<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 17, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CHANCELLOR MEDIA CORPORATION
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 4832 75-2247099
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
<TABLE>
<S> <C>
JEFFREY A. MARCUS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
300 CRESCENT COURT, SUITE 600 CHANCELLOR MEDIA CORPORATION
DALLAS, TEXAS 75201 300 CRESCENT COURT, SUITE 600
(214) 922-8700 DALLAS, TEXAS 75201
(214) 922-8700
(Address, Including Zip Code, and Telephone Number,
Including (Name, Address, Including Zip Code, and Telephone
Area Code, of Registrant's Principal Executive Number, Including Area Code, of Agent for Service)
Offices)
</TABLE>
COPIES TO:
<TABLE>
<S> <C> <C> <C>
RICHARD A.B. GLEINER, ESQ. GREGORY M. SCHMIDT, ESQ. MICHAEL D. WORTLEY, ESQ.
MICHAEL A. SASLAW, ESQ. SENIOR VICE PRESIDENT AND VICE PRESIDENT AND GENERAL VINSON & ELKINS L.L.P.
WEIL, GOTSHAL & MANGES LLP GENERAL COUNSEL COUNSEL 3700 TRAMMELL CROW CENTER
100 CRESCENT COURT, SUITE 1300 CHANCELLOR MEDIA CORPORATION LIN TELEVISION CORPORATION 2001 ROSS AVENUE
DALLAS, TEXAS 75201 300 CRESCENT COURT, SUITE 600 1001 G STREET, NW DALLAS, TEXAS 75201
(214) 746-7700 DALLAS, TEXAS 75201 SUITE 700 EAST (214) 220-7700
(214) 922-8700 WASHINGTON, D.C. 20001
(202) 879-9355
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and the
satisfaction or waiver of the other conditions to the merger of Ranger Equity
Holdings Corporation with and into the Registrant.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE(3)
- -----------------------------------------------------------------------------------------------------------------------------
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Common Stock, $0.01 par value....... 16,179,645 $0.11 $1,797,739 $500
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</TABLE>
(1) Based upon 539,321,532 shares of common stock of Ranger Equity Holdings
Corporation issued and outstanding at the time of the merger.
(2) Estimated solely for the purpose of determining the registration fee.
Pursuant to Rule 457(f)(2) under the Securities Act of 1933, as amended,
since Ranger Equity Holdings Corporation has a capital deficit, the maximum
aggregate offering price is based on one-third of the par value ($0.01) of
the common stock of Ranger Equity Holdings Corporation to be cancelled in
exchange for shares of common stock of the Registrant, based on 539,321,532
shares outstanding. The proposed maximum offering price per share equals
such amount divided by the maximum number of shares of the Registrant's
common stock that may be issued in the merger.
(3) The entire amount of the registration fee has been offset by amounts
previously paid by the Registrant in connection with the initial filing of
preliminary proxy materials with the Commission on November 9, 1998 as
permitted by Rule 457(b). Accordingly, no additional fee has been paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
CHANCELLOR MEDIA CORPORATION
300 Crescent Court, Suite 600
Dallas, Texas 75201
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 30, 1999
---------------------
To our Stockholders:
A special meeting of the holders of common stock, $0.01 par value, of Chancellor
Media Corporation, a Delaware corporation (referred to herein as Chancellor
Media), will be held at 10:00 a.m., local time, on March 30, 1999, at The Hotel
Crescent Court, 400 Crescent Court, Dallas, Texas 75201, for the following
purposes, as further described in the accompanying joint proxy
statement/prospectus:
1. To consider and vote on a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of July 7, 1998, by and between Chancellor
Media and Ranger Equity Holdings Corporation, a Delaware corporation
(referred to herein as LIN) and the indirect parent company of LIN
Television Corporation, under the terms of which, among other things:
- LIN will be merged with and into Chancellor Media, with Chancellor
Media continuing as the surviving corporation following the merger;
- Each share of common stock, $0.01 par value, of LIN issued and
outstanding immediately prior to the effective time of the merger will
be converted into the right to receive 0.03 of a share of common
stock, $0.01 par value, of Chancellor Media, other than fractional
shares or shares of LIN common stock for which appraisal rights have
been exercised pursuant to Section 262 of the General Corporation Law
of the State of Delaware;
- Each share of Chancellor Media common stock, Chancellor Media 7%
convertible preferred stock, $0.01 par value, and Chancellor Media
$3.00 convertible exchangeable preferred stock, $0.01 par value,
issued and outstanding immediately prior to the effective time shall
remain outstanding and unaffected by the merger; and
- Chancellor Media will assume outstanding options to purchase shares of
LIN common stock and phantom stock units held by directors, officers,
employees and consultants of LIN and its subsidiaries, and these
options and phantom stock units, to the extent exercisable for or
issuable in shares of LIN common stock, shall then be exercisable for
or issuable in shares of Chancellor Media common stock, as adjusted
for the exchange ratio of 0.03 of a share of Chancellor Media common
stock for each share of LIN common stock to be issued.
A vote in favor of the adoption and approval of the merger agreement also
is a vote to approve and adopt the assumption of these plans and the
issuance of shares of Chancellor Media common stock under the plans.
<PAGE> 3
2. To consider and transact any other business as may properly come before
the meeting or any adjournment or postponement of the meeting.
Information regarding the merger and related matters is contained in the
accompanying joint proxy statement/prospectus and the annexes, all of which are
incorporated by reference into this notice and which form a part of this notice.
The affirmative vote of at least a majority of the outstanding shares of
Chancellor Media common stock is required for approval and adoption of the
merger agreement. Affiliates of Hicks, Muse, Tate & Furst Incorporated, some of
Chancellor Media's largest stockholders, have agreed to vote all shares of
Chancellor Media common stock controlled by them in favor of and opposed to the
merger in the same proportion to the votes of all other stockholders of
Chancellor Media.
The Board of Directors of Chancellor Media, upon the recommendation of its
Special Committee of disinterested directors, has approved, adopted and declared
advisable the merger and the merger agreement and recommends that stockholders
vote "FOR" the approval and adoption of the Merger agreement. See "The
Merger -- Background and Chancellor Media's Reasons for the Merger" and
"-- Recommendation of the Chancellor Media Board of Directors" in the
accompanying joint proxy statement/prospectus.
The Board of Directors of Chancellor Media has established the close of business
on February 12, 1999 as the record date for determination of Chancellor Media's
stockholders entitled to notice of and to vote at the Chancellor Media special
meeting or any adjournments or postponements of the meeting. Only holders of
record of shares of Chancellor Media common stock at the close of business on
the record date are entitled to notice of, and to vote at, the Chancellor Media
special meeting.
Holders of Chancellor Media common stock, whether or not they expect to be
present at the Chancellor Media special meeting, are requested to complete, sign
and date the enclosed proxy and return it promptly in the enclosed envelope to
assure that their shares of Chancellor Media common stock will be represented.
Any stockholders that attend the Chancellor Media special meeting may vote in
person even if they have previously returned their proxy.
By Order of the Board of
Directors:
/s/ OMAR CHOUCAIR
Omar Choucair
Assistant Secretary
Dallas, Texas
February , 1999
<PAGE> 4
RANGER EQUITY HOLDINGS CORPORATION
4 Richmond Square, Suite 200
Providence, Rhode Island 02906
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 30, 1999
---------------------
To our Stockholders:
A special meeting of the holders of common stock, $0.01 par value, of Ranger
Equity Holdings Corporation, a Delaware corporation (referred to herein as LIN)
and the indirect parent company of LIN Television Corporation, will be held at
10:00 a.m., local time, on March 30, 1999, at the offices of Hicks, Muse, Tate &
Furst Incorporated, 200 Crescent Court, Suite 1600, Dallas, Texas 75201, for the
following purposes, as further described in the accompanying joint proxy
statement/prospectus:
1. To consider and vote on a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of July 7, 1998, by and between Chancellor
Media Corporation, a Delaware corporation (referred to herein as
Chancellor Media), and LIN, under the terms of which, among other
things:
- LIN will be merged with and into Chancellor Media, with Chancellor
Media continuing as the surviving corporation following the merger;
- Each share of common stock, $0.01 par value, of LIN issued and
outstanding immediately prior to the effective time of the merger will
be converted into the right to receive 0.03 of a share of common
stock, $0.01 par value, of Chancellor Media, other than fractional
shares or shares of LIN common stock for which appraisal rights have
been exercised pursuant to Section 262 of the General Corporation Law
of the State of Delaware;
- Each share of Chancellor Media common stock, Chancellor Media 7%
convertible preferred stock, $0.01 par value, and Chancellor Media
$3.00 convertible exchangeable preferred stock, $0.01 par value,
issued and outstanding immediately prior to the effective time will
remain outstanding and unaffected by the merger; and
- Chancellor Media will assume outstanding options to purchase shares of
LIN common stock and phantom stock units held by directors, officers,
employees and consultants of LIN and its subsidiaries, and these
options and phantom stock units, to the extent exercisable for or
issuable in shares of LIN common stock, will then be exercisable for
or issuable in shares of Chancellor Media common stock, as adjusted
for the exchange ratio of 0.03 of a share of Chancellor Media common
stock for each share of LIN common stock to be issued.
2. To consider and transact any other business as may properly come before
the meeting or any adjournment or postponement of the meeting.
<PAGE> 5
Information regarding the merger and related matters is contained in the
accompanying joint proxy statement/prospectus and the annexes, all of which are
incorporated by reference into this notice and which form a part of this notice.
The affirmative vote of at least a majority of the outstanding shares of LIN
common stock is required for approval and adoption of the merger agreement. An
affiliate of Hicks, Muse, Tate & Furst Incorporated, which holds a majority of
the outstanding shares of LIN common stock, has entered into an agreement with
Chancellor Media to vote in favor of the merger. As a result, the approval of
the merger by the LIN stockholders is assured. As described in the accompanying
joint proxy statement/prospectus and the annexes, LIN stockholders will be
entitled to appraisal rights under Delaware law at the special meeting.
The Board of Directors of LIN has approved, adopted and declared advisable the
merger and the merger agreement and recommends that you vote "FOR" the approval
and adoption of the merger agreement. See "The Merger -- Recommendation of the
LIN Board of Directors and LIN's Reasons for the Merger" in the accompanying
joint proxy statement/prospectus.
The Board of Directors of LIN has established the close of business on February
12, 1999 as the record date for determination of LIN's stockholders entitled to
notice of and to vote at the special meeting or any adjournments or
postponements of the meeting. Only holders of record of shares of LIN common
stock at the close of business on the record date are entitled to notice of, and
to vote at, the special meeting.
Your vote is very important. You are requested to complete, sign and date the
enclosed proxy card and return it promptly in the enclosed envelope, whether or
not you expect to attend the special meeting, to assure that your shares will be
represented. You may revoke your proxy and vote in person if you decide to
attend the special meeting.
By Order of the Board of
Directors:
Eric Neuman
Eric C. Neuman
Secretary
Providence, Rhode Island
February , 1999
<PAGE> 6
THIS JOINT PROXY STATEMENT/PROSPECTUS DATED FEBRUARY , 1999
IS SUBJECT TO COMPLETION AND AMENDMENT.
JOINT PROXY STATEMENT/PROSPECTUS
[CHANCELLOR MEDIA CORP. LOGO] [LIN LOGO]
Merger Proposed -- Your Vote is Important
The Boards of Directors of Chancellor Media Corporation, referred to herein as
Chancellor Media, and Ranger Equity Holdings Corporation, referred to herein as
LIN, the indirect parent company of LIN Television Corporation, have agreed on a
merger of the two companies to create one of the leading diversified media
companies in the United States.
If the merger is completed, stockholders of LIN will receive 0.03 of a share of
common stock of Chancellor Media for each share of LIN common stock that they
own. Chancellor Media stockholders will continue to hold their shares of
Chancellor Media common stock following the merger.
The merger cannot be completed unless certain government approvals are obtained
and the stockholders of both Chancellor Media and LIN approve it. In connection
with a voting agreement, the majority stockholder of LIN has agreed to vote in
favor of the merger and, as a result, the approval of LIN stockholders is
assured. This joint proxy statement/prospectus relates to the special
stockholders' meetings of Chancellor Media and LIN that each Board of Directors
has called to vote on the proposed merger and any other matters validly coming
before the meetings.
This joint proxy statement/prospectus also constitutes a prospectus for
Chancellor Media with respect to the 16,179,645 shares of Chancellor Media
common stock to be issued under the merger agreement. If the merger is
completed, LIN stockholders will hold approximately 10% of Chancellor Media
common stock.
After careful consideration of the recommendations of their respective financial
advisors and, in the case of Chancellor Media, a Special Committee of its Board
of Directors, the Boards of Directors of Chancellor Media and LIN have
respectively determined that the merger is fair to, advisable and in the best
interests of their stockholders and recommend that their stockholders vote in
favor of the adoption of the merger agreement.
<TABLE>
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/S/ JEFFREY A. MARCUS /S/ GARY R. CHAPMAN
Jeffrey A. Marcus Gary R. Chapman
President and Chief Executive Officer President and Chief Operating Officer
Chancellor Media Corporation Ranger Equity Holdings Corporation
</TABLE>
------------------------------------
The Chancellor Media common stock is quoted on the Nasdaq Stock Market's
National Market under the symbol "AMFM." Chancellor Media intends to apply for
inclusion of the shares of Chancellor Media common stock offered in connection
with the merger to be quoted on the Nasdaq Stock Market's National Market.
THE "RISK FACTORS" SECTION OF THIS JOINT PROXY STATEMENT/PROSPECTUS (BEGINNING
ON PAGE 18) LISTS SOME OF THE IMPORTANT FACTORS YOU SHOULD CONSIDER IN
EVALUATING THE MERGER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The joint proxy statement/prospectus is dated February , 1999, and it was
first mailed to stockholders on February , 1999.
THE INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS JOINT PROXY
STATEMENT/PROSPECTUS IS NOT AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE
THE OFFER OR SALE IS NOT PERMITTED.
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
GLOSSARY OF DEFINED TERMS..................... iv
SUMMARY....................................... 1
The Companies............................... 1
Recent Developments......................... 3
The Merger.................................. 3
The Chancellor Media Special Stockholders'
Meeting................................... 7
The LIN Special Stockholders' Meeting....... 7
The Voting Agreement........................ 7
Market Price and Dividend Information....... 8
Summary Pro Forma Financial Information..... 9
Comparative Per Share Data.................. 11
Chancellor Media Selected Consolidated
Historical Financial Data................. 12
LIN Selected Consolidated Historical
Financial Data............................ 15
RISK FACTORS.................................. 18
Potential Negative Consequences of
Substantial Indebtedness of Chancellor
Media and LIN............................. 18
Restrictions Imposed on Chancellor Media by
Agreements Governing Debt Instruments..... 19
Fixed Charges Negatively Impact Results of
Operations................................ 19
Fixed Exchange Ratio for LIN Stockholders
Despite Possible Fluctuation in Chancellor
Media's Stock Price....................... 20
Competitive Nature of Radio and Television
Broadcasting, Outdoor Advertising and
Media Representation...................... 20
Potential Effects on Licenses and Ownership
of Regulation of the Radio and Television
Broadcasting Industries................... 21
Potential Conflict of Interest as a Result
of Cross-Ownership........................ 21
Difficulty of Integrating Acquisitions and
Entering New Lines of Business............ 22
Possible Delay in Consummation of Pending
Transactions due to Antitrust Review...... 23
Potential Adverse Consequences of Guarantee
of NBC Joint Venture Loan................. 23
Possible Loss of Advertising Space to
Regulation of Outdoor Advertising......... 24
Loss of Advertisers due to Tobacco and
Alcohol Industry Regulation............... 24
Control of the Combined Company by Hicks
Muse...................................... 25
Investors Should Not Place Undue Reliance on
Forward-Looking Information............... 25
THE COMPANIES................................. 27
Chancellor Media............................ 27
LIN......................................... 59
THE CHANCELLOR MEDIA SPECIAL MEETING.......... 79
Date, Time, Place and Purpose............... 79
Record Date, Voting Rights and Quorum....... 79
Voting and Revocation of Proxies............ 80
THE LIN SPECIAL MEETING....................... 81
</TABLE>
<TABLE>
<CAPTION>
PAGE
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THE MERGER.................................... 83
Background and Chancellor Media's Reasons
for the Merger............................ 83
Recommendation of the Chancellor Media Board
of Directors.............................. 88
Opinions of Financial Advisors to the
Chancellor Media Board of Directors and
Special Committee......................... 89
Recommendation of the LIN Board of Directors
and LIN's Reasons for the Merger.......... 102
Opinion of Financial Advisor to the LIN
Board of Directors........................ 103
Interests of Certain Persons in the
Merger.................................... 108
Appraisal and Dissenters' Rights............ 110
Accounting Treatment........................ 113
Federal Income Tax Consequences of the
Merger.................................... 114
Certain Regulatory Matters.................. 115
Restriction on Resales of Chancellor Media
Common Stock by Affiliates of LIN......... 123
THE MERGER AGREEMENT.......................... 124
General..................................... 124
Effective Time.............................. 124
Conversion of Shares........................ 124
Treatment of Stock Options and Phantom Stock
Units..................................... 124
Exchange Procedures......................... 125
Directors and Officers...................... 127
Certificate of Incorporation and Bylaws..... 127
Representations and Warranties.............. 127
Covenants................................... 129
Conditions to the Merger.................... 131
Additional Agreements....................... 133
Indemnification and Insurance............... 134
Termination................................. 135
Amendment and Modification.................. 135
Fees and Expenses........................... 135
THE VOTING AGREEMENT.......................... 136
DIRECTORS AND MANAGEMENT FOLLOWING THE
MERGER...................................... 136
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT OF CHANCELLOR MEDIA... 158
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT OF LIN................ 161
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS................................ 163
DESCRIPTION OF CHANCELLOR MEDIA CAPITAL
STOCK....................................... 165
Common Stock................................ 165
Preferred Stock............................. 167
COMPARATIVE RIGHTS OF HOLDERS OF CHANCELLOR
MEDIA COMMON STOCK AND LIN COMMON STOCK..... 176
Authorized Capital Stock.................... 176
</TABLE>
ii
<PAGE> 8
<TABLE>
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PAGE
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Preemptive Rights........................... 177
Liquidation Rights.......................... 177
Voting Rights Generally..................... 177
Amendment of Bylaws......................... 178
Number and Classification of the Board of
Directors................................. 178
Indemnification of Directors and Officers
and Limitation of Liability............... 178
Restrictions on Foreign Ownership........... 179
Voting with Respect to Certain Business
Combinations.............................. 179
LEGAL MATTERS................................. 180
EXPERTS....................................... 180
STOCKHOLDER PROPOSALS FOR CHANCELLOR MEDIA
1999 ANNUAL
MEETING..................................... 182
PRO FORMA FINANCIAL INFORMATION............... P-1
INDEX TO FINANCIAL STATEMENTS................. F-1
</TABLE>
ANNEXES
Annex I -- Agreement and Plan of Merger
Annex II -- Opinion of Wasserstein Perella & Co., Inc.
Annex III -- Opinion of Morgan Stanley & Co. Incorporated
Annex IV -- Opinion of Greenhill & Co., LLC
Annex V -- Section 262 of the DGCL
iii
<PAGE> 9
GLOSSARY OF DEFINED TERMS
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$3.00 Junior Dividend Stock........... 141
$3.00 Junior Liquidation Stock........ 142
$3.00 Parity Dividend Stock........... 141
$3.00 Parity Liquidation Stock........ 142
$3.00 Senior Dividend Stock........... 142
$3.00 Senior Liquidation Stock........ 142
6% Exchange Debentures................ 144
7% Junior Dividend Stock.............. 137
7% Junior Liquidation Stock........... 138
7% Parity Dividend Stock.............. 137
7% Parity Liquidation Stock........... 138
7% Senior Dividend Stock.............. 138
7% Senior Liquidation Stock........... 138
8 1/8% Notes.......................... 53
8 3/4% Notes.......................... 52
9 3/8% Notes.......................... 52
10 1/2% Notes......................... 52
1998 Financing Transactions........... 32
AcSEC................................. 57
Affiliate............................. 115
Argyle................................ 89
ATCF.................................. 86
BCF................................... 82
broadcast-cable cross-ownership
rule................................ 58
Capstar/SFX Stations.................. 27
Capstar/SFX Transaction............... 27
Chancellor Media Convertible Preferred
Stock............................... 70
Chancellor Media Record Date.......... 71
CMCLA................................. 31
Code.................................. 106
Completed Transactions................ 29
Debenture Exchange Date............... 144
DGCL.................................. 70
DMA................................... 50
DOJ................................... 28
DTV................................... 112
FASB.................................. 57
FCC................................... 30
Grand Rapids Acquisition.............. 52
Grand Rapids Stations................. 52
Granite............................... 85
H-A TV................................ 83
Hearst................................ 89
Hearst-Argyle......................... 89
HDTV.................................. 112
Hicks Muse Partners................... 101
Houston Exchange...................... 30
HSR Act............................... 30
Kasem Acquisition..................... 29
LIN 8 3/8% Notes...................... 52
LIN 8 3/8% Notes Offering............. 52
LIN 10% Notes......................... 53
LIN 10% Notes Offering................ 53
LIN Asset Value....................... 90
LIN Core Stations..................... 51
LIN Entities.......................... 101
LIN LMA Stations...................... 51
LIN Notes............................. 53
LIN Owned and Operated Stations....... 90
LIN Record Date....................... 73
LIN Texas............................. 52
LMA................................... 50
LTM................................... 82
Martin Media.......................... 29
NBC Option............................ 90
one-to-a-market rule.................. 47
Other Outdoor Acquisitions............ 29
Paying Agent.......................... 117
Pending Transactions.................. 31
Proposed Chancellor Media/LIN/Pulitzer
Transaction......................... 90
Pulitzer.............................. 83
Pulitzer Bid.......................... 90
Representatives....................... 126
right to reject rule.................. 111
SDTV.................................. 112
SEC................................... 50
SG&A.................................. 60
SHVA.................................. 114
Sinclair.............................. 83
SOP................................... 57
SOP 98-5.............................. 57
Special Committee..................... 70
superduopolies........................ 27
Transfer Agent........................ 72
Voting Agreement...................... 128
Young................................. 85
</TABLE>
Chancellor Media has supplied all information contained in this joint proxy
statement/ prospectus relating to Chancellor Media and LIN has supplied all of
the information relating to LIN.
CHANCELLOR MEDIA AND LIN HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS ABOUT THE MERGER AND OTHER TRANSACTIONS DISCUSSED
IN THIS JOINT
iv
<PAGE> 10
PROXY STATEMENT/PROSPECTUS OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS OR IN THE DOCUMENTS INCORPORATED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS BY REFERENCE. IF YOU ARE GIVEN ANY INFORMATION OR
REPRESENTATIONS ABOUT THESE MATTERS THAT IS NOT DISCUSSED OR INCORPORATED IN
THIS JOINT PROXY STATEMENT/ PROSPECTUS, YOU MUST NOT RELY ON THAT INFORMATION.
THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SECURITIES ANYWHERE OR TO ANYONE WHERE OR TO WHOM IT WOULD BE
UNLAWFUL TO OFFER OR SELL SECURITIES UNDER APPLICABLE LAW.
THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS OR THE COMMON STOCK OF
CHANCELLOR MEDIA OFFERED BY THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT,
UNDER ANY CIRCUMSTANCES, MEAN THAT THERE HAS NOT BEEN A CHANGE IN THE AFFAIRS OF
CHANCELLOR MEDIA OR LIN SINCE THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS.
IT ALSO DOES NOT MEAN THAT THE INFORMATION IN THIS JOINT PROXY
STATEMENT/PROSPECTUS OR IN THE DOCUMENTS INCORPORATED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS BY REFERENCE IS CORRECT AFTER THIS DATE.
v
<PAGE> 11
SUMMARY
This brief summary highlights selected information from the joint proxy
statement/ prospectus. It does not contain all of the information that is
important to you. You are urged to read carefully the entire joint proxy
statement/prospectus and the other documents to which it refers to fully
understand the merger. See "The Companies -- Chancellor Media -- Where You Can
Find More Information About Chancellor Media" on page .
THE COMPANIES (SEE PAGE )
CHANCELLOR MEDIA CORPORATION
300 Crescent Court, Suite 600
Dallas, Texas 75201
(214) 922-8700
Chancellor Media is a diversified multi-media company that:
- - owns and/or operates a radio station portfolio consisting of 125 radio
stations in 23 of the largest U.S. markets and Puerto Rico, 112 stations of
which are owned and 13 stations of which are currently operated under time
brokerage agreements which allow Chancellor Media to program another person's
station and sell the advertising;
- - provides national media sales representation through Katz Media Group, Inc., a
wholly-owned subsidiary; and
- - has a significant and growing outdoor advertising presence.
After completing all of its announced transactions, other than the LIN merger,
Chancellor Media will own or operate over 465 radio stations in approximately
106 markets, one television station in Puerto Rico and over 41,000 outdoor
advertising displays throughout the United States.
RANGER EQUITY HOLDINGS CORPORATION
C/O LIN TELEVISION CORPORATION
4 Richmond Square, Suite 200
Providence, Rhode Island 02906
(401) 454-2880
LIN is a television station group operator in the United States that owns and
operates seven network-affiliated television stations and has an agreement to
purchase an eighth. Additionally, LIN has time brokerage agreements, also known
as local marketing agreements, under which it programs four other stations in
the markets in which it operates. Also, LIN owns approximately 20% of a joint
venture with NBC, consisting of KXAS-TV, an NBC affiliate station in Dallas-Fort
Worth, and KNSD-TV, an NBC affiliate station in San Diego.
Eight of LIN's stations are in the top 50 of the November 1998 designated market
area rankings of the Nielsen Station Index. The Nielsen rankings rank
geographically defined television markets in the United States by size according
to various factors based upon actual or potential audience. LIN's top 50
designated market areas include Indianapolis, Indiana; New Haven-Hartford,
Connecticut; Buffalo, New York; Norfolk-Portsmouth, Virginia; and Grand
Rapids-Kalamazoo-Battle Creek, Michigan.
1
<PAGE> 12
LIN Holdings Corporation, an indirect wholly-owned subsidiary of LIN, owns all
of the outstanding common stock of LIN Television Corporation. LIN owns all of
the outstanding common stock of both Ranger Equity Holdings A Corp. and Ranger
Equity Holdings B Corp., which own 37% and 63%, respectively, of the outstanding
common stock of LIN Holdings Corporation. In March of 1998, affiliates of Hicks,
Muse, Tate & Furst Incorporated purchased approximately 74.7% of the outstanding
common stock of LIN.
The following charts show the basic corporate organization of Chancellor Media
and LIN and their respective subsidiaries:
[CORPORATE ORGANIZATIONAL CHART]
2
<PAGE> 13
RECENT DEVELOPMENTS
On January 20, 1999, Chancellor Media announced that its Board of Directors has
engaged the investment banking firm of BT Alex. Brown Incorporated as financial
advisor for the purpose of assisting management and the Board of Directors of
Chancellor Media in developing, reviewing and structuring a range of strategic
alternatives intended to maximize stockholder value. On February 11, 1999,
Chancellor Media announced that it has added additional advisors Morgan Stanley
Dean Witter, Hicks, Muse, Tate & Furst Incorporated, Goldman, Sachs & Co.,
Greenhill & Co., LLC and Chase Securities Inc. to assist it in exploring these
alternatives, which may include, but are not limited to, the sale, merger or
consolidation of the entire company or some of its operating assets.
On February 11, 1999, Chancellor Media reported its fourth quarter and annual
results. For the year ended December 31, 1998, consolidated net revenues
increased 118.8% to $1,273.9 million, compared with $582.1 million in the year
ended December 31, 1997. Broadcast cash flow, as defined on page 9, for the year
ended December 31, 1998 rose 122.6% to $591.8 million, compared with $265.8
million in the year ended December 31, 1997.
THE MERGER
The merger agreement is attached as Annex I to this joint proxy
statement/prospectus. You are encouraged to read the merger agreement, as it is
the legal document that governs the merger.
GENERAL (SEE PAGE )
If the proposed combination is approved, LIN will merge into Chancellor Media.
The combined company will continue to be known as Chancellor Media Corporation,
with LIN Television Corporation and its subsidiaries being operated separately
from Chancellor Media's other businesses as a division called the Chancellor
Television Group.
CONVERSION OF SHARES (SEE PAGE )
LIN Stockholders: Each of your shares of LIN common stock will automatically
convert into the right to receive from Chancellor Media 0.03 of a share of
Chancellor Media common stock. The total number of shares of Chancellor Media
common stock that you will have the right to receive will therefore be equal to
the number of shares of LIN common stock that you own at the time of the merger,
multiplied by 0.03. You will be paid in cash for the market value of any
fractional shares of Chancellor Media common stock that you otherwise might be
entitled to. You will need to exchange your LIN common stock certificates to
receive new certificates representing Chancellor Media common stock. This will
not be necessary until you receive written instructions after we have completed
the merger.
Chancellor Media Stockholders: Each share of Chancellor Media common stock and
convertible preferred stock will remain outstanding and not be affected by the
merger. You will not need to surrender your Chancellor Media certificates or
exchange them for new ones.
3
<PAGE> 14
OWNERSHIP OF CHANCELLOR MEDIA FOLLOWING THE MERGER (SEE PAGE )
The shares of Chancellor Media common stock issued to LIN stockholders in the
merger will constitute approximately 10% of the outstanding common stock of
Chancellor Media after the merger. It is anticipated that Chancellor Media will
issue approximately 16.2 million shares of common stock in the merger.
Chancellor Media will also assume options and other equity rights which
represent up to an additional 1.5 million shares.
APPRAISAL AND DISSENTERS' RIGHTS (SEE PAGE )
LIN Stockholders: If you do not vote in favor of the merger and follow the
appropriate procedures under Delaware law, you will be entitled, instead of
receiving the shares of Chancellor Media common stock in the merger, to have a
judge determine the fair value in cash of your shares of LIN common stock.
Chancellor Media's obligation to complete the merger is subject to the condition
that LIN stockholders holding no more than 5% of the outstanding shares of LIN
common stock demand appraisal rights under Delaware law.
Chancellor Media Stockholders: Under Delaware law, you do not have a right to an
appraisal of your shares of Chancellor Media common stock as a result of the
merger.
The full text of Section 262 of the General Corporation Law of the State of
Delaware is included as Annex V to this joint proxy statement/prospectus. It is
the section of Delaware law that governs appraisal rights.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE )
LIN Stockholders: For United States federal income tax purposes, the merger is
intended to qualify as a tax-free reorganization. Accordingly, the exchange of
your shares of LIN common stock for shares of Chancellor Media common stock
generally will not cause you to recognize any gain or loss. You will, however,
have to recognize income or gain in connection with any cash you receive instead
of fractional shares.
THIS TAX TREATMENT MAY NOT APPLY TO EVERY LIN STOCKHOLDER. DETERMINING THE
ACTUAL TAX CONSEQUENCES OF THE MERGER TO YOU MAY BE VERY COMPLICATED AND DEPEND
ON YOUR SPECIFIC SITUATION. YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISOR FOR A
FULL UNDERSTANDING OF THE MERGER'S TAX CONSEQUENCES TO YOU.
Chancellor Media Stockholders: Since your shares of Chancellor Media common
stock will remain unchanged as a result of the merger, you should not recognize
any gain or loss for purposes of United States federal income tax.
TREATMENT OF LIN STOCK OPTIONS AND PHANTOM STOCK UNITS (SEE PAGE )
Chancellor Media has agreed to assume the obligations of LIN under outstanding
LIN stock options if the merger is completed. After the merger, these LIN stock
options will become stock options of Chancellor Media, with appropriate
adjustments for share amounts and exercise price to reflect the exchange ratio
of the merger. In addition, Chancellor Media also agreed to assume LIN's
obligations under a phantom stock plan that provides for a payment, in cash or
shares of Chancellor Media common stock at Chancellor Media's option, to
selected officers, directors and employees of LIN upon the occurrence of certain
triggering events. The amounts that Chancellor Media will be
4
<PAGE> 15
required to pay to a person in cash or shares of Chancellor Media common stock
will be based upon the number of phantom stock units held by the person and the
market price of Chancellor Media common stock, as adjusted for the merger
exchange ratio. The vote of Chancellor Media stockholders in favor of the merger
is also a vote to approve and adopt the assumption of these plans and the
issuance of Chancellor Media common stock under them.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (SEE PAGE )
Some of the officers and directors of Chancellor Media have interests in the
merger that are different from, or in addition to, their interests as officers,
directors and stockholders of Chancellor Media. Two of Chancellor Media's
directors, Thomas O. Hicks and Michael J. Levitt, are also directors of LIN,
with Mr. Hicks serving as the Chairman of both companies. Eric C. Neuman, Senior
Vice President of Chancellor Media, is also a director of LIN, and Lawrence D.
