on broadcast cash flow, although not calculated in accordance
with generally accepted accounting principles, is widely used in the broadcast
industry as a measure of a company's 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.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
Net revenues for the three months ended June 30, 1997 increased 45.7%
to $106.4 million compared to $73.0 million for the second quarter of 1996.
Station operating expenses excluding depreciation and amortization for the
three months ended June 30, 1997 increased 35.7% to $58.2 million compared to
$42.9 million for the three months ended June 30, 1996. Station operating
income excluding depreciation and amortization and corporate, general and
administrative expense (broadcast cash flow) for the three months ended June
30, 1997 increased 60.1% to $48.2 million compared to $30.1 million for the
second quarter of 1996.
The increase in net revenues, station operating expenses, and
broadcast cash flow for the three months ended June 30, 1997 was primarily
attributable to the impact of the various station acquisitions, dispositions,
and time brokerage agreements, in addition to the overall net operational
improvements realized by the Company's radio stations.
Depreciation and amortization for the three months ended June 30, 1997
increased 30.8% to $27.9 million compared to $21.3 million for the second
quarter of 1996. The increase represents additional depreciation and
amortization due to the impact of recent acquisitions, offset by decreases due
to certain intangibles which became fully amortized in 1996 and 1997.
Corporate general and administrative expenses for the three months
ended June 30, 1997 increased 94.7% to $3.3 million compared to $1.7 million
for the second quarter of 1996. The increase is due to the growth of the
Company, and the related increase in properties and staff, primarily due to
recent acquisitions.
As a result of the above factors, the Company realized $17.0 million
of operating income for the three months ended June 30, 1997 compared to $7.1
million of operating income for the second quarter of 1996.
Interest expense for the three months ended June 30, 1997 increased
47.6% to $14.9 million compared to $10.1 million for the same period in 1996.
The net increase in interest expense is due to additional bank borrowings to
finance the acquisitions discussed above offset by repayment of borrowings
under the Senior Credit Facility from
23
<PAGE> 25
the net proceeds of the dispositions discussed above, the 1996 Offering and the
Convertible Preferred Stock Offering.
The Company recorded a gain on disposition of assets of $13.3 million
for the three months ended June 30, 1997, related to the dispositions of
WNKS-FM in Charlotte ($3.5 million), WPNT-FM in Chicago ($0.5 million), and
WEJM-FM in Chicago ($9.3 million).
The income tax expense for the three months ended June 30, 1997 is
comprised of current federal and state tax expense and a deferred federal
income tax benefit.
The Company recorded an extraordinary charge of $4.4 million (net of a
tax benefit of $2.3 million) for the three months ended June 30, 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 paid on the Company's preferred stock were $0.7 million for
the three months ended June 30, 1997 compared to $1.2 million for the same
period in 1996. The decrease in dividends is due to the conversion of a total
of 1,608,297 shares of the Company's formerly outstanding convertible
exchangeable preferred stock into a total of 5,025,916 shares of Class A Common
Stock and the redemption by the Company of the remaining 1,703 shares of
formerly outstanding convertible exchangeable preferred stock during 1996,
offset by dividends on the Company's Convertible Preferred Stock issued in June
1997.
The net income attributable to common stockholders for the three
months ended June 30, 1997 was $4.8 million compared to a net loss of $3.4
million for the second quarter of 1996. The increase is primarily due to a
$13.3 million gain on the disposition of assets offset by a $4.4 million
extraordinary charge related to the write-off of bank loan fees recorded in the
second quarter of 1997.
The income per common share for the three months ended June 30, 1997
was $0.11 compared to a $0.12 loss per common share for the second quarter of
1996.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Net revenues for the six months ended June 30, 1997 increased 49.0% to
$188.3 million compared to $126.4 for the six months ended June 30, 1996.
Station operating expenses excluding depreciation and amortization for the six
months ended June 30, 1997 increased 38.4% to $111.2 million compared to $80.3
million for the six months ended June 30, 1996. Station operating income
excluding depreciation and amortization and corporate, general and
administrative expense (broadcast cash flow) for the six months ended June 30,
1997 increased 67.4 % to $77.1 million compared to $46.0 million for the six
months ended June 30, 1996.
The increase in net revenues, station operating expenses, and
broadcast cash flow for the six months ended June 30, 1997 was primarily
attributable to the impact of the various station acquisitions, dispositions,
and time brokerage agreements, in addition to the overall net operational
improvements realized by the Company's radio stations.
Depreciation and amortization for the six months ended June 30, 1997
increased 22.5% to $53.9 million compared to $44.0 million for the same period
in 1996. The increase represents additional depreciation and amortization due
to the impact of recent acquisitions, offset by decreases due to certain
intangibles which became fully amortized in 1996 and 1997.
Corporate general and administrative expenses for the six months ended
June 30, 1997 increased 76.7% to $5.7 million compared to $3.2 million for the
same period in 1996. The increase is due to the growth of the Company, and the
related increase in properties and staff, primarily due to recent acquisitions.
As a result of the above factors, the Company realized $17.5 million
of operating income for the six months ended June 30, 1997 compared to an
operating loss of $1.2 million for the same period in 1996.
24
<PAGE> 26
Interest expense for the six months ended June 30, 1997 increased
19.4% to $22.7 million compared to $19.0 million for the same period in 1996.
The net increase in interest expense is due to additional bank borrowings to
finance the acquisitions discussed above offset by repayment of borrowings
under the Senior Credit Facility from the net proceeds of the dispositions
discussed above, the 1996 Offering and the Convertible Preferred Stock
Offering.
The Company recorded a gain on disposition of assets of $13.3 million
for the six months ended June 30, 1997, related to the dispositions of WNKS-FM
in Charlotte ($3.5 million), WPNT-FM in Chicago ($0.5 million), and WEJM-FM in
Chicago ($9.3 million).
The income tax expense for the six months ended June 30, 1997 is
comprised of current federal and state tax expense and a deferred federal
income tax benefit.
The Company recorded an extraordinary charge of $4.4 million (net of a
tax benefit of $2.3 million) for the six months ended June 30, 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 paid on the Company's preferred stock were $0.7 million for
the six months ended June 30, 1997 compared to $2.4 million for the same period
in 1996. The decrease in dividends is due to the conversion of a total of
1,608,297 shares of the Company's formerly outstanding convertible exchangeable
preferred stock into a total of 5,025,916 shares of Class A Common Stock and
the redemption by the Company of the remaining 1,703 shares during 1996, offset
by dividends on the Company's Convertible Preferred Stock issued in June 1997.
The net loss attributable to common stock holders for the six months
ended June 30, 1997 was $1.2 million compared to a $18.9 million net loss for
the same period in 1996. The increase is primarily due to a $13.3 million gain
on the disposition of assets offset by a $4.4 million extraordinary charge
related to the write-off of bank loan fees recorded in the second quarter of
1997.
The loss per common share for the six months ended June 30, 1997 was
$0.03 compared to a $0.67 loss per common share for the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
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 public
equity offerings, supplemented by cash flow from operations not required to
fund operational requirements and debt service, to fund implementation of its
acquisition strategy.