Stuart, Jr., one of Chancellor Media's directors, is an officer of LIN.
Additionally, three of Chancellor Media's directors, Messrs. Hicks, Levitt and
Stuart, serve as officers, directors and partners of various entities affiliated
with Hicks Muse. Hicks Muse currently controls approximately 11.9% of the
outstanding Chancellor Media common stock and approximately 74.7% of the
outstanding LIN common stock. Finally, certain affiliates of Hicks Muse will
receive, in addition to the shares of Chancellor Media common stock received in
the merger in exchange for LIN common stock, payments under contracts they have
with LIN.
The following tables set forth the approximate fair market value of shares of
Chancellor Media common stock, based on an assumed per share price of $50.75,
the closing price per share of Chancellor Media's common stock on February 11,
1999, that may be attributable to each of Messrs. Hicks, Stuart and Levitt as a
result of the conversion of LIN shares into Chancellor Media shares in the
merger, and their approximate pro rata share of the fee income to be received by
affiliates of Hicks Muse at the completion of the merger:
APPRECIATION IN VALUE OF LIN COMMON STOCK
<TABLE>
<CAPTION>
APPROXIMATE
FAIR MARKET VALUE
APPROXIMATE OF CHANCELLOR MEDIA
COST BASIS SHARES TO BE RECEIVED
NAME OF LIN SHARES IN MERGER
---- ------------- ---------------------
(IN THOUSANDS)
<S> <C> <C>
Thomas O. Hicks(1)................................. $3,577 $15,297
Lawrence D. Stuart, Jr............................. 555 2,631
Michael J. Levitt.................................. 675 3,190
</TABLE>
- ---------------
(1) Includes shares that may be attributable to Mr. Hicks' wife, trusts for the
benefit of his children and other related parties.
PRO RATA SHARE OF FEE INCOME
<TABLE>
<CAPTION>
APPROXIMATE
NAME AMOUNT
---- --------------
(IN THOUSANDS)
<S> <C>
Thomas O. Hicks............................................. $4,569
Lawrence D. Stuart, Jr...................................... 892
Michael J. Levitt........................................... 1,695
</TABLE>
5
<PAGE> 16
Because of these interests, none of Messrs. Hicks, Levitt or Stuart served on
the Special Committee of Chancellor Media's Board of Directors, and each of them
abstained from voting on the merger. These interests were also known by the
Chancellor Media Board of Directors and Special Committee when they considered
and approved the merger agreement and the merger.
In July 1998, a stockholder derivative action was commenced by a stockholder
purporting to act on behalf of Chancellor Media alleging, among other things,
breach of fiduciary duties. The defendants in the case include Hicks Muse, LIN
Television and some of Chancellor Media's directors. Plaintiff, defendants and
Chancellor Media have recently agreed to settle the derivative action. In
connection with the settlement, Hicks Muse and its affiliates have agreed that
they will vote all shares of Chancellor Media common stock that they control in
favor of and opposed to the merger in the same proportion as the votes of all
other Chancellor Media stockholders. For a more detailed description of the
lawsuit and the settlement, see "The Companies -- Chancellor Media -- Legal
Proceedings."
Some of the officers and directors of LIN also have interests in the merger, in
addition to those previously noted, that are different from their interests as
officers and directors of LIN. These other interests exist because Chancellor
Media has agreed to maintain for a period of not less than six years after the
merger LIN's existing directors' and officers' insurance and indemnification
policies for coverage for events occurring prior to the merger, subject to some
limitations.
Because of these interests, Messrs. Hicks, Levitt and Neuman abstained from the
vote on the merger.
REGULATORY APPROVALS (SEE PAGE )
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, prevents
the completion of the merger until after required materials and information have
been furnished to the Antitrust Division of the Department of Justice and
Federal Trade Commission and a required waiting period has ended. The waiting
period for this transaction expired on November 16, 1998. In addition, the
merger cannot be completed until permission is obtained from the Federal
Communications Commission to transfer control of the Federal Communications
Commission licenses for the LIN television stations to Chancellor Media.
CONDITIONS TO THE MERGER (SEE PAGE )
The completion of the merger depends upon the satisfaction of a number of
conditions. While Chancellor Media and LIN expect that all of the conditions to
completing the merger will be satisfied, there can be no assurance that they
will be. Either company may waive compliance with the conditions at its
discretion if the law allows it. The merger is expected to be completed no later
that the second business day following the satisfaction or waiver of all of
these conditions.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE )
The companies can agree to terminate the merger agreement without completing the
merger, and either one can terminate the merger agreement if particular events
occur. If the merger agreement is terminated by either company because the other
party does not receive stockholder approval or materially breaches the merger
agreement, or by
6
<PAGE> 17
Chancellor Media if LIN's Board of Directors withdraws or modifies its
recommendation of the merger or approves an alternative significant transaction,
then the other party will reimburse the party that did not breach the merger
agreement or fail to receive stockholder approval for all of its out-of-pocket
expenses incurred in connection with this transaction. Also, if one of the
parties willfully breaches the agreement in a material way, the other party can
seek damages or other appropriate remedies from the courts.
THE CHANCELLOR MEDIA SPECIAL STOCKHOLDERS' MEETING (SEE PAGE )
The special meeting of Chancellor Media stockholders will be held on March 30,
1999 at 10:00 a.m., local time, at The Hotel Crescent Court, 400 Crescent Court,
Dallas, Texas. At the Chancellor Media meeting, you will be asked to:
- - approve and adopt the merger agreement that provides for (1) the merger of LIN
into Chancellor Media, (2) the issuance of Chancellor Media common stock to
LIN's stockholders and (3) the assumption of LIN's employee stock option and
phantom stock plans, including the substitution under the plans of shares of
Chancellor Media common stock; and
- - act on other matters that may be properly submitted to a vote at the meeting.
A vote in favor of the merger agreement by at least a majority of the
outstanding shares of Chancellor Media common stock entitled to vote at the
special meeting is required in order to approve and adopt the merger agreement.
THE LIN SPECIAL STOCKHOLDERS' MEETING (SEE PAGE )
The special meeting of LIN stockholders will be held on March 30, 1999 at 10:00
a.m., local time, at the offices of Hicks, Muse, Tate & Furst Incorporated, 200
Crescent Court, Suite 1600, Dallas, Texas. At the LIN meeting, you will be asked
to:
- - approve and adopt the merger agreement that provides for (1) the merger of LIN
into Chancellor Media; (2) the issuance of Chancellor Media common stock to
LIN's stockholders; and (3) Chancellor Media's assumption of LIN's employee
stock option and phantom stock plans, including the substitution thereunder of
shares of Chancellor Media common stock; and
- - act on other matters that may be properly submitted to a vote at the meeting.
A vote in favor of the merger agreement by at least a majority of the
outstanding shares of LIN common stock entitled to vote at the special
stockholders meeting is required in order to approve and adopt the merger
agreement.
THE VOTING AGREEMENT (SEE PAGE )
When Chancellor Media and LIN entered into the merger agreement, Chancellor
Media required that an affiliate of Hicks Muse, the majority stockholder of LIN,
enter into an agreement to vote in favor of the merger. As a result, the
approval of the LIN stockholders is assured.
7
<PAGE> 18
MARKET PRICE AND DIVIDEND INFORMATION
Chancellor Media common stock is quoted on The Nasdaq Stock Market's National
Market under the symbol "AMFM." The following table gives you, on a per share
basis, for the periods indicated, the high and low closing sale prices per share
of the Chancellor Media common stock as reported by The Nasdaq Stock Market:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1996
First Quarter........................................ $12.25 $ 8.42
Second Quarter....................................... 14.75 10.92
Third Quarter........................................ 16.63 12.87
Fourth Quarter....................................... 16.13 11.75
1997
First Quarter........................................ $17.00 $11.88
Second Quarter....................................... 22.31 14.31
Third Quarter........................................ 27.50 20.63
Fourth Quarter....................................... 37.31 25.81
1998
First Quarter........................................ $49.13 $32.69
Second Quarter....................................... 50.25 40.19
Third Quarter........................................ 57.25 24.13
Fourth Quarter....................................... 47.88 23.94
1999
First Quarter (through February 11, 1999)............ $57.94 $44.63
</TABLE>
On July 6, 1998, the last trading day prior to the announcement by Chancellor
Media and LIN that they had entered into the merger agreement, the last reported
sale price of the Chancellor Media common stock as quoted by Nasdaq was $53.81
per share. On February 11, 1999, the last reported sale price of the Chancellor
Media common stock as quoted by Nasdaq was $50.75 per share. On February 12,
1999, there were approximately 250 holders of record of Chancellor Media common
stock. CHANCELLOR MEDIA AND LIN URGE YOU TO OBTAIN CURRENT MARKET QUOTATIONS FOR
CHANCELLOR MEDIA COMMON STOCK.
Chancellor Media does not currently intend to pay any cash dividends on shares
of Chancellor Media common stock. Furthermore, since Chancellor Media is a
holding company, the only way it can pay dividends in the future is by
indirectly receiving dividends from Chancellor Media Corporation of Los Angeles,
currently Chancellor Media's principal operating subsidiary and, assuming the
merger is completed, indirectly from LIN Television Corporation, LIN's principal
operating subsidiary. Chancellor Media Corporation of Los Angeles is, and LIN
Television Corporation will be, restricted from paying Chancellor Media
dividends by the terms of their respective debt instruments.
8
<PAGE> 19
SUMMARY PRO FORMA FINANCIAL INFORMATION
Chancellor Media has summarized below the unaudited combined pro forma financial
information of Chancellor Media for the year ended December 31, 1997 and for the
nine months ended September 30, 1998. The information should be read in
conjunction with the unaudited pro forma condensed financial statements included
on Pages P-1 through P-48 of this joint proxy statement/prospectus and in
conjunction with Chancellor Media's historical financial statements and related
notes and other financial information included in this joint proxy
statement/prospectus.
Broadcast cash flow consists of operating income or loss excluding depreciation
and amortization, corporate general and administrative expense and non-cash and
non-recurring charges. EBITDA, before non-cash and non-recurring charges
consists of operating income or loss excluding depreciation and amortization and
non-cash and non-recurring charges. Although broadcast cash flow and EBITDA,
before non-cash and non-recurring charges are not calculated in accordance with
generally accepted accounting principles, Chancellor Media believes that
broadcast cash flow and EBITDA, before non-cash and non-recurring charges are
widely used by analysts, investors and others in the broadcast industry as a
measure of operating performance. In addition, EBITDA, before non-cash and non-
recurring charges is one of the financial measures by which certain covenants
under Chancellor Media's indentures governing its long-term indebtedness are
calculated. EBITDA, before non-cash and non-recurring charges and broadcast cash
flow eliminate the non-cash effect of considerable amounts of depreciation and
amortization primarily resulting from the significant number of recent
acquisitions. Nevertheless, these measures should not be considered in isolation
or as a substitute for operating income, cash flows from operating activities or
any other measure for determining Chancellor Media's operating performance or
liquidity that is calculated in accordance with generally accepted accounting
principles. Broadcast cash flow and EBITDA, before non-cash and non-recurring
charges do not take into account Chancellor Media's debt service requirements
and other commitments and, accordingly, broadcast cash flow and EBITDA, before
non-cash and non-recurring charges are not necessarily indicative of amounts
that may be available for reinvestment in Chancellor Media's business or other
discretionary uses. In addition, Chancellor Media's calculation of EBITDA,
before non-cash and non-recurring charges and broadcast cash flow is not
necessarily comparable to similarly titled measures reported by other companies.
For purposes of calculating the ratio of earnings to combined fixed charges and
preferred stock dividends, "earnings" consist of income (loss) before income
taxes and fixed charges, adjusted to exclude preferred stock dividend
requirements of subsidiaries. "Fixed charges" consist of interest, amortization
of debt issuance costs, the component of rental expense believed by Chancellor
Media's management to be representative of the interest factor thereon and
preferred stock dividend requirements of subsidiaries.
You should be aware that this pro forma information may not be indicative of
what actual results will be in the future or would have been for the periods
presented.
9
<PAGE> 20
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
------------------------ -------------------------
COMPANY COMPANY COMPANY COMPANY
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
----------- ---------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AND MARGIN DATA)
<S> <C> <C> <C> <C>
OPERATING DATA:
Net revenues................................ $ 582,078 $2,094,898 $ 899,096 $ 1,717,712
Operating expenses excluding depreciation
and amortization.......................... 316,248 1,269,098 491,924 971,996
Depreciation and amortization............... 185,982 977,600 315,772 765,331
Corporate general and administrative........ 21,442 83,997 25,188 56,096
Non-cash and non-recurring charges.......... -- 49,230 59,475 80,982
Operating income (loss)..................... 58,406 (285,027) 6,737 (156,693)
Interest expense, net....................... 83,095 578,988 135,709 436,380
Dividends and accretion on preferred stock
of subsidiary............................. 12,901 26,048 17,601 21,984
Net loss.................................... (31,745) (586,849) (68,998) (350,776)
Preferred stock dividends................... 12,165 17,446 19,252 19,252
Net loss attributable to common
stockholders.............................. (43,910) (604,295) (88,250) (370,028)
Basic and diluted loss per common
share(1).................................. $ (.46) $ (3.05) $ (0.65) $ (1.81)
Weighted average common shares
outstanding(1)............................ 95,636 198,077 136,427 204,251
BALANCE SHEET DATA (END OF PERIOD):
Working capital (excluding current portion
of long-term debt)........................ $ 112,644 $ 199,325 $ 321,180
Intangible assets, net...................... 4,404,443 5,036,250 13,891,886
Total assets................................ 4,961,477 6,025,095 16,264,731
Long-term debt (including current
portion).................................. 2,573,000 3,018,000 7,283,885
Redeemable preferred stock.................. 331,208 -- 278,694
Stockholders' equity........................ 1,480,207 2,408,602 5,695,063
OTHER DATA:
Broadcast cash flow......................... $ 265,830 $ 825,800 $ 407,172 $ 745,716
Broadcast cash flow margin.................. 46% 39% 45% 43%
EBITDA, before non-cash and non-recurring
charges................................... $ 244,388 $ 741,803 $ 381,984 $ 689,620
Ratio of earnings to combined fixed charges
and preferred stock dividends(2).......... -- -- -- --
CASH FLOWS RELATED TO:
Operating activities........................ $ 139,514 $ 640,670 $ 146,459 $ 523,353
Investing activities........................ (1,423,009) (117,933) (1,122,139) (83,532)
Financing activities........................ 1,297,019 (516,871) 972,159 (439,821)
</TABLE>
- -------------------------
(1) Gives effect to the two-for-one common stock split effected in the form of a
stock dividend paid on January 12, 1998, retroactively for all periods
presented.
(2) Earnings were insufficient to cover fixed charges and preferred stock
dividends by $45,255 and $28,497 for the year ended December 31, 1997 and
the nine months ended September 30, 1998, respectively. On a pro forma basis
after giving effect to the transactions described in "Pro Forma Financial
Information" beginning on page P-1, earnings were insufficient to cover
fixed charges and preferred stock dividends by $916,267 and $542,164 for the
year ended December 31, 1997 and the nine months ended September 30, 1998,
respectively.
10
<PAGE> 21
COMPARATIVE PER SHARE DATA
We have summarized below the per share information of Chancellor Media and LIN
on a historical, pro forma combined and pro forma equivalent basis. The
information should be read in conjunction with the unaudited pro forma condensed
financial statements included on pages P-1 through P-48 of this joint proxy
statement/prospectus and in conjunction with the historical financial statements
and related notes contained in this joint proxy statement/prospectus and in the
other information included in this joint proxy statement/ prospectus.
You should be aware that this pro forma information may not be indicative of
what actual results will be in the future or would have been for the periods
presented.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
------------------------------------- -------------------------------------
CHANCELLOR CHANCELLOR
PRO MEDIA PRO MEDIA
HISTORICAL FORMA(1) EQUIVALENT(2) HISTORICAL FORMA(1) EQUIVALENT(2)
---------- -------- ------------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Loss per share
Chancellor Media..... (.46) (3.05) -- (0.65) (1.81) --
LIN(4)............... -- -- (.09) (.04) -- (.05)
Book value per share(3)
Chancellor Media..... 12.34 -- -- 16.92 27.09 --
LIN(4)............... -- -- -- 1.00 -- .81
Cash dividends per
share
Chancellor Media..... -- -- -- -- -- --
LIN(4)............... -- -- -- -- -- --
</TABLE>
- -------------------------
(1) The pro forma combined per share data for Chancellor Media and LIN for the
year ended December 31, 1997 and the nine months ended September 30, 1998
have been prepared as if the transactions described in "Pro Forma Financial
Information" beginning on Page P-1 had occurred on January 1, 1997.
(2) The equivalent pro forma per share amounts of LIN are calculated by
multiplying pro forma net loss per share of Chancellor Media and pro forma
book value per share of Chancellor Media by an exchange ratio of existing
LIN common stock to Chancellor Media common stock of 0.03 to 1.
(3) Book value per share was calculated using stockholders' equity as reflected
in the historical and pro forma financial statements of Chancellor Media and
LIN, respectively, divided by the number of shares outstanding.
(4) Historical per share information for LIN represents the period from March 3,
1998, the date of inception, through September 30, 1998. Historical per
share information of the predecessor has been excluded as it is not
meaningful.
11
<PAGE> 22
CHANCELLOR MEDIA SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
Chancellor Media is providing the following financial information to aid you in
your analysis of the financial aspects of the merger. Chancellor Media derived
this information from Chancellor Media's audited financial statements for 1993
through 1997 and Chancellor Media's unaudited financial statements for the nine
months ended September 30, 1997 and 1998. The information is only a summary and
you should read it in conjunction with Chancellor Media's historical financial
statements and related notes contained in this joint proxy statement/prospectus.
Broadcast cash flow consists of operating income or loss excluding depreciation
and amortization, corporate general and administrative expense and non-cash and
non-recurring charges. EBITDA, before non-cash and non-recurring charges
consists of operating income or loss excluding depreciation and amortization and
non-cash and non-recurring charges. Although broadcast cash flow and EBITDA,
before non-cash and non-recurring charges are not calculated in accordance with
generally accepted accounting principles, Chancellor Media believes that
broadcast cash flow and EBITDA, before non-cash and non-recurring charges are
widely used by analysts, investors and others in the broadcast industry as a
measure of operating performance. In addition, EBITDA, before non-cash and non-
recurring charges is one of the financial measures by which certain covenants
under Chancellor Media's indentures governing its long-term indebtedness are
calculated. EBITDA, before non-cash and non-recurring charges and broadcast cash
flow eliminate the non-cash effect of considerable amounts of depreciation and
amortization primarily resulting from the significant number of recent
acquisitions. Nevertheless, these measures should not be considered in isolation
or as a substitute for operating income, cash flows from operating activities or
any other measure for determining Chancellor Media's operating performance or
liquidity that is calculated in accordance with generally accepted accounting
principles. Broadcast cash flow and EBITDA, before non-cash and non-recurring
charges do not take into account Chancellor Media's debt service requirements
and other commitments and, accordingly, broadcast cash flow and EBITDA, before
non-cash and non-recurring charges are not necessarily indicative of amounts
that may be available for reinvestment in Chancellor Media's business or other
discretionary uses. In addition, Chancellor Media's calculation of EBITDA,
before non-cash and non-recurring charges and broadcast cash flow is not
necessarily comparable to similarly titled measures reported by other companies.
For purposes of calculating the ratio of earnings to combined fixed charges and
preferred stock dividends, "earnings" consist of income (loss) before income
taxes and fixed charges, adjusted to exclude preferred stock dividend
requirements of subsidiaries. "Fixed charges" consist of interest, amortization
of debt issuance costs, the component of rental expense believed by management
to be representative of the interest factor thereon and preferred stock dividend
requirements of subsidiaries.
12
<PAGE> 23
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------------------------------- -------------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- ---------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT RATIO, MARGIN AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Gross revenues.......................... $106,813 $125,478 $186,365 $ 337,405 $ 663,804 $ 382,994 $ 1,015,562
Net revenues............................ 93,504 109,516 162,931 293,850 582,078 333,283 899,096
Operating expenses excluding
depreciation and amortization......... 60,656 68,852 97,674 174,344 316,248 184,713 491,924
Depreciation and amortization........... 33,524 30,596 47,005 93,749 185,982 104,386 315,772
Corporate general and administrative.... 2,378 2,672 4,475 7,797 21,442 11,646 25,188
Non-cash and non-recurring charges(1)... 7,002 -- -- -- -- -- 59,475
-------- -------- -------- ---------- ----------- ----------- -----------
Operating income (loss)................. (10,056) 7,396 13,777 17,960 58,406 32,538 6,737
Interest expense, net................... 13,730 13,718 19,144 37,050 83,095 45,036 135,709
Other (income) expense, net(2).......... (3,037) (6,361) 291 -- (17,997) (18,380) (157,171)
-------- -------- -------- ---------- ----------- ----------- -----------
Income (loss) before income taxes and
extraordinary item.................... (20,749) 39 (5,658) (19,090) (6,692) 5,882 28,199
Income tax expense (benefit)............ -- -- 192 (2,896) 7,802 5,244 32,507
Dividends on preferred stock of
subsidiary............................ -- -- -- -- 12,901 2,779 17,601
-------- -------- -------- ---------- ----------- ----------- -----------
Income (loss) before extraordinary
item.................................. (20,749) 39 (5,850) (16,194) (27,395) (2,141) (21,909)
Extraordinary loss, net of tax
benefit(3)............................ -- 3,585 -- -- 4,350 4,350 47,089
-------- -------- -------- ---------- ----------- ----------- -----------
Net loss................................ (20,749) (3,546) (5,850) (16,194) (31,745) (6,491) (68,998)
Preferred stock dividends............... 4,756 4,830 4,830 3,820 12,165 5,748 19,252
Accretion of redeemable preferred stock
to mandatory redemption value,
including $17,506 related to early
redemption(4)......................... 18,823 -- -- -- -- -- --
-------- -------- -------- ---------- ----------- ----------- -----------
Net loss attributable to common
stockholders.......................... $(44,328) $ (8,376) $(10,680) $ (20,014) $ (43,910) $ (12,239) $ (88,250)
======== ======== ======== ========== =========== =========== ===========
Basic and diluted loss per common
share(4)(5)........................... $ (2.24) $ (.32) $ (.26) $ (.33) $ (.46) $ (.14) $ (0.65)
Weighted average common shares
outstanding(5)........................ 19,780 26,004 41,442 60,414 95,636 87,690 136,427
</TABLE>
13
<PAGE> 24
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------------------------------- -------------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- ---------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT RATIO, MARGIN AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA (END OF
PERIOD):
Working capital......................... $ 7,873 $ 15,952 $ 30,556 $ 41,421 $ 112,644 $ 123,805 $ 199,325
Intangible assets, net.................. 212,517 233,494 458,787 853,643 4,404,443 3,828,014 5,036,250
Total assets............................ 283,505 297,990 552,347 1,020,959 4,961,477 4,213,376 6,025,095
Long-term debt.......................... 152,000 174,000 201,000 358,000 2,573,000 1,857,000 3,018,000
Redeemable preferred stock.............. -- -- -- -- 331,208 338,566 --
Stockholders' equity.................... 120,968 112,353 304,577 549,411 1,480,207 1,508,666 2,408,602
OTHER FINANCIAL DATA:
Broadcast cash flow..................... $ 32,848 $ 40,664 $ 65,257 $ 119,506 $ 265,830 $ 148,570 $ 407,172
Broadcast cash flow margin.............. 35% 37% 40% 41% 46% 45% 45%
EBITDA, before non-cash and
non-recurring charges................. $ 30,470 $ 37,992 $ 60,782 $ 111,709 $ 244,388 $ 136,924 $ 381,984
Ratio of earnings to combined fixed
charges and preferred stock
dividends(6).......................... -- -- -- -- -- -- --
CASH FLOWS RELATED TO:
Operating activities.................... $ 14,959 $ 19,880 $ 36,693 $ 47,481 $ 139,514 $ 93,303 $ 146,459
Investing activities.................... (76,163) (32,928) (192,112) (461,938) (1,423,009) (1,851,806) (1,122,139)
Financing activities.................... 62,043 11,683 154,633 414,087 1,297,019 1,771,425 972,159
</TABLE>
- -------------------------
(1) Consists of a non-cash charge resulting from the grant of employee stock
options in 1993 and of a one-time charge related to the resignation of
Scott K. Ginsburg as President and Chief Executive Officer of Chancellor
Media in 1998 and new employment agreements entered into with certain
members of executive management.
(2) Includes gain on the dispositions of assets of $3,392, $6,991, $18,380,
$18,380 and $123,845 in 1993, 1994, 1997 and the nine months ended
September 30, 1997 and 1998, respectively. Includes a gain on the
disposition of representation contracts of $29,767 and a gain from a
settlement of $3,559 for the nine months ended September 30, 1998.
(3) Extraordinary losses consist of charges incurred in connection with various
refinancings. These charges are reported net of the related tax benefit.
(4) A one-time accretion charge of approximately $17,506 was incurred due to
the early redemption of certain preferred stock in 1993, which increased
loss per common share for 1993 by $0.89.
(5) Gives effect to the two-for-one common stock split effected in the form of
a stock dividend paid on January 12, 1998 and to the three-for-two common
stock split effected in the form of a stock dividend paid on August 26,
1996, retroactively for all periods presented.
(6) Earnings were insufficient to cover fixed charges and preferred stock
dividends by $28,066, $7,392, $13,089, $24,967 and $45,255 for the years
ended December 31, 1993, 1994, 1995, 1996 and 1997, respectively, and by
$7,236 and $28,497 for the nine months ended September 30, 1997 and 1998,
respectively.
14
<PAGE> 25
LIN SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
LIN is providing the following financial information to aid you in your analysis
of the financial aspects of the merger. LIN derived this information from LIN
Television Corporation's, the predecessor entity, audited financial statements
for 1993 through 1997, LIN Television Corporation's unaudited financial
statements for the nine months ended September 30, 1997 and for the period from
January 1, 1998 to March 2, 1998 and Ranger Equity Holdings Corporation's,
referred to herein as LIN, unaudited financial statements for the period from
March 3, 1998 to September 30, 1998. You should read the information in
conjunction with LIN's financial statements for the nine months ended September
30, 1998 included on pages F-88 through F-99 of this joint proxy statement/
prospectus and LIN Television Corporation's historical financial statements and
related notes included on pages F-100 through F-119 of this joint proxy
statement/prospectus.
Broadcast cash flow is defined as operating income excluding corporate general
and administrative expenses, depreciation and amortization and non-cash and
non-recurring charges less cash program payments. EBITDA, before non-cash and
non-recurring charges and less cash program payments is defined as operating
income excluding depreciation and amortization and non-cash and non-recurring
charges less cash program payments. Broadcast cash flow and EBITDA, before
non-cash and non-recurring charges and less cash program payments are not
measures of performance calculated in accordance with generally accepted
accounting principles. However, LIN believes that broadcast cash flow is useful
to a prospective investor because it is a measure widely used in the broadcast
industry to evaluate a television broadcast company's operating performance and
that EBITDA, before non-cash and non-recurring charges and less cash program
payments is useful to a prospective investor because it is widely used in the
broadcast industry to evaluate a television broadcast company's ability to
service debt. Broadcast cash flow and EBITDA, before non-cash and non-recurring
charges and less cash program payments should not be considered in isolation of
or as a substitute for net income (loss), cash flows from operating activities
and other income and cash flow statement data prepared in accordance with
generally accepted accounting principles or as a measure of liquidity or
profitability. Broadcast cash flow and EBITDA, before non-cash and non-recurring
charges and less cash program payments as determined above may not be comparable
to the broadcast cash flow and EBITDA, before non-cash and non-recurring charges
and less cash program payments measures reported by other companies, including
Chancellor Media. In addition, these measures do not represent funds available
for discretionary use.
For purposes of calculating the ratio of earnings to combined fixed charges and
preferred stock dividends, "earnings" consist of income (loss) before income
taxes and fixed charges. "Fixed charges" consist of interest expense,
amortization of debt issuance costs and the component of rental expense believed
by management to be representative of the interest factor thereon.
15
<PAGE> 26
<TABLE>
<CAPTION>
RANGER
EQUITY
PREDECESSOR HOLDINGS
------------------------------------------------------------------------------------ CORP.
PERIOD -------------
NINE MONTHS FROM PERIOD FROM
YEAR ENDED DECEMBER 31, ENDED JANUARY 1 - MARCH 3 -
------------------------------------------------------ SEPTEMBER 30, MARCH 2, SEPTEMBER 30,
1993 1994 1995 1996 1997 1997 1998 1998
-------- --------- --------- -------- -------- ------------- ----------- -------------
(IN THOUSANDS, EXCEPT RATIO, MARGIN AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Gross revenues............. $147,407 $ 167,361 $ 250,463 $314,470 $335,243 $249,004 $50,190 $ 151,607
Net revenues............... 127,541 150,523 217,247 273,367 291,519 216,878 43,804 133,770
Operating expenses
excluding depreciation and
amortization.............. 56,530 64,933 96,187 127,432 132,870 104,320 22,543 67,559
Depreciation and
amortization.............. 12,922 16,123 29,484 38,281 40,385 30,687 7,324 39,098
Corporate general and
administrative............ 4,781 4,330 5,747 6,998 6,763 5,301 1,170 4,970
Non-cash expenses(1)....... 1,057 1,068 801 1,496 4,046 3,856 275 543
KXTX management fee(2)..... -- -- -- -- -- -- -- 3,055
-------- --------- --------- -------- -------- -------- ------- ----------
Operating income........... 52,251 64,069 85,028 99,160 107,455 72,714 12,492 18,545
Interest expense........... 13,678 13,451 26,262 26,582 21,340 16,652 2,764 37,381
Other (income) expense..... (797) (293) (938) (359) 200 161 146 3,984
Merger expense(3).......... -- -- -- -- 7,206 3,873 8,616 --
-------- --------- --------- -------- -------- -------- ------- ----------
Income (loss) before income
taxes and extraordinary
item...................... 39,370 50,911 59,704 72,937 78,709 52,028 966 (22,820)
Income tax expense
(benefit)................. 17,083 19,726 21,674 26,476 30,602 19,406 3,710 (868)
-------- --------- --------- -------- -------- -------- ------- ----------
Income (loss) before
extraordinary item........ 22,287 31,185 38,030 46,461 48,107 32,622 (2,744) (21,952)
Extraordinary item, net of
tax benefit(4)............ -- (2,925) -- -- -- -- -- --
-------- --------- --------- -------- -------- -------- ------- ----------
Net income (loss).......... $ 22,287 $ 28,260 $ 38,030 $ 46,461 $ 48,107 $ 32,622 $(2,744) $ (21,952)
======== ========= ========= ======== ======== ======== ======= ==========
BALANCE SHEET DATA (END OF
PERIOD):
Working capital, excluding
current portion of
long-term debt............ $ 24,327 $ 32,343 $ 34,016 $ 56,568 $ 28,264 $ 48,561 $ 52,196
Intangible assets, net..... 84,948 266,140 392,702 381,145 369,588 372,479 1,450,821
Total assets............... 183,697 423,964 587,256 595,944 569,325 585,517 1,797,767
Long-term debt(including
current portion).......... 222,088 320,000 387,000 350,000 260,000 295,000 680,635
Stockholders' equity....... (99,115) 40,160 86,434 138,448 192,565 172,941 537,096
OTHER FINANCIAL DATA:
Cash program payments...... $ 5,545 $ 8,387 $ 14,311 $ 15,536 $ 13,179 $ 10,044 $ 4,157 $ 6,780
Broadcast cash flow........ 65,466 77,203 106,749 130,399 145,470 102,514 17,104 59,431
Broadcast cash flow
margin.................... 51% 51% 49% 48% 50% 44% 39% 47%
EBITDA, before non-cash and
non-recurring charges and
less cash program
payments.................. $ 60,685 $ 72,873 $ 101,002 $123,401 $138,707 $ 97,213 $15,934 $ 54,461
Ratio of earnings to
combined fixed charges and
preferred stock
dividends(5).............. 3.8x 4.5x 3.2x 3.7x 4.6x 4.0x 1.4x --
CASH FLOWS RELATED TO:
Operating activities....... $ 46,566 $ 49,654 $ 56,040 $ 70,799 $ 81,691 $ 61,656 $ 8,416 $ 35,756
Investing activities....... (6,864) (142,168) (127,723) (27,864) (15,060) (10,837) (1,468) (914,493)
Financing activities....... (37,594) 90,960 71,801 (33,008) (86,537) (53,129) 1,071 916,766
</TABLE>
16
<PAGE> 27
- -------------------------
(1) Non-cash expenses consist primarily of pension expense not requiring cash
payments. In addition, during the second quarter of 1997, LIN disposed of
towers and other broadcast equipment that could no longer be used with
digital technology.
(2) On August 1, 1998, LIN entered into an agreement with Southwest Sports
Television Inc. pursuant to which Southwest Sports Television renders
certain services with respect to KXTX-TV in exchange for a management fee
equal to the cash receipts of the station less operating and other
expenses.
(3) Merger expense consists of financial, legal advisory and regulatory filing
fees in connection with LIN's acquisition by affiliates of Hicks Muse.
(4) In 1994, LIN wrote off the unamortized balance of deferred debt issuance
costs of $2,925 as an extraordinary charge.
(5) Earnings were insufficient to cover fixed charges by $22,820 for LIN for
the period from March 3, 1998 to September 30, 1998.
17
<PAGE> 28
RISK FACTORS
The following risks should be considered by the Chancellor Media and LIN
stockholders in deciding whether to approve and adopt the merger agreement. In
addition, you are strongly urged to consider the information set forth elsewhere
in this joint proxy statement/ prospectus.
POTENTIAL NEGATIVE CONSEQUENCES OF SUBSTANTIAL INDEBTEDNESS OF CHANCELLOR MEDIA
AND LIN
Please be aware of the following:
- - as of September 30, 1998, Chancellor Media had outstanding long-term
indebtedness of approximately $3.0 billion, an accumulated deficit of $245.7
million and stockholders' equity of $2.4 billion; and
- - as of September 30, 1998, LIN had outstanding long-term indebtedness of
approximately $672.9 million, an accumulated deficit of $22.0 million and
stockholders' equity of $537.1 million.
If Chancellor Media completes the merger with LIN and all of its other pending
transactions, Chancellor Media will have even more outstanding indebtedness as
follows:
- - as of September 30, 1998, on a pro forma basis after giving effect to the
transactions described in the "Pro Forma Financial Information" beginning on
page P-1, Chancellor Media would have had outstanding long-term indebtedness
of approximately $7.3 billion, an accumulated deficit of $236.1 million and
stockholders' equity of $5.7 billion. See "Pro Forma Financial Information;"
and
- - in addition to the long-term indebtedness referred to above, Chancellor Media
expects to finance the acquisition of Petry Media Corporation through the
incurrence of additional long-term indebtedness, which is currently
anticipated to be approximately $130.0 million.
Such a large amount of indebtedness could have negative consequences for
Chancellor Media following the merger, including without limitation, the
following:
- - limitations on its ability to obtain financing in the future;
- - much of its cash flow will be dedicated to interest obligations and
unavailable for other purposes;
- - the high level of indebtedness limits its flexibility to deal with changing
economic, business and competitive conditions; and
- - approximately 52.2% of its borrowings are at variable rates of interest which
makes Chancellor Media vulnerable to increases in interest rates.
The failure to comply with the covenants in the agreements governing the terms
of Chancellor Media's and LIN's indebtedness could be an event of default and
could accelerate the payment obligations and, in some cases, could affect other
obligations with cross-default and cross-acceleration provisions.
Chancellor Media's ability to satisfy its debt service obligations will depend
on its performance following the merger. Chancellor Media's performance will
ultimately be
18
<PAGE> 29
affected by general economic and business factors, many of which will be outside
of its control. If Chancellor Media cannot satisfy its debt service obligations,
it will be forced to find alternative sources of funds by selling assets,
restructuring, refinancing debt or seeking additional equity capital. There can
be no assurance that any of these alternative sources would be available on
satisfactory terms or at all.
RESTRICTIONS IMPOSED ON CHANCELLOR MEDIA BY AGREEMENTS GOVERNING DEBT
INSTRUMENTS
The senior loan agreements and the various indentures governing the debt
instruments of Chancellor Media and its subsidiaries contain certain covenants
that restrict or will restrict, among other things, its ability to:
- - incur additional debt, incur liens, pay dividends or make certain types of
payments;
- - sell certain assets;
- - enter into certain transactions with affiliates;
- - enter into sale and leaseback transactions;
- - conduct businesses other than the ownership and operation of radio and
television broadcast stations and businesses related to radio and television;
- - merge or consolidate with any other person; or
- - dispose of all or substantially all of its assets.
Also, the senior loan agreements require or will require, Chancellor Media to
maintain particular financial ratios and satisfy financial condition tests.
Chancellor Media's ability to comply with the ratios and the tests will be
affected by events outside its control and there can be no assurance that it
will meet those tests. A breach of any of the covenants or failure to meet the
tests could result in an event of default which would allow the lenders to
declare all amounts outstanding immediately due and payable. In the case of the
senior loan agreements, if Chancellor Media were unable to pay the amounts due,
the lenders could, subject to compliance with applicable FCC rules, proceed
against the collateral securing the indebtedness. If the amounts outstanding
under the loan agreements were accelerated, there can be no assurance that
Chancellor Media's assets would be sufficient to repay the amount in full.
FIXED CHARGES NEGATIVELY IMPACT RESULTS OF OPERATIONS
In the past, Chancellor Media has experienced net losses as a result of
significant interest charges and amortization charges relating to acquisitions.
Chancellor Media's net loss attributable to common stockholders for the years
ended December 31, 1995, 1996 and 1997 was $10.7 million, $20.0 million and
$43.9 million, respectively. It is expected that increased interest and
amortization relating to acquisitions will continue to have a negative impact on
Chancellor Media's results. On a pro forma basis, after giving effect to the
transactions described in "Pro Forma Financial Information" beginning on page
P-1, the net loss attributable to common stockholders would have been $604.3
million and
19
<PAGE> 30
$370.0 million for the year ended December 31, 1997 and the nine months ended
September 30, 1998, respectively.
FIXED EXCHANGE RATIO FOR LIN STOCKHOLDERS DESPITE POSSIBLE FLUCTUATION IN
CHANCELLOR MEDIA'S STOCK PRICE
The ratio of the number of shares of Chancellor Media common stock to be
received in exchange for shares of LIN common stock is expressed as a fixed
ratio in the merger agreement. Accordingly, the ratio will not be adjusted in
the event of any increase or decrease in the price of Chancellor Media common
stock. As an example, on the date the companies set the exchange ratio for the
merger, Chancellor Media's common stock was $51 per share, making each share of
LIN common stock worth approximately $1.53 in the merger. As of February 11,
1999, the last reported sale price of Chancellor Media common stock was $50.75
per share, which would make each share of LIN common stock worth approximately
$1.52 at current market prices. In addition, the price of Chancellor Media
common stock at the time the merger is completed may vary from its price at the
date of this joint proxy statement/prospectus and the date of the Chancellor
Media and LIN special meetings, possibly by a large amount. Any variation may be
the result of one or more of the following:
- - changes in the business, operations or prospects of Chancellor Media;
- - market assessments of the likelihood that the merger and Chancellor Media's
other pending transactions will be consummated;
- - regulatory considerations; and
- - general market and economic conditions, many of which may be beyond the
control of Chancellor Media and LIN.
Chancellor Media and LIN presently do not intend to resolicit stockholder
approval should the market price of Chancellor Media common stock change
materially after the meetings. Stockholders of LIN and Chancellor Media are
urged to obtain current market quotations for Chancellor Media common stock. See
"Summary -- Market Price and Dividend Information."
COMPETITIVE NATURE OF RADIO AND TELEVISION BROADCASTING, OUTDOOR ADVERTISING AND
MEDIA REPRESENTATION
Chancellor Media's various lines of business are in highly competitive
industries. Chancellor Media's radio broadcasting stations and, upon completion
of the merger, television broadcasting stations, and outdoor advertising
properties compete for audiences and advertising revenues with other radio and
television stations and outdoor advertising companies, as well as with other
media, such as newspapers, magazines, cable television, yellow pages, the
Internet, and direct mail, within their respective markets. Audience ratings and
market shares are subject to change, which could have an adverse effect on
Chancellor Media's revenues in that market. Consequently, Chancellor Media may
not be able to maintain or increase its current audience ratings or advertising
revenues.
20
<PAGE> 31
POTENTIAL EFFECTS ON LICENSES AND OWNERSHIP OF REGULATION OF THE RADIO AND
TELEVISION BROADCASTING INDUSTRIES
The radio and television broadcasting industries are subject to regulation by
governmental entities. In particular, under the Communications Act of 1934, as
amended, the Federal Communications Commission licenses radio and television
stations and extensively regulates their ownership and operation. Both
Chancellor Media and LIN depend on their ability to hold their respective
Federal Communications Commission broadcast licenses, which are normally granted
for terms of eight years and are renewable. Although the vast majority of
Federal Communications Commission broadcast licenses are routinely renewed when
their terms expire, there can be no assurance that a renewal will be granted in
any given case or, if granted, that restrictive conditions will not be imposed
on the grant. In addition, limitations on the ownership of television and radio
stations under the Federal Communications Commission's current rules, or under
revised rules now being considered by the Federal Communications Commission,
could restrict the ability of Chancellor Media and LIN to consummate future
transactions and in certain circumstances could require that some radio and/or
television stations be sold. For example, the Federal Communications Commission
currently is considering revising its policy regarding television local
marketing agreements. Accordingly, it is unclear whether LIN will be able to
program stations under LIN's existing agreements for the remainder of their
current terms, extend these agreements, or enter into new local marketing
agreements in other markets in which LIN currently owns or operates television
stations. In addition, the Federal Communications Commission is also currently
considering amending its "one-to-a-market" rule, under which LIN and Chancellor
Media currently operate under waivers in certain markets, to revise the
limitation on the number of radio stations a party may own in any market in
which it also owns a television station.
For a more detailed explanation of the significant regulatory issues affecting
the radio and television broadcasting industries, see "The
Companies -- Chancellor Media -- Licensing and Ownership Issues Relating to
Federal Regulation of the Radio Broadcasting Industry," "The
Companies -- LIN -- Licensing, Ownership and LMA Issues Relating to Federal
Regulation of the Television Broadcasting Industry" and "The Merger -- Certain
Regulatory Matters -- FCC Approval."
POTENTIAL CONFLICT OF INTEREST AS A RESULT OF CROSS-OWNERSHIP
The merger of LIN and Chancellor Media represents a combination of two companies
in which Hicks Muse has a substantial economic interest. You should be aware
that Thomas O. Hicks, the Chairman of the Board of Chancellor Media, is also the
Chairman of the Board of LIN, and he is a shareholder, director, principal,
managing director and executive officer of various entities affiliated with
Hicks Muse. The following table demonstrates the
21
<PAGE> 32
various overlapping interests of directors and officers of Chancellor Media and
LIN and Hicks Muse affiliates:
<TABLE>
<CAPTION>
CHANCELLOR MEDIA
DIRECTOR LIN DIRECTOR
NAME AND/OR OFFICER AND/OR OFFICER HICKS MUSE AFFILIATE
- ---- ------------------- -------------- --------------------
<S> <C> <C> <C>
Thomas O. Hicks......... YES YES YES
Michael J. Levitt....... YES YES YES
Eric C. Neuman.......... YES YES --
Lawrence D. Stuart,
Jr.................... YES YES YES
</TABLE>
You also need to be aware that Thomas O. Hicks and affiliates of Hicks Muse own
as of the date of this joint proxy statement/prospectus approximately 11.9% of
the outstanding common stock of Chancellor Media, and approximately 74.7% of the
outstanding common stock of LIN. Affiliates of Hicks Muse purchased their shares
of LIN common stock in March 1998 in connection with the acquisition of LIN
Television by Hicks Muse. Hicks Muse affiliates will receive approximately 12
million shares of Chancellor Media common stock in the merger. After the merger
is completed, it is expected that affiliates of Hicks Muse will own
approximately 18.3% of the outstanding Chancellor Media common stock, or about
15.1% when all of the outstanding options and convertible securities of
Chancellor Media following the merger are taken into account. In addition, if
the merger with Capstar Broadcasting Corporation is completed, which Chancellor
Media has agreed to acquire in a reverse merger, affiliates of Hicks Muse will
control approximately 30.5% of the outstanding shares, 26.1% on a fully-diluted
basis, of Chancellor Media common stock.
In addition to the above interests, you should know that Hicks Muse is in the
business of making significant investments in existing companies or forming new
ones. In the past, these have included broadcast businesses other than
Chancellor Media or LIN that may compete with them for acquisition opportunities
or advertising business. Currently, besides Capstar, Hicks Muse also has an
interest in Sunrise Broadcasting, Inc., which owns a number of television
stations. This cross-ownership may prevent Chancellor Media from acquiring
television or radio stations in markets where Sunrise owns or operates
television stations because of FCC rules. Also, Hicks Muse may pursue and
acquire television stations through Sunrise that LIN might have otherwise had a
chance to acquire.
DIFFICULTY OF INTEGRATING ACQUISITIONS AND ENTERING NEW LINES OF BUSINESS
As a result of the merger, Chancellor Media will enter into a new line of
business. Although radio and television broadcasting are similar, Chancellor
Media will be learning the operations of the television business of LIN and
managing a much larger group of employees following the merger. Consequently,
senior management will be required to spend a considerable amount of time, with
the help of LIN's senior management, learning the business and integrating new
employees into the combined entity in the radio and television markets.
Management's focus on the integration of the new employees will likely make it
difficult to pursue other opportunities for a period of time. Also, there can be
no assurance that management will be able to successfully integrate the new
employees following the merger. In addition, Chancellor Media is currently in
the process of building its outdoor advertising management team, another new
line of business for Chancellor Media.
22
<PAGE> 33
The integration of LIN and the operation of its television business is not the
only challenge facing management. Chancellor Media has acquired or is in the
process of acquiring a number of entities in various lines of business,
including outdoor advertising and media representation. Also, Chancellor Media
has recently created a national radio network. Consequently, management's focus
will be on integrating many new acquisitions, learning new industries and
conducting its operations on a much larger scale.
Chancellor Media's acquisition strategy involves other risks, including without
limitation, increasing its debt payment obligations and the potential loss of
valuable employees. The availability of additional financing cannot be assured
and, depending on the terms of the potential acquisitions, may be restricted by
the terms of the senior loan agreements of subsidiaries of Chancellor Media and
LIN and the indentures relating to the various outstanding debt instruments of
those subsidiaries. There can be no assurance that any future acquisitions will
not have a material adverse effect on Chancellor Media's financial condition and
results of operations.
POSSIBLE DELAY IN CONSUMMATION OF PENDING TRANSACTIONS DUE TO ANTITRUST REVIEW
As a result of the concentration of ownership in the radio broadcast industry,
the U.S. Department of Justice has been looking closely at acquisitions in the
industry, including certain of Chancellor Media's transactions. The consummation
of each of its pending transactions is, and any of the future transactions
contemplated by Chancellor Media will likely be, subject to the notification
filing requirements, applicable waiting periods and possible review by the U.S.
Department of Justice or the U.S. Federal Trade Commission under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Department of
Justice review of certain transactions has caused, and may continue to cause,
delays in anticipated closings of certain transactions and, in some cases, may
result in attempts by the Department of Justice to enjoin such transactions or
negotiate modifications to the proposed terms. These delays, injunctions or
modifications could have a negative effect on Chancellor Media and result in the
abandonment of some otherwise attractive opportunities. Although Chancellor
Media does not believe that its acquisition strategy as a whole will be
negatively affected in any material way by antitrust review or by additional
divestitures it may have to make as a result of the review, there can be no
assurance that this will be the case.
POTENTIAL ADVERSE CONSEQUENCES OF GUARANTEE OF NBC JOINT VENTURE LOAN
As a part of the acquisition of LIN Television by Hicks Muse completed in March
1998, the NBC joint venture received a $815 million loan from General Electric
Capital Corporation. As part of that transaction, General Electric Capital
Corporation required LIN's wholly-owned subsidiary, Ranger Equity Holdings B, to
guarantee payment of the General Electric Capital Corporation loan in case the
NBC joint venture was unable to pay and the proceeds from the sale of its assets
were insufficient to pay off the General Electric Capital Corporation Loan.
Ranger B owns 63% of LIN Holdings, parent of LIN Television. If the NBC joint
venture were unable to pay principal or interest on the General Electric Capital
Corporation loan and General Electric Capital Corporation could not otherwise
get its money back from the NBC joint venture, General Electric Capital
Corporation could require Ranger B to pay
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the shortfall of any outstanding amounts under the General Electric Capital
Corporation loan. If this happened, Chancellor Media could experience serious
adverse consequences, including:
- - since Ranger B has no assets other than its 63% ownership of LIN Holdings,
General Electric Capital Corporation could sell the stock of LIN Holdings to
satisfy outstanding amounts under the General Electric Capital Corporation
loan;
- - if more than 50% of the ownership of LIN Holdings had to be sold to satisfy
the General Electric Capital Corporation loan, it could cause acceleration of
the senior credit facility and senior subordinated notes of LIN Television and
the senior discount notes of LIN Holdings; and
- - if the General Electric Capital Corporation loan is prepaid because of an
acceleration on default or otherwise, LIN may incur a substantial tax
liability which would have a material adverse effect on Chancellor Media.
The NBC joint venture is approximately 80% owned by NBC, and NBC controls the
operations of the stations through a management contract. Therefore, the
operation and profitability of those stations, the amount of cash to be received
in the future as distributions on the approximately 20% interest, and the
likelihood of a default under the General Electric Capital Corporation loan are
primarily within NBC's control.
POSSIBLE LOSS OF ADVERTISING SPACE DUE TO REGULATION OF OUTDOOR ADVERTISING
Outdoor advertising displays are subject to regulation at the federal, state and
local levels. These regulations, in some cases, limit the height, size, location
and operation of billboards and, in limited circumstances, regulate the content
of the advertising copy displayed on the billboards. Some governmental
regulations prohibit the construction of new billboards or the replacement,
relocation, enlargement or upgrading of existing structures. Some cities have
adopted amortization ordinances under which, after the expiration of a certain
period of time, billboards must be removed at the owner's expense and without
the payment of consideration. Ordinances requiring the removal of billboards
without compensation, whether through amortization or otherwise, are being
challenged in various state and federal courts with conflicting results. There
can be no assurance that Chancellor Media will be successful in negotiating
acceptable arrangements if its displays are subject to removal or amortization,
and what effect, if any, these regulations may have on its operations.
LOSS OF ADVERTISERS DUE TO TOBACCO AND ALCOHOL INDUSTRY REGULATION
The major U.S. tobacco companies that are defendants in numerous class action
suits throughout the country recently reached an out-of-court settlement with 46
states that includes a ban on outdoor advertising of tobacco products. The
settlement agreement was finalized on November 23, 1998, but must be ratified by
the courts in each of the 46 states participating in the settlement. In addition
to the mass settlement, the tobacco industry previously had come to terms with
the remaining four states individually. The terms of the individual settlements
also included bans on outdoor advertising of tobacco products. For the nine
months ended September 30, 1998, approximately 1.5% of Chancellor Media's
revenues came from the outdoor advertising of tobacco products.
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In addition to the settlement agreements, state and local governments are also
regulating the outdoor advertising of alcohol and tobacco products. For example,
several states and cities have laws restricting tobacco billboard advertising
near schools and other locations frequented by children. Some cities have
proposed even broader restrictions, including complete bans on outdoor tobacco
advertising on billboards, kiosks, and private business window displays. It is
possible that state and local governments may propose or pass similar ordinances
to limit outdoor advertising of alcohol and other products or services in the
future. Legislation regulating tobacco and alcohol advertising has also been
introduced in a number of European countries in which we conduct business, and
could have a similar impact.
The effect of these regulations, potential legislation and settlement agreements
on Chancellor Media's business and operations could be material. The elimination
of billboard advertising by the tobacco industry will cause a reduction in
Chancellor Media's direct revenues from advertisers and may simultaneously
increase the available space on the existing inventory of billboards in the
outdoor advertising industry. This industry-wide increase in space may in turn
result in a lowering of outdoor advertising rates in outdoor advertising markets
or limit the ability of industry participants to increase rates for some period
of time.
Any regulatory changes or further settlement agreements restricting the ability
to utilize outdoor advertising for alcohol or tobacco products could have a
material adverse effect on Chancellor Media.
CONTROL OF THE COMBINED COMPANY BY HICKS MUSE
Thomas O. Hicks and affiliates of Hicks Muse hold approximately 11.9% of the
outstanding shares of Chancellor Media common stock. Immediately following the
merger and the issuance of Chancellor Media common stock, it is expected that
Mr. Hicks and affiliates of Hicks Muse will control approximately 18.3% of the
outstanding common stock of the combined company. If Chancellor Media completes
the Capstar merger, Hicks Muse will control approximately 30.5% of the
outstanding shares, 26.1% on a fully-diluted basis, of Chancellor Media's common
stock. Additionally, Messrs. Hicks, Lawrence D. Stuart, Jr., and Michael J.
Levitt, each directors of Chancellor Media, are also principals or executive
officers of Hicks Muse. Accordingly, Mr. Hicks and Hicks Muse will continue to
have a great deal of influence over the management policies of Chancellor Media
and all matters submitted to a vote of the holders of Chancellor Media common
stock. Also, the combined voting power of Mr. Hicks and Hicks Muse may have the
effect of discouraging selected transactions involving an actual or potential
change of control of Chancellor Media.
As discussed previously, Hicks Muse has agreed to "neutralize" its vote on the
merger with LIN by voting in proportion to the other stockholders of Chancellor
Media. See "Risk Factors -- Potential Conflict of Interest as a Result of
Cross-Ownership" and "The Companies -- Chancellor Media -- Legal Proceedings" on
page .
INVESTORS SHOULD NOT PLACE UNDUE RELIANCE ON FORWARD-LOOKING INFORMATION
Information contained in this joint proxy statement/prospectus may contain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and
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<PAGE> 36
Section 21E of the Exchange Act, which can be identified by the use of
forward-looking terminology like "may," "will," "expect," "intend,"
"anticipate," "believe," "estimate" or "continue" or the negative thereof or
other variations of those words or comparable terminology. All statements other
than statements of historical facts included in this joint proxy
statement/prospectus, including those regarding Chancellor Media's and LIN's
financial position, business strategy, projected costs and plans and objectives
of management for future operations are forward-looking statements. The
foregoing matters and other factors noted throughout this joint proxy
statement/prospectus are cautionary statements identifying factors with respect
to any such forward-looking statements, including particular risks and
uncertainties, that could cause actual results to differ materially from those
in such forward-looking statements.
All forward-looking statements contained in this joint proxy
statement/prospectus are expressly qualified in their entirety by such
cautionary statements. Stockholders of Chancellor Media and LIN are cautioned
not to place undue reliance on these forward-looking statements which speak only
as of the date of the joint proxy statement/ prospectus. Neither Chancellor
Media nor LIN undertakes any responsibility to update you on the occurrence of
any unanticipated events which may cause actual results to differ from those
expressed or implied by the forward-looking statements contained in this joint
proxy statement/prospectus.
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<PAGE> 37
THE COMPANIES
CHANCELLOR MEDIA
GENERAL
Chancellor Media is a diversified multi-media company that:
- - owns and/or operates Chancellor Radio Group which consists of 125 radio
stations in 23 of the largest U.S. markets and Puerto Rico, 112 stations of
which are owned and 13 stations of which are currently operated under time
brokerage agreements;
- - provides national media sales representation through Katz Media Group, Inc., a
wholly-owned subsidiary; and
- - has a significant and growing outdoor advertising presence in Chancellor
Outdoor Group.
CHANCELLOR RADIO GROUP
Chancellor Media's current radio station portfolio consists of 125 stations, of
which 92 are FM stations and 33 are AM stations. Chancellor Media currently
operates 13 of its stations under time brokerage agreements which permit
Chancellor Media to program substantially all of the air time on another
person's station and sell the advertising time for the programming. Furthermore
Chancellor Media owns four or five FM stations in a total of 16 markets in which
it operates ("superduopolies"). Chancellor Media owns superduopolies in 11 of
the nation's 15 largest radio markets -- Los Angeles, New York, Chicago, San
Francisco, Dallas/Ft. Worth, Philadelphia, Washington, D.C., Houston, Detroit,
Denver and Minneapolis-St. Paul and in five other large markets -- Phoenix,
Cleveland, Pittsburgh, Orlando and Puerto Rico. Upon consummation of the Pending
Transactions (as defined on page ), Chancellor Media will own over 465 radio
stations and will increase its number of superduopolies to 44.
As a complement to its radio broadcasting operations, Chancellor Media formed a
national radio network, The AMFM Radio Networks, which began broadcasting
advertising over Chancellor Media's portfolio of stations and stations owned by
Capstar in January 1998. Management believes that The AMFM Radio Networks will
allow Chancellor Media to further leverage this broad station base,
personalities and advertising inventory by delivering a national audience of
approximately 66 million listeners, including approximately 45 million listeners
from Chancellor Media's portfolio of stations, to network advertisers. The AMFM
Radio Networks has expanded through the acquisition of syndicated programming
shows including American Top 40 with Casey Kasem, Rockline, Modern Rock Live,
Reelin' in the Years and Live from the Pit.
Chancellor Media's radio station portfolio is geographically diversified and
employs a wide variety of programming formats, including adult contemporary,
contemporary hit radio, urban, jazz, country, oldies, news/talk, rock and
sports. Each of Chancellor Media's radio stations targets a specific demographic
audience within a market, with the majority of the stations appealing primarily
to 18 to 34 or 25 to 54 year old men and/or women, the demographic groups most
sought after by advertisers. Management believes that, because of the size and
diversity of its radio station portfolio, Chancellor Media is not unduly reliant
on the performance of any one station or market. No single market to be served
by Chancellor Media represented more than 6% of Chancellor Media's pro forma
broadcast cash flow for the nine months ended September 30, 1998, excluding the
acquisition of Petry Media Corporation.
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MEDIA REPRESENTATION
Chancellor Media entered into the media representation business with the
acquisition of Katz on October 28, 1997. Katz is a full-service media
representation firm serving multiple types of electronic media, with leading
market share in the representation of radio and television stations and cable
television systems. Katz is retained on an exclusive basis by radio stations,
television stations and cable television systems in over 200 designated market
areas throughout the United States, including at least one radio or television
station in each of the 50 largest designated market areas, to sell national spot
advertising air time. Upon consummation of the proposed acquisition of Petry,
Chancellor Media will expand its presence in the television representation
segment.
CHANCELLOR OUTDOOR GROUP
In July 1998, Chancellor Media entered the outdoor advertising business with the
acquisition of Martin Media, an outdoor advertising company with over 14,500
billboards and outdoor displays in 12 states. As a result of the consummation of
the acquisition of the Outdoor Advertising division of Whiteco Industries, Inc.,
the Chancellor Outdoor Group now owns and operates over 41,000 outdoor
advertising display faces and ranks among the top five outdoor companies in the
United States.
CONSOLIDATED COMPANY
On a pro forma basis after giving effect to the transactions described in "Pro
Forma Financial Information" beginning on page P-1, excluding the merger with
LIN, Chancellor Media would have had net revenue and broadcast cash flow of
approximately $1.6 billion and $673.2 million, respectively, for the nine months
ended September 30, 1998, its pro forma broadcast cash flow margin for such
period would have been 43%, and approximately 59% of pro forma net revenue for
such period would have been generated by markets in which Chancellor Media owns
superduopolies. Furthermore, Chancellor Media, prior to the merger with LIN,
would have generated approximately 82% of its net revenue from radio operations,
approximately 8% from media representation operations and approximately 10% from
outdoor advertising operations. The acquisition of Petry is excluded from the
pro forma information included in this Joint Proxy Statement/ Prospectus for a
number of reasons including:
- - uncertainty as to whether such transaction will be consummated and, if
consummated, on what terms; and
- - the availability to Chancellor Media of necessary financial information
pending settlement with the U.S. Department of Justice (the "DOJ"). In the
opinion of management of Chancellor Media, such information is not material to
such pro forma presentations, either individually or in the aggregate.
RECENT DEVELOPMENTS
Summary of Acquisitions and Dispositions Since January 1, 1997
Since January 1, 1997, Chancellor Media has completed the following:
- - the merger with Chancellor Broadcasting Company, which added 52 radio
stations, 36 FM and 16 AM, to the Company's portfolio of stations, for a net
purchase price of approximately $2.0 billion;
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- - the acquisition of 33 radio stations for a net purchase price of approximately
$1.7 billion;
- - the exchange of 12 radio stations and $156.8 million in cash for nine radio
stations and $9.5 million in cash;
- - the sale or other disposition of 10 radio stations for $269.3 million in cash
and a promissory note for $18.0 million;
- - the acquisition of Katz, a full service media representation firm, for a net
purchase price of approximately $379.1 million;
- - the acquisition of Global Sales Development, Inc., a consulting firm based in
Richmond, Virginia, for $0.7 million to lead the formation of a new marketing
group division to enhance revenues derived from radio sales promotion
activities;
- - the acquisition of Martin Media and certain affiliated companies including
Martin & MacFarlane, Inc. ("Martin Media"), an outdoor advertising company
with over 14,500 billboards and outdoor displays in 12 states serving 23
markets, for approximately $621.1 million;
- - the acquisition of the assets of the Outdoor Advertising Division of Whiteco
Industries, Inc., an outdoor advertising company with over 22,000 billboards
and outdoor displays in 34 states, for $930.0 million in cash plus working
capital and other direct acquisition costs;
- - the acquisition of approximately 1,000 display faces from Kunz & Company for
$33.3 million in cash plus other direct acquisition costs;
- - the acquisition of approximately 3,900 additional billboards and outdoor
displays for approximately $52.4 million in cash (the "Other Outdoor
Acquisitions");
- - the acquisition of various syndicated programming shows of Casey Kasem and the
related programming libraries for $7.2 million in cash and $7.0 million in the
form of a note due August 2000 (the "Kasem Acquisition");
- - the acquisition of Primedia Broadcast Group, Inc. and certain of its
affiliates, which own and operate eight FM radio stations in Puerto Rico, for
approximately $76.1 million in cash less working capital deficit plus other
direct acquisition costs;
- - the acquisition of approximately a 24.1% non-voting interest in Z-Spanish
Media Corporation for $25.0 million in cash; and
- - the acquisition of four FM and two AM stations in Cleveland for $275.0 million
in cash plus various other direct acquisition costs.
These transactions, excluding the Other Outdoor Acquisitions and the Kasem
Acquisition, together with the acquisitions and dispositions completed by
Chancellor Broadcasting Company prior to the merger with Evergreen Media
Corporation are referred to herein as the "Completed Transactions."
Pending Transactions
- - On February 20, 1998, Chancellor Media entered into an agreement to acquire
from Capstar KTXQ-FM and KBFB-FM in Dallas/Ft. Worth, KODA-FM, KKRW-FM and
KQUE-AM in Houston, KPLN-FM and KYXY-FM in San Diego and WVTY-FM, WJJJ-FM,
WXDX-FM and WDVE-FM in Pittsburgh (collectively, "the Capstar/ SFX Stations")
for an aggregate purchase price of approximately $637.5 million in a series of
purchases and exchanges over a period of three years (the "Capstar/
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SFX Transaction"). The Capstar/SFX Stations were acquired by Capstar as part
of Capstar's acquisition of SFX on May 29, 1998. On May 29, 1998, Chancellor
Media exchanged WAPE-FM and WFYV-FM in Jacksonville, valued for purposes of
the Capstar/SFX Transaction at $53.0 million, plus $90.3 million in cash to
Capstar in return for KODA-FM in Houston (the "Houston Exchange") and began
operating the remaining ten Capstar/SFX Stations under time brokerage
agreements. The purchase price for the remaining ten Capstar/SFX Stations will
be approximately $494.3 million. Chancellor Media is currently assessing
whether the terms of the Capstar/SFX Transaction will be modified upon the
consummation of the Capstar merger.
- - On April 8, 1998, Chancellor Media entered into an agreement to acquire Petry
Media Corporation, a leading independent television representation firm. The
agreement currently provides for a purchase price of $129.5 million in cash.
On June 3, 1998, the DOJ issued a second request for additional information
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act") in connection with the acquisition to which Chancellor Media
has responded. Chancellor Media and Petry are still negotiating with the DOJ
regarding this transaction and have agreed to extend the waiting period under
the HSR Act pending completion of these discussions. Accordingly, at this
time, Chancellor Media cannot be sure of the terms on which this transaction
will be completed, if at all.