The total cash financing required to consummate the
Secret/Philadelphia Acquisition, the Gannett Acquisition, Bonneville Acquisition
and the Katz Acquisition is expected to be $616.3 million (excluding a possible
upward adjustment of $10.0 million for the Gannett Acquisition and assuming, as
expected, the Katz Acquisition is consummated after the Chancellor Merger). Of
this amount, approximately $8.4 million has already been advanced by the Company
in the form of escrow deposits or other upfront payments and $80.0 million is
held by a financial intermediary in connection with the deferred exchange of
WLUP-FM for one or more stations to be acquired by the Company. In addition, the
Company expects to receive $49.3 million in cash from the completion of its
pending dispositions. Accordingly, the Company will require at least $478.6
million in additional financing to consummate the Secret/Philadelphia
Acquisition, the Gannett Acquisition, the Bonneville Acquisition and the Katz
Acquisition. The Company anticipates that it will obtain this additional
financing through borrowings under the Senior Credit Facility.
Upon consummation of the Chancellor Merger, the commitments under the
Senior Credit Facility are expected to be increased by at least $750.0 million
and, as discussed below, the Company will borrow an amount sufficient to assume
or refinance existing debt and preferred stock of Chancellor and CRBC. The
Company expects to repay all amounts outstanding under CRBC's senior credit
agreement upon consummation of the Chancellor Merger and, at or prior to the
consummation of the Chancellor Merger, the Company expects that all amounts
outstanding under Chancellor's $170 million interim financing will be repaid. In
addition to debt service requirements under the Senior Credit Facility, the
Company will be required to pay interest on CRBC's 9 3/8% Senior Subordinated
Notes due 2004 and CRBC's 8 3/4% Senior Subordinated Notes due 2007 each of
which the Company will assume upon consummation
25
<PAGE> 27
of the Chancellor Merger. CRBC's 12 1/4% Series A Senior Cumulative
Exchangeable Preferred Stock and CRBC's 12% Exchangeable Preferred Stock, in
exchange for which the Company will issue substantially identical securities
upon consummation of the Chancellor Merger, will not require the payment of
cash dividends through May 14, 2001 and January 14, 2002, respectively,
although in lieu of paying cash dividends prior to such dates the Company may
incur additional accretion or issue additional shares of such preferred stock,
respectively. Chancellor's 7% Convertible Preferred Stock, in exchange for
which the Company will issue substantially identical securities upon
consummation of the Chancellor Merger, will require cash dividends by the
Company of $7.7 million per year. Additionally, dividends on the Company's
Convertible Preferred Stock will require cash dividends by the Company of an
additional $18.0 million per year.
FORWARD LOOKING STATEMENTS
When used in the preceding and following discussion, the words "expects,"
"anticipates" and similar expressions are intended to identify forward looking
statements. Such statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those expressed in any of
the forward looking statements. Such risks and uncertainties include, but are
not limited to, industry-wide market factors and regulatory developments
affecting the Company's operations and the acquisitions and dispositions of
broadcast properties described elsewhere herein.
RECENTLY--ISSUED ACCOUNTING PRINCIPLES
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Transfers of Financial Assets and
Extinguishments of Liabilities" ("SFAS No. 125"). SFAS No. 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. The provisions of SFAS No. 125 are
generally effective for transactions occurring after December 31, 1996. The
adoption of SFAS No. 125 is not expected to have a material impact on the
Company's financial statements.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS No. 128"), which establishes new standards for computing and presenting
earnings per share. SFAS No. 128 is effective for financial statements issued
for periods ending after December 15, 1997 and requires restatement of all
prior-period earnings per share data. Early application of SFAS No. 128 is not
permitted. The Company's adoption of the provisions of SFAS No. 128 will result
in the dual presentation of basic and diluted earnings per share on the
Company's income statement. Diluted earnings per share as calculated under SFAS
No. 128 is not expected to materially differ from primary earnings per share
amounts previously presented.
26
<PAGE> 28
PART II
ITEM 1. - 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" 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. Plaintiffs' aggregate prayer for relief totaled $45.0
million. On July 12, 1994, the Court granted motion to dismiss Plaintiffs'
claims for fraud and breach of fiduciary duty. On June 6, 1995, the Court
denied the Plaintiff's 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, Plaintiffs 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, Plaintiffs 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 Plaintiffs' request to amend the
complaint to add a claim for breach of the covenant of good faith and fair
dealing and denied Plaintiffs' 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 motion for
summary judgment. 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.
ITEM 2. - CHANGES IN SECURITIES
On June 16, 1997, the Company sold an aggregate of 5,500,000 shares of
its $50 liquidation preference $3.00 Convertible Exchangeable Preferred Stock,
$0.01 par value, in a private placement in reliance on Section 4(2) of the
Securities Act of 1933 at a price equal to 100% of the liquidation preference
thereof. The Convertible Preferred Stock was immediately resold by the initial
purchasers thereof in reliance on Rule 144A under the Securities Act. The
initial purchasers of the Convertible Preferred Stock were BT Securities
Corporation, Alex. Brown & Sons Incorporated, Credit Suisse First Boston,
Goldman, Sachs & Co., NationsBanc Capital Markets, Inc. and TD Securities (the
"Convertible Preferred Initial Purchasers"). The Convertible Preferred Initial
Purchasers received a discount of $1.75 per share of Convertible Preferred
Stock. On June 20, 1997, the Company sold an additional 490,000 shares of
Convertible Preferred Stock to the Convertible Preferred Initial Purchasers
upon the same terms pursuant to an overallotment option granted to such
Convertible Preferred Initial Purchasers. The Convertible Preferred Stock is
convertible, in whole or in part, at the option of the holder at any time
unless previously redeemed or exchanged, into the Company's Class A Common
Stock, par value $0.01 per share or, following consummation of the Chancellor
Merger, into Common Stock, par value $0.01 per share ("New Common Stock") of
Chancellor Media Corporation, at a conversion price of $50.00 per share of
Class A Common Stock or New Common Stock, as applicable (equivalent to a
conversion rate of 1.00 share of Class A Common Stock or New Common Stock, as
applicable, per share of Convertible Preferred Stock), subject to adjustment in
certain events.
27
<PAGE> 29
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 31, 1997, Evergreen Media Corporation, as the holder of all
issued and outstanding shares of common stock of Evergreen Media Corporation of
Los Angeles, voted, by written consent in lieu of a special meeting, to adopt
the amended and restated Agreement and Plan of Merger, dated July 31, 1997 (the
"Chancellor Merger Agreement"), among Chancellor Broadcasting Company,
Chancellor Radio Broadcasting Company, Evergreen Media Corporation, Evergreen
Mezzanine Holdings Corporation and Evergreen Media Corporation of Los Angeles.
The Chancellor Merger Agreement is described elsewhere in this Quarterly Report
on Form 10-Q.
28
<PAGE> 30
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ------------ ----------------------
(f) 2.9 Plan of Recognization and Merger by and between Evergreen
Media Corporation an Broadcasting Partners, Inc., dated on
January 31, 1995, as amended, including the Form of
Registration Rights Agreement among MLGA Fund I, L.P., MLGA
Fund II, L.P. MLGA/BPI Partners I, L., P., MLGAL Partners,
Limited Partnership and Evergreen Media Corporation (see
table of contents for a list of omitted schedules).
(g) 2.9A Agreement dated as of January 31, 1995 among Evergreen
Media Corporation, Broadcasting Partners, Inc., the holders
of the shares of capital stock of Broadcasting Partners,
Inc. an Scott K. Ginsburg, holder of shares of capital stock
of Evergreen Media Corporation.