- - On August 20, 1998, Chancellor Media entered into an agreement to sell WMVP-AM
in Chicago to ABC, Inc. for $21.0 million in cash. Chancellor Media entered
into a time brokerage agreement to sell substantially all of the broadcast
time of WMVP-AM effective September 10, 1998. Although there can be no
assurance, Chancellor Media expects that the disposition of WMVP-AM will be
consummated in the first quarter of 1999.
- - On August 26, 1998, Chancellor Media and Capstar entered into an agreement to
merge in a stock-for-stock transaction that will create the nation's largest
radio broadcasting entity. Pursuant to this agreement, Chancellor Media will
acquire Capstar in a reverse merger in which Capstar will be renamed
Chancellor Media Corporation. Each share of Chancellor Media common stock will
represent one share in the combined entity. Each share of Capstar common stock
will represent 0.480 shares of common stock in the combined entity, subject to
an upward adjustment not to exceed 0.025 shares to the extent that Capstar's
1998 cash flow from specified assets exceeds certain specified targets. Upon
consummation of its pending transactions, Capstar will own and operate more
than 340 radio stations serving 82 mid-sized markets nationwide. Chancellor
Media began operating WKNR-AM in Cleveland under a time brokerage agreement
effective February 1, 1999. Although there can be no assurance, Chancellor
Media expects that the Capstar merger will be consummated in the second
quarter of 1999.
- - On September 3, 1998, Chancellor Media entered into an agreement to acquire
Pegasus Broadcasting of San Juan, L.L.C., a television broadcasting company
which owns a television station in Puerto Rico, for approximately $69.6
million in cash. An application to transfer control of Pegasus to Chancellor
Media has been filed with the Federal Communications Commission (the "FCC").
Telemundo of Puerto Rico License Corporation has filed a petition to deny this
application. There can be no assurance that the FCC will grant Chancellor
Media's application to acquire control of Pegasus. If the
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FCC does grant Chancellor Media's application, Chancellor Media may assign its
rights under its agreement with Pegasus to LIN.
- - On September 15, 1998, Chancellor Media entered into an agreement to acquire
KKFR-FM and KFYI-AM in Phoenix from The Broadcast Group, Inc. for $90.0
million in cash. Chancellor Media began operating KKFR-FM and KFYI-AM under a
time brokerage agreement effective November 5, 1998. Although there can be no
assurance, Chancellor Media expects that the Phoenix acquisition will be
consummated in the second quarter of 1999.
The foregoing transactions are collectively referred to herein as the "Pending
Transactions." Consummation of each of the Pending Transactions discussed above
is subject to various conditions, including, in certain cases, approval from the
FCC and the expiration or early termination of any waiting period required under
the HSR Act. Except as described above, Chancellor Media believes that such
conditions will be satisfied in the ordinary course, but there can be no
assurance that this will be the case.
1998 Financing Transactions
- - On March 13, 1998, Chancellor Media completed an offering of 21,850,000 shares
of its common stock. The net proceeds from the equity offering of
approximately $994.6 million were used to reduce bank borrowings under the
revolving credit portion of Chancellor Media's senior credit facility and the
excess proceeds were initially invested in short-term investment grade
securities. Chancellor Media subsequently used the excess proceeds for general
corporate purposes, including the financing of certain acquisitions and
exchanges.
- - On May 8, 1998, Chancellor Media Corporation of Los Angeles ("CMCLA")
completed a consent solicitation to modify certain timing restrictions on its
ability to exchange all shares of its 12% exchangeable preferred stock for its
12% Subordinated Exchange Debentures due 2009. Consenting holders of 12%
exchangeable preferred stock received payments of $0.05 per share of 12%
exchangeable preferred stock. On May 13, 1998, CMCLA exchanged the shares of
12% exchangeable preferred stock for 12% Subordinated Exchange Debentures due
2009. In connection with the consent solicitation and the exchange, CMCLA
incurred approximately $0.3 million in transaction costs which were recorded
as deferred debt issuance costs.
- - On June 10, 1998, CMCLA completed a cash tender offer for all of its 12%
Subordinated Exchange Debentures due 2009 for an aggregate repurchase cost of
$262.5 million which included:
(1) the principal amount of the 12% Subordinated Exchange Debentures due
2009 of $211.8 million;
(2) premiums on the repurchase of the 12% Subordinated Exchange Debentures
due 2009 of $47.8 million;
(3) accrued and unpaid interest on the 12% Subordinated Exchange Debentures
due 2009 from May 14, 1998 through June 10, 1998 of $2.0 million; and
(4) estimated transaction costs of $1.0 million.
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In connection with the tender offer, CMCLA recorded an extraordinary charge of
$31.9 million, net of a tax benefit of $17.2 million, consisting of the
premiums, estimated transaction costs and the write-off of the unamortized
balance of deferred debt issuance costs.
- - On July 20, 1998, CMCLA completed a consent solicitation to modify certain
timing restrictions on its ability to exchange all shares of its 12 1/4%
series A senior cumulative exchangeable preferred stock for its 12 1/4%
Subordinated Exchange Debentures due 2008. Consenting holders of 12 1/4%
series A cumulative exchangeable preferred stock received payments of $0.05
per share of 12 1/4% series A cumulative exchangeable preferred stock. On July
23, 1998, CMCLA exchanged the shares of 12 1/4% series A cumulative
exchangeable preferred stock for 12 1/4% Subordinated Exchange Debentures due
2008. In connection with the consent solicitation and the exchange, CMCLA
incurred approximately $0.2 million in transaction costs which were recorded
as deferred debt issuance costs.
- - On August 19, 1998, CMCLA completed a cash tender offer for all of its 12 1/4%
Subordinated Exchange Debentures due 2008 for an aggregate repurchase cost of
$144.5 million which included:
(1) the principal amount of the 12 1/4% Subordinated Exchange Debentures
due 2008 of $119.4 million;
(2) premiums on the repurchase of the 12 1/4% Subordinated Exchange
Debentures due 2008 of $22.7 million;
(3) accrued and unpaid interest on the 12 1/4% Subordinated Exchange
Debentures due 2008 from August 16, 1998 through August 19, 1998 of
$1.8 million; and
(4) estimated transaction costs of $0.6 million.
In connection with the tender offer, CMCLA recorded an extraordinary charge of
$15.2 million, net of a tax benefit of $8.2 million, consisting of the
premiums, estimated transaction costs and the write-off of the unamortized
balance of deferred debt issuance costs.
- - On September 30, 1998, CMCLA issued $750.0 million aggregate principal amount
of 9% Senior Subordinated Notes due 2008 for estimated net proceeds of $730.0
million. The net proceeds from the offering were used to finance certain of
Chancellor Media's acquisitions in 1998. Prior to consummation of those
acquisitions, Chancellor Media used the net proceeds to temporarily reduce
borrowings outstanding under the revolving credit portion of its senior credit
facility.
- - On November 17, 1998, CMCLA issued $750.0 million aggregate principal amount
of 8% Senior Notes due 2008 for estimated net proceeds of $730.0 million. The
net proceeds from the offering were used to reduce bank borrowings under the
revolving credit portion of the senior credit facility and the excess proceeds
will be invested in short-term investment grade securities.
The foregoing transactions are referred to herein as the "1998 Financing
Transactions."
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COMPANY STRATEGY
Chancellor Media's overall strategy is to create a leading multi-media company
with a significant overlapping presence in radio, television and outdoor
advertising markets. In this regard, Chancellor Media has built a diversified
portfolio of media assets which enables Chancellor Media to deliver more options
and greater value to its advertising clients. Chancellor Media believes the
multi-media platform creates significant growth opportunities and synergies
through cross selling, cross promotion and cost savings in markets where radio
and outdoor advertising operations overlap. Chancellor Media plans on leveraging
the extensive operating experience of its senior management team to continue to
enhance revenue and cash flow growth.
Radio Broadcast Strategy. The Chancellor Radio Group senior management team, led
by James E. de Castro, President of Chancellor Radio Group, has extensive
experience in acquiring and operating radio station groups. The Chancellor Radio
Group business strategy is to assemble and operate radio station clusters in
order to maximize the broadcast cash flow generated in each market.
Chancellor Radio Group seeks to capitalize on revenue growth and expense savings
opportunities through the successful integration of station cluster groups.
Management believes that radio station clusters can attract increased revenues
in a market by delivering larger combined audiences to advertisers and by
engaging in joint marketing and promotional activities. In addition, management
expects to realize significant expense savings through the consolidation of
facilities and through the economies of scale created in areas such as national
representation commissions, employee benefits, insurance premiums and other
operating costs.
Chancellor Radio Group also seeks to maximize station operating performance
through intensive market research, innovative programming and unique marketing
campaigns to establish strong listener loyalty and ensure steady long-term
audience share ratings. Management believes its ratings growth in many of its
markets is driven by Chancellor Radio Group's ability to attract talented people
and to continue delivering quality programming to its listeners.
Chancellor Radio Group also seeks to leverage its radio expertise and platform
and enhance revenue and cash flow growth through the continued expansion of its
national radio network, The AMFM Radio Networks, as well as through the
development of non-traditional revenues derived from radio sales promotion
activities.
Media Representation Strategy. Chancellor Media's overall strategy for its Media
Representation business is to create a leading national representation firm
serving all types of electronic media. Chancellor Media believes it can continue
to generate revenue and cash flow growth in the Media Representation business by
expanding its market share and improving its national sales effort. Management
will seek to increase market share by developing new clients, expanding
operations in existing and new markets and acquiring representation contracts of
its competitors. Chancellor Media will continue to provide the highest level of
quality service to its clients by offering comprehensive advertisement, planning
and placement services, as well as a broad range of value added benefits,
including marketing, research, consulting and programming advisory services.
Chancellor Media will also have the ability to expand its level of service to
advertisers through the
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growth of its unwired network of radio and television stations which provides
advertisers with greater flexibility and the ability to target specific
demographic groups or markets.
Outdoor Advertising Strategy. The Chancellor Outdoor Group is led by James A.
McLaughlin, President of Chancellor Outdoor Group, an outdoor advertising
industry veteran with over 25 years of experience. The Chancellor Outdoor Group
business strategy is to create and develop one of the top outdoor advertising
companies in the United States through the consolidation of Martin Media,
acquired in July 1998, and the recent acquisition of Whiteco, acquired in
December 1998, and additional acquisitions that complement Chancellor Media's
existing outdoor and radio markets. After completing the Whiteco acquisition,
Chancellor Outdoor Group is now one of the top five outdoor advertising
companies in the United States. Chancellor Outdoor Group believes there are
opportunities to generate significant revenue growth and cost savings through
the successful integration of the combined operations of Martin Media and
Whiteco.
Chancellor Outdoor Group's strategy is to realize revenue and expense synergies
through the consolidation of certain sales management, leasing management,
marketing, and accounting and administrative support functions. Additionally,
Chancellor Outdoor Group will focus on strengthening its operating results by
increasing market penetration, maximizing rates and occupancy levels in each of
its markets and capitalizing on technological advances such as computer vinyl
technology to enhance the attractiveness and flexibility of the outdoor medium
while reducing costs. Chancellor Outdoor Group also seeks to realize incremental
benefits in markets where outdoor and radio operations overlap by introducing
radio advertisers to outdoor advertising which provides an additional low cost
medium to advertisers with local marketing needs.
Management believes its newly acquired outdoor advertising portfolio combined
with the strength of its broad radio platform, national radio network, national
representation business and, assuming consummation of the merger with LIN,
television broadcasting platform will solidify Chancellor Media's position as a
leading multi-media company with the ability to effectively respond to customers
needs through a variety of advertising solutions and mediums.
Television Broadcast Strategy. The acquisition of the television stations of LIN
will provide Chancellor Media with a new platform in the television broadcasting
business. For a description of the operating strategy of LIN, see
"-- LIN -- Company Strategy" on page . In addition, Chancellor Media is
seeking to acquire a television station in Puerto Rico. If this acquisition is
approved by the FCC, Chancellor may assign the rights to this television station
to LIN.
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RADIO BROADCASTING
The following table sets forth selected information with respect to the
portfolio of radio stations that were owned by Chancellor Media as of January
31, 1999 and will be owned upon consummation of the Pending Transactions
(subject to any divestitures required by the FCC and/or the DOJ as a condition
to approving any of the Pending Transactions).
<TABLE>
<CAPTION>
RANKING OF
STATION STATION RANKING
MARKET BY AUDIENCE TARGET IN TARGET
MARKET(1) REVENUE(2) STATION SHARE(%)(3) STATION FORMAT DEMOGRAPHICS DEMOGRAPHICS(4)
--------- ---------- ------- ----------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Los Angeles, CA..... 1 KKBT-FM 3.8 Urban Contemporary Women 18-34 3
KYSR-FM 2.5 Modern Adult Contemporary Persons 25-54 15
KBIG-FM 2.4 Adult Contemporary Persons 25-54 14
KLAC-AM 2.3 Adult Standards/Sports Persons 35-64 18
KCMG-FM 2.8 Adult Contemporary Women 25-54 7
New York, NY........ 2 WLTW-FM 5.9 Soft Adult Contemporary Persons 25-54 1
WKTU-FM 4.0 Rhythmic Contemporary Persons 25-54 6
Hits
WHTZ-FM 4.5 Contemporary Hit Radio Persons 18-34 3
WBIX-FM 1.7 Jamming Oldies Women 25-49 16
WAXQ-FM 1.7 Classic Rock Persons 25-54 15
Chicago, IL......... 3 WGCI-FM 6.4 Urban Contemporary Persons 18-34 1
WNUA-FM 4.2 Smooth Jazz Persons 25-54 3
WLIT-FM 3.5 Soft Adult Contemporary Persons 25-54 11
WVAZ-FM 4.0 Adult Urban Contemporary Persons 25-54 2
WUBT-FM 2.4 Jamming Oldies Persons 25-54 14
WGCI-AM 1.3 Gospel Persons 25-54 23
WMVP-AM+ 0.4 Sports/Talk, Comedy Men 25-54 24
San Francisco, CA... 4 KYLD-FM 3.9 Contemporary Hits Persons 18-34 6
Radio/Dance
KMEL-FM 3.6 Contemporary Hits Persons 18-34 2
KKSF-FM 3.6 Smooth Jazz Persons 25-54 4
KABL-AM 2.4 Adult Standards Persons 35-64 14
KISQ-FM 3.4 Hit Base R&B Adult Persons 25-54 3
Contemporary
KIOI-FM(5) 2.9 Adult Contemporary Women 25-54 4
KNEW-AM(5) 0.2 Adult Contemporary Women 25-54 40
Dallas, TX.......... 5 KHKS-FM 7.3 Top 40 Women 18-34 1
KZPS-FM 3.8 Classic Rock Persons 25-54 5
KDGE-FM 2.7 Alternative Rock Persons 18-34 8
KSKY-AM N/A Southern Gospel N/A N/A
Music/Religious
KBFB-FM* 2.0 Soft Rock Persons 25-54 17
KTXQ-FM* 3.6 Jamming Oldies Persons 25-54 4
Philadelphia, PA.... 6 WDAS-FM 5.9 Urban Contemporary Persons 25-54 1
WUSL-FM 5.3 Urban Contemporary Women 18-34 2
WJJZ-FM 4.2 Smooth Jazz Persons 35-54 5
WIOQ-FM 4.1 Contemporary Hit Radio Persons 18-34 6
WYXR-FM 3.1 Hot Adult Contemporary Women 18-49 4
WDAS-AM 1.2 Gospel N/A N/A
Washington, D.C..... 7 WMZQ-FM 4.5 Country Persons 25-54 8
WASH-FM 4.7 Adult Contemporary Women 25-54 4
WBIG-FM 4.4 Oldies Persons 25-54 6
WGAY-FM 3.2 Adult Contemporary Persons 35-64 9
WTEM-AM 1.3 Sports/Talk Men 18-49 14
WWRC-AM 0.4 Talk Persons 35-64 31
WWDC-FM 3.5 Album Oriented Rock Persons 18-34 4
WWDC-AM 0.7 Music of Your Life Persons 55+ 9
</TABLE>
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<S> <C> <C> <C> <C> <C> <C>
Houston, TX......... 8 KKBQ-FM 3.3 Fresh Country Persons 25-54 13
KLDE-FM 3.4 Oldies Persons 25-54 10
KLOL-FM 3.8 Rock Men 18-34 1
KTRH-AM 4.5 News/Sports Men 25-54 5
KBME-AM 1.9 Popular Standards Persons 35-64 20
KODA-FM 6.4 Adult Contemporary Persons 25-54 1
KKRW-FM*(6) 3.2 Classic Rock Persons 25-54 8
KQUE-AM*(6) N/A Classic Rock Persons 25-54 N/A
Atlanta, GA......... 9 WFOX-FM 3.7 Oldies Persons 25-54 10
Boston, MA.......... 10 WJMN-FM 6.3 Contemporary Hits Persons 18-34 2
Radio/Rhythmic
WXKS-FM 5.0 Contemporary Hits Women 25-34 1
Radio/Top 40
WXKS-AM 1.6 Bloomberg News/Music Women 45-54 19
Memory
Detroit, MI......... 11 WJLB-FM 6.8 Urban Contemporary Persons 18-34 1
WNIC-FM 8.0 Adult Contemporary Women 25-54 1
WKQI-FM 3.5 Hot Adult Contemporary Women 25-54 4
WMXD-FM 4.5 Adult Urban Contemporary Persons 25-54 4
WWWW-FM 3.6 Country Women 25-54 9
WDFN-AM 1.6 Sports Men 25-49 4
WYUR-AM 0.1 Nostalgic N/A N/A
Miami/Ft.
Lauderdale, FL.... 12 WEDR-FM 8.0 Urban Contemporary Persons 25-54 1
WVCG-AM N/A Brokered(11) N/A N/A
Denver, CO.......... 14 KXKL-FM 4.8 Oldies Persons 25-54 5
KALC-FM 4.5 Hot Adult Contemporary Persons 18-34 3
KIMN-FM 3.5 70's Oldies Persons 25-54 11
KXPK-FM 2.4 Adult Modern Rock Persons 18-49 13
KVOD-FM 2.3 Classical Persons 25-54 17
KRRF-AM 0.7 Talk Men 25-54 21
Minneapolis/
St. Paul, MN...... 15 KEEY-FM 8.1 Country Persons 25-54 2
KDWB-FM 8.0 Contemporary Hit Radio Persons 18-34 2
KQQL-FM 4.1 Oldies Persons 25-54 8
KTCZ-FM 3.5 Progressive Album Rock Men 25-49 8
WRQC-FM 2.1 Active Rock Men 18-34 7
KFAN-AM(7) 2.7 Sports Men 18-49 3
KFXN-AM(7) 0.6 Sports/Talk Men 25-54 17
Phoenix, AZ......... 16 KOY-AM 3.6 Adult Standards Persons 35-64 14
KMLE-FM(8) 5.9 Country Persons 25-54 2
KOOL-FM 4.3 Oldies Persons 25-54 4
KYOT-FM 4.1 Contemporary Jazz Persons 25-54 8
KZON-FM 3.6 Alternative Rock Persons 18-34 5
KISO-AM(8) 1.1 Country Persons 35-54 25
KFYI-AM*** 5.3 News/Talk Persons 25-54 10
KKFR-FM*** 5.7 Urban Contemporary Hit Persons 18-34 1
Radio
San Diego, CA....... 17 KYXY-FM* 5.6 Soft Adult Contemporary Persons 25-54 4
KPLN-FM* 2.6 Classic Rock Persons 25-54 8
Cincinnati, OH...... 19 WUBE-FM(9) 8.0 Country Persons 25-54 2
WYGY-FM(9) 2.2 Young Country Men 18-34 9
WBOB-AM 1.0 Sports/Talk Men 18-49 12
WUBE-AM N/A Sports/Talk Men 25-49 N/A
</TABLE>
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<S> <C> <C> <C> <C> <C> <C>
Cleveland, OH....... 23 WZAK-FM 8.7 Urban Contemporary Women 25-54 1
WDOK-FM 7.0 Soft Adult Contemporary Women 25-54 1
WRMR-AM 4.8 Adult Standard Men 25-54 20
WZJM-FM 5.8 Contemporary Hit Radio Women 18-34 3
WQAL-FM 5.0 Hot Adult Contemporary Persons 25-54 8
WJMO-AM 2.6 Oldies Persons 25-54 12
WKNR-AM* 2.1 News/Talk Persons 25-54 13
Pittsburgh, PA...... 24 WWSW-FM(10) 4.4 Oldies Person 25-54 5
WWSW-AM(10) 0.3 Oldies Persons 25-54 25
WDVE-FM* 7.3 Rock Persons 25-54 1
WXDX-FM* 5.6 Alternative Rock Persons 18-34 2
WJJJ-FM* 3.8 Smooth Jazz Persons 25-54 12
WDRV-FM* 3.5 Modern Hit Women 25-49 4
Charlotte, NC....... 25 WLYT-FM* 6.0 Lite Adult Contemporary Women 35-64 1
WKKT-FM* 6.0 Country Persons 18-54 5
WRFX-FM* 6.0 Classic Rock Men 18-54 1
Orlando, FL......... 26 WJHM-FM 6.0 Urban Contemporary Persons 18-34 2
WOCL-FM 5.0 Oldies Persons 25-54 6
WXXL-FM 7.1 Contemporary Hit Radio Persons 18-34 1
WOMX-FM 5.6 Adult Contemporary Persons 25-54 3
Sacramento, CA...... 28 KFBK-AM 10.3 News/Talk Persons 25-54 1
KHYL-FM 4.0 Oldies Persons 25-54 7
KGBY-FM 4.0 Adult Contemporary Women 25-54 2
KSTE-AM 3.3 Talk Persons 25-54 11
Indianapolis, IN.... 30 WFBQ-FM* 9.8 Album Oriented Rock Persons 25-54 1
WNDE-AM* 1.2 Sports/Talk Men 18-54 13
WRZX-FM* 5.4 Alternative Persons 18-44 3
Milwaukee, WI....... 33 WISN-AM* 5.0 News/Talk Persons 35-64 4
WLTQ-FM* 4.5 Adult Contemporary Persons 25-54 7
Nashville, TN....... 34 WRVW-FM* 5.7 Adult Contemporary Persons 25-54 8
WSIX-FM* 8.1 Country Persons 18-64 3
WJZC-FM* 3.3 Smooth Jazz Persons 35-64 10
WNRQ-FM* 8.2 Adult Contemporary Persons 35-64 8
WLAC-AM* 4.5 News/Talk Persons 35+ 3
Hartford, CT........ 35 WHCN-FM* 3.1 Album Oriented Rock Persons 18-34 7
WKSS-FM* 7.6 Top 40 Women 25-54 4
WMRQ-FM* 4.0 Modern Rock Persons 18-54 7
WWYZ-FM* 6.9 Country Persons 25-54 3
WPOP-AM* 0.3 News/Talk/Sports Persons 35+ 21
Raleigh, NC......... 36 WDCG-FM* 8.7 Contemporary Hits Persons 25-54 1
WRDU-FM* 5.1 Album Oriented Rock Persons 25-54 4
WRSN-FM* 4.5 Adult Contemporary Persons 25-54 7
WTRG-FM* 5.0 Oldies Persons 35-64 1
Austin, TX.......... 37 KASE-FM* 8.2 Country Persons 18-34 1
KVET-FM* 6.1 Country Persons 25-54 4
KVET-AM* 1.1 Sports Men 18-54 16
KFMK-FM** 3.4 Rhythmic Oldies Persons 25-54 12
Jacksonville, FL.... 44 WAPE-FM* 7.4 Contemporary Hit Radio Persons 18-54 2
WFYV-FM* 7.2 Album Oriented Rock Persons 25-54 1
WMXQ-FM* 3.3 Adult Contemporary Persons 25-54 9
WKQL-FM* 7.1 Oldies Persons 35-64 1
WOKV-AM* 5.2 News/Talk Persons 35+ 2
WBWL-AM* 2.1 Sports Men 18-54 9
</TABLE>
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--------- ---------- ------- ----------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Nassau/Suffolk, NY
(Long Island)(12). 45 WALK-FM 5.8 Adult Contemporary Persons 25-54 2
WALK-AM N/A Adult Contemporary Persons 35-64 N/A
Providence, RI...... 46 WHJJ-AM* 2.8 News/Talk Persons 35+ 6
WHJY-FM* 6.6 Album Oriented Rock Persons 25-54 1
WSNE-FM* 4.7 Adult Contemporary Women 35-54 2
Richmond, VA........ 47 WMXB-FM* 4.4 Adult Contemporary Persons 35-64 11
WRCL-FM* 5.4 Oldies Persons 35-64 4
WKHK-FM* 8.8 Country Persons 25-54 3
WKLR-FM* 4.6 Classic Rock Persons 25-54 7
WLEE*(L) N/A Oldies Persons 35-54 N/A
Birmingham, AL...... 51 WMJJ-FM* 6.8 Adult Contemporary Persons 25-54 2
WERC-AM* 4.8 News/Talk Persons 35-64 5
WQEN-FM* N/A Adult Contemporary Persons 18-34 N/A
WOWC-FM* 2.1 Country Persons 25-54 12
Greensboro, NC...... 52 WHSL-FM* 5.2 Country Persons 25-54 8
WMAG-FM* 6.6 Adult Contemporary Persons 18-34 9
WMFR-AM* 1.2 News/Talk Persons 35+ 13
WTCK-AM* N/A Sports/Talk Men 18-54 N/A
Grand Rapids, MI.... 56 WGRD-FM* 6.0 Modern Rock Persons 18-34 2
WNWZ-AM* N/A News Persons 35+ N/A
WLHT-FM* 5.4 Adult Contemporary Persons 25-54 3
WTVR-FM* 2.3 Soft Adult Contemporary Women 35-64 8
Omaha/Council
Bluffs, NE........ 57 KFAB-AM** 7.9 News/Talk Persons 25-54 8
KTNP-FM** 1.8 Adult Contemporary Women 25-54 13
KXKT-FM** 8.3 Country Persons 25-54 2
KGOR-FM** 6.3 Oldies Persons 35-64 1
Tucson, AZ.......... 59 KCEE-AM* 2.0 Nostalgia Women 25-54 16
KNST-AM* 4.8 News/Talk/Sports Persons 25-54 9
KRQQ-FM* 8.5 Contemporary Hits Persons 25-54 5
KWFM-FM* 4.5 Oldies Persons 35-64 3
Albany/
Schenectady/
Troy, NY.......... 60 WGNA-FM* 8.7 Country Persons 25-54 3
WGNA-AM* 0.3 Country Persons 25-54 N/A
WPYX-FM* 8.1 Album Oriented Rock Persons 18-34 2
WTRY-AM* 1.5 Oldies Persons 25-54 15
WTRY-FM* 3.3 Oldies Persons 18-34 14
WXLE-FM* 2.5 Rock Women 25-54 8
Greenville, SC...... 61 WGVL-AM* N/A Country Persons 25-54 N/A
WMYI-FM* 5.6 Adult Contemporary Persons 25-54 5
WROQ-FM* 7.8 Classic Rock Persons 25-54 4
WSSL-FM* 8.8 Country Persons 25-54 4
Fresno, CA.......... 63 KBOS-FM* 4.7 Contemporary Persons 18-34 3
KCBL-AM* 0.5 Sports/Talk Men 18-49 21
KRZR-FM* 3.9 Album Rock Men 18-49 2
KRDU-AM* N/A Religion N/A N/A
KSOF-FM* 2.7 Soft Rock Persons 25-54 13
KEZL-FM* 2.7 Smooth Jazz Persons 35-54 6
KFSO-FM* 2.7 Oldies Persons 35-64 5
KALZ-FM* 3.3 Adult Contemporary Persons 35-54 11
KVBL-AM* N/A Oldies Persons 35-54 N/A
</TABLE>
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--------- ---------- ------- ----------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Riverside/
San Bernardino, 64 KGGI-FM 7.0 Contemporary Hit Radio Persons 18-34 1
CA..............
KKDD-AM N/A Radio Disney N/A N/A
Columbia, SC........ 69 WCOS-FM* 10.5 Country Persons 18-54 2
WLTY-FM* 4.1 Lite Rock Women 35-54 7
WVOC-AM* 6.9 News/Talk Persons 35-64 3
WSCQ-FM* 4.7 Adult Contemporary Persons 25-54 12
WCOS-AM* 1.4 Country Persons 25-54 13
WNOK-FM* 7.2 Contemporary Hits Persons 25-54 5
Des Moines, IA...... 70 KHKI-FM* 6.2 Country Persons 25-54 8
KGGO-FM* 5.4 Album Oriented Rock Persons 25-54 6
KDMI-AM* 0.5 Religious N/A N/A
Harrisburg/Lebanon/
Carlisle, PA...... 71 WTCY-AM* N/A Urban Adult Contemporary Persons 35-54 N/A
WNNK-FM* 11.5 Contemporary Hit Radio Persons 18-34 1
Honolulu, HI........ 72 KSSK-AM* 5.1 Hot Adult Contemporary Persons 25-54 7
KSSK-FM* 9.9 Hot Adult Contemporary Persons 25-54 1
KUCD-FM* 3.3 Modern Adult Contemporary Persons 35-54 12
KHVH-AM* 2.5 News/Talk Persons 35-64 12
KKLV-FM* 3.0 Classic Rock Men 35-54 5
KIKI-AM* 0.4 Country Persons 18-34 20
KIKI-FM* 8.8 Urban Persons 18-34 1
Allentown, PA....... 73 WAEB-AM* 4.8 News/Talk/Sports Persons 35+ 5
WAEB-FM* 10.0 Hot Adult Contemporary Women 18-49 1
WZZO-FM* 7.6 Album Oriented Rock Men 18-49 1
WKAP-AM* 4.3 Nostalgia Persons 35+ 6
Wichita, KS......... 74 KKRD-FM* 7.7 Contemporary Hits Persons 18-34 2
KRZZ-FM* 4.9 Classic Rock Persons 18-34 4
KNSS-AM* 4.3 News/Talk/Sports Men 35-64 6
KEYN-FM** 5.2 Oldies Persons 35-64 2
KFH-AM** 4.8 News/Talk Persons 25-54 10
KQAM-AM** 1.7 Sports Men 25-54 12
KRBB-FM** 5.8 Adult Contemporary Persons 25-54 2
KZSN-FM** 8.1 Country Persons 25-54 1
Madison, WI......... 75 WIBA-AM* 7.0 News/Talk Persons 35-64 3
WIBA-FM* 3.6 Classic Rock Persons 25-54 8
WMAD-FM* 4.6 Modern Rock Persons 18-34 3
WTSO-AM* 4.0 News/Talk Persons 35-64 10
WZEE-FM* 11.0 Adult Contemporary Persons 18-49 1
WMLI-FM* 3.2 Soft Hits Women 25-54 6
Baton Rouge, LA..... 77 WYNK-FM* 7.4 Country Persons 25-54 4
WYNK-AM* 0.4 Disney Persons 12+ 23
WJBO-AM* 5.8 News/Talk/Sports Men 35-64 2
WLSS-FM* 4.7 Contemporary Hits Women 18-34 2
KRVE-FM* 5.2 Adult Contemporary Women 25-54 1
WSKR-AM* N/A Sports Men 25-54 N/A
Colorado Springs, 83 KKLI-FM** N/A Soft Adult Contemporary Women 25-54 N/A
CO................
KVUU-FM** 5.1 Adult Contemporary Persons 25-54 6
Wilmington, DE...... 86 WJBR-AM* N/A Nostalgia Women 25-54 N/A
WDSD-FM* N/A Country Persons 25-54 N/A
WRDX-FM* N/A Album Oriented Rock Persons 25-54 N/A
WDOV-AM* N/A News/Talk Persons 25-54 N/A
</TABLE>
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<S> <C> <C> <C> <C> <C> <C>
Roanoke/
Lynchburg, VA..... 87 WGMN-AM* N/A Sports Persons 25-54 N/A
WGMN-FM* N/A Album Oriented Rock Persons 25-54 N/A
WRDJ-FM* N/A Oldies Persons 35-54 N/A
WJJS-FM* N/A Rhythmic Contemporary Persons 25-54 N/A
Hits
WJLM-FM* N/A Country Persons 18-54 N/A
WLDJ-FM* N/A Oldies Persons 35-64 N/A
WJJX-FM* N/A Rhythmic Contemporary Persons 35-54 N/A
Hits
WVGM-FM* N/A Urban Solid Gold Persons 25-54 N/A
WYYD-FM* N/A Country Persons 25-54 N/A
Springfield, MA..... 89 WHMP-AM* 0.6 News/Talk/Sports Men 35-64 21
WHMP-FM* 2.2 Rock Alternative Persons 25-54 12
WPKX-FM* 7.9 Country Persons 25-54 4
Jackson, MS......... 90 WMSI-FM* 9.3 Country Persons 25-54 3
WKTF-FM* 2.8 Country Persons 25-54 8
WSTZ-FM* 5.6 Album Oriented Rock Persons 25-54 3
WJDX-AM* 1.4 Adult Contemporary Persons 25-54 14
WQJQ-FM* 4.6 Classic Rhythm and Blues Persons 35-64 2
Modesto, CA......... 92 KJSN-FM* N/A Adult Contemporary Persons 25-54 N/A
KFIV-AM* N/A News/Talk Persons 35-64 N/A
Spokane, WA......... 98 KAQQ-AM* 5.2 Adult Standards Persons 45+ 1
KISC-FM* 5.5 Adult Contemporary Persons 25-54 6
KKZX-FM* 7.9 Classic Rock Men 25-54 1
KNFR-FM* 4.9 Country Persons 25-54 9
KUDY-AM* N/A Religion N/A N/A
KCDA-FM**(J) 2.7 Country Persons 25-54 15
New Haven, CT....... 101 WPLR-FM* N/A Album Oriented Rock Persons 18-34 N/A
WYBC-FM*(J) N/A Urban Adult Contemporary Persons 18-34 N/A
Huntsville, AL...... 108 WDRM-FM* 17.1 Country Persons 25-54 1
WHOS-AM* N/A News Persons 25-54 N/A
WBHP-AM* 0.4 CNN News Persons 25-54 N/A
WTAK-FM* 9.1 Classic Rock Persons 25-54 2
WXQW-FM* 4.0 Oldies Persons 25-54 5
WWXQ-FM* 1.5 Oldies Persons 25-54 12
Savannah, GA........ 110 WCHY-AM* N/A Traditional Country Persons 35-64 N/A
WCHY-FM* N/A Country Persons 25-54 N/A
WYKZ-FM* N/A Soft Adult Contemporary Persons 25-54 N/A
WAEV-FM* N/A Adult Contemporary Persons 18-34 N/A
WSOK-AM* N/A Gospel Persons 25-54 N/A
WLVH-FM* N/A Urban Adult Contemporary Persons 25-54 N/A
Anchorage, AK....... 111 KBFX-FM* N/A Classic Rock Persons 18-49 N/A
KASH-FM* N/A Country Persons 25-54 N/A
KENI-AM* N/A News/Talk Persons 25-54 N/A
KTZN-AM* N/A Kids Persons 12+ N/A
KGOT-FM* N/A Contemporary Hits Persons 25-54 N/A
KYMG-FM* N/A Adult Contemporary Persons 25-54 N/A
Montgomery, AL...... 118 WZHT-FM* N/A Urban Persons 25-54 N/A
WMCZ-FM* N/A Urban Adult Contemporary Persons 25-54 N/A
WQLD-FM* N/A Rhythm and Blues/Gospel Persons 35+ N/A
Shreveport, LA...... 120 KRMD-FM* 7.6 Country Persons 25-54 5
KRMD-AM* 0.1 Sports Men 18-54 16
KMJJ-FM* 11.6 Urban Persons 18-54 1
</TABLE>
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<S> <C> <C> <C> <C> <C> <C>
Cedar Rapids, IA.... 122 KHAK-FM* N/A Country Persons 25-54 N/A
KDAT-FM* N/A Soft Rock Persons 25-54 N/A
KRNA-FM* N/A Album Oriented Rock Men 18-34 N/A
Portsmouth/Dover/
Rochester, NH..... 123 WHEB-FM* N/A Album Oriented Rock Men 25-54 N/A
WXHT-FM* N/A Adult Contemporary Women 25-44 N/A
WTMN-AM* N/A Sports/Talk Men 18-50 N/A
WERZ-FM* N/A Contemporary Hits Radio Persons 25-54 N/A
WGIP-AM* N/A Big Band Persons 35-64 N/A
WQSO-FM* N/A Oldies Persons 35-64 N/A
WGIN-AM* N/A Nostalgia Persons 35-64 N/A
Worcester, MA....... 125 WTAG-AM* N/A News/Talk/Sports Persons 35-64 N/A
WSRS-FM* N/A Lite Rock Women 25-44 N/A
Lincoln, NE......... 126 KIBZ-FM** N/A Album Oriented Rock Men 25-54 N/A
KKNB-FM** N/A Alternative Persons 18+ N/A
KZKX-FM** N/A Country Persons 25-54 N/A
KTGL-FM** N/A Classic Rock Persons 25-54 N/A
Beaumont, TX........ 130 KLVI-AM* N/A News/Talk Persons 30+ N/A
KYKR-FM* N/A Country Persons 25-54 N/A
KKMY-FM* N/A Adult Contemporary Persons 30-54 N/A
KIOC-FM* N/A Hot Adult Contemporary Persons 18-34 N/A
Manchester, NH...... 135 WGIR-AM* N/A News/Talk/Sports Persons 35+ N/A
WGIR-FM* N/A Album Oriented Rock Men 25-54 N/A
Springfield, IL..... 137 WFMB-AM* N/A News/Talk/Sports Persons 25-54 N/A
WFMB-FM* N/A Country Persons 18-34 N/A
WCVS-FM* N/A Classic Hits Persons 25-54 N/A
Corpus Christi, 139 KRYS-FM* N/A Country Persons 25-54 N/A
TX................
KRYS-AM* N/A Radio Disney Persons 12+ N/A
KMXR-FM* N/A Adult Contemporary Women 35-64 N/A
KNCN-FM* N/A Album Oriented Rock Persons 25-54 N/A
KUNO-FM* N/A Spanish Persons 25-54 N/A
KSAB-FM* N/A Tejano Persons 25-54 N/A
Pensacola, FL....... 143 WMEZ-FM* N/A Soft Adult Contemporary Women 25-54 N/A
WXBM-FM* N/A Country Persons 25-54 N/A
WWSF-FM* N/A Oldies Persons 35-54 N/A
Battle Creek/
Kalamazoo, MI..... 144 WBCK-AM* N/A News/Talk Persons 35-64 N/A
WBXX-FM* N/A Adult Contemporary Persons 25-54 N/A
WRCC-AM* N/A Adult Standards Persons 45+ N/A
WWKN-FM* N/A Oldies Persons 35-64 N/A
Lubbock, TX......... 146 KFMX-FM* N/A Album Oriented Rock Men 18-34 N/A
KKAM-AM* N/A Talk Persons 18+ N/A
KZII-FM* N/A Contemporary Hits Persons 12-34 N/A
KFYO-AM* N/A News/Talk/Sports Persons 35+ N/A
KCRM-FM* N/A Classic Rock Women 18-49 N/A
KKCL-FM* N/A Oldies Persons 35-64 N/A
Stockton, CA........ 149 KFRY-FM* N/A Country Persons 25-54 N/A
KJAX-AM* N/A News/Talk Persons 35-64 N/A
KOSO-FM* N/A Adult Contemporary Persons 25-54 N/A
Burlington, VT...... 152 WEZF-FM* N/A Adult Contemporary Women 25-54 N/A
WCPV-FM* N/A Classic Rock Persons 25-54 N/A
WEAV-AM*(L) N/A Sports/Talk Men 25-54 N/A
WXPS-FM* N/A Sports/Talk Men 25-54 N/A
</TABLE>
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--------- ---------- ------- ----------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Odessa-Midland, 153 KCDQ-FM**(L) N/A Classic Rock Persons 18-34 N/A
TX................
KCHX-FM**(L) N/A Contemporary Hits Persons 25-54 N/A
KMRK-FM**(L) N/A Tejano Persons 25-54 N/A
Huntington/WV/
Ashland, KY....... 155 WTCR-AM* N/A Classic Country Persons 25-54 N/A
WTCR-FM* N/A Country Persons 25-54 N/A
WIRO-AM* N/A Sports Men 25-54 N/A
WHRD-AM*(L) N/A Sports Men 25-54 N/A
WZZW-AM* N/A Sports Men 25-54 N/A
WKEE-AM* N/A Big Band Persons 35+ N/A
WKEE-FM* N/A Adult Contemporary Persons 25-54 N/A
WAMX-FM* N/A Rock Men 25-54 N/A
WFXN-FM* N/A Classic Rock Men 25-54 N/A
WBVB-FM* N/A Oldies Men 18-49 N/A
Waco, TX............ 158 KBRQ-FM* N/A Classic Rock Men 25-54 N/A
KKTK-AM* N/A Sports Men 18-49 N/A
WACO-FM* N/A Country Persons 25-54 N/A
KCKR-FM* N/A New Country Persons 18-49 N/A
KWTX-FM* N/A Top 40 Women 25-54 N/A
KWTX-AM* N/A News/Talk Persons 25-54 N/A
Asheville, NC....... 159 WWNC-AM* N/A Country Persons 25-54 N/A
WKSF-FM* N/A Country Persons 25-54 N/A
Amarillo, TX........ 160 KMML-FM**(L) N/A Country Persons 25-54 N/A
KNSY-FM**(L) N/A Absolute Rock Persons 25-54 N/A
KBUY-FM**(L) N/A Contemporary Hits Radio Persons 18-34 N/A
KIXZ-AM**(L) N/A Nostalgia Persons 18-34 N/A
Wheeling, WV........ 164 WWVA-AM* N/A Talk/Country Persons 25-54 N/A
WOVK-FM* N/A Country Persons 25-54 N/A
WKWK-FM* N/A Lite Rock Persons 25-54 N/A
WBBD-AM* N/A Nostalgia Persons 25-54 N/A
WZNW-FM* N/A Hot Adult Contemporary Persons 25-54 N/A
WEGW-FM* N/A Classic Rock Persons 25-54 N/A
WEEL-FM*(J) N/A Oldies Persons 25-54 N/A
Alexandria, LA...... N/A KRRV-FM** N/A Country Persons 25-54 N/A
KKST-FM** N/A Adult Contemporary Persons 18-34 N/A
KZMZ-FM** N/A Quality Rock Persons 18-34 N/A
KDBS-AM** N/A News/Talk Persons 25-54 N/A
Biloxi, MS.......... N/A WKNN-FM* N/A Country Persons 25-54 N/A
WMJY-FM* N/A Adult Contemporary Persons 25-54 N/A
Fairbanks, AK....... N/A KIAK-FM* N/A Country Persons 25-54 N/A
KIAK-AM* N/A News/Talk Persons 25-54 N/A
KAKQ-FM* N/A Adult Contemporary Persons 25-54 N/A
KKED-FM* N/A Active Rock Persons 25-54 N/A
Farmington, NM...... N/A KKFG-FM* N/A Country Persons 25-54 N/A
KDAG-FM* N/A Classic Rock Men 25-64 N/A
KCQL-AM* N/A Oldies/Talk Persons 35+ N/A
KTRA-FM* N/A Country Persons 18-49 N/A
Fayetteville, AR.... N/A KEZA-FM* N/A Soft Adult Contemporary Women 35-64 N/A
KKIX-FM* N/A Country Persons 25-54 N/A
KMXF-FM* N/A Hot Adult Contemporary Persons 25-54 N/A
KJEM-FM* N/A Classic Rock Persons 25-54 N/A
Frederick, MD....... N/A WFRE-FM* N/A Country Persons 25-54 N/A
WFMD-AM* N/A News/Talk Persons 35-54 N/A
</TABLE>
42
<PAGE> 53
<TABLE>
<CAPTION>
RANKING OF
STATION STATION RANKING
MARKET BY AUDIENCE TARGET IN TARGET
MARKET(1) REVENUE(2) STATION SHARE(%)(3) STATION FORMAT DEMOGRAPHICS DEMOGRAPHICS(4)
--------- ---------- ------- ----------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Ft. Pierce/Stuart/
Vero Beach, FL.... N/A WZZR-FM* N/A Classic Rock Men 18-49 N/A
WQOL-FM* N/A Oldies Persons 25-54 N/A
WAVW-FM* N/A Adult Contemporary Persons 25-54 N/A
WBBE-FM* N/A Country Persons 25-54 N/A
WAXE-AM* N/A News/Talk/Sports Persons 35+ N/A
Ft. Smith, AR....... N/A KWHN-AM* N/A News/Talk Persons 35-54 N/A
KMAG-FM* N/A Country Persons 33-54 N/A
KZBB-FM* N/A Contemporary Hits Persons 25-54 N/A
Gadsden, AL......... N/A WAAX-AM* N/A News/Talk Persons 35+ N/A
WGMZ-FM**(L) N/A Nostalgia Persons 35-64 N/A
Jackson, TN......... N/A WTJS-AM* N/A News/Talk Persons 35-64 N/A
WTNV-FM* N/A Country Persons 25-54 N/A
WYNU-FM* N/A Classic Rock Persons 25-54 N/A
Killeen, TX......... N/A KIIZ-FM* N/A Urban Persons 25-54 N/A
KLFX-FM*(J) N/A Album Oriented Rock Persons 18-34 N/A
Lawton, OK.......... N/A KLAW-FM* N/A Country Persons 25-54 N/A
KZCD-FM* N/A Rock Men 25-54 N/A
Lufkin, TX.......... N/A KYKS-FM* N/A Country Persons 12+ N/A
KAFX-FM* N/A Adult Contemporary Persons 18-49 N/A
KTBQ-FM* N/A Classic Rock Persons 18-34 N/A
KSFA-AM* N/A News/Talk/Sports Persons 25-54 N/A
Melbourne/Titusville/
Cocoa Beach, FL... N/A WMMB-AM* N/A Nostalgia Persons 35-64 N/A
WBVD-FM* N/A Classic Rock Persons 35-64 N/A
WMMV-AM* N/A Nostalgia Persons 50+ N/A
WLRQ-FM* N/A Adult Contemporary Persons 25-54 N/A
WHKR-FM* N/A Country Persons 25-54 N/A
Ogallala, NE........ N/A KOGA-FM* N/A Adult Contemporary Persons 25-54 N/A
KOGA-AM* N/A Adult Standards Persons 35-64 N/A
KMCX-FM* N/A Country Persons 25-54 N/A
Puerto Rico......... N/A WZNT-FM N/A Oldies/Classic Music Men 18-49 N/A
WOYE-FM N/A Top 40 Persons 12-24 N/A
WCOM-FM N/A Top 40 Persons 12-24 N/A
WOQI-FM N/A Top 40 Persons 12-24 N/A
WCTA-FM N/A Oldies/Classic Music Men 18-49 N/A
WIOA-FM N/A Continuous Favorite Women 18-49 N/A
Ballads/Today's Hits
WIOB-FM N/A Continuous Favorite Women 18-49 N/A
Ballads/Today's Hits
WIOC-FM N/A Continuous Favorite Women 18-49 N/A
Ballads/Today's Hits
Richland/
Kennewick/
Pasco, WA......... N/A KALE-AM** N/A Oldies Persons 35-64 N/A
KEGX-FM** N/A Classic Rock Persons 25-54 N/A
KIOK-FM** N/A Top 40 Persons 18+ N/A
KTCR-AM** N/A News/Talk Persons 35-64 N/A
KNLT-FM**(L) N/A Oldies Persons 25-54 N/A
KUJ-FM**(L) N/A Talk Persons 25-54 N/A
Stamford/Norwalk, N/A WNLK-AM* N/A News/Talk Persons 35+ N/A
CT................
WEFX-FM* N/A Classic Hits Women 18-49 N/A
WSTC-AM* N/A News/Talk Persons 35-54 N/A
WKHL-FM* N/A Oldies Persons 35-64 N/A
</TABLE>
43
<PAGE> 54
<TABLE>
<CAPTION>
RANKING OF
STATION STATION RANKING
MARKET BY AUDIENCE TARGET IN TARGET
MARKET(1) REVENUE(2) STATION SHARE(%)(3) STATION FORMAT DEMOGRAPHICS DEMOGRAPHICS(4)
--------- ---------- ------- ----------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Statesville, NC..... N/A WFMX-FM* N/A Country Persons 25-54 N/A
WSIC-AM* N/A News/Talk Persons 35-64 N/A
Texarkana, TX....... N/A KKYR-AM* N/A Country Persons 35-64 N/A
KKYR-FM* N/A Country Persons 25-54 N/A
KTHN-FM* N/A Pop Top 40 Persons 18-34 N/A
KYGL-FM* N/A Classic Rock Persons 25-54 N/A
Tuscaloosa, AL...... N/A WACT-AM* N/A Gospel Persons 25-54 N/A
WRTR-FM* N/A Classic Rock Persons 25-54 N/A
WTXT-FM* N/A Country Persons 25-54 N/A
WZBQ-FM* N/A Contemporary Hits Persons 18-34 N/A
Tyler, TX........... N/A KNUE-FM* N/A Country Persons 25-54 N/A
KISX-FM* N/A Adult Contemporary Persons 18-34 N/A
KTYL-FM* N/A Adult Contemporary Women 30-54 N/A
KKTX-AM*(L) N/A Classic Rock Men 30-49 N/A
KKTX-FM*(L) N/A Classic Rock Men 18-49 N/A
Victoria, TX........ N/A KIXS-FM* N/A Country Persons 25-54 N/A
KLUB-FM* N/A Classic Rock Persons 25-49 N/A
Winchester, VA...... N/A WUSQ-FM* N/A Country Persons 25-54 N/A
WFQX-FM* N/A Contemporary Hits Persons 25-54 N/A
WNTW-AM* N/A News/Sports/Talk Persons 25-64 N/A
Yuma, AZ............ N/A KYJT-FM * N/A Classic Rock Persons 25-49 N/A
KTTI-FM* N/A Country Persons 25-54 N/A
KBLU-AM* N/A News/Talk/Sports Persons 35-64 N/A
</TABLE>
- -------------------------
N/A: Not available
+ Indicates station to be disposed of by Chancellor Media in a pending
transaction.
* Indicates station currently owned by Capstar and to be acquired by
Chancellor Media in the Capstar merger.
** Indicates station to be acquired by Capstar in a pending transaction of
Capstar.
*** Indicates station to be acquired by Chancellor Media in a pending
transaction.
(J) Indicates a station that Capstar provides certain sales and marketing
services to pursuant to a joint sales agreement.
(L) Indicates a station that Capstar provides certain sales, programming and
marketing services to pursuant to an LMA.
(1) Actual city of license may differ from metropolitan market served in
certain cases.
(2) Ranking of principal radio market served by the station among all U.S.
radio broadcast markets by aggregate 1997 gross radio broadcasting revenue
as reported by James H. Duncan, Duncan's Radio Market Guide (1998 ed.).
(3) Information derived from The Arbitron Company, Fall 1998, Local Market
Reports in the specified markets for listeners age 12 and over, Monday to
Sunday, 6:00 a.m. to Midnight. Copyright, The Arbitron Company.
44
<PAGE> 55
(4) Information derived from The Arbitron Company, Summer 1998, Local Market
Reports in the specified markets for the Target Demographics specified for
listening Monday to Sunday, 6:00 a.m. to Midnight. Copyright, The Arbitron
Company.
(5) Programming provided to KNEW-AM via simulcast of programming broadcast on
KIOI-FM.
(6) Programming provided to KQUE-AM via simulcast of programming broadcast on
KKRW-FM.
(7) KFAN-AM and KFXN-AM are sold in combination.
(8) Programming provided to KISO-AM via simulcast of programming broadcast on
KMLE-FM.
(9) WUBE-FM and WYGY-FM are sold in combination.
(10) Programming provided to WWSW-AM via simulcast of programming broadcast on
WWSW-FM.
(11) The Company sells airtime on WVCG-AM to third parties for broadcast of
specialty programming on a variety of topics.
(12) Nassau/Suffolk (Long Island) may be considered part of the greater New
York market, although it is reported separately as a matter of convention.
45
<PAGE> 56
LICENSING AND OWNERSHIP ISSUES RELATING TO FEDERAL REGULATION OF THE RADIO
BROADCASTING INDUSTRY
Licenses. The radio broadcasting industry is subject to extensive regulation by
the FCC under the Communications Act of 1934, as amended. Approval of the FCC is
required for the issuance, renewal or transfer of radio broadcast station
operating licenses, including licenses involved in many of our Pending
Transactions. Chancellor Media's business is dependent upon its ability to hold
radio broadcasting licenses from the FCC that are issued for terms of up to
eight years. FCC regulation of licenses presents the following issues for
Chancellor Media:
- - although the vast majority of licenses are routinely renewed by the FCC, there
can be no assurance that any of the stations' licenses will be renewed at
their expiration dates; and
- - if renewals are granted, the FCC may include conditions and qualifications
that could adversely affect operations.
Moreover, the laws, policies and regulations of the FCC may change significantly
over time and there can be no assurance that those changes will not have a
negative effect on Chancellor Media's business.
Ownership. The Communications Act and the FCC rules impose specific limits on
the number of commercial radio stations an entity can own in a single market.
These rules preclude Chancellor Media from acquiring certain stations it might
otherwise seek to acquire. The rules also effectively prevent Chancellor Media
from selling stations in a market to a buyer that has reached its ownership
limit in the market. The ownership rules are as follows:
- - in markets with 45 or more commercial radio stations, ownership is limited to
eight stations, no more than five of which can be either AM or FM;
- - in markets with 30 to 44 commercial radio stations, ownership is limited to
seven stations, no more than four of which can be either AM or FM;
- - in markets with 15 to 29 commercial radio stations, ownership is limited to
six stations, no more than four of which can be either AM or FM; and
- - in markets with 14 or fewer commercial radio stations, ownership is limited to
five stations or no more than 50% of the market's total, whichever is lower,
and no more than three of which can be either AM or FM.
Under the FCC's ownership attribution rules, interests held by Chancellor Media
officers, directors and certain voting stockholders in broadcast stations not
owned by Chancellor Media must be counted as if they were owned by Chancellor
Media for purposes of applying the FCC's multiple ownership rules. Three of
Chancellor Media's directors (Thomas O. Hicks, Lawrence D. Stuart, Jr., and
Michael J. Levitt) are directors of Capstar and Thomas O. Hicks is the
controlling stockholder of Capstar, which presently owns or proposes to acquire
more than 340 radio stations serving 82 mid-sized markets throughout the United
States and which Chancellor Media has recently agreed to acquire in a reverse
merger acquisition. Because Chancellor Media and Capstar have common
46
<PAGE> 57
directors and a common attributable stockholder, in markets where both companies
own radio stations (e.g., Dallas) those stations are currently deemed to be
commonly owned for purposes of applying the local radio ownership limits.
Similarly, because Capstar and LIN have a common attributable stockholder (Mr.
Hicks) and common directors (Messrs. Hicks, Stuart and Levitt), and because
Capstar operates radio stations in certain markets where LIN operates television
stations, those operations require an FCC waiver of the rule that normally
prohibits the same owner from owning a television station and a radio station in
the same market (the "one-to-a-market" rule).
To date, all required one-to-a-market waivers in regard to LIN and Capstar
overlap have been obtained. The FCC is considering changes to its
one-to-a-market rule and waiver policy and to its ownership attribution rules.
It is possible, but not at all certain, that revised regulations could require
Chancellor Media to divest its interests in some stations in order to comply
with a more restrictive limit on radio-television cross-ownership in the same
market regardless of whether the LIN acquisition is completed. In general, there
can be no assurance that the FCC's existing rules or any newly adopted rules
will not have a negative effect on Chancellor Media's future acquisition
strategy or on its business, financial condition and results of operations. See
also "LIN -- Licensing, Ownership and LMA Issues Relating to Federal Regulation
of the Television Broadcasting Industry."
Finally, the FCC has recently issued public notices suggesting that it may have
concerns about radio station acquisitions that would give the acquiring party an
excessive share of the radio advertising revenues in a given market or would
otherwise result in excessive concentration of ownership. It is not clear how
the FCC will proceed in this area or how any policy it may adopt will interact
with the review of similar issues by the DOJ and the FTC.
OUTDOOR ADVERTISING
The following table sets forth selected information with respect to the
portfolio of outdoor displays that were owned by Chancellor Media as of January
31, 1999 (subject to divestitures required by the DOJ described below).
<TABLE>
<CAPTION>
TOTAL
DISPLAYS
--------
<S> <C>
MARTIN MEDIA:
Los Angeles (North), CA..................................... 877
Washington, D.C............................................. 297
San Diego/El Centro, CA..................................... 275
Pittsburgh, PA.............................................. 3,563
Cincinnati, OH.............................................. 814
Kansas City, MO............................................. 165
Riverside/San Bernardino, CA................................ 357
Hartford, CT................................................ 414
Las Vegas, NV............................................... 987
Scranton/Wilkes-Barre, PA................................... 992
Bakersfield/Visalia, CA..................................... 1,584
Lubbock, TX................................................. 680
</TABLE>
47
<PAGE> 58
<TABLE>
<CAPTION>
TOTAL
DISPLAYS
--------
<S> <C>
Odessa/Midland, TX.......................................... 704
Topeka, KS.................................................. 841
Amarillo, TX................................................ 1,053
Charlottesville, VA......................................... 43
San Angelo, TX.............................................. 252
Bullhead/Laughlin, NV....................................... 355
Roanoke, VA................................................. 255
Yuma, AZ.................................................... 222
Abilene, TX................................................. 434
Sharon, PA.................................................. 216
Lawrence, KS................................................ 54
------
Total............................................. 15,434
======
WHITECO:
Central (Terre Haute, IN)................................... 1,755
Southwestern (Dallas, TX)................................... 1,742
Southeastern (Atlanta, GA).................................. 862
Providence, RI.............................................. 726
Western (St. Joseph, MO).................................... 2,866
Ohio (Columbus, OH)......................................... 1,294
Florida (Ocala, FL)......................................... 2,830
Milwaukee, WI............................................... 1,177
South Atlantic (Rocky Mt., NC).............................. 1,618
Harrisburg, PA.............................................. 1,301
Tyler, TX................................................... 1,758
Chicago, IL/Northwest, IN................................... 2,914
Evansville, IN.............................................. 1,087
Albany, NY.................................................. 682
------
Total............................................. 22,612
======
OTHER:
Denver, CO.................................................. 1,155
Las Vegas, NV............................................... 1,849
Rhode Island................................................ 300
------
Total............................................. 3,304
======
Grand Total....................................... 41,350+
======
</TABLE>
- -------------------------
+ In connection with its outdoor acquisitions, Chancellor Media and the DOJ
entered into consent decrees whereby Chancellor Media has agreed to divest
approximately 380 billboards in certain of the markets described in these
tables. Chancellor Media expects to try to enter into swap transactions with
billboards in other markets to effect such divestitures and, as a result, does
not anticipate the grand total of displays to change materially at this time.
48
<PAGE> 59
EMPLOYEES
Chancellor Media has approximately 5,800 full-time employees and approximately
1,000 part-time employees. Some of Chancellor Media's employees in New York, Los
Angeles, Chicago, San Francisco, Washington, D.C., Philadelphia, Detroit,
Pittsburgh and Cincinnati, approximately 360 employees, are represented by
unions. Chancellor Media believes that it has good relations with its employees
and these unions.
Chancellor Media employs several high-profile on-air personalities who have
large, loyal audiences in their respective markets. Chancellor Media believes
that its relationships with its on-air talent are valuable, and it generally
enters into employment agreements with these individuals.
PROPERTIES
Chancellor Media's corporate headquarters is in Dallas, Texas. The types of
properties required to support each of Chancellor Media's existing or to be
acquired radio stations include offices, studios, transmitter sites and antenna
sites. A radio station's studio is generally housed with its office in a
downtown or business district. A station's transmitter sites and antenna sites
generally are located in a manner that provides maximum market coverage.
The studios and offices of Chancellor Media's radio stations and its corporate
headquarters are located in leased or owned facilities. The terms of these
leases expire generally in one to ten years. Chancellor Media either owns or
leases its transmitter and antenna sites. These leases have expiration dates
that range generally from one to eight years.
Chancellor Media does not anticipate any difficulties in renewing those leases
that expire within the next several years or in leasing other space, if
required.
Katz operates out of approximately 54 separate locations throughout the United
States.
Chancellor Outdoor Group operates out of approximately 32 separate locations
throughout the United States.
No one property is material to Chancellor Media's overall operations. Chancellor
Media believes that its properties are in good condition and suitable for its
operations. Chancellor Media owns substantially all of the equipment used in its
radio broadcasting business.
LEGAL PROCEEDINGS
In July 1998, a stockholder derivative action was commenced in the Delaware
Court of Chancery by a stockholder purporting to act on behalf of Chancellor
Media. The defendants in the case include Hicks Muse, LIN Television and some of
Chancellor Media's directors. The plaintiff alleges that, among other things:
- - Hicks Muse allegedly caused Chancellor Media to pay too high of a price for
LIN because Hicks Muse had allegedly paid too high of a price when it acquired
LIN; and
- - the transaction therefore allegedly constitutes a breach of fiduciary duty and
a waste of corporate assets by Hicks Muse, which is alleged to control
Chancellor Media, and the directors of Chancellor Media named as defendants.
49
<PAGE> 60
The plaintiff seeks to enjoin consummation or rescission of the transaction,
compensatory damages, an order requiring that the directors named as defendants
"carry out their fiduciary duties," and attorneys' fees and other costs.
Plaintiff, defendants and Chancellor Media have agreed to settle the lawsuit.
The settlement is subject to a number of conditions, including preparing and
finalizing definitive documentation and approval by the court. In connection
with this settlement:
- - Hicks Muse and its affiliates agreed to vote all shares of Chancellor Media
common stock that they control in favor of and opposed to the approval and
adoption of the merger agreement in the same percentage as the other
stockholders of Chancellor Media vote at the special meeting of stockholders
called for that purpose; and
- - Chancellor Media agreed to pay legal fees of $480,000 and documented expenses
of up to $20,000.
In connection with settlement discussions, Chancellor Media and LIN provided
counsel for the plaintiff an opportunity to review and comment on the disclosure
in this joint proxy statement/prospectus.
In September 1998, a stockholder class action complaint was filed in the
Delaware Court of Chancery by a stockholder purporting to act individually and
on behalf of all other persons, other than defendants, who own securities of
Chancellor Media and are similarly situated. The defendants in the case are
named as Chancellor Media, Hicks Muse, Thomas O. Hicks, Jeffrey A. Marcus, James
E. de Castro, Eric C. Neuman, Lawrence D. Stuart, Jr., Steven Dinetz, Thomas J.
Hodson, Perry Lewis, John H. Massey and Vernon E. Jordan, Jr. The plaintiff
alleges breach of fiduciary duties, gross mismanagement, gross negligence or
recklessness, and other matters relating to the defendants' actions in
connection with the proposed Capstar merger. The plaintiff seeks to certify the
complaint as a class action, enjoin consummation of the Capstar merger, order
defendants to account to plaintiff and other alleged class members for damages,
and award attorneys' fees and other costs. Chancellor Media believes that the
lawsuit is without merit and intends to vigorously defend the action.
On July 10, 1998, Chancellor Media entered into an agreement to acquire a 50%
economic interest in Grupo Radio Centro, S.A. de C.V., an owner and operator of
radio stations in Mexico, for approximately $120.5 million in cash and $116.5
million in Chancellor Media common stock. On October 15, 1998, Chancellor Media
announced that it had provided notice to Grupo Radio that it was terminating the
acquisition agreement in accordance with its terms. Chancellor Media has
received notice from Grupo Radio requesting arbitration under the terms of the
acquisition agreement of allegations that Chancellor Media wrongfully terminated
that agreement. Chancellor Media believes that it had a proper basis for
terminating the agreement in accordance with its terms and intends to contest
these allegations vigorously.
Chancellor Media is also involved in various other claims and lawsuits which are
generally incidental to its business. Chancellor Media is vigorously contesting
all of these matters and believes that their ultimate resolution will not have a
material adverse effect on its consolidated financial position or results of
operations.
50
<PAGE> 61
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
General
Chancellor Media's results of operations from period to period have not
historically been comparable because of the impact of the various acquisitions
and dispositions that Chancellor Media has completed. For a description of the
transactions completed by the Company during 1997 and to date in 1998, see "The
Companies -- Chancellor Media -- Recent Developments."
In the following analysis, management discusses Chancellor Media's broadcast
cash flow. The performance of a radio station group is customarily measured by
its ability to generate broadcast cash flow. The two components of broadcast
cash flow are gross revenues, net of agency commissions, and operating expenses,
excluding depreciation and amortization, corporate general and administrative
expense and non-cash and non-recurring charges. The primary source of revenues
is the sale of broadcasting time for advertising. Chancellor Media'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. Chancellor Media strives to control these
expenses by working closely with local station management. Chancellor Media's
revenues vary throughout the year. As is typical in the radio broadcasting
industry, Chancellor Media's first calendar quarter generally produces the
lowest revenues, and the fourth quarter generally produces the highest revenues.