(f) 2.10 Plan and Agreement of Merger among Evergreen Media Partners
Corporation, Evergreen Media Corporation and Broadcasting
Partners, Inc., dated as of April 12, 1995.
(h) 2.11 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).
(i) 2.11A 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.
(i) 2.11B Amendment to Plan and Agreement of Merger by and among
Pyramid Communications Inc., Evergreen Media Corporation an
Evergreen Media/Pyramid Corporation dated January 11, 1996.
(j) 2.12 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).
(n) 2.13 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).
(o) 2.14 Asset Purchase Agreement dated April 4, 1996 between
American Radio System Corporation and Evergreen Media
Corporation of Buffalo (see table of contents for list of
omitted exhibits and schedules).
(o) 2.15 Asset Purchase Agreement dated April 11, 1996 between
Mercury Radio Communications, L.P. and Evergreen Media
Corporation of Los Angeles, Evergreen Media/Pyramid Holding
Corporation, WHTT (AM) License Corp. (see table of contents
for list of omitted exhibits and schedules).
(o) 2.16 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).
(p) 2.17 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).
(p) 2.18 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 exhibit and
schedules).
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<PAGE> 31
(p) 2.19 Purchase Agreement dated June 27, 1996 between WEDR,
Inc., Seller and Evergreen Media Corporation of Los Angeles,
Buyer. (See table of contents for list of omitted
schedules.)
(p) 2.20 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.
(p) 2.21 Asset Purchase Agreement dated July 15, 1996 by and among
Century Chicago Broadcasting L.P., an Illinois limited
partnership, ("Seller"), Century Broadcasting Corporation, a
Delaware Corporation("Century"), Evergreen Media Corporation
of Los Angeles a Delaware Corporation ("Buyer").
(p) 2.22 Asset Purchase Agreement dated August 12, 1996 by and among
Chancellor Broadcasting Company, Shamrock Broadcasting, Inc.
and Evergreen Media Corporation of the Great Lakes.
(p) 2.23 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
content for list of omitted exhibits and schedules.)
(p) 2.24 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)
(q) 2.25 Letter of intent dated August 27, 1996 between EZ
Communications, Inc. Evergreen Media Corporation.
(q) 2.26 Asset Purchase Agreement dated September 19, 1996 between
Beasley-FM Acquisition Corp. WDAS License Limited
Partnership and Evergreen Media Corporation of Los Angeles.
(q) 2.27 Asset Purchase Agreement dated September 19, 1996 between
The Brown Organization and Evergreen Media Corporation of
Los Angeles.
(r) 2.28 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 schedule and exhibits).
(r) 2.29 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.
(r) 2.30 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 Trustee for the Muse Children's GS Trust, and
Thomas O. Hicks, dated as of February 19, 1997.
(r) 2.31 Joint Purchase Agreement, by and among Chancellor Radio
Broadcasting Company, Evergreen Media Corporation of Los
Angeles, and Evergreen Media Corporation, dated as of
February 19, 1997.
(s) 2.32 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).
30
<PAGE> 32
(s) 2.33 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 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).
(t) 2.34 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).
(t) 2.35 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).
(t) 2.36 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).
(u) 2.37 Merger Agreement by and among Chancellor Broadcasting
Company, Evergreen Media Corporation, Morris Acquisition
Corporation and Katz Media Group, Inc., dated as of July 14,
1997 (see table of contents for list of omitted schedules
and exhibits).
(v) 2.38 Stockholder Tender Agreement by and among Chancellor
Broadcasting Company, Evergreen Media Corporation, Morris
Acquisition Corporation and certain stockholders of Katz
Media Group, Inc., dated as of July 14, 1997.
(w) 2.39 Management Tender Agreement by and among Chancellor
Broadcasting Company, Evergreen Media Corporation, Morris
Acquisition Corporation and certain stockholders of Katz
Media Group, Inc., dated as of July 14,1997.
(x) 2.40 Joint Bidding Agreement between Evergreen Media Corporation,
Chancellor Broadcasting Company, Morris Acquisition
Corporation and HM2/Chancellor, L.P., dated as of July 14,
1997.
(ff) 2.41 Amended and Restated Agreement and Plan of Merger among
Chancellor Broadcasting Company, Chancellor Radio
Broadcasting Company, Evergreen Media Corporation, Evergreen
Media Corporation of Los Angeles and Evergreen Mezzanine
Holdings Corporation, dated as of February 19, 1997, as
amended and restated on July 31, 1997.
*2.42 Option Agreement, by and among Evergreen Media Corporation,
Chancellor Broadcasting Company, Bonneville International
Corporation and Bonneville Holding company, dated as of
August 6, 1997.
(a) 3.1A Restated Certificate of Incorporation of Evergreen Media
Corporation, dated November 6, 1992.
(k) 3.1B Certificate of Amendment of Restated Certificate of
Incorporation of Evergreen Media Corporation.
(a) 3.2 Restated Bylaws of Evergreen Media Corporation.
(gg) 3.3 Certificate of Incorporation of Evergreen Media Corporation
of Los Angeles.
(gg) 3.4 Bylaws of Evergreen Media Corporation of Los Angeles.
(a) 4.1 Specimen Class A Common Stock certificate.
(t) 4.10 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
31
<PAGE> 33
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).
(z) 4.11 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.
(f) 10.23 Evergreen Media Corporation Stock Option Plan for
Non-employee Directors.
**(n) 10.24 Employment Agreement dated November 28, 1995 by and between
Evergreen Media Corporation and Matthew E. Devine.
**(n) 10.25 Employment Agreement dated November 28, 1995 by and between
Evergreen Media Corporation and James de Castro.
**(n) 10.26 Employment Agreement dated February 9, 1996 by and between
Evergreen Media Corporation and Kenneth J. O'Keefe.
**(o) 10.27 Employment Agreement dated April 15, 1996 by and between
Evergreen Media Corporation and Scott K. Ginsburg, as
amended.
**(o) 10.28 1995 Stock Option Plan for executive officers and key
employees of Evergreen Media Corporation.
**(s) 10.29 Memorandum of Agreement, dated February 19, 1997,
between Evergreen Media Corporation and Scott K. Ginsburg,
as agreed and acknowledged by Chancellor Broadcasting
Company and Chancellor Radio Broadcasting Company.
*27 Financial Data Schedule
* Filed herewith.
** Management contract or compensatory arrangement.
(a) Incorporated by reference to the identically numbered exhibit to the
Company's Registration Statement on Form S-1, as amended (Reg. No.
33-60036).
(f) Incorporated by reference to the identically numbered exhibit to the
Company's Registration Statement on Form S-4, as amended (Reg. No.
33-89838).
(g) Incorporated by reference to Exhibit No. 4.8 to the Company's
Registration Statement on Form S-4, as amended (Reg. No. 33-89838).
(h) Incorporated by reference to the identically numbered exhibit to the
Company's Report on Form 8-K dated July 14, 1995.
(i) Incorporated by reference to the identically numbered exhibit to the
Company's Report on Form 8-K dated January 17, 1996.
(j) Incorporated by reference to the identically numbered exhibit to the
Company's Report on Form 10-Q for the quarterly period ending
September 30, 1995.
(k) Incorporated by reference to the identically numbered exhibit to the
Company's Registration Statement on Form S-1, as amended (Reg. No.
33-69752).
(n) Incorporated by reference to the identically numbered exhibit to the
Company's Report on Form 10-K for the fiscal year ended December 31,
1995.
(o) Incorporated by reference to the identically numbered exhibit to the
Company's report on Form 10-Q for the quarterly period ending March
31, 1996.
(p) Incorporated by reference to the identically numbered exhibit to the
Company's report on Form 10-Q for the quarterly period ended June 30,
1996.
(q) Incorporated by reference to the identically numbered exhibit to the
Company's Registration Statement on Form S-3, as amended (Reg. No.
333-12453).
(r) Incorporated by reference to the identically numbered exhibit to the
Company's Report on Form 8-K dated February 16, 1997.
32
<PAGE> 34
(s) Incorporated by reference to the identically numbered exhibit to the
Company'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 the
Company's Report on Form 8-K dated May 9, 1997.
(u) Incorporated by reference to Exhibit (c) (1) of the Schedule 14D-1
filed by Chancellor Broadcasting Company, Evergreen Media Corporation
and Morris Acquisition Corporation, dated July 18, 1997.
(v) Incorporated by reference to Exhibit (c)(2) of the Schedule 14D-1
filed by Chancellor Broadcasting Company, Evergreen Media Corporation
and Morris Acquisition Corporation, dated July 18, 1997.
(w) Incorporated by reference to Exhibit (c)(3) of the Schedule 14D-1
filed by Chancellor Broadcasting Company, Evergreen Media Corporation
and Morris Acquisition Corporation, dated July 18, 1997.
(x) Incorporated by reference to Exhibit (c)(4) of the Schedule 14D-1
filed by Chancellor Broadcasting Company, Evergreen Media Corporation
and Morris Acquisition Corporation, dated July 18, 1997.
(z) Incorporated by reference to the identically numbered exhibit to the
Company's Current Report on form 8-K dated July 7, 1997 and filed July
31, 1997.
(ff) Incorporated by reference to the identically numbered exhibit to the
Registration Statement of Evergreen Media Corporation on Form S-4,
filed August 1, 1997.
(gg) Incorporated by reference to the identically numbered exhibit to the
Registration Statement of Evergreen Media Corporation of Los Angeles on
Form S-4, filed July 29, 1997 (Registration Number 333-32259).
(b) Reports on Form 8-K
1. Form 8-K, dated April 1, 1997 and filed May 9, 1997, reporting certain
events related to the execution of the agreements contemplated by the
Gannett Acquisition (incorporated by reference as Exhibits 2.34, 2.35
and 2.36 hereto), the Senior Credit Facility (incorporated by
reference as Exhibit 4.10 hereto), and the consummation of other
transactions previously described.
2. Form 8-K, dated May 27, 1997 and filed May 28, 1997, reporting certain
pro forma financial information.
3. Form 8-K, dated May 27, 1997 and filed May 29, 1997, reporting a press
release related to the placement of the Convertible Preferred Stock
described herein.
4. Form 8-K, dated May 30, 1997 and filed June 4, 1997, providing the
following financial statement information: (i) KKSF-FM/KDFC-FM/AM,
(ii) WJLB-FM/WMXD-FM, (iii) WDAS-FM/AM, (iv) WPNT-FM and (v) WLTW-FM,
WAXQ-FM, WMZQ-FM, WJZW-AM, WBZS-AM, WZHF-AM.
5. Form 8-K, dated June 11, 1997 and filed June 12, 1997, providing a
press release related to the placement of the convertible Preferred
Stock described herein.
6. Form 8-K, dated June 16, 1997 and filed July 2, 1997, reporting
certain events related to the execution of the agreement contemplated
by the Bonneville Acquisition, the consummation of certain
transactions previously described and the completion of the placement
of the Convertible Preferred Stock.
7. Form 8-K, dated July 7, 1997 and filed July 31, 1997, reporting
certain events related to the Katz Acquisition and the consummation of
certain transactions previously described.
33
<PAGE> 35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
each registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Evergreen Media Corporation Evergreen Media Corporation of Los Angeles
By: /s/ Matthew E. Devine By: /s/ Matthew E. Devine
- ----------------------- -----------------------
Matthew E. Devine Matthew E. Devine
Chief Financial Officer Chief Financial Officer
Date: August 14, 1997
34
<PAGE> 36
Exhibit Index
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ------------ ----------------------
(f) 2.9 Plan of Recognization and Merger by and between Evergreen
Media Corporation an Broadcasting Partners, Inc., dated on
January 31, 1995, as amended, including the Form of
Registration Rights Agreement among MLGA Fund I, L.P., MLGA
Fund II, L.P. MLGA/BPI Partners I, L., P., MLGAL Partners,
Limited Partnership and Evergreen Media Corporation (see
table of contents for a list of omitted schedules).
(g) 2.9A Agreement dated as of January 31, 1995 among Evergreen
Media Corporation, Broadcasting Partners, Inc., the holders
of the shares of capital stock of Broadcasting Partners,
Inc. an Scott K. Ginsburg, holder of shares of capital stock
of Evergreen Media Corporation.
(f) 2.10 Plan and Agreement of Merger among Evergreen Media Partners
Corporation, Evergreen Media Corporation and Broadcasting
Partners, Inc., dated as of April 12, 1995.
(h) 2.11 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).
(i) 2.11A 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.
(i) 2.11B Amendment to Plan and Agreement of Merger by and among
Pyramid Communications Inc., Evergreen Media Corporation an
Evergreen Media/Pyramid Corporation dated January 11, 1996.
(j) 2.12 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).
(n) 2.13 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).
(o) 2.14 Asset Purchase Agreement dated April 4, 1996 between
American Radio System Corporation and Evergreen Media
Corporation of Buffalo (see table of contents for list of
omitted exhibits and schedules).
(o) 2.15 Asset Purchase Agreement dated April 11, 1996 between
Mercury Radio Communications, L.P. and Evergreen Media
Corporation of Los Angeles, Evergreen Media/Pyramid Holding
Corporation, WHTT (AM) License Corp. (see table of contents
for list of omitted exhibits and schedules).
(o) 2.16 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).
(p) 2.17 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).
(p) 2.18 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 exhibit and
schedules).
<PAGE> 37
(p) 2.19 Purchase Agreement dated June 27, 1996 between WEDR,
Inc., Seller and Evergreen Media Corporation of Los Angeles,
Buyer. (See table of contents for list of omitted
schedules.)
(p) 2.20 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.
(p) 2.21 Asset Purchase Agreement dated July 15, 1996 by and among
Century Chicago Broadcasting L.P., an Illinois limited
partnership, ("Seller"), Century Broadcasting Corporation, a
Delaware Corporation("Century"), Evergreen Media Corporation
of Los Angeles a Delaware Corporation ("Buyer").
(p) 2.22 Asset Purchase Agreement dated August 12, 1996 by and among
Chancellor Broadcasting Company, Shamrock Broadcasting, Inc.
and Evergreen Media Corporation of the Great Lakes.
(p) 2.23 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
content for list of omitted exhibits and schedules.)