Although broadcast cash flow is not calculated in accordance with generally
accepted accounting principles, Chancellor Media believes that it is widely used
as a measure of operating performance. Nevertheless, this measure should not be
considered in isolation or as a substitute for operating income, cash flows from
operating activities or any other measure for determining Chancellor Media's
operating performance or liquidity that is calculated in accordance with
generally accepted accounting principles. Broadcast cash flow does not take into
account Chancellor Media'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 Chancellor Media's business or
other discretionary uses. Not all companies calculate broadcast cash flow in the
same fashion and therefore Chancellor Media's broadcast cash flow information
may not be comparable to similarly titled information of other companies.
Nine Months Ended September 30, 1998 Compared To Nine Months Ended September 30,
1997
Chancellor Media's results of operations for the nine months ended September 30,
1998 are not comparable to the results of operations for the nine months ended
September 30, 1997 due to the impact of the merger with Chancellor Broadcasting
Company, the acquisition of Viacom, the acquisition of Katz, the acquisition of
Martin and various other acquisitions and dispositions discussed in "The
Companies -- Chancellor Media -- Recent Developments."
Net revenues for the nine months ended September 30, 1998 increased 169.8% to
$899.1 million compared to $333.3 million for the nine months ended September
30, 1997. Operating expenses excluding depreciation and amortization for the
nine months ended
51
<PAGE> 62
September 30, 1998 increased 166.3% to $491.9 million compared to $184.7 million
for the nine months ended September 30, 1997. Operating income excluding
depreciation and amortization, corporate general and administrative expense and
non-cash and non-recurring charges, referred to as broadcast cash flow, for the
nine months ended September 30, 1998 increased 174.1% to $407.2 million compared
to $148.6 million for the nine months ended September 30, 1997. The increase in
net revenues, operating expenses, and broadcast cash flow for the nine months
ended September 30, 1998 was primarily attributable to the net impact of the
merger with Chancellor Broadcasting Company, the acquisition of Viacom, the
acquisition of Katz, the acquisition of Martin and the various acquisitions and
dispositions discussed elsewhere herein, in addition to the overall net
operational improvements realized by Chancellor Media.
Depreciation and amortization for the nine months ended September 30, 1998
increased 202.5% to $315.8 million compared to $104.4 million for the nine
months ended September 30, 1997. The increase is primarily due to the impact of
the merger with Chancellor Broadcasting Company, the acquisition of Viacom, the
acquisition of Katz and the acquisition of Martin, as well as other acquisitions
completed during 1997 and to date in 1998.
Corporate general and administrative expenses for the nine months ended
September 30, 1998 increased 116.3% to $25.2 million compared to $11.6 million
for the nine months ended September 30, 1997. The increase is due to the growth
of Chancellor Media, and the related increase in properties and staff, primarily
due to recent acquisitions.
The executive severance charge of $59.5 million for the nine months ended
September 30, 1998 represents a one-time charge incurred in connection with the
resignation of Scott K. Ginsburg as President and Chief Executive Officer of
Chancellor Media.
As a result of the above factors, Chancellor Media realized operating income of
$6.7 million for the nine months ended September 30, 1998 compared to $32.5
million of operating income for the nine months ended September 30, 1997.
For the nine months ended September 30, 1998, Chancellor Media recorded a gain
on disposition of representation contracts of $29.8 million related to its media
representation operations. Chancellor Media entered into the media
representation business with the acquisition of Katz on October 28, 1997.
Interest expense, net for the nine months ended September 30, 1998 increased
201.3% to $135.7 million compared to $45.0 million for the same period in 1997.
The net increase in interest expense was primarily due to:
- - additional bank borrowings under the senior credit facility required to
finance the various acquisitions discussed elsewhere offset by repayment of
borrowings from the net proceeds of Chancellor Media's various radio station
dispositions and the 1998 equity offering;
- - the assumption of Chancellor Radio Broadcasting Company's 9 3/8% Senior
Subordinated Notes due 2004 (the "9 3/8% Notes") and 8 3/4% Senior
Subordinated Notes due 2007 (the "8 3/4% Notes") upon consummation of the
merger with Chancellor Broadcasting Company on September 5, 1997;
- - the assumption of Katz' 10 1/2% Senior Subordinated Notes due 2007 (the
"10 1/2% Notes") upon consummation of the acquisition of Katz on October 28,
1997 and;
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- - the issuance of the 8 1/8% Senior Subordinated Notes due 2007 (the "8 1/8%
Notes") by CMCLA on December 22, 1997.
For the nine months ended September 30, 1997, other income of $18.4 million
represents a gain on the disposition of assets related to the dispositions of
WNKS-FM in Charlotte ($3.5 million), WPNT-FM in Chicago ($0.5 million), WEJM-FM
in Chicago ($9.3 million), the FCC authorizations and selected transmission
equipment previously used in the operation of KYLD-FM in San Francisco ($1.7
million) and WEJM-AM in Chicago ($3.4 million). For the nine months ended
September 30, 1998, other income represents a gain from the WFLN Settlement of
$3.6 million and a gain on disposition of assets of $123.8 million related to
the exchange of WTOP-AM and WGMS-FM in Washington and KZLA-FM in Los Angeles
plus $63,000 in cash for WBIX-FM in New York, KLDE-FM in Houston and KBIG-FM in
Los Angeles.
The income tax expense for the nine months ended September 30, 1998 is comprised
of current federal and state tax expense.
Dividends on preferred stock of CMCLA were $17.6 million for the nine months
ended September 30, 1998, which represent dividends on CMCLA's 12% exchangeable
preferred stock for the period from January 1, 1998 through May 13, 1998 and on
CMCLA's 12 1/4% series A senior cumulative exchangeable preferred stock for the
period from January 1, 1998 to July 23, 1998, each issued in September 1997 as
part of the merger with Chancellor Broadcasting Company. On May 13, 1998, CMCLA
exchanged all shares of the 12% exchangeable preferred stock for its 12%
Subordinated Exchange Debentures due 2009 and on July 23, 1998, CMCLA exchanged
all shares of the 12 1/4% series A cumulative exchangeable preferred stock for
its 12 1/4% Subordinated Exchange Debentures due 2008. The 12% Subordinated
Exchange Debentures due 2009 and 12 1/4% Subordinated Exchange Debentures due
2008 were subsequently repurchased by CMCLA.
For the nine months ended September 30, 1997, Chancellor Media recorded an
extraordinary charge of $4.4 million, net of a tax benefit of $2.3 million,
consisting of the write-off of the unamortized balance of deferred debt issuance
costs related to the amendment and restatement of CMCLA's senior credit facility
on April 25, 1997. For the nine months ended September 30, 1998, Chancellor
Media recorded an extraordinary charge of $47.1 million, net of a tax benefit of
$25.4 million consisting of the premiums, estimated transaction costs and the
write-off of the unamortized balance of deferred debt issuance costs in
connection with the tender offer for the 12% Subordinated Exchange Debentures
due 2009 and the tender offer for the 12 1/4% Subordinated Exchange Debentures
due 2008.
Dividends on Chancellor Media's preferred stock were $19.3 million for the nine
months ended September 30, 1998 compared to $5.7 million for the same period in
1997. The increase is due to dividends on the Chancellor Media $3.00 convertible
exchangeable preferred stock issued in June 1997 and dividends on the Chancellor
Media 7% convertible preferred stock issued in September 1997 as part of the
merger with Chancellor Broadcasting Company.
As a result of the above factors, Chancellor Media incurred a $88.3 million net
loss attributable to common stockholders for the nine months ended September 30,
1998 compared to a net loss attributable to common stockholders of $12.2 million
for the nine months ended September 30, 1997.
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The basic and diluted loss per common share for the nine months ended September
30, 1998 was $0.65 compared to $0.14 for the nine months ended September 30,
1997.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Chancellor Media's results of operations for the year ended December 31, 1997
are not comparable to the results of operations for the year ended December 31,
1996 due to the impact of the merger with Chancellor Broadcasting Company, the
acquisition of Viacom, the acquisition of Katz and various other station
acquisitions and dispositions discussed in "The Companies -- Chancellor
Media -- Recent Developments."
Net revenues for the year ended December 31, 1997 increased 98.1% to $582.1
million compared to $293.9 million for the year ended December 31, 1996.
Operating expenses excluding depreciation and amortization for 1997 increased
81.4% to $316.2 million compared to $174.3 million in 1996. Operating income
excluding depreciation and amortization, corporate general and administrative
expense and other non-cash and non-recurring charges, referred to as broadcast
cash flow, for 1997 increased 122.4% to $265.8 million compared to $119.5
million in 1996. The increase in net revenues, operating expenses, and broadcast
cash flow was primarily attributable to the net impact of the various
acquisitions and dispositions discussed elsewhere, in addition to the overall
net operational improvements realized by Chancellor Media.
Depreciation and amortization for 1997 increased 98.4% to $186.0 million
compared to $93.7 million in 1996. The increase is primarily due to the impact
of the various acquisitions and dispositions discussed elsewhere.
Corporate general and administrative expenses for 1997 increased 175.0% to $21.4
million compared to $7.8 million in 1996. The increase is due to the growth of
Chancellor Media, and related increase in properties and staff, primarily due to
recent acquisitions.
As a result of the above factors, operating income for 1997 increased 225.2% to
$58.4 million compared to $18.0 million in 1996.
Interest expense for 1997 increased 126.6% to $85.0 million compared to $37.5
million in 1996. The net increase in interest expense was primarily due to:
- - additional bank borrowings under the senior credit facility required to
finance the various acquisitions discussed elsewhere offset by repayment of
borrowings from the net proceeds of Chancellor Media's various radio station
dispositions;
- - the assumption of the 9 3/8% Notes and the 8 3/4% Notes upon consummation of
the merger with Chancellor Broadcasting Company on September 5, 1997; and
- - the assumption of the 10 1/2% Notes upon consummation of the acquisition of
Katz on October 28, 1997.
Chancellor Media recorded a gain on disposition of assets of $18.4 million in
1997 related to the dispositions of WNKS-FM in Charlotte ($3.5 million), WPNT-FM
in Chicago ($0.5 million), WEJM-FM in Chicago ($9.3 million), WEJM-AM in Chicago
($3.4 million) and the FCC authorizations and certain transmission equipment
previously used in the operation of KYLD-FM in San Francisco ($1.7 million).
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The provision for income tax expense of $7.8 million for the year ended December
31, 1997 is comprised of current federal and state income taxes of $6.8 million
and $4.8 million, respectively, and a deferred federal income tax benefit of
$3.8 million.
Chancellor Media recorded an extraordinary charge of $4.4 million, net of a tax
benefit of $2.3 million, in 1997, consisting of the write-off of the unamortized
balance of deferred debt issuance costs related to the amendment and restatement
of CMCLA's senior credit facility on April 25, 1997.
Dividends on preferred stock were $12.9 million in 1997, representing dividends
on the 12 1/4% Series A cumulative exchangeable preferred stock and 12%
exchangeable preferred stock issued in September 1997 as part of the merger with
Chancellor Broadcasting Company.
As a result of the above factors, Chancellor Media incurred a $31.7 million net
loss attributable to common stock in 1997 compared to a $16.2 million net loss
in 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Chancellor Media's results of operations for the year ended December 31, 1996
are not comparable to the results of operations for the year ended December 31,
1995 due to the impact of Chancellor Media's acquisition of Pyramid
Communications, Inc. on January 17, 1996 and various other station acquisitions
and dispositions.
Net revenues for the year ended December 31, 1996 increased 80.4% to $293.9
million compared to $162.9 million for the year ended December 31, 1995.
Operating expenses excluding depreciation and amortization for 1996 increased
78.5% to $174.3 million compared to $97.7 million in 1995. Operating income
excluding depreciation and amortization, corporate general and administrative
expense and other non-cash and non-recurring charges, referred to as broadcast
cash flow, for 1996 increased 83.1% or $54.2 million to $119.5 million compared
to $65.3 million in 1995. The increase in net revenues, operating expenses, and
broadcast cash flow was primarily attributable to the impact of various station
acquisitions and dispositions, in addition to the overall net operational
improvements realized by Chancellor Media's radio stations.
Depreciation and amortization for 1996 increased 99.4% to $93.7 million compared
to $47.0 million in 1995. The increase represents additional depreciation and
amortization expenses due to the impact of recent acquisitions, offset by
decreases due to selected intangibles which became fully amortized in 1995 and
1996.
Corporate general and administrative expenses for 1996 increased 74.2% to $7.8
million compared to $4.5 million in 1995. The increase is due to the growth of
Chancellor Media, and related increase in properties and staff, primarily due to
recent acquisitions.
As a result of the above factors, operating income for 1996 increased 30.4% to
$18.0 million compared to $13.8 million in 1995.
Interest expense for 1996 increased 95.4% to $37.5 million compared to $19.2
million in 1995. The net increase in interest expense was primarily due to
additional bank borrowings required to finance the acquisition of Pyramid as
well as the other station acquisitions, offset by repayment of borrowings under
CMCLA's prior senior credit facility from the net
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proceeds of the offering in October 1996 by Chancellor Media of 18,000,000
shares of its common stock, the net proceeds of which Chancellor Media
contributed to CMCLA, and an overall decrease in CMCLA's borrowing rates.
The provision for income tax expense for the year ended December 31, 1996 is
comprised of current federal and state taxes of $.5 million and $1.0 million,
respectively, and a deferred federal income tax benefit of $4.4 million.
As a result of the above factors, Chancellor Media incurred a $16.2 million net
loss attributable to common stockholders in 1996 compared to a $5.9 million net
loss in 1995.
Liquidity and Capital Resources
Overview. Chancellor Media historically has generated sufficient cash flow from
operations to finance its existing operational requirements and debt service
requirements, and Chancellor Media anticipates that this will continue to be the
case. Chancellor Media historically has used the proceeds of bank debt and
private and public debt and equity offerings, supplemented by cash flow from
operations not required to fund operational requirements and debt service, to
fund implementation of Chancellor Media's acquisition strategy.
The total cash financing required to consummate the Pending Transactions is
expected to be $633.4 million. Chancellor Media expects to receive $21.0 million
in cash from the completion of the disposition of WMVP-AM in Chicago.
Accordingly, Chancellor Media will require at least $612.4 million in additional
financing to consummate the Pending Transactions. Although there can be no
assurance, Chancellor Media expects that $69.6 million of such amount will be
required to be borrowed during the first quarter of 1999 for the acquisition of
Pegasus, $90.0 million will be required to be borrowed during the second quarter
of 1999 for the acquisition of Phoenix and the remaining $344.3 million will be
required to be borrowed for the Capstar/SFX Transaction over the three year
period in which the Capstar/SFX Stations will be acquired. In addition,
financing of $129.5 million will be required if the acquisition of Petry is
consummated. Depending on the timing of the consummation of the Pending
Transactions, Chancellor Media may need to obtain additional financing.
Chancellor Media believes that amounts available under the senior credit
facility and the $250.0 million potentially available under the additional
facility indebtedness will be used to finance the remaining Pending Transactions
as well as future acquisitions. The senior credit facility currently provides
for a total commitment of $2.50 billion, consisting of $1.60 billion reducing
revolving credit facility and a $900.0 million term loan facility. Other
potential sources of financing for the Pending Transactions and future
acquisitions include cash flow from operations, additional debt or equity
financings, the sale of non-core assets or a combination of those sources.
In addition to debt service requirements under the senior credit facility,
Chancellor Media is required to pay interest on the existing senior subordinated
notes. Interest payment requirements on the existing senior subordinated notes
are $214.9 million per year. Cash dividend requirements of Chancellor Media on
its $3.00 convertible exchangeable preferred stock and its 7% convertible
preferred stock are $25.7 million per year. Because Chancellor Media is a
holding company with no significant assets other than the common stock of
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Chancellor Mezzanine Holdings Corporation, Chancellor Media will rely solely on
dividends from Chancellor Mezzanine Holdings Corporation, which in turn is
expected to distribute dividends paid to it by CMCLA and other subsidiaries to
Chancellor Media, to permit Chancellor Media to pay cash dividends on the $3.00
convertible exchangeable preferred stock and the 7% convertible preferred stock.
The senior credit facility, the indenture governing the Notes and the indentures
governing the existing senior subordinated notes limit, but do not prohibit,
CMCLA from paying such dividends to Chancellor Mezzanine Holdings Corporation.
Recently-Issued Accounting Principles
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information. This
Statement establishes standards for reporting information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997. Management does
not anticipate that this Statement will have a significant effect on Chancellor
Media's consolidated financial statements.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosure about
Pensions and Other Postretirement Benefits. This Statement revises employers'
disclosures about pensions and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. SFAS No. 132 is effective
for fiscal years beginning after December 15, 1997. Management does not
anticipate that this Statement will have a significant effect on Chancellor
Media's consolidated financial statements.
In April 1998, Accounting Standards Executive Committee ("ACSEC") issued
Statement of Position ("SOP") No. 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5") effective for fiscal years beginning after December 15,
1998. This SOP provides guidance on the financial reporting of start-up costs
and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. Initial application of SOP 98-5
should be reported as the cumulative effect of a change in accounting principle,
as described in Accounting Principles Board (APB) Opinion No. 20, "Accounting
Changes." When adopting this SOP, entities are not required to report the pro
forma effects of retroactive application. Management does not believe the
implementation of SOP 98-5 will have a material impact on Chancellor Media's
consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, collectively referred to as
derivatives, and for hedging activities. SFAS No. 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999. Management
does not anticipate that this Statement will have a material impact on
Chancellor Media's consolidated financial statements.
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Year 2000 Issue
The "Year 2000 Issue" is whether Chancellor Media's computer systems will
properly recognize date sensitive information when the year changes to 2000, or
"00." Systems that do not properly recognize such information could generate
erroneous data or cause a system to fail. Chancellor Media has conducted a
comprehensive review of its computer systems to identify the systems that could
be affected by the Year 2000 Issue and has developed an implementation plan.
Chancellor Media uses purchased software programs for a variety of functions,
including general ledger, accounts payable and accounts receivable accounting
packages. The companies providing these software programs are Year 2000
compliant, and Chancellor Media has received Year 2000 compliance certificates
from these software vendors. Chancellor Media's Year 2000 implementation plan
also includes ensuring that all individual work stations and other equipment
with embedded chips or processors are Year 2000 compliant. Chancellor Media is
in the process of reviewing various modification and replacement plans related
to the recent acquisition of Whiteco and expects to complete its review by early
1999. Costs associated with ensuring that Chancellor Media's existing systems
are Year 2000 compliant and replacing certain existing systems are currently
expected to be approximately $5.1 million, of which $0.3 million has been
incurred to date. These cost estimates are subject to change based on further
analysis, and any change in the costs may be material. Chancellor Media believes
that the Year 2000 Issue will not pose significant operational problems for
Chancellor Media's computer systems and, therefore, will not have a material
impact on the operations of Chancellor Media.
In addition, Chancellor Media reviews the computer systems of companies it
intends to acquire in order to assess whether the systems are Year 2000
compliant. To the extent the systems are not Year 2000 compliant, Chancellor
Media will develop an implementation plan to ensure the systems are Year 2000
compliant or will convert the systems to the Chancellor Media's computer systems
which are Year 2000 compliant. There is no guarantee that the systems of
companies to be acquired by Chancellor Media in the future will be timely
converted and would not have an adverse effect on the operations of Chancellor
Media.
The ability of third parties with whom Chancellor Media transacts business to
adequately address their Year 2000 issues is outside of Chancellor Media's
control. Therefore, there can be no assurance that the failure of such third
parties to adequately address their Year 2000 issues will not have a material
adverse effect on Chancellor Media's business, financial condition, cash flows
and results of operations. Chancellor Media expects to develop contingency plans
intended to mitigate any possible disruption in business that may result from
certain of Chancellor Media's systems or the systems of third parties that are
not Year 2000 compliant.
WHERE YOU CAN FIND MORE INFORMATION ABOUT CHANCELLOR MEDIA
Chancellor Media files annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange Commission (the "SEC").
You may read and copy any reports, statements and other information Chancellor
Media files at the SEC's public reference rooms in Washington, D.C., New York,
New York, and Chicago, Illinois. Please call 1-800-SEC-0330 for further
information on the public reference rooms. Chancellor Media's filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the SEC at http://www.sec.gov.
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Chancellor Media has filed a Registration Statement on Form S-4 to register with
the SEC the Chancellor Media common stock to be issued to LIN stockholders in
the merger. This joint proxy statement/prospectus is part of that Registration
Statement and constitutes a prospectus of Chancellor Media in addition to being
a proxy statement of Chancellor Media for its special meeting of stockholders.
LIN is also using this joint proxy statement/prospectus as a proxy statement for
its special meeting of stockholders. As allowed by the SEC's rules, this joint
proxy statement/prospectus does not contain all of the information you can find
in the Registration Statement or the exhibits to the Registration Statement.
LIN
GENERAL
LIN is a television station group operator in the United States that owns and
operates seven network-affiliated television stations and has an agreement to
purchase an eighth. Additionally, LIN has time brokerage agreements, also known
as local marketing agreements ("LMAs"), under which it programs four other
stations in the markets in which it operates. An LMA is a programming agreement
between two separately owned television stations serving a common service area,
under which the licensee of one station provides substantial portions of the
broadcast programming for airing on the other licensee's station, subject to
ultimate editorial and other controls being exercised by the later licensee, and
sells advertising time during those programming segments.
Eight of LIN's stations are in the top 50 of the November 1998 designated market
area ("DMA") rankings of the Nielsen Station Index. The Nielsen rankings rank
geographically defined television markets in the United States by size according
to various factors based upon actual or potential audience. LIN's top 50 DMAs
include Indianapolis, Indiana; New Haven-Hartford, Connecticut; Buffalo, New
York; Norfolk-Portsmouth, Virginia; and Grand Rapids-Kalamazoo-Battle Creek,
Michigan. These stations have an aggregate United States household reach of
approximately 4.9%.
LIN's television station portfolio is well diversified in terms of network
affiliations, geographic coverage, net revenues and cash flow. LIN owns and
operates, or has agreements to purchase, three CBS affiliates, three NBC
affiliates and two ABC affiliates (collectively, the "LIN Core Stations"), which
accounted for approximately 32%, 40% and 24%, respectively, of LIN's pro forma
broadcast cash flow for the nine months ended September 30, 1998. LIN also
programs four additional network-affiliated television stations pursuant to LMAs
(the "LIN LMA Stations"). The LIN LMA Stations and other revenue sources
accounted for the remaining approximate 4% of LIN's broadcast cash flow on the
same pro forma basis. The LIN Core Stations broadcast in eight different
markets, with no market representing more than 25% of LIN's pro forma net
revenues or broadcast cash flow for the nine months ended September 30, 1998.
Additionally, an indirect subsidiary of LIN holds an approximate 20% equity
interest in the NBC joint venture. The NBC joint venture consists of KXAS-TV, an
NBC affiliate station in Dallas-Fort Worth, and KNSD-TV, an NBC affiliate
station in San Diego, California. NBC operates the stations owned by the NBC
joint venture pursuant to a management agreement. See "Risk Factors -- Potential
Adverse Consequences of Guarantee of NBC Joint Venture Loan" on page .
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LIN (through its subsidiaries) is also the owner and operator of 21 low-power
broadcast stations.
COMPLETED LIN TRANSACTIONS
LIN Holdings Corporation, an indirect wholly-owned subsidiary of LIN and a Hicks
Muse affiliate, LIN Acquisition Corporation, a wholly-owned subsidiary of LIN
Holdings, and LIN Television entered into an Agreement and Plan of Merger on
August 12, 1997. Pursuant to such agreement, on March 3, 1998, LIN Holdings
acquired LIN Television by merging LIN Acquisition, its wholly owned subsidiary,
with and into LIN Television, with LIN Television surviving the merger and
becoming a direct, wholly-owned subsidiary of LIN Holdings. The total purchase
price for the acquisition of LIN Television by Hicks Muse was approximately $2.0
billion which included:
- - the common equity of LIN Television of $1.7 billion,
- - the assumption of long-term debt of LIN Television of $260.2 million,
- - and estimated acquisition costs of $32.2 million.
Furthermore, on March 3, 1998, in connection with the acquisition, Hicks Muse
and NBC formed the NBC joint venture. A wholly-owned subsidiary of NBC is the
general partner of the NBC joint venture and NBC operates the stations owned by
the NBC joint venture. The NBC general partner holds an approximate 80% equity
interest and LIN holds an approximate 20% equity interest in the NBC joint
venture.
PENDING LIN TRANSACTIONS
- - On August 12, 1997, LIN entered into an agreement to acquire from AT&T
Corporation the assets of WOOD-TV and the LMA rights related to WOTV-TV (the
"Grand Rapids Stations"), which are both located in the Grand
Rapids-Kalamazoo-Battle Creek market, for approximately $125.5 million in cash
plus accretion of 8.0%, which commenced on January 1, 1998 (the "Grand Rapids
Acquisition"). An application for FCC approval for the Grand Rapids
Acquisition is currently pending. LIN currently provides services to the Grand
Rapids Stations pursuant to a consulting agreement with AT&T.
- - On August 1, 1998, LIN Television of Texas, L.P., a subsidiary of LIN ("LIN
Texas"), and Southwest Sports Group, Inc. entered into an Asset Purchase
Agreement pursuant to which LIN Texas will assign its purchase option and LMA
rights on KXTX-TV and sell certain assets and liabilities of KXTX-TV to
Southwest Sports Group. In exchange, LIN Texas will receive 500,000 shares of
Southwest Sports Group's series A convertible preferred stock, par value
$100.00 per share. Following the completion of the transactions contemplated
by the Southwest Sports Group agreement, LIN Texas will be entitled to receive
dividends (which accrue from and after January 1, 1999) at the per annum rate
of 6% of par value prior to the payment by Southwest Sports Group of any
dividend in respect of its common stock or any other junior securities. At the
option of Southwest Sports Group, dividends will be payable either in kind or
in cash. LIN Texas will have the right, upon the earlier of:
(1) the third anniversary of the issuance of the Southwest Sports Group
preferred stock; and
(2) an initial public offering of Southwest Sports Group common stock, to
convert its shares of Southwest Sports Group preferred stock into
shares of Southwest Sports
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Group common stock at a conversion rate equal to the par value per
share of the Southwest Sports Group preferred stock (plus accrued and
unpaid dividends thereon) divided by the fair market value per share of
the Southwest Sports Group common stock.
Southwest Sports Group will have the right, at its sole option, to redeem the
Southwest Sports Group preferred stock at a par value, plus accrued and unpaid
dividends thereon, at any time.
- -Also, on August 1, 1998, LIN Texas and Southwest Sports Television, a
subsidiary of Southwest Sports Group, entered into a sub-programming agreement
pursuant to which Southwest Sports Television renders certain services with
respect to KXTX-TV in exchange for a management fee equal to the cash receipts
of the station less operating and other expenses. Subject to the terms of the
Southwest Sports Group agreement and the satisfaction of certain conditions,
including the receipt of National Hockey League and Major League Baseball
approvals and Southwest Sports Group's consummation of certain other business
acquisitions, it is expected that the KXTX-TV purchase option assignment will
be consummated on or about March 31, 1999.
1998 LIN FINANCING TRANSACTIONS
- -On March 3, 1998, LIN Television issued $300 million aggregate principal amount
of 8 3/8% Senior Subordinated Notes due 2008 (the "LIN 8 3/8% Notes") for
estimated net proceeds of $290.3 million (the "LIN 8 3/8% Notes Offering"). The
net proceeds from the LIN 8 3/8% Notes Offering were used to finance a portion
of the acquisition of LIN Television by Hicks Muse.
- -On March 3, 1998, LIN Holdings issued $325 million aggregate principal amount
of 10% Senior Discount Notes due 2008 (the "LIN 10% Notes" and, collectively
with the LIN 8 3/8% Notes, the "LIN Notes") for estimated net proceeds of
$192.6 million (the "LIN 10% Notes Offering"). The net proceeds from the LIN
10% Notes Offering were used to finance a portion of the acquisition of LIN
Television by Hicks Muse.
COMPANY STRATEGY
LIN's business strategy is to maximize its broadcast cash flow through both
revenue growth and the implementation of effective cost controls. To achieve
these goals, LIN seeks, among other things, to:
Maximize Revenue Shares. From 1993 to 1997, LIN increased its broadcast
television advertising revenue market share from 22.8% to 25.9%, assuming the
acquisitions of WIVB-TV and WTNH-TV occurred on January 1, 1993, by targeting
audiences with favorable demographic profiles, creating auxiliary revenue
streams and cultivating strong network affiliations. On the same basis, LIN's
gross advertising revenues have grown at a compound annual rate of 10.3%,
whereas gross advertising revenues in LIN's markets have grown at a compound
annual rate of 6.8%.
LIN attempts to maximize each station's revenue share through a quarterly
"entitlement review process." This process involves the benchmarking of each
station's advertising revenues against an index which weighs various demographic
attributes according to their relative advertising revenue value. As a result of
the entitlement review process, LIN's revenue shares typically outperform its
audience shares.
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LIN's revenue shares also benefit from long term affiliations with its three
core networks -- CBS, NBC and ABC -- which provide LIN's television stations
affiliated with these networks with competitive programming, including coverage
of political events and high profile sporting events such as the Olympic Games,
Super Bowl and NCAA Men's Basketball Tournament. LIN also has stations
affiliated with Fox and WB, which further enhances its ability to grow its
revenue shares through access to their competitive programming.
Emphasize Leading Local News. LIN's Core Stations are ranked number one or two
in late news in all but LIN's smallest market. Management believes that a
successful news operation is critical to the success of a television station
because news audiences generally have the best demographic profiles from an
advertising sales perspective. In addition, news programming:
- - enables LIN to purchase less syndicated programming and thereby maintain tight
control over programming costs;
- - serves as a strong lead-in to other programming; and
- - fosters a high profile in the local community, which is critical to maximizing
local advertising sales.
LIN believes that its local news programming significantly improves its
stations' broadcast cash flow margins. Accordingly, LIN has increased the hours
of news produced per week from 81 in 1989 to 187 in 1997 on a pro forma basis.
Partly as a result of its emphasis on quality local news programming, management
has increased the broadcast cash flow margin at the five network-affiliated
stations that it has operated throughout the period from January 1, 1991 to
December 31, 1997, WISH-TV, WANE-TV, WAND-TV, WAVY-TV and KXAN-TV, from 37% to
47%.
Execute a Multi-Channel Strategy. LIN's management was one of the pioneers of
the "multi-channel strategy," which involves the combination of an owned and
operated television station with an LMA station and/or a Local Weather Station
in the same market. Management has pursued this strategy in all but one of LIN's
markets. Execution of the multi-channel strategy has been a factor in LIN's
ability to generate incremental cash flow. The advantages of the multi-channel
strategy are:
- - the ability to capitalize on management's expertise;
- - additional advertising inventory in each market;
- - greater programming flexibility;
- - enhanced ability to leverage fixed operating costs over a larger revenue base;
- - improved negotiating positions with respect to suppliers of syndicated
programming, advertisers and the networks;
- - increased share of actual viewers;
- - the opportunity to affiliate with the emerging networks; and
- - enhanced opportunities for cross promotion.
Control Costs. In addition to concentrating on maximizing advertising revenues
in its local markets, management focuses on controlling costs to maximize
broadcast cash flow. In many markets, LIN operates with fewer personnel than its
competitors. In addition, management typically buys syndicated programming on a
company-wide basis and
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performs detailed profitability analyses for all programming purchases. As a
result, management believes that LIN's margins are among the highest in the
industry for stations in markets of comparable size.
Pursue Selective Acquisitions. LIN intends to pursue selective acquisitions of
television stations with the goal of improving their operating performance by
applying management's business strategy. Targeted stations generally will share
many of the following characteristics:
- - attractive acquisition terms;
- - opportunities for increased advertising revenue and synergies with the
Chancellor Radio Group;
- - opportunities to implement effective cost controls and accretive on an
after-tax cash flow per share basis;
- - opportunities for increased audience share through improved newscasts and
programming; and
- - market locations that are projected to have attractive growth in advertising
revenues. LIN intends to primarily target network-affiliated stations located
in the 50 largest DMAs, which stations typically have established audiences
for their news, sports and entertainment programming.
Invest in Digital Technology. LIN Management believes that LIN is well
positioned for the transition to digital broadcasting and anticipates that LIN
will be among the first television broadcasters in the United States to transmit
a digital signal. LIN has already invested $13 million to fully prepare its
towers and transmitter buildings for the transition, and estimates that an
additional $40 million will be required over the next five to seven years for
other necessary capital expenditures such as the purchase of antennae,
transmitters, studio equipment and news gathering equipment. In accordance with
FCC regulations, all station affiliates of ABC, CBS, NBC and Fox in the top ten
DMAs will be required to transmit a digital signal by May 1, 1999. Affiliates of
those networks in DMAs ranked eleven through thirty will be required to transmit
a digital signal by November 1, 1999. All remaining commercial broadcasters will
be required to transmit a digital signal by May 1, 2002.