(p) 2.24 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)
(q) 2.25 Letter of intent dated August 27, 1996 between EZ
Communications, Inc. Evergreen Media Corporation.
(q) 2.26 Asset Purchase Agreement dated September 19, 1996 between
Beasley-FM Acquisition Corp. WDAS License Limited
Partnership and Evergreen Media Corporation of Los Angeles.
(q) 2.27 Asset Purchase Agreement dated September 19, 1996 between
The Brown Organization and Evergreen Media Corporation of
Los Angeles.
(r) 2.28 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 schedule and exhibits).
(r) 2.29 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.
(r) 2.30 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 Trustee for the Muse Children's GS Trust, and
Thomas O. Hicks, dated as of February 19, 1997.
(r) 2.31 Joint Purchase Agreement, by and among Chancellor Radio
Broadcasting Company, Evergreen Media Corporation of Los
Angeles, and Evergreen Media Corporation, dated as of
February 19, 1997.
(s) 2.32 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).
<PAGE> 38
(s) 2.33 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 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).
(t) 2.34 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).
(t) 2.35 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).
(t) 2.36 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).
(u) 2.37 Merger Agreement by and among Chancellor Broadcasting
Company, Evergreen Media Corporation, Morris Acquisition
Corporation and Katz Media Group, Inc., dated as of July 14,
1997 (see table of contents for list of omitted schedules
and exhibits).
(v) 2.38 Stockholder Tender Agreement by and among Chancellor
Broadcasting Company, Evergreen Media Corporation, Morris
Acquisition Corporation and certain stockholders of Katz
Media Group, Inc., dated as of July 14, 1997.
(w) 2.39 Management Tender Agreement by and among Chancellor
Broadcasting Company, Evergreen Media Corporation, Morris
Acquisition Corporation and certain stockholders of Katz
Media Group, Inc., dated as of July 14,1997.
(x) 2.40 Joint Bidding Agreement between Evergreen Media
Corporation, Chancellor Broadcasting Company, Morris
Acquisition Corporation and HM2/Chancellor, L.P., dated as
of July 14, 1997.
(ff) 2.41 Amended and Restated Agreement and Plan of Merger among
Chancellor Broadcasting Company, Chancellor Radio
Broadcasting Company, Evergreen Media Corporation, Evergreen
Media Corporation of Los Angeles and Evergreen Mezzanine
Holdings Corporation, dated as of February 19, 1997, as
amended and restated on July 31, 1997.
*2.42 Option Agreement, by and among Evergreen Media Corporation,
Chancellor Broadcasting Company, Bonneville International
Corporation and Bonneville Holding company, dated as of
August 6, 1997.
(a) 3.1A Restated Certificate of Incorporation of Evergreen Media
Corporation, dated November 6, 1992.
(k) 3.1B Certificate of Amendment of Restated Certificate of
Incorporation of Evergreen Media Corporation.
(a) 3.2 Restated Bylaws of Evergreen Media Corporation.
(gg) 3.3 Certificate of Incorporation of Evergreen Media Corporation
of Los Angeles.
(gg) 3.4 Bylaws of Evergreen Media Corporation of Los Angeles.
(a) 4.1 Specimen Class A Common Stock certificate.
(t) 4.10 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
<PAGE> 39
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).
(z) 4.11 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.
(f) 10.23 Evergreen Media Corporation Stock Option Plan for
Non-employee Directors.
**(n) 10.24 Employment Agreement dated November 28, 1995 by and between
Evergreen Media Corporation and Matthew E. Devine.
**(n) 10.25 Employment Agreement dated November 28, 1995 by and between
Evergreen Media Corporation and James de Castro.
**(n) 10.26 Employment Agreement dated February 9, 1996 by and between
Evergreen Media Corporation and Kenneth J. O'Keefe.
**(o) 10.27 Employment Agreement dated April 15, 1996 by and between
Evergreen Media Corporation and Scott K. Ginsburg, as
amended.
**(o) 10.28 1995 Stock Option Plan for executive officers and key
employees of Evergreen Media Corporation.
**(s) 10.29 Memorandum of Agreement, dated February 19, 1997,
between Evergreen Media Corporation and Scott K. Ginsburg,
as agreed and acknowledged by Chancellor Broadcasting
Company and Chancellor Radio Broadcasting Company.
*27 Financial Data Schedule
* Filed herewith.
** Management contract or compensatory arrangement.
(a) Incorporated by reference to the identically numbered
exhibit to the Company's Registration Statement on
Form S-1, as amended (Reg. No. 33-60036).
(f) Incorporated by reference to the identically numbered
exhibit to the Company's Registration Statement on
Form S-4, as amended (Reg. No. 33-89838).
(g) Incorporated by reference to Exhibit No. 4.8 to the
Company's Registration Statement on Form S-4, as
amended (Reg. No. 33-89838).
(h) Incorporated by reference to the identically numbered
exhibit to the Company's Report on Form 8-K dated July 14,
1995.
(i) Incorporated by reference to the identically numbered
exhibit to the Company's Report on Form 8-K dated
January 17, 1996.
(j) Incorporated by reference to the identically numbered
exhibit to the Company's Report on Form 10-Q for the
quarterly period ending September 30, 1995.
(k) Incorporated by reference to the identically numbered
exhibit to the Company's Registration Statement on
Form S-1, as amended (Reg. No. 33-69752).
(n) Incorporated by reference to the identically numbered
exhibit to the Company's Report on Form 10-K for the
fiscal year ended December 31, 1995.
(o) Incorporated by reference to the identically numbered
exhibit to the Company's report on Form 10-Q for the
quarterly period ending March 31, 1996.
(p) Incorporated by reference to the identically numbered
exhibit to the Company's report on Form 10-Q for the
quarterly period ended June 30, 1996.
(q) Incorporated by reference to the identically numbered
exhibit to the Company's Registration Statement on
Form S-3, as amended (Reg. No. 333-12453).
(r) Incorporated by reference to the identically numbered
exhibit to the Company's Report on Form 8-K dated
February 16, 1997.
<PAGE> 40
(s) Incorporated by reference to the identically numbered exhibit to the
Company'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 the
Company's Report on Form 8-K dated May 9, 1997.
(u) Incorporated by reference to Exhibit (c) (1) of the Schedule 14D-1
filed by Chancellor Broadcasting Company, Evergreen Media Corporation
and Morris Acquisition Corporation, dated July 18, 1997.
(v) Incorporated by reference to Exhibit (c)(2) of the Schedule 14D-1
filed by Chancellor Broadcasting Company, Evergreen Media Corporation
and Morris Acquisition Corporation, dated July 18, 1997.
(w) Incorporated by reference to Exhibit (c)(3) of the Schedule 14D-1
filed by Chancellor Broadcasting Company, Evergreen Media Corporation
and Morris Acquisition Corporation, dated July 18, 1997.
(x) Incorporated by reference to Exhibit (c)(4) of the Schedule 14D-1
filed by Chancellor Broadcasting Company, Evergreen Media Corporation
and Morris Acquisition Corporation, dated July 18, 1997.
(z) Incorporated by reference to the identically numbered exhibit to the
Company's Current Report on form 8-K dated July 7, 1997 and filed July
31, 1997.
(ff) Incorporated by reference to the identically numbered exhibit to the
Registration Statement Evergreen Media Corporation on Form S-4, filed
August 1, 1997.