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TELEVISION BROADCASTING
The following table provides information regarding the station and other
programming outlets owned and/or programmed, or under agreement to be acquired,
by LIN, excluding the low-power broadcast stations and satellite stations, and
the stations owned by the NBC joint venture as of December 31, 1998:
<TABLE>
<CAPTION>
COMMERCIAL STATION STATION
DMA, STATIONS AND OTHER DMA STATIONS IN RANK IN AUDIENCE
PROGRAMMING OUTLETS STATUS(a) AFFILIATION RANK(b) DMA(c) DMA(d) SHARE(d)
----------------------- --------- ----------- ------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Company Stations and Other
Programming Outlets:
INDIANAPOLIS, IN
WISH-TV(e).................... O&O CBS 25 8 1 16%
Local Weather Station......... O&O Cable
NEW HAVEN-HARTFORD, CT
WTNH-TV....................... O&O ABC 27 8 2 12%
WBNE-TV....................... LMA WB 5 2%
GRAND RAPIDS-KALAMAZOO-BATTLE
CREEK, MI(F)
WOOD-TV....................... O&O NBC 38 8 2 17%
WOTV-TV....................... LMA ABC 4 4%
NORFOLK-PORTSMOUTH, VA
WAVY-TV....................... O&O NBC 40 7 3 14%
WVBT-TV....................... LMA Fox(g) 5 5%
Local Weather Station......... O&O Cable
BUFFALO, NY
WIVB-TV....................... O&O CBS 42 7 1 20%
AUSTIN, TX
KXAN-TV(h).................... O&O NBC 60 7 2 15%
KNVA-TV....................... LMA WB 5 3%
DECATUR-CHAMPAIGN, IL
WAND-TV....................... O&O ABC 82 8 3 14%
Local Weather Station......... O&O Cable
FORT WAYNE, IN
WANE-TV....................... O&O CBS 103 6 2 19%
Local Weather Station......... O&O Cable
NBC JOINT VENTURE STATIONS:
DALLAS-FORT WORTH, TX
KXAS-TV....................... JV NBC 7 13 3 12%
SAN DIEGO, CA
KNSD-TV....................... JV NBC 26 7 2 11%
</TABLE>
- -------------------------
(a) "O&O" refers to a station owned and operated by LIN. "LMA" refers to a
station programmed by LIN pursuant to a local marketing agreement and with
respect to which LIN has a purchase option exercisable under certain
circumstances. "JV" refers to a station owned by the NBC joint venture and
operated by NBC. The LIN Core Stations, all of which are CBS, NBC and ABC
affiliates, are WISH-TV, WANE-TV, WOOD-TV, WAND-TV, WAVY-TV, KXAN-TV,
WTNH-TV and WIVB-TV.
(b) Rankings are based on the relative size of the station's market among the
211 generally recognized television markets in the United States. Source:
Nielsen Station Index DMA Market Ratings -- November 1998, A.C. Nielsen
Company.
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(c) The number of stations in a market excludes local weather stations, low
power networks and satellite broadcasting facilities.
(d) Source: Nielsen Station Index DMA Market Household Ratings -- November
1998, A.C. Nielsen Company, Sunday-Saturday 6:00 a.m.-2:00 a.m.
(e) Although not shown on the table, station WIIH-LP, Indianapolis, Indiana, is
owned by LIN and operated as a satellite station of WISH-TV in order to
increase WISH-TV's coverage.
(f) LIN currently provides services to WOOD-TV and WOTV-TV pursuant to a
consulting agreement with AT&T. It has agreed to acquire the assets of
WOOD-TV and the LMA rights related to WOTV-TV from AT&T for a purchase
price of approximately $125.5 million. The acquisition is expected to close
by the end of the first fiscal quarter of 1999.
(g) WVBT-TV became a Fox affiliate on August 31, 1998.
(h) Although not shown on the table, station KXAM-TV, Llano, Texas, is owned by
LIN and operated as a satellite station of KXAN-TV in order to increase
KXAN-TV's coverage.
LICENSING, OWNERSHIP AND LMA ISSUES RELATING TO FEDERAL REGULATION OF THE
TELEVISION BROADCASTING INDUSTRY
Licenses. The television broadcasting industry is subject to the same regulation
by the FCC as the radio broadcasting industry regarding the issuance, renewal,
assignment and transfer of station licenses. LIN's business is dependent on its
ability to continue to hold television broadcasting licenses from the FCC, which
are issued for maximum terms of eight years. The vast majority of the licenses
are routinely renewed by the FCC. However, there can be no assurance that LIN's
licenses or licenses owned by the owner-operators of the stations with which LIN
has local marketing agreements, as discussed below, will be renewed upon
expiration.
LIN owns and operates seven network-affiliated television stations and has an
agreement to purchase an eighth. LIN also has LMAs under which it programs four
other stations in the markets in which it operates. In addition, LIN is the
owner and operator of 21 low-power broadcast stations. FCC approval is necessary
before Chancellor Media can acquire control over the LIN television licenses. An
application for FCC approval of a pro forma transfer of control was filed on
December 16, 1998.
Ownership. Under the FCC's duopoly rules, a party may not have attributable
interests in more than one television station in the same market unless a waiver
is granted by the FCC. In addition to the attributable interests in LIN, Hicks
Muse and four of Chancellor Media's directors, Thomas O. Hicks, Lawrence D.
Stuart, Jr., Michael J. Levitt and John H. Massey, have attributable interests
in Sunrise Broadcasting, Inc., which owns or proposes to acquire a number of
television stations in several markets. Any new acquisition that would result in
a LIN station and a Sunrise station providing service to a common area, as
defined by FCC rules, will require a waiver of the duopoly rule, and there can
be no assurance that such a waiver will be granted. In addition, as part of its
multi-channel strategy, LIN enters into LMAs which allow it to program a second
station in the same market through what amounts to a full-station management
agreement with the licensee of that station. Currently, LIN programs four
stations under LMAs, WBNE-TV, WVBT-TV, WOTV-TV and KNVA-TV, which expire at
various times over the next seven years, beginning in the year 2002. Under the
current rules, LIN is prohibited from acquiring the licenses of its LMA
stations, thereby preventing LIN from directly fulfilling its obligations
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to purchase such stations if required by the owner of LIN's LMA stations. If LIN
cannot fulfill its obligations, it would be required to find someone else to do
so, and there can be no assurance that LIN could find someone.
The FCC is currently considering revising its policy regarding television local
marketing agreements. Accordingly, it is unclear whether LIN will be able to
program stations under its existing LMA agreements for the remainder of their
current terms, extend these agreements, or enter into new local marketing
agreements in other markets in which LIN owns or operates television stations.
The material LMA issues facing LIN as a result of the pending rulemaking
proceedings are as follows:
- - The extent to which the FCC may restrict LMAs or make them attributable
ownership interests is unclear;
- - The FCC could make LMAs fully attributable ownership interests, and thus
prohibited, with the exception of waivers for stations meeting specified
criteria;
- - "Grandfathered" LMAs could be limited to the current terms of their agreement
or even shorter periods, and renewal and transfer rights could be eliminated,
including the elimination of "grandfather" status on such LMAs as a result of
the consummation of this merger;
- - The FCC could require LIN to modify their LMAs in ways which impair their
viability; and
- - If the FCC were to find that the owner/licensee of one of LIN's LMA stations
failed to maintain control over its operations, the owner/licensee of the LMA
station and/or LIN could be sanctioned.
LIN cannot predict whether the waivers it has requested will be granted, what
the ultimate outcome of the proposed rule changes will be or what their impact
might be on LIN's broadcasting operations.
As required by FCC rules and policies, all of LIN's LMAs allow the owner/FCC
licensee of each LMA station to pre-empt or reject LIN's programming under
certain circumstances. Accordingly, there can be no assurance that LIN will be
able to air all of the programming it expects to air on its LMA stations or that
it will receive the anticipated advertising revenue from the sale of advertising
spots during such programming. Although LIN believes that the terms and
conditions of each LMA should allow it to air its programming, there can be no
assurance that early terminations of LMAs or unanticipated preemptions of all or
a significant portion of the programming will not occur. An early termination of
one of LIN's LMAs or repeated and material preemptions of the programming
thereunder could have a negative effect on LIN's business.
On a national level, a party may not hold an attributable interest in television
stations that serve more than 35% of the television homes in the U.S. The
television homes that LIN television stations reach is well below the 35%
national limit, even when the Sunrise stations are attributed to LIN.
Under the FCC's one-to-a-market rule, a party may not have attributable
interests in radio stations and a television station in the same market unless a
waiver is granted by the FCC. Chancellor Media and LIN currently have received
all required waivers of the one-to-a-market rule in markets where they have
attributable interests in both radio and television stations, including as a
result of the attributable interests of Capstar and Sunrise. These
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waivers, however, are subject to pending rulemaking proceedings initiated by the
FCC with respect to potential changes to the one-to-a-market rule. It is
possible, but not at all certain, that revised regulations relating to the FCC's
one-to-a-market rule could require the divestiture of interests in some stations
in order to comply with a more restrictive limit on radio/television
cross-ownership rules in the same market.
Finally, the FCC's multiple ownership rules also prohibit a person from having
an attributable interest in both a television station and a cable television
system in the same market (the "broadcast-cable cross-ownership rule"). Jeffrey
A. Marcus, a director of Chancellor Media and its President and Chief Executive
Officer, also has an attributable interest in Marcus Cable, a cable company that
controls cable television systems located in the same markets as some of LIN's
television stations. Because of this, Chancellor Media has filed a request with
the FCC for a waiver of the broadcast-cable cross-ownership rule to permit Mr.
Marcus to temporarily hold attributable interests in both Chancellor Media and
Marcus Cable while he is in the process of divesting his interest in Marcus
Cable. Chancellor Media and LIN cannot predict whether the FCC will grant this
waiver, and if the FCC does not grant it, what additional actions Chancellor
Media will take. Mr. Marcus has currently taken other actions which are expected
to eliminate his attributable interests in Marcus Cable no later than March 31,
1999. See "The Merger -- Certain Regulatory Matters -- FCC Approval" for more
information regarding the regulation of the television industry.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
LIN's results of operations from period to period have not historically been
comparable because of the impact of the various acquisitions and dispositions
that LIN has completed. Pro forma comparisons assuming the acquisition of LIN
Television and the formation of the joint venture with NBC had taken place on
January 1, 1997, have been included where appropriate.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997 and Three Months Ended September 30, 1998 Compared to Three Months Ended
September 30, 1997
Net Revenues
Total net revenues consist primarily of national and local time sales, net of
sales adjustments and agency commissions, network compensation, barter revenues,
revenues from the production of local commercials and sports programming, tower
rental revenues, Local Weather Station revenues, and cable retransmission
income. Total net revenues for the three and nine month periods ended September
30, 1998 decreased approximately 22% to $55.8 million and 18% to $177.6 million,
respectively, compared to $71.9 million and $216.9 million for the same periods
last year. The decreases were primarily due to the contribution of KXAS to the
NBC joint venture in connection with the acquisition of LIN Television by Hicks
Muse on March 3, 1998, offset in part by the recognition of approximately $1.9
million in insurance proceeds related to the KXTX tower loss. On a pro forma
basis, net revenues for the three and nine month periods increased approximately
12% to $55.8 million and 12% to $164.3 million compared to $49.6 million and
$146.4 million for the same periods last year.
Approximately 79% and 83% of LIN's total net revenues for the three and nine
month periods ended September 30, 1998, respectively, were derived from net
advertising time sales compared to 85% and 86% in the same periods in the
previous year. Net advertising revenues for the three and nine month periods
ended September 30, 1998 decreased approximately 28% and 21% compared to the
same periods in the prior year, primarily due to the contribution of KXAS to the
NBC joint venture in connection with the acquisition of LIN Television by Hicks
Muse on March 3, 1998. On a pro forma basis, for the three and nine month
periods ended September 30, 1998, approximately 79% and 83% of LIN's total net
revenues, respectively, were derived from net advertising time sales. Pro forma
advertising revenue for the three and nine months ended September 30, 1998
increased approximately 7% to $44.1 million and 10% to $136.5 million
respectively when compared to $41.3 and $123.7 million for the same periods in
the prior year. The increase was due primarily to the continued improvement in
the local economy in the markets in which WTNH-TV and KXAN-TV operate, and to
the net advertising growth at the LMA stations. Additionally, LIN's CBS
affiliated stations net advertising revenues include incremental revenues from
broadcasting the 1998 Winter Olympics.
Network revenue represents amounts paid to LIN for broadcasting network
programming provided by CBS, NBC, and ABC. Network revenue for the three and
nine month periods ended September 30, 1998 decreased approximately 41% to $2.7
million and 26% to $9.8 million, respectively, compared to $4.6 million and
$13.2 million for the same periods in the prior year. The decrease was primarily
due to the contribution of KXAS to the NBC joint venture in connection with the
acquisition of LIN Television by Hicks Muse on
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March 3, 1998. On a pro forma basis, network revenue for the three and nine
month periods ended September 30, 1998 was relatively flat when compared to the
same period in the prior year.
Revenues from the Local Weather Station increased $0.2 million and $1.0 million
for the three and nine month periods ended September 30, 1998, respectively,
when compared to the same periods in the prior year. LIN provides Local Weather
Stations to cable operators in all of its markets except New Haven-Hartford and
Buffalo. LIN intends to provide this service to all markets in the future. On
both an historical and pro forma basis Local Weather Station income increased
primarily as a result of the recognition of approximately $0.7 million of
revenue received from one of its cable operators. This amount had been in
dispute and was not recorded in previous periods.
Operating Expenses
Direct operating expenses, consisting primarily of news, engineering,
programming and music licensing costs, decreased 16% to $16.5 million and 14% to
$48.4 million for the three and nine month periods ended September 30, 1998
compared to $19.6 million and $56.1 million for the same periods in the prior
year. The decrease was primarily due to the contribution of KXAS-TV to the NBC
joint venture in connection with the acquisition of LIN Television by Hicks Muse
on March 3, 1998.
Selling, general and administrative ("SG&A") expenses consist primarily of
employee salaries and sales commissions, advertising and promotion expenses, and
other expenses such as rent, utilities, insurance and other employee benefit
costs. SG&A expenses decreased approximately 17% to $12.5 million and 14% to
$42.5 million for the three and nine month periods ended September 30, 1998
compared to $15.1 million and $49.4 million for the same periods in the prior
year. The decrease was primarily due to the contribution of KXAS to the NBC
joint venture in connection with the acquisition of LIN Television by Hicks Muse
on March 3, 1998.
Total corporate expenses, which are comprised of costs associated with the
centralized management of LIN's stations, increased $3.5 million and $3.9
million for the three and nine month periods ended September 30, 1998, compared
to the same periods in the prior year. The increase was due primarily to fees
paid to Hicks Muse under a monitoring and oversight agreement.
Amortization of program rights reflects the expenses related to the acquisition
of syndicated programming, features and specials. Amortization of program rights
decreased approximately 20% to $3.2 million and 15% to $10.0 million for the
three and nine month periods ended September 30, 1998, respectively, compared to
$4.0 million and $11.7 million for the same periods in the prior year. The
decrease was primarily due to the contribution of KXAS-TV to the NBC joint
venture in connection with the acquisition of LIN Television by Hicks Muse on
March 3, 1998.
Depreciation and amortization of intangible assets increased $7.4 million and
$17.4 million for the three and nine month periods ended September 30, 1998
compared to the same periods in the prior year, primarily as a result of the
acquisition of LIN on March 3, 1998. The excess of the purchase price over the
estimated fair market value of the net tangible assets acquired was allocated to
intangible assets, primarily to FCC licenses and network affiliations and
goodwill.
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Operating Income
For the reasons discussed above, LIN reported a decrease in operating income of
$20.6 million and $41.7 million for the three and nine month periods ended
September 30, 1998, compared to the same periods in the prior year.
LIN's interest expense increased approximately $5.1 million and $11.1 million
for the three and nine month periods ended September 30, 1998 compared to the
same periods last year. The increase was a result of the new borrowings under
its senior credit facilities and the issuance of the LIN 8 3/8 Notes in
connection with the acquisition of LIN Television by Hicks Muse. In addition,
LIN Holdings incurred $12.4 million of non-cash interest expense for the period
from March 3, 1998 through September 30, 1998, due to the issuance of its LIN
10% Notes.
During the first quarter of 1998, LIN incurred financial and legal advisory fees
and regulatory filing fees in connection with the acquisition of LIN Television
by Hicks Muse. During the same quarter, LIN expensed approximately $8.6 million
that is reflected on the Predecessor's Consolidated Statements of Income as
merger expense.
LIN's provision for income taxes decreased approximately $5.2 million and $12.2
million for the three and nine month periods ended September 30, 1998, compared
to the same periods in the prior year. The increase was due to net operating
losses, resulting from increased interest expense, offset by the change in LIN's
effective annual tax rate as a result of a substantial increase in
non-deductible amortization relating to intangible assets.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net Revenues
Total net revenues consist of national and local time sales, net of sales
adjustments and agency commissions, network compensation, barter revenues,
revenue from the production of local commercials and sports programming, tower
rental revenues, Local Weather Station revenues and cable retransmission
revenues. Total net revenues increased approximately 7% for the year ended
December 31, 1997 compared to the same period in 1996. Nearly 87% and 89% of
LIN's total net revenues for 1997 and 1996, respectively, were derived from net
national and net local advertising time sales.
The LMA stations and the continued ratings strength of the NBC-affiliated
stations accounted for approximately $3.7 million and $4.1 million of the net
national and net local advertising revenue increases, respectively, for the year
ended December 31, 1997. The advertising revenue increase for 1997 was also
attributable in part to local advertising revenue growth of approximately $2.5
million at station WTNH-TV due to continued improvement in economic conditions
in that station's market.
LIN's network revenue represents amounts paid to LIN for broadcasting network
programming provided by CBS, NBC and ABC. Network revenue was relatively stable
from 1996 to 1997.
Other broadcast revenues increased approximately $5.8 million for the year ended
December 31, 1997 due substantially to the sale of broadcast rights and
production services to outside parties. Increased revenues from the Local
Weather Stations also contributed to the increase in other broadcast revenues.
LIN provides Local Weather Stations to cable
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operators in all of its markets except New Haven-Hartford and Buffalo, to which
markets it intends to provide this service in the future.
Operating Expenses
Direct operating expenses, consisting primarily of news, engineering,
programming and music licensing costs, increased approximately $1.8 million for
the year ended December 31, 1997 as compared with the same period in 1996.
Direct operating expenses at stations KXAN-TV and KXAS-TV increased
approximately $1.1 million as a result of expanded news coverage. News costs
also increased as a result of the acquisition of a helicopter at station
WISH-TV.
SG&A expenses consist primarily of employee salaries and sales commissions,
advertising and promotion expenses, and other expenses, for example, rent,
utilities, insurance and other employee benefit costs. SG&A expenses increased
approximately $3.5 million for the year ended December 31, 1997, compared to the
same period in 1996, due in part to increased sales compensation resulting from
the increase in local revenues. The increase was also due in part to higher
promotional expenditures at stations in the Dallas-Fort Worth market.
Corporate expenses, which are comprised of costs associated with the centralized
management of LIN's stations, remained relatively flat for the year ended
December 31, 1997 compared to the same period in 1996.
Amortization of program rights reflect the expenses related to the acquisition
of syndicated programming, features and specials. Amortization of program rights
for the year ended December 31, 1997 rose approximately $1.1 million as a result
of new programming purchases at station WTNH-TV and programming write-offs at
stations KNVA-TV and WBNE-TV.
Depreciation and the amortization of intangible assets increased approximately
$1.0 million for the year ended December 31, 1997 compared to the same period in
1996. This increase is related primarily to an increase in depreciation expense
resulting from capital expenditures aimed at maintaining a high quality on-air
product at each of LIN's stations and, to a lesser extent, to a full year of
depreciation for a new production facility.
In 1995, LIN began to construct new facilities and purchase new broadcast
equipment to prepare for the transition to digital broadcasting. During the
second quarter of 1997, LIN disposed of towers and other broadcast equipment
that could no longer be used with digital technology. The net book loss on this
equipment of approximately $2.7 million is reflected on LIN's Consolidated
Statements of Income as tower write-offs.
Operating Income
For the reasons discussed above, LIN reported an increase in operating income of
$8.3 million, approximately 8.0%, for the year ended December 31, 1997, compared
to the same period in 1996.
Interest expense, comprised primarily of interest payable on funds borrowed
under LIN's old credit facility, decreased approximately 20% for the year ended
December 31, 1997, compared to the same period in 1996. The decrease was the
result of the renegotiated terms of the old credit facility and a reduction in
the principal amount outstanding. See "Note 4 -- Long Term Debt" of LIN's
Consolidated Financial Statements.
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During the second half of 1997, LIN incurred financial and legal advisory fees
and regulatory filing fees in connection with the acquisition of LIN Television
by Hicks Muse. These expenses of approximately $7.2 million are reflected on the
Company's Consolidated Statements of Income as merger expense.
LIN's provision for income taxes increased approximately 16% for the year ended
December 31, 1997, compared to the same period in 1996, due to higher income
before taxes and an increase in LIN's effective tax rate.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net Revenues
Total net revenues increased approximately 26% for the year ended December 31,
1996 compared to the same period in 1995. Nearly 89% of LIN's total net revenues
for both 1996 and 1995 were derived from net national and net local advertising
time sales.
The WIVB-TV acquisition and the start-up operation of the LMAs accounted for
approximately $23.3 million of the net national and net local revenue increase
for the year ended December 31, 1996. The advertising revenue increase for 1996
was also attributable to approximately $4.5 million in incremental revenues
resulting from the telecast of the 1996 Summer Olympics on the NBC-affiliated
stations, which led to a more complete sale of inventory and increased
advertising rates for those stations. The increase was also the result of strong
political sales growth of approximately $7.2 million in 1996. Advertising
revenue increases were also driven by the continued steady demand for television
advertising time since 1994, reflecting strong economic activity in most of
LIN's markets.
Increased network revenues of approximately $3.4 million for the year ended
December 31, 1996 also contributed to the total net revenue increase. LIN
negotiated a new network compensation agreement for the ABC affiliate WTNH-TV in
1996 which was effective as of September 1995. WTNH-TV's network compensation
increased approximately $2.3 million in 1996 as a result of this new agreement.
Network revenues also increased as a result of the inclusion of a full year of
operations at station WIVB-TV.
Other broadcast revenues increased $1.8 million for the year ended December 31,
1996 due primarily to increases in sports programming production, local spot
production and Local Weather Station revenues. In connection with the
acquisition of the Texas Rangers baseball broadcast rights, LIN launched a new
production facility to produce these on-air broadcasts. A substantial portion of
the increase in other broadcast revenues resulted from this new production
facility. Increased revenues from Local Weather Stations also contributed to the
increase in other broadcast revenue.
Operating Costs and Expenses
Direct operating expenses for the year ended December 31, 1996 increased
approximately 40% over the same period in 1995 due primarily to the WIVB-TV
acquisition, an increase in the amortization of sports programming rights,
expansion of news coverage and a change in the syndicated/barter programming
mix. The increase in amortization of sports programming rights resulted from the
acquisition in 1996 of broadcasting rights to Texas Rangers baseball games.
Direct operating expenses at stations KXAS-TV and WTNH-TV increased
approximately $1.7 million as a result of expanded news coverage and
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approximately $0.8 million as a result of increased barter programming at
station WTNH-TV.
SG&A expenses increased approximately 26% for the year ended December 31, 1996
compared to the same period in 1995. The increase was due to the WIVB-TV
acquisition, expenses associated with the new production facility, the operation
of the LMA stations and, to a lesser extent, to increased sales commissions at
most of the stations related to the increase in net revenues in 1996. SG&A
expenses also increased approximately $1.0 million in 1996 as a result of
increased sales and promotional efforts at LIN's LMA stations.
Corporate expenses are comprised primarily of costs associated with the
centralized management of the stations. Corporate expenses increased
approximately $1.3 million for the year ended December 31, 1996 compared to the
same period in 1995, due primarily to expenses associated with LIN's continuing
effort to seek out acquisition opportunities.
The amortization of programming rights for the year ended December 31, 1996 rose
approximately $2.1 million as compared with the same period in 1995 as a result
of a $1.3 million increase due to the WIVB-TV acquisition as well as a change in
the syndicated/barter programming mix at WAVY-TV.
Depreciation and the amortization of intangible assets increased $6.7 million
for the year ended December 31, 1996 compared to the same period in 1995. This
increase is related primarily to the WIVB-TV acquisition, a $3.1 million
increase in depreciation expense related to capital expenditures aimed at
maintaining a high quality on-air product at each of LIN's stations and, to a
lesser extent, the operation of the new production facility.
Operating Income
For the reasons discussed above, LIN reported an increase in operating income of
$14.1 million, approximately 17%, for the year ended December 31, 1996, compared
to the same period in 1995.
Interest expense increased moderately for the year ended December 31, 1996,
compared to the same period in 1995, due to interest on the additional funds
borrowed for the WIVB-TV acquisition, partially offset by lower interest rates.
See "Note 4 -- Long Term Debt" of LIN's Consolidated Financial Statements.
LIN's provision for income taxes increased approximately 22% for the year ended
December 31, 1996 compared to the same period in 1995, due to higher income
before taxes.
Liquidity and Capital Resources
It is LIN's policy to carefully monitor the state of its business, cash
requirements and capital structure. From time to time, LIN Television may enter
into transactions pursuant to which debt is extinguished, including sales of
assets or equity, joint ventures, reorganizations or recapitalizations.
LIN's principal source of funds is its operations and its senior credit
facilities. Net cash provided by operating activities for the nine months ended
September 30, 1998 totaled $44.2 million compared to $61.7 million in the same
period last year. The decrease is primarily due to the contribution of KXAS to
the NBC joint venture in connection with
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the acquisition of LIN Television by Hicks Muse on March 3, 1998 offset
partially by a reduction in the amounts paid for interest and income taxes. Net
cash used in investing activities was $916.0 million for the nine months ended
September 30, 1998, compared to $10.8 million for the same period in 1997, as a
result of the acquisition of LIN in March 1998 partially offset by the
contribution of KXAS to the NBC joint venture. Net cash provided by financing
activities for the period ended September 30, 1998 was $917.8 million compared
to $53.1 million of cash used in financing activities for the same period in the
prior year. This fluctuation is due primarily to the issuance of the LIN 8 3/8%
Notes, the issuance of the LIN 10% Notes, and the equity contribution by Hicks
Muse in connection with the acquisition of LIN Television by Hicks Muse,
partially offset by the principal payment of $260.0 million to retire the old
debt.
LIN presently has indebtedness outstanding of $170.0 million under its senior
credit facilities. The total cash financing required to consummate the Grand
Rapids Acquisition is expected to be approximately $125.5 million and will be
primarily funded by additional Tranche A term loans under its senior credit
facilities. In addition to debt service requirements under its senior credit
facilities, LIN is required to pay interest on the $300.0 million at maturity
LIN 8 3/8% Notes on a semi-annual basis commencing on September 1, 1998. The
$325.0 million at maturity LIN 10% Notes do not require cash interest payments
to be made until after March 1, 2003. Thereafter, cash interest will accrue at a
rate of 10% per annum and will be payable semi-annually in arrears commencing
September 1, 2003. Interest payments on the LIN Notes and interest payments and
amortization with respect to the senior credit facilities represent significant
liquidity requirements for LIN Television and LIN Holdings. The LIN 8 3/8% Notes
and term loans funded in connection with the acquisition of LIN Television by
Hicks Muse will require annual interest payments of approximately $25.1 million
and $13.4 million, respectively. LIN must remain in compliance with a series of
financial covenants under its senior credit facilities, the LIN 8 3/8% Notes,
and the LIN 10% Notes. As of September 30, 1998, LIN and LIN Holdings Corp. were
in compliance with all covenants. Assuming continued compliance with these
financial covenants, LIN and LIN Holdings Corp. have available credit of
approximately $175.0 million under its senior credit facilities.
LIN's capital expenditures primarily include purchases of broadcasting
equipment, studio equipment, vehicles and office equipment to improve the
efficiency and quality of television broadcasting operations. LIN's capital
expenditures for the first nine-months of 1998 were $7.4 million compared to
$13.0 million for the same period in 1997. LIN has invested approximately $13.0
million to fully prepare its towers and transmitter buildings for the upcoming
digital transition. LIN expects to spend approximately $22.0 million per year on
capital expenditures in 1998 and 1999. After 1999, an additional $29.3 million
will be required through 2002 to complete the transition to digital
broadcasting. LIN anticipates that it will be able to meet its capital
expenditure requirements with internally generated funds and borrowings under
its senior credit facilities.
Scheduled principal payments under the credit facilities commenced on December
31, 1998 and are payable quarterly until March 31, 2007. Scheduled interest
payments on the LIN 8 3/8% Notes commenced on September 1, 1998 and are payable
semi-annually. Scheduled interest payments on the LIN 10% Notes are also payable
semi-monthly and will commence September 1, 2003. LIN has made all scheduled
interest and principal payments within the terms and conditions of the senior
credit facilities agreement and the LIN 8 3/8% Notes indenture. LIN currently
has cash balances to make the upcoming
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March 31, 1999 interest payment on the LIN 8 3/8% Notes. Management believes,
based on current operations and projected growth, that its cash flow from
operations, together with borrowings available under its senior credit
facilities, will be sufficient to meet its future requirements for working
capital, capital expenditures, interest payments and scheduled principal
payments.
LIN's future operating performance and ability to service or refinance the Notes
and to extend or refinance its senior credit facilities will be subject to
future economic conditions and to financial, business and other factors, many of
which are beyond the company's control.
The LIN Notes and its senior credit facilities impose certain restrictions on
LIN's ability to make capital expenditures and limit the company's ability to
incur additional indebtedness. These restrictions could limit LIN's ability to
respond to market conditions, to provide for unanticipated capital investments
or to take advantage of business or acquisition opportunities. The covenants
contained in the credit agreement governing its senior credit facilities and the
indentures governing the LIN Notes also, among other things, limit the ability
of LIN to dispose of assets, repay indebtedness or amend other debt instruments,
pay distributions, create liens on assets, enter into sale and leaseback
transactions, make investments, loans or advances and make acquisitions.
LIN is a holding company whose only material asset is the capital stock of two
subsidiaries, which are the direct parent companies of LIN Holdings which is the
direct parent company of LIN Television. LIN Holdings does not have any
business, other than in connection with its ownership of the capital stock of
LIN Television and the performance of its obligations with respect to the LIN
10% Notes and its senior credit facilities, and will depend on the distributions
from LIN Television to meet its debt service obligations, including, without
limitation, interest and principal obligations with respect to the LIN 10%
Notes. Because of the substantial leverage of LIN Television, and the dependence
of LIN Holdings upon the operating performance of LIN Television to generate
distributions to LIN Holdings with respect to LIN Television's common stock,
there can be no assurance that LIN Holdings will have adequate funds to fulfill
its obligations with respect to the LIN 10% Notes. In addition, the credit
agreement governing its senior credit facilities and the indentures governing
the LIN Notes and applicable federal and state law impose restrictions on the
payment of dividends and the making of loans by LIN Television to LIN Holdings.
Accordingly, LIN Holdings' only source of cash to pay interest on the principal
of the LIN 10% Notes are distributions with respect to its ownership interest in
LIN Television and its subsidiaries from the net earnings and the cash flow
generated by LIN Television and its subsidiaries. Prior to March 1, 2003, LIN
Holdings' interest expense on the LIN 10% Notes will consist solely of non-cash
accretion of principal interest and the LIN 10% Notes will not require cash
interest payments. On March 2003, LIN Holdings will be required to pay the
Mandatory Principal Redemption Amount, as defined in the indenture governing the
LIN 10% Notes. After that time, the LIN 10% Notes will require annual cash
interest payments of $20.0 million. In addition, the LIN Notes mature on March
1, 2008.
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Year 2000 Issue
Some of LIN's older computer programs were written using two digits rather than
four digits to define the applicable year. As a result, those computer programs
have time-sensitive software that recognizes a date using "00" as the year 1900
rather than the year 2000. This could cause system failures or miscalculations
in the next millennium, causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
LIN recognizes the importance of the Year 2000 issue and is taking a proactive
approach intended to facilitate an appropriate transition into the Year 2000.
LIN has implemented a project team utilizing both internal and external
resources to develop its Year 2000 initiative, which may, as necessary, involve
upgrading or replacing affected computer systems, software and equipment with
embedded chips, and preparing contingency and disaster recovery plans.