(gg) Incorporated by reference to the identically numbered exhibit to the
Registration Statement of Evergreen Media Corporation of Los Angeles
on Form S-4, filed July 29, 1997 (Registration Number 333-32259).
<PAGE> 1
EXHIBIT 2.42
BONNEVILLE INTERNATIONAL CORPORATION
BONNEVILLE HOLDING COMPANY
BROADCAST HOUSE
55 NORTH 300 WEST
SALT LAKE CITY, UTAH 84180
August 6, 1997
Scott K. Ginsburg
Chairman and Chief Executive Officer
Evergreen Media Corporation
433 East Las Colinas Boulevard
Irving, Texas 75039
Steven Dinetz, President
Chancellor Broadcasting Company
Suite 405
12655 N. Central Expressway
Dallas, Texas 75243
Re: Bonneville/Evergreen/Chancellor
Dear Scott and Steven:
This letter agreement, when signed by all parties below, will
constitute a grant by Bonneville Holding Company and Bonneville International
Corporation and/or their assigns (collectively, "Bonneville") to Evergreen
Media Corporation ("EMC") and Chancellor Broadcasting Company ("Chancellor"),
and/or their affiliates, subsidiaries and assigns (collectively, "Evergreen")
of an option (the "Option") to cause the parties hereto to enter into and
consummate those certain transactions described herein (the "Transaction").
The price for the Option will be Three Million Dollars
($3,000,000) (the "Option Payment") to be paid in cash by Evergreen by 5:00
p.m. EDT on August 8, 1997. The Option may be exercised at any time after
September 1, 1997 until 5:00 p.m. EST on December 31, 1997 (the "Option
Expiration Date"), by written notice from Evergreen to Bonneville (the
"Exercise"). If Evergreen effects the Exercise, then the parties will negotiate
in good faith a final agreement governing the Transaction (the "Exchange
Agreement"). The Exchange Agreement will be based upon the essential terms and
conditions contained herein, together with such other terms and conditions as
are customarily found in agreements governing similar transactions. The
Exchange Agreement will be signed no later than ten (10) business days after
the Exercise. The Exchange Agreement will not require Bonneville to disclose
financial information regarding the Corporation of the President of the Church
of Jesus Christ of Latter-Day Saints and its subsidiaries and affiliates
<PAGE> 2
Scott K. Ginsburg
Steven Dinetz
August 6, 1997
Page 2
(other than Bonneville) to regulatory agencies in connection with the
Transaction. If the parties are unable to agree on the final terms and
conditions of the Exchange Agreement, they will be bound and governed by this
letter agreement. If Evergreen does not effect the Exercise, then Bonneville
shall retain the Option Payment and the parties shall have no further
obligations to the other hereunder.
The parties acknowledge that EMC and Chancellor have entered
into an Agreement and Plan of Merger dated February 19, 1997 (the "Merger
Agreement"). EMC and Chancellor presently contemplate that their merger will
close in early September 1997, at which time EMC will be the surviving entity
and will be renamed Chancellor Media Corporation (the "Merger"). Consequently,
it is anticipated that the collective rights and obligations of Chancellor and
EMC will become those of Chancellor Media Corporation (and its subsidiaries)
pursuant to the Merger. In the event the Merger Agreement is terminated or the
closing of the Merger is delayed, upon Exercise, EMC and Chancellor agree that
they will each contribute their respective stations and be jointly and
severally obligated to contribute the Cash Consideration (as defined below) in
order to permit the Transaction to be consummated in an orderly manner.
In the Transaction, Bonneville will receive from Evergreen
certain operating assets of radio stations WTOP(AM), Washington, D.C.,
WGMS(FM), Washington, D.C. and KZLA(FM), Los Angeles, California (the
"Evergreen Stations"), as well as certain facilities of radio station WASH(FM),
Washington, D.C., and Sixty Million Dollars ($60,000,000) in cash (less the
Option Payment and interest on the Option Payment at eight percent (8%) per
annum from August 8, 1997 until the closing date of the Transaction) (the "Cash
Consideration") in exchange for certain operating assets of radio stations
WDBZ(FM), New York, New York, KLDE(FM), Houston, Texas and KBIG(FM), Los
Angeles, California (the "Bonneville Stations").
The assets of WTOP(AM) to be acquired by Bonneville (the
"WTOP Assets") are all of the assets used or held for use in the operation of
WTOP(AM) or associated with the business of WTOP(AM), including but not limited
to (i) all of the licenses, permits, permissions, call letters and other
authorizations issued to Evergreen by the Federal Communications Commission
("FCC"), (ii) all real property together with all improvements thereon, to the
extent of any interest owned or leased by Evergreen, (iii) all equipment,
studio and office furniture, fixtures, materials and supplies, inventories,
spare parts and other tangible personal property, and (iv) all of Evergreen's
rights in and to trademarks, trade names, service marks, including
registrations and applications for registration of any of them, licenses,
permits and privileges, trade secrets, call signs and other similar intangible
personal property and interests relating to WTOP(AM).
The assets of WGMS(FM) to be acquired by Bonneville (the
"WGMS Assets") are all of the assets used or held for use in the operation of
WGMS(FM) or associated with the business of WGMS(FM) including but not limited
to (i) all of the licenses, permits, permissions, call letters and other
authorizations issued to Evergreen by the FCC, (ii) all real property together
with all
<PAGE> 3
Scott K. Ginsburg
Steven Dinetz
August 6, 1997
Page 3
improvements thereon, to the extent of any interest owned or leased by
Evergreen, (iii) all equipment, studio and office furniture, fixtures,
materials and supplies, inventories, spare parts and other tangible personal
property, (iv) the WASH(FM) studio lease and all WASH(FM) studio and office
equipment, furniture, fixtures, materials and supplies, inventories, spare
parts and other tangible personal property located at the WASH(FM) studio other
than promotional, sales, marketing and format specific programming materials,
supplies, inventories and property, and (v) all of Evergreen's rights in and to
trademarks, trade names, service marks, including registrations and
applications for registration of any of them, licenses, permits and privileges,
trade secrets, call signs and other similar intangible personal property and
interests relating to WGMS(FM). Notwithstanding anything in this paragraph to
the contrary, the WGMS Assets shall not include the real property rights
relating to the WGMS(FM) studio and the WGMS(FM) equipment, furniture,
fixtures, materials and supplies, inventories, spare parts and other tangible
personal property located at the WGMS(FM) studio other than promotional, sales,
marketing and format specific programming materials and supplies, inventories
and property.
The assets of KZLA(FM) to be acquired by Bonneville (the
"KZLA Assets") are all of the assets used or held for use in the operation of
KZLA(FM) or associated with the business of KZLA(FM) including but not limited
to (i) all of the licenses, permits, permissions, call letters and other
authorizations issued to Evergreen by the FCC, (ii) all real property together
with all improvements thereon, to the extent of any interest owned or leased by
Evergreen, (iii) all equipment, studio and office furniture, fixtures,
materials and supplies, inventories, spare parts and other tangible personal
property, and (iv) all of Evergreen's rights in and to trademarks, trade names,
service marks, including registrations and applications for registration of any
of them, licenses, permits and privileges, trade secrets, call signs and other
similar intangible personal property and interests relating to KZLA(FM).
Notwithstanding anything in this paragraph to the contrary, the KZLA Assets
shall not include the real property rights relating to the KZLA(FM) studio and
the equipment, furniture, fixtures, materials and supplies, inventories, spare
parts and other tangible personal property located at the KZLA(FM) studio other
than promotional, sales, marketing and format specific programming materials
and supplies, inventories and property.
The assets of WDBZ(FM) to be acquired by Evergreen (the "WDBZ
Assets") are all of the assets used or held for use in the operation of
WDBZ(FM) or associated with the business of WDBZ(FM), including but not limited
to (i) all of the licenses, permits, permissions, call letters and other
authorizations issued to Bonneville by the FCC, (ii) all real property together
with all improvements thereon, to the extent of any interest owned or leased by
Bonneville, (iii) all equipment, studio and office furniture, fixtures,
materials and supplies, inventories, spare parts and other tangible personal
property, and (iv) all of Bonneville's rights in and to trademarks, trade
names, service marks, including registrations and applications for registration
of any of them, licenses, permits and privileges, trade secrets, call signs and
other similar intangible personal property and interests relating to WDBZ(FM).
<PAGE> 4
Scott K. Ginsburg
Steven Dinetz
August 6, 1997
Page 4
The assets of KLDE(FM) to be acquired by Evergreen (the "KLDE
Assets") are all of the assets used or held for use in the operation of
KLDE(FM) or associated with the business of KLDE(FM), including but not limited
to (i) all of the licenses, permits, permissions, call letters and other
authorizations issued to Bonneville by the FCC, (ii) all real property together
with all improvements thereon, to the extent of any interest owned or leased by
Bonneville, (iii) all equipment, studio and office furniture, fixtures,
materials and supplies, inventories, spare parts and other tangible personal
property, (iv) all of Bonneville's rights in and to trademarks, trade names,
service marks, including registrations and applications for registration of any
of them, licenses, permits and privileges, trade secrets, call signs and other
similar intangible personal property and interests relating to KLDE(FM), and
(v) the partnership interest held by a subsidiary of Bonneville in the
partnership that owns the tower on which the KLDE(FM) antenna is located.
The assets of KBIG(FM) to be acquired by Evergreen (the "KBIG
Assets") are all of the assets used or held for use in the operation of
KBIG(FM) or associated with the business of KBIG(FM), including but not limited
to (i) all of the licenses, permits, permissions, call letters and other
authorizations issued to Bonneville by the FCC, (ii) all real property together
with all improvements thereon, to the extent of any interest owned or leased by
Bonneville, (iii) all equipment, furniture, fixtures, materials and supplies,
inventories, spare parts and other tangible personal property, and (iv) all of
Bonneville's rights in and to trademarks, trade names, service marks, including
registrations and applications for registration of any of them, licenses,
permits and privileges, trade secrets, call signs and other similar intangible
personal property and interests relating to KBIG(FM). Notwithstanding anything
in this paragraph to the contrary, the KBIG Assets shall not include the
KBIG(FM) studio and the equipment, furniture, fixtures, materials and supplies,
inventories, spare parts and other tangible personal property located at the
KBIG(FM) studio other than promotional, sales, marketing, and format specific
programming materials and supplies, inventories and property.
At the closing of the Transaction, Bonneville will receive
from Evergreen, free and clear of all liens, claims and encumbrances of every
kind (other than customary permitted encumbrances), subject to all the terms
and conditions of the Exchange Agreement, all of the WTOP Assets, the WGMS
Assets and the KZLA Assets (the WTOP Assets, the WGMS Assets and the KZLA
Assets are referred to collectively herein as the "Evergreen Assets"). In
addition, Bonneville will receive the Cash Consideration at the closing. BIA
will be used to appraise the assets and allocate the purchase price.
At the closing of the Transaction, Evergreen will receive
from Bonneville, free and clear of all liens, claims and encumbrances of every
kind (other than customary permitted encumbrances), subject to all the terms
and conditions of the Exchange Agreement, all of the WDBZ Assets, the KLDE
Assets and the KBIG Assets (the WDBZ Assets, the KLDE Assets and the KBIG
Assets are referred to collectively herein as the "Bonneville Assets").
<PAGE> 5
Scott K. Ginsburg
Steven Dinetz
August 6, 1997
Page 5
The Evergreen Assets and the Bonneville Assets will not
include cash, cash equivalents, accounts receivable, prepaid assets,
securities, investments, deposits, prepayments, refunds of taxes for periods
prior to the closing date, employee benefit plans or contracts of insurance,
the proceeds thereof or claims thereunder or certain financial, accounting and
management information software. Bonneville shall retain the right to use the
92 kHz sidebands of WDBZ(FM) and KBIG(FM) for the broadcast of public service
programming (the LDS Radio Network) for a period of three (3) years after
closing of the Transaction and thereafter until an offer is made by a third
party to lease the sidebands. Bonneville shall have the right of first refusal
to match any such offer. Evergreen shall retain the right to use the 92 kHz
sideband of KZLA(FM), to the extent not already committed by Evergreen, for the
same period, and at the same cost as Bonneville is using the 92 kHz sideband of
KBIG(FM).
Closing of the Transaction shall occur within 10 days after
all required regulatory approvals have become "final" and all closing
conditions have been met. However, Evergreen may, in its sole discretion, defer
closing up to March 31, 1998. In the event Evergreen so elects to defer
closing, it shall be the responsibility of Evergreen to keep all necessary
regulatory approvals effective throughout such deferral period until closing.
Except for Star Media, the parties have not engaged any
brokers involved in the Transaction between Evergreen and Bonneville
contemplated herein. Bonneville shall be solely liable for any obligation of
Bonneville to Star Media arising from or as a result of this Transaction.
Evergreen shall be solely liable for any obligation of Evergreen to Star Media
arising from or as a result of this Transaction.
Bonneville and Evergreen agree to negotiate in good faith the
terms of time brokerage agreements ("TBAs") under which Bonneville will
purchase substantially all of the broadcast time on the Evergreen Stations and
Evergreen will purchase substantially all of the broadcast time on the
Bonneville Stations. Such TBAs shall commence on the tenth (10th) day after the
expiration or early termination of the last waiting period applicable to the
transfer of all of the Evergreen Stations and the Bonneville Stations under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR"). The TBAs for all
of the Evergreen Stations and the Bonneville Stations shall commence at the
same time. Under the TBAs, the programmer shall reimburse the other party for
all its actual costs of operating the station(s) in question. Neither
Bonneville nor Evergreen shall pay any additional TBA fee as programmer under
the TBAs; provided, however, that, if Evergreen elects to defer the closing the
Transaction, Evergreen shall pay to Bonneville an additional aggregate amount
under the TBA(s) for the Bonneville Stations of Four Hundred Thousand Dollars
($400,000) per month beginning 20 days after all required regulatory approvals
for the transaction have become "final."
The studios and offices of WTOP(AM) are co-located with those
of radio station WASH(FM). Evergreen will move the WASH(FM) personnel and
promotional, sales, marketing
<PAGE> 6
Scott K. Ginsburg
Steven Dinetz
August 6, 1997
Page 6
and format specific programming materials, supplies, inventories and property
to the studio location presently used by WGMS(FM). Bonneville will move the
WGMS(FM) personnel and promotional, sales, marketing and format specific
programming materials, supplies, inventories and property to the WASH(FM)
studio location. These studio and office relocations will be coordinated
between the parties hereto and will take place within sixty (60) days of the
effective date of the TBAs. However, the studio arrangements for WGMS(FM) and
WASH(FM) shall be subject to further discussions by the parties to ensure that
WASH(FM) will have adequate studio space.
As part of the TBAs, Evergreen will assign to Bonneville and
Bonneville will assume all contracts, leases and other agreements of Evergreen
relating to WTOP(AM) and WGMS(FM) (including contracts and agreements relating
to personnel and union contracts, but excluding contracts, leases and
agreements relating to the WGMS(FM) studio and other excluded assets). In
addition, Evergreen will assign to Bonneville and Bonneville will assume all
contracts, leases and other agreements of Evergreen relating to KZLA(FM)
(including contracts and agreements relating to personnel and union contracts,
the transmitter location, format and programming, but excluding contracts and
agreements relating to the KZLA(FM) studio and other excluded assets).
As part of the TBAs, Bonneville will assign to Evergreen and
Evergreen will assume all contracts, leases and other agreements of Bonneville
relating to WDBZ(FM) and KLDE(FM) (including contracts and agreements relating
to personnel and union contracts). In addition, Bonneville will assign to
Evergreen and Evergreen will assume all contracts, leases and other agreements
of Bonneville relating to KBIG(FM) (including contracts and agreements relating
to personnel and union contracts, the transmitter location, format and
programming, but excluding contracts, leases and agreements relating to the
KBIG(FM) studio).
All contracts, leases and agreements of the parties to be
assigned and assumed shall be assigned and assumed as of the effective date of
the TBAs (except in all cases for studio and transmitter site leases), if any
necessary third party consents can be timely obtained. Real estate leases and
any other contracts to be assigned under the TBAs or the Exchange Agreement and
not previously assigned shall be assigned at closing. Third party consents must
be obtained for contracts, leases and agreements relating to each station's
main antenna site.
Except as may be otherwise provided in the TBAs, neither
party shall be required to assume or undertake to pay, satisfy or discharge any
of the liabilities, obligations, commitments or responsibilities of the other
party except for (a) liabilities of such party arising and accruing after
closing or (b) liabilities, obligations, commitments or responsibilities
arising under contracts assumed by such party.
Subject to specific exceptions subsequently agreed to by the
parties, Bonneville shall offer employment as of the effective date of the TBAs
to all employees of Evergreen
<PAGE> 7
Scott K. Ginsburg
Steven Dinetz
August 6, 1997
Page 7
employed at WTOP(AM) and WGMS(FM) and to the programming personnel of KZLA(FM)
on terms and conditions of employment to be decided by Bonneville. Bonneville
will assume responsibility for any severance for employees of the Bonneville
Stations hired by Evergreen (other than employees under employment contracts)
who are terminated by Evergreen within 60 days of the effective date of the
TBAs. Evergreen will assume responsibility for any severance that may be owed
to employees of the Bonneville Stations hired by Evergreen under any employment
contract assumed by Evergreen.
Subject to specific exceptions subsequently agreed to by the
parties, Evergreen shall offer employment as of the effective date of the TBAs
to all employees of Bonneville employed at WDBZ(FM) and KLDE(FM) and to the
programming personnel of KBIG(FM) on terms and conditions of employment to be
decided by Evergreen. Evergreen will assume responsibility for any severance
for employees of the Evergreen Stations hired by Bonneville (other than
employees under employment contracts) who are terminated by Bonneville within
60 days of the effective date of the TBAs. Bonneville will assume
responsibility for any severance that may be owed to employees of the Evergreen
Stations hired by Bonneville under any employment contracts assumed by
Bonneville.
In consideration of the effort and expense to be incurred by
Bonneville and Evergreen between the date of this letter agreement and the date
of the execution by the parties of the Exchange Agreement, the parties agree
that (i) prior to October 15, 1997, they will not, directly or indirectly,
solicit, encourage or consider alternative offers for the sale of all or part
of the Bonneville Assets or the Evergreen Assets and (ii) neither party may
make any press release or other disclosure relating to the transactions
contemplated herein without the other party's advance consent. If the Option
has not been exercised by October 15, 1997, the parties may consider
alternative transactions, subject to the remaining rights under this Option.
It is the intention of the parties to undertake reasonable
efforts to structure the transaction contemplated hereby so that it qualifies
to the maximum extent possible as a tax deferred exchange under Section 1031 of
the Internal Revenue Code of 1986, as amended, provided however, none of the
parties hereto shall have any responsibility for the tax consequences to any
other party hereunder for said transactions and provided that this transaction
is not conditioned on such qualification.
Bonneville and Evergreen will share equally all sales and
transfer taxes and FCC and HSR filing fees.
The HSR filings for the transaction described herein shall be
filed within three (3) business days of the execution by both parties of this
letter. Such filings shall include copies of the fully executed letter. The FCC
applications will be filed upon Exercise, unless the parties agree to file
sooner.
<PAGE> 8
Scott K. Ginsburg
Steven Dinetz
August 6, 1997
Page 8
Each party hereto shall keep confidential and not disclose
any information obtained from another party hereto pursuant to this letter and
relating to the Transaction. If the Exchange Agreement is not executed by the
parties as set forth herein, all information obtained by a party from another
party shall be returned or destroyed (without retaining a copy thereof).
This letter agreement shall be governed by and construed in
accordance with the laws of the District of Columbia, without regard to the
choice of law rules utilized in that jurisdiction.
<PAGE> 9
Scott K. Ginsburg
Steven Dinetz
August 6, 1997
Page 9
Please indicate your agreement with the foregoing by
executing and returning this letter to me.
Very truly yours,
BONNEVILLE INTERNATIONAL CORPORATION
By: /s/ Bruce T. Reese
--------------------------------------------
Bruce T. Reese
President and Chief Executive Officer
BONNEVILLE HOLDING COMPANY
By: /s/ Robert A Johnson
--------------------------------------------
Robert A. Johnson
Vice President
ACCEPTED AND AGREED TO:
EVERGREEN MEDIA CORPORATION
By: /s/ Scott K. Ginsburg
-----------------------------
Its: Chairman and CEO
-----------------------------
CHANCELLOR BROADCASTING COMPANY
By: /s/ Steven Dinetz
-----------------------------
Its: President and CEO
-----------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 6/30/97
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000894972
<NAME> EVERGREEN MEDIA CORPORATION
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,886
<SECURITIES> 0
<RECEIVABLES> 104,040
<ALLOWANCES> 4,386
<INVENTORY> 0
<CURRENT-ASSETS> 112,339
<PP&E> 95,597
<DEPRECIATION> 30,780
<TOTAL-ASSETS> 1,483,513
<CURRENT-LIABILITIES> 32,994
<BONDS> 525,000
0
299,500
<COMMON> 422
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,483,513
<SALES> 188,261
<TOTAL-REVENUES> 188,261
<CGS> 27,916
<TOTAL-COSTS> 170,725
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,741
<INCOME-PRETAX> 8,118
<INCOME-TAX> 4,259
<INCOME-CONTINUING> 3,859
<DISCONTINUED> 0
<EXTRAORDINARY> (4,350)
<CHANGES> 0
<NET-INCOME> (1,190)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