A company-wide assessment of systems and operations has identified any
information technology and non-information technology systems, including
equipment with embedded chips, that do not properly recognize dates after
December 31, 1999. The project team has developed a plan to assess, remediate,
test, and, sufficiently in advance of the Year 2000, ascertain that the systems
of LIN that are critical to LIN's operations will properly recognize dates after
December 31, 1999. Areas of concern that are being addressed include possible
service interruptions in satellite feeds providing news, weather and syndicated
shows for broadcast; potential failure of equipment with embedded chips
including master clocks, studio equipment, master control automation systems,
transmission equipment, and telephone, security and environmental control
systems.
LIN will incur capital expenditures and internal staff costs related to this
initiative. Total incremental expenses, including depreciation and amortization
of bringing current systems into compliance, writing off existing non-compliant
systems, and capital replacements, have not had a material impact on LIN's
financial condition to date and are not at present, based on known facts,
expected to have a material impact on LIN's financial condition. LIN estimates
the total potential costs of remediation to be approximately $0.3 million and
that approximately $50,000 has been incurred to date. LIN estimates that if
current planned software upgrades with certain non-information technology
systems are not implemented prior to January 1, 2000, the cost to LIN would be
as much as $0.5 million per year.
LIN has developed, in the ordinary course of business, a contingency plan to
address system failures that are critical to conduct its business. These plans
include the increase in overtime salaries, and/or the increase in personnel
needed to operate the systems that would ordinarily be operated by computer. LIN
believes that its contingency plans would adequately address any potential Year
2000 related system failures.
LIN has initiated a formal communication program with its significant vendors to
determine the extent to which LIN is vulnerable to those third parties who fail
to remediate their own Year 2000 non-compliance. Based on the information
currently available, LIN is not aware of any likely third party Year 2000
non-compliance by LIN or its vendors or customers that will materially affect
LIN's business operations. LIN does not, however, control the systems of other
companies, and cannot assure that these systems will be timely converted and, if
not converted, would not have an adverse effect on LIN's business operations.
Furthermore, no assurance can be given at this time that any or all of
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LIN's systems are or will be Year 2000 compliant, or that the ultimate costs
required to address the Year 2000 issue or the impact of any failure to achieve
substantial Year 2000 compliance by LIN, its vendors or customers will not have
a material adverse effect on LIN's financial condition.
Reliance on the Automotive Industry
LIN is dependent on automotive-related advertising. Approximately 22% and 24% of
LIN's gross advertising revenues for the nine months ended September 30, 1998
and the year ended December 31, 1997, respectively, consisted of automotive
advertising. A significant decrease in automotive-related advertising could
materially affect LIN's operating results.
Inflation
LIN believes that the effect of inflation and changing prices on its businesses
is not material.
Recently-Issued Accounting Principles
In June 1997, the FASB issued Statement of SFAS No. 130, "Reporting
Comprehensive Income" effective for years beginning after December 15, 1997.
SFAS 130 requires that a public company report items of other comprehensive
income either below the total for net income in the income statement, or in a
statement of changes in equity, and to disclose the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of the balance sheet. SFAS 130 was adopted during
the first quarter of 1998. The adoption of SFAS 130 had no impact on the
reported results of operations of LIN.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" effective for years beginning after December
15, 1997. SFAS 131 requires that a public company report financial and
descriptive information about its reportable operating segments based on
criteria that differ from current accounting practice. Operating segments, as
defined, are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. The financial information to be reported includes segment profit or
loss, certain revenue and expense items and segment assets and reconciliations
to corresponding amounts in the general purpose financial statements. Statement
131 also requires information about revenues from products or services,
countries where the company has operations or assets and major customers.
Management of LIN does not believe the implementation of SFAS 131 will have a
material impact on its consolidated financial statements.
In April 1998, AcSEC issued SOP 98-5 effective for fiscal years beginning after
December 15, 1998. This SOP provides guidance on the financial reporting of
start-up costs and organization costs. It requires that costs of start-up
activities and organization costs be expensed as incurred. Initial application
of SOP 98-5 should be reported as the cumulative effect of a change in
accounting principle, as described in Accounting Principles Board (APB) Opinion
No. 20. "Accounting Changes". When adopting this SOP, entities are not required
to report the pro forma effects of retroactive application.
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Management of LIN does not believe the implementation of SOP 98-5 will have a
material impact on its consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" effective for years beginning after June 15,
1999. SFAS 133 requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet at fair value. If certain conditions
are met, a derivative may be specifically designated as a fair value hedge, a
cash flow hedge, or a foreign currency hedge. A specific accounting treatment
applies to each type of hedge. Management of LIN does not believe the
implementation of SFAS 133 will have a material impact on its consolidated
financial results.
EMPLOYEES
As of December 31, 1998, LIN employed approximately 1,200 full-time and 90
part-time employees in its broadcasting offices. Of these employees,
approximately 220 were represented by unions. LIN believes that its employee
relations are generally good.
PROPERTIES
LIN maintains its corporate headquarters in Providence, Rhode Island. Each of
the stations operated by LIN has facilities consisting of offices, studios,
sales offices and transmitter and tower sites. Transmitter and tower sites are
located to provide coverage of each station's market. LIN owns substantially all
of the offices where the stations are located and owns all of the property where
its towers and primary transmitters are located. LIN leases the remaining
properties, consisting primarily of sales office locations and microwave
transmitter sites. While none of the properties owned or leased by LIN is
individually material to LIN's operations, if LIN were required to relocate any
of its towers, the cost could be significant because the number of sites in any
geographic area that permit a tower of reasonable height to provide good
coverage of the market is limited, and zoning and other land use restrictions,
as well as Federal Aviation Administration regulations, limit the number of
alternative sites or increase the cost of acquiring them for tower siting.
LEGAL PROCEEDINGS
LIN is involved in various claims and lawsuits which are generally incidental to
its business. LIN is vigorously contesting all these matters and believes that
their ultimate resolution will not have a material adverse effect on its
consolidated financial position or results of operations. See "The
Companies -- Chancellor Media -- Legal Proceedings" for more information about
legal proceedings involving LIN.
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THE CHANCELLOR MEDIA SPECIAL MEETING
DATE, TIME, PLACE AND PURPOSE
A special meeting of the holders of Chancellor Media common stock will be held
on March 30, 1999, at The Hotel Crescent Court, 400 Crescent Court, Dallas,
Texas 75201, commencing at 10:00 a.m., local time, for the following purposes:
1. To consider and vote upon the approval and adoption of the merger agreement,
dated as of July 7, 1998, between Chancellor Media and LIN, under the terms
of which, among other things:
- LIN will be merged with and into Chancellor Media, with Chancellor Media
continuing as the surviving corporation following the merger;
- each share of LIN common stock issued and outstanding immediately prior to
the effective time of the merger will be converted into the right to
receive 0.03 of a share of common stock of Chancellor Media, other than
fractional shares or shares of LIN common stock for which appraisal rights
have been exercised pursuant to Section 262 of the General Corporation Law
of the State of Delaware (the "DGCL");
- each share of Chancellor Media common stock, Chancellor Media 7%
convertible preferred stock and Chancellor Media $3.00 convertible
exchangeable preferred stock (the Chancellor Media $3.00 convertible
exchangeable preferred stock and the Chancellor Media 7% convertible
preferred stock are collectively referred to herein as the "Chancellor
Media Convertible Preferred Stock"), of Chancellor Media issued and
outstanding immediately prior to the effective time shall remain
outstanding and unaffected by the merger; and
- Chancellor Media will assume outstanding options to purchase shares of LIN
common stock and phantom stock units held by directors, officers, employees
and consultants of LIN and its subsidiaries, and these options and phantom
stock units, to the extent exercisable for or issuable in shares of LIN
common stock, will thereafter be exercisable for or issuable in shares of
Chancellor Media common stock, as adjusted for the exchange ratio of 0.03
of a share of Chancellor Media common stock for each share of LIN common
stock to be issued.
A vote in favor of the adoption and approval of the merger agreement also
constitutes a vote to approve and adopt the assumption of these plans and the
issuance of shares of Chancellor Media common stock thereunder.
2. To consider and transact any other business as may properly come before the
Chancellor Media special meeting or any adjournment or postponement thereof.
THE BOARD OF DIRECTORS OF CHANCELLOR MEDIA, UPON THE RECOMMENDATION OF A SPECIAL
COMMITTEE OF DISINTERESTED DIRECTORS (THE "SPECIAL COMMITTEE"), HAS APPROVED,
ADOPTED AND DECLARED ADVISABLE THE MERGER AND THE MERGER AGREEMENT AND
RECOMMENDS THAT HOLDERS OF CHANCELLOR MEDIA COMMON STOCK VOTE "FOR" THE APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT.
RECORD DATE, VOTING RIGHTS AND QUORUM
Holders of record of shares of Chancellor Media common stock at the close of
business on February 12, 1999 (the "Chancellor Media Record Date") are entitled
to notice of and to vote at the Chancellor Media special meeting. On the
Chancellor Media Record Date, there were 142,939,577 shares of Chancellor Media
common stock outstanding, with each
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share entitled to one vote on the matters to be acted upon at the Chancellor
Media special meeting. The presence, in person or by proxy, at the Chancellor
Media special meeting of the holders of a majority of the shares of Chancellor
Media common stock outstanding and entitled to vote at the meeting is necessary
to constitute a quorum at the meeting. The affirmative vote of at least a
majority of the shares of Chancellor Media common stock outstanding and entitled
to vote at the meeting is required to approve and adopt the merger agreement.
Under the DGCL, shares represented by proxies that reflect abstentions or broker
non-votes will be counted as shares that are present and entitled to vote for
purposes of determining the presence of a quorum and will have the same effect
as votes cast against the proposal to approve and adopt the merger agreement.
Hicks Muse and its affiliates have agreed to vote all shares of Chancellor Media
common stock controlled by them in favor of and opposed to the adoption and
approval of the merger agreement in the same proportion as the other
stockholders of Chancellor Media vote at the meeting. Accordingly, approval and
adoption of the Merger Agreement of at least a majority of the shares of
Chancellor Media common stock outstanding and entitled to vote at the meeting
and not owned or controlled by Hicks Muse and its affiliates will be required to
approve and adopt the merger agreement.
As of the Chancellor Media Record Date, the directors and executive officers of
Chancellor Media as a group, other than affiliates of Hicks Muse, may be deemed
to beneficially own, in the aggregate, 7,314,153 shares of Chancellor Media
common stock, including shares of Chancellor Media common stock which may be
purchased pursuant to certain stock options exercisable within 60 days of the
date of this Joint Proxy Statement/ Prospectus, which represent approximately
4.9% of the outstanding shares of Chancellor Media common stock as of such date.
VOTING AND REVOCATION OF PROXIES
If a holder of Chancellor Media common stock is entitled to vote at the
Chancellor Media special meeting and his, hers or its shares are represented by
a properly executed proxy, the shares will be voted in accordance with the
instructions indicated on the proxy, unless the proxy has been revoked prior to
the voting. If no instructions are indicated, the shares will be voted "FOR" the
adoption and approval of the merger agreement and, in the discretion of the
proxy holder, for any other matter that may properly come before the meeting on
which the holder of Chancellor Media common stock would be entitled to vote.
A stockholder who gives a proxy may revoke it at any time before it is exercised
by:
- - filing with The Bank of New York in its capacity as transfer agent for the
Chancellor Media common stock (the "Transfer Agent"), at or before the
Chancellor Media special meeting, a written notice of revocation bearing a
later date than the proxy;
- - duly executing a subsequent proxy relating to the same shares of Chancellor
Media common stock and delivering it to the Transfer Agent at or before the
meeting; or
- - attending the Chancellor Media special meeting and voting in person, although
attendance at the meeting will not in and of itself constitute a revocation of
a proxy. Any written notice revoking a proxy should be sent to The Bank of New
York, 101 Barclay Street, New York, New York 10286, Attn: Proxy Department.
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Chancellor Media will bear the cost of soliciting proxies from its stockholders.
In addition to the use of the mails, proxies may be solicited by the directors,
officers and certain employees of Chancellor Media by personal interview,
telephone or telegram. These directors, officers and employees will not be
additionally compensated for such solicitation but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with the solicitation.
Arrangements will also be made with brokerage houses and other custodians,
nominees and fiduciaries for the forwarding of solicitation material to the
beneficial owners of Chancellor Media common stock, and Chancellor Media may
reimburse the custodians, nominees and fiduciaries for reasonable out-of-pocket
expenses in connection therewith. In addition, Chancellor Media has retained
Georgeson & Co. to solicit proxies by and on behalf of the Chancellor Media
Board of Directors. Georgeson & Co. will be paid customary fees for these
services.
THE LIN SPECIAL MEETING
DATE, TIME, PLACE AND PURPOSE
A special meeting of the holders of LIN common stock, will be held on March 30,
1999, at the offices of Hicks, Muse, Tate & Furst Incorporated, 200 Crescent
Court, Suite 1600, Dallas, Texas 75201, commencing at 10:00 a.m., local time. At
the LIN special meeting, the holders of shares of LIN Common Stock will be asked
to:
1. To consider and vote upon the approval and adoption of the merger
agreement under the terms of which, among other things:
- LIN will be merged with and into Chancellor Media, with Chancellor Media
continuing as the surviving corporation following the merger;
- each share of LIN common stock issued and outstanding immediately prior
to the effective time of the merger would be converted into the right to
receive 0.03 of a share of common stock of Chancellor Media, other than
fractional shares or shares of LIN common stock for which appraisal
rights have been exercised pursuant to Section 262 of the DGCL;
- each share of Chancellor Media common stock, Chancellor Media 7%
convertible preferred stock and Chancellor Media $3.00 convertible
exchangeable preferred stock, issued and outstanding immediately prior to
the effective time shall remain outstanding and unaffected by the merger;
and
- Chancellor Media will assume outstanding options to purchase shares of
LIN common stock and phantom stock units held by directors, officers,
employees and consultants of LIN and its subsidiaries, and these options
and phantom stock units will, to the extent exercisable for or issuable
in shares of LIN common stock, thereafter be exercisable for or issuable
in shares of Chancellor Media common stock, as adjusted for the exchange
ratio of 0.03 of a share of Chancellor Media common stock for each share
of LIN common stock to be issued.
2. To consider and transact any other business as may properly come before
the LIN special meeting or any adjournment or postponement thereof.
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THE BOARD OF DIRECTORS OF LIN HAS APPROVED, ADOPTED AND DECLARED ADVISABLE THE
MERGER AND THE MERGER AGREEMENT AND RECOMMENDS THAT HOLDERS OF LIN COMMON STOCK
VOTE "FOR" THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
RECORD DATE, VOTING RIGHTS AND QUORUM
Only holders of record of shares of LIN Common Stock at the close of business on
February 12, 1999 (the "LIN Record Date") are entitled to notice of and to vote
at the LIN special meeting. On the LIN Record Date, there were 539,321,532
shares of LIN common stock outstanding, with each share entitled to one vote on
the matters to be acted upon at the meeting. The presence, in person or by
proxy, at the meeting of the holders of a majority of the shares of LIN common
stock outstanding and entitled to vote at the meeting is necessary to constitute
a quorum at the meeting. The affirmative vote of at least a majority of the
shares of LIN common stock outstanding and entitled to vote at the LIN special
meeting is required to approve and adopt the merger agreement. Under the DGCL,
shares represented by proxies that reflect abstentions will be counted as shares
that are present and entitled to vote for purposes of determining the presence
of a quorum and will have the same effect as votes cast against the proposal to
approve and adopt the merger agreement.
As of the LIN Record Date, the directors and executive officers of LIN as a
group may be deemed to beneficially own, in the aggregate, 403,871,532 shares of
LIN common stock, which represent approximately 74.8% of the outstanding shares
of LIN common stock as of such date. As of the LIN Record Date, affiliates of
Hicks Muse may be deemed to beneficially own, in the aggregate, 403,071,532
shares of LIN common stock, which represents approximately 74.7% of the
outstanding shares of LIN common stock as of such date. An affiliate of Hicks
Muse has entered into an agreement with Chancellor Media to vote in favor of the
merger. As a result, the approval of the merger by the LIN stockholders is
assured.
VOTING AND REVOCATION OF PROXIES
If a holder of LIN common stock is entitled to vote at the LIN special meeting
and his, hers or its shares are represented by a properly executed proxy, the
shares will be voted in accordance with the instructions indicated on the proxy,
unless the proxy has been revoked prior to the voting. If no instructions are
indicated, the shares will be voted "FOR" the adoption and approval of the
merger agreement and, in the discretion of the proxy holder, for any other
matter that may properly come before the meeting on which the holder of LIN
common stock would be entitled to vote.
A stockholder who gives a proxy may revoke it at any time before it is exercised
by:
- - filing with the Secretary of LIN, at or before the LIN special meeting, a
written notice of revocation bearing a later date than the proxy,
- - duly executing a subsequent proxy relating to the same shares of LIN common
stock and delivering it to the Secretary of LIN at or before the meeting, or
- - attending the meeting and voting in person, although attendance at the meeting
will not in and of itself constitute a revocation of a proxy. Any written
notice revoking a proxy should be sent to Ranger Equity Holdings Corporation,
c/o LIN Television Corporation, 4 Richmond Square, Suite 200, Providence,
Rhode Island 02906, Attn: Secretary.
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LIN will bear the cost of soliciting proxies from its stockholders. In addition
to the use of the mails, proxies may be solicited by the directors, officers and
certain employees of LIN by personal interview, telephone or telegram. These
directors, officers and employees will not be additionally compensated for the
solicitation of proxies but may be reimbursed for reasonable out-of-pocket
expenses incurred in connection with the solicitation.
THE MERGER
BACKGROUND AND CHANCELLOR MEDIA'S REASONS FOR THE MERGER
Beginning in early May 1998, Thomas O. Hicks, Chairman of Chancellor Media,
began having informal discussions with Jeffrey A. Marcus, the newly-elected
President and Chief Executive Officer of Chancellor Media, and certain other
members of its Board of Directors regarding the expansion by Chancellor Media
into different media platforms to complement its radio business. While attending
the Annual Stockholders Meeting of Chancellor Media held on May 19, 1998, Mr.
Hicks had various conversations with Mr. Marcus and John H. Massey and other
directors of Chancellor Media in attendance, regarding potential opportunities
to expand into television and outdoor advertising. During these conversations,
Mr. Hicks discussed the possibility of Chancellor Media acquiring LIN, the
television company that an investor group led by affiliates of Hicks Muse had
recently acquired in March 1998.
On May 22, 1998, a special meeting of the Board of Directors of Chancellor Media
was held via telephonic conference call. Among the topics discussed at this
meeting was the potential acquisition by Chancellor Media of LIN. Because Mr.
Hicks was the Chairman of both companies and another director of Chancellor
Media was also a director of LIN, and the fact that affiliates of Hicks Muse had
a substantial economic interest in both companies, the Board of Directors of
Chancellor Media deemed it appropriate to appoint the Special Committee.
Accordingly, at this board meeting Chancellor Media formed the Special
Committee, consisting of Thomas J. Hodson, Vernon E. Jordan, Jr., J. Otis
Winters, Perry J. Lewis, John H. Massey and Steven Dinetz. The Special Committee
was formed to consider and evaluate any proposal which might be received from
LIN involving a possible merger of Chancellor Media and LIN, and if such a
proposal were made, to supervise the conduct of negotiations, to review,
evaluate and make a determination with respect to the proposal and to report its
conclusions to the full Board of Directors. The Special Committee was authorized
to retain legal, financial and other advisors of its choice to assist in
carrying out its duties and responsibilities.
On May 27, 1998, the Special Committee met by means of telephonic conference
call and discussed the potential acquisition of LIN and the engagement of
independent counsel to provide legal advice to the Special Committee. At this
meeting, the Special Committee considered and selected outside counsel from
among several law firms to be its legal advisor. The Special Committee also
discussed several independent investment banking firms as potential candidates
to be its financial advisor. The Special Committee appointed Messrs. Massey,
Hodson and Lewis to interview several investment banking firms in New York City
and request a written proposal from each for the position of financial advisor
to the Special Committee.
On June 2, 1998, the Special Committee held another telephonic conference call
and Messrs. Massey, Hodson and Lewis reported on their interviews in New York
City on
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June 1, 1998 with representatives of several investment banks. After discussing
the distinctions among and the qualifications, experience and independence of
these investment banking firms, the Special Committee selected Wasserstein
Perella & Co., Inc. to serve as independent financial advisor to the Special
Committee with respect to the proposed acquisition of LIN. Furthermore, if the
Special Committee later determined that an acquisition of LIN would be in the
best interest of Chancellor Media and its stockholders, Wasserstein Perella
would issue an opinion as to whether the acquisition would be fair, from a
financial point of view, to Chancellor Media and its stockholders. At the
meeting, Mr. Massey was elected Chairman of the Special Committee.
On June 8, 1998, the Special Committee met again by telephonic conference call
and discussed the fact that Chancellor Media had selected Morgan Stanley & Co.
Incorporated as its financial advisor with respect to the proposed LIN
acquisition. Mr. Massey reported that Chancellor Media expected that it would
promptly receive an acquisition proposal from LIN. The Committee authorized
Wasserstein Perella and Morgan Stanley to coordinate organizational, due
diligence and other informational meetings with LIN to facilitate communication
among all parties once an acquisition proposal was delivered to Chancellor
Media. Subsequent to this meeting, management of LIN and Chancellor Media
provided to each of Wasserstein Perella and Morgan Stanley internally prepared
estimates of each company's future broadcast cash flow and other operating data.
This information and subsequent supplemental data was provided to each of
Chancellor Media's financial advisors.
On June 9, 1998, Chancellor Media received a summary term sheet from LIN setting
forth a proposed purchase price of $1.70 per share of LIN common stock and
proposing that LIN stockholders receive 100% of the purchase price in the form
of newly-issued Chancellor Media common stock. The summary term sheet also
included the proposed assumption by Chancellor Media of approximately $775
million of net indebtedness, implying an enterprise value for LIN in the
proposed transaction of approximately $1.7 billion.
On June 10, 1998, the Special Committee met by means of telephonic conference
call and received a preliminary analysis of the LIN proposal prepared by
Wasserstein Perella. Wasserstein Perella discussed its analysis of the impact of
a proposed acquisition of LIN on Chancellor Media, including the impact on its
after-tax and free cash flow in the years 1999 and 2000. Wasserstein Perella
also reviewed the stock price and volume history of the Chancellor Media common
stock since January 1, 1998 and discussed the anticipated due diligence process
to be undertaken by representatives of Wasserstein Perella working jointly with
representatives of Morgan Stanley, the financial advisors for Chancellor Media.
On June 17, 1998, the Special Committee held a telephonic conference call where
Wasserstein Perella presented preliminary information regarding due diligence
performed to date with LIN. Wasserstein Perella reported to the Special
Committee that it had met with senior management of both LIN and Chancellor
Media and summarized the discussions. Wasserstein Perella noted that LIN's
performance had exceeded expectations since its acquisition by Hicks Muse and
that LIN management anticipated substantially higher operating results in 1999
due to the strong broadcasting environment and recent network affiliations.
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At a meeting of the Special Committee held on June 23, 1998, Wasserstein Perella
presented to the Special Committee the following:
- - detailed information with respect to the proposed transaction overview;
- - an overview of LIN;
- - a television industry summary overview;
- - a preliminary valuation analysis of LIN, including an analysis of prior merger
and acquisition transactions, a discounted cash flow analysis and a public
company trading analysis;
- - a market overview of Chancellor Media;
- - a pro forma merger consequences analysis; and
- - a brief overview of price per share collar mechanisms.
Wasserstein Perella emphasized that the presentation was a preliminary
presentation based on an analysis of the proposed purchase price of $1.70 per
share of LIN common stock proposed by LIN and that Wasserstein Perella had not
reached any conclusion as to the terms upon which Wasserstein Perella would be
willing to render a fairness opinion with respect to the proposed transaction.
Wasserstein Perella noted that the $1.70 per share of LIN common stock
acquisition proposal submitted by LIN, based upon a $43 price per share of
Chancellor Media common stock, would be dilutive to Chancellor Media's free tax
cash flow based on both analyst and management estimates of LIN's operating
results. Wasserstein Perella emphasized that it could not issue a fairness
opinion on the terms of the current proposal. It was suggested by the Special
Committee that Wasserstein Perella meet with representatives of Morgan Stanley
to compare Wasserstein Perella's and Morgan Stanley's evaluations of the current
offer by LIN and the methodologies and preliminary conclusions of each and to
report back to the Special Committee.
On June 26, 1998, the Special Committee met again by telephonic conference call
and received a report on the additional due diligence review of LIN by
representatives of Wasserstein Perella and on the discussions that had
transpired between representatives of Wasserstein Perella and Morgan Stanley.
Wasserstein Perella reported that representatives of Wasserstein Perella and
Morgan Stanley had discussed and compared the evaluation methodologies utilized
by the two investment banking firms. The Special Committee concluded it was in
favor of Chancellor Media entering the television broadcasting business and
believed, based on the financial studies, analyses and investigations developed
to date by the legal and financial advisors to the Special Committee, that a
purchase price in the range of $1.50 per share of LIN common stock, based upon a
value for Chancellor Media common stock of $50 per share, would be fair, from a
financial point of view, to Chancellor Media and its stockholders. The Special
Committee authorized Messrs. Massey and Winters to meet with the Chief Executive
Officer of Chancellor Media, Mr. Marcus, to develop an appropriate strategy to
respond to the LIN acquisition proposal in the range of a purchase price of
approximately $1.50 per share of LIN common stock, based upon a value for
Chancellor Media common stock of $50 per share.
Messrs. Massey and Winters met with Mr. Marcus on the afternoon of June 26, 1998
and presented the views of the Special Committee, including the views of its
independent financial advisors with respect to responding to the LIN proposal.
Messrs. Massey, Winters and Marcus discussed proposed strategy for responding to
the LIN proposal as well as strategy for negotiating certain essential contract
provisions, including a voting agreement
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under the terms of which Hicks Muse would agree to vote its LIN share ownership
in favor of the proposed transaction with Chancellor Media.
At a meeting of the Special Committee held on June 29, 1998, the Special
Committee received a report from Mr. Marcus on his negotiations with
representatives of LIN subsequent to his meeting with Messrs. Massey and Winters
as authorized by the Special Committee. Mr. Marcus stated that he had several
negotiating sessions with representatives of LIN and that at the conclusion of
the negotiations, a purchase price of $1.53 per LIN share payable in Chancellor
Media common stock valued at $51 per share, the closing price per share on June
26, 1998, was agreed upon in principle, subject to approval by the Special
Committee and the respective Boards of Directors of Chancellor Media and LIN.
Mr. Marcus discussed in detail the negotiations with LIN and his view that the
proposed acquisition by Chancellor Media must not be dilutive and that the
Chancellor Media common stock to be issued in connection with the acquisition
must not be valued at less than market value based on recent sales prices. Mr.
Marcus concluded his report to the Special Committee by stating that it was his
understanding that Morgan Stanley was comfortable with the proposed financial
parameters of the transaction. Representatives of Wasserstein Perella discussed
the proposed financial transaction parameters with Mr. Marcus in detail at the
meeting and suggested that Wasserstein Perella complete its analysis and review
from a financial point of view. Mr. Marcus indicated that an initial draft of
the proposed acquisition agreement would be prepared for submission and review
by the parties no later than Wednesday, July 1, 1998.
During the period following the meeting of the Special Committee held on June
29, 1998, the legal advisors for Chancellor Media prepared and circulated an
initial draft of the proposed acquisition agreement to members of the Special
Committee and its legal and financial advisors. The parties reviewed and revised
the draft in preparation for the meeting of the Special Committee to be held on
July 2, 1998. Drafts of the agreement were also presented to the legal and
financial advisors for LIN requesting their comments.
On July 2, 1998, the Special Committee met by telephonic conference call where
Wasserstein Perella reported that the financial terms of the proposed merger
agreement had been reviewed internally by Wasserstein Perella. Legal counsel for
the Special Committee reviewed the material provisions of the merger agreement
and voting agreement relating to the proposed acquisition. Copies of the
documents had been distributed to the Special Committee in advance of the
meeting. After full discussion, the Special Committee instructed its legal
counsel and Wasserstein Perella to continue negotiations with representatives of
Chancellor Media, LIN and Hicks Muse and their respective counsel regarding
certain unresolved contract issues and the terms and conditions of the merger
agreement discussed at the meeting.
During the July 4th weekend, Chancellor Media and the Special Committee and
their financial and legal advisors conducted extensive negotiations with respect
to the terms of the definitive merger agreement providing for a merger that was
intended to be tax-free for federal income tax purposes for both the Chancellor
Media and LIN stockholders. Several drafts of the definitive merger agreement
were circulated among all of the parties to the negotiations and discussions and
negotiations continued throughout the three-day weekend. Revised drafts were
circulated to members of the Special Committee and all legal and financial
advisors prior to the meeting scheduled for July 6, 1998.
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At a meeting of the Special Committee held via a telephonic conference call on
July 6, 1998, legal counsel for the Special Committee reviewed the revised
drafts of the merger agreement and voting agreement in connection with the
proposed acquisition. Legal counsel for the Special Committee then reported that
extensive negotiations regarding contract issues had occurred since the last
meeting of the Special Committee and presented a full report on the resolution
of the contract issues. Wasserstein Perella then discussed recent historical
market prices for the Chancellor Media common stock and the reasons why
Wasserstein Perella did not believe a price per share collar mechanism was
needed in connection with the proposed transaction. Mr. Marcus joined the
meeting and summarized the proposed resolution of all outstanding issues with
respect to the merger agreement. Mr. Marcus reported that management of
Chancellor Media fully supported the LIN acquisition. Representatives of
Wasserstein Perella concluded after a thorough review of the terms and
provisions of the proposed merger that it was prepared to issue its opinion to
the Special Committee upon execution and delivery of the merger agreement that
the merger consideration described in the merger agreement was fair, from a
financial point of view, to Chancellor Media and its stockholders. The Special
Committee unanimously recommended to the Chancellor Media Board of Directors
that it approve, subject to the full Board of Directors' approval of a
definitive agreement, the proposed economic terms of a merger based on a
purchase price of $1.53 per share of LIN common stock and payable in Chancellor
Media common stock valued at $51 per share.
Following the meeting of the Special Committee held on July 6, 1998, a meeting
of the Chancellor Media Board of Directors was held. At that meeting, the
Chancellor Media Board of Directors received a presentation from Mr. Massey on
behalf of the Special Committee. Mr. Massey reported that the Special Committee
had completed a six-week long process which involved numerous meetings of the
Special Committee, Wasserstein Perella and legal counsel. Mr. Massey stated that
the Special Committee unanimously recommended approval of the proposed LIN
transaction on the terms set forth in the draft of the merger agreement which
had been circulated in advance of the meeting to all of the Board members. Also
present at the meeting were representatives of Wasserstein Perella and Morgan
Stanley. The Board members and all attendees at the meeting engaged in an
extensive discussion of the LIN transaction and the recommendation of the
Special Committee. The Board members and attendees considered the fact that each
of Wasserstein Perella and Morgan Stanley indicated that they would be able to
deliver fairness opinions that the Board members believed would support the
fairness of the exchange ratio from a financial point of view. The Chancellor
Media Board of Directors by unanimous vote of those directors who voted, with
certain members of the Board abstaining because of their relationship with Hicks
Muse, determined that the LIN merger on the proposed economic terms set forth in
the proposed merger agreement would be fair, advisable to and in the best
interest of Chancellor Media and its stockholders and approved the definitive
merger agreement. LIN and Chancellor then executed and delivered the merger
agreement in its definitive form, dated as of July 7, 1998.
On the morning of July 7, 1998, Chancellor Media issued a press release
announcing the merger and its principal economic terms.
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RECOMMENDATION OF THE CHANCELLOR MEDIA BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF CHANCELLOR MEDIA BELIEVES THAT THE MERGER IS FAIR TO,
ADVISABLE AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF CHANCELLOR MEDIA AND,
ACTING UPON THE RECOMMENDATION OF THE SPECIAL COMMITTEE, HAS APPROVED, ADOPTED
AND DECLARED ADVISABLE THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY
THE MERGER AGREEMENT, INCLUDING THE ISSUANCE OF SHARES OF CHANCELLOR MEDIA
COMMON STOCK AND ASSUMPTION OF LIN STOCK OPTIONS AND PHANTOM STOCK UNITS IN THE
MERGER, AND RECOMMENDS THAT THE STOCKHOLDERS OF CHANCELLOR MEDIA VOTE IN FAVOR
OF THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED BY THE MERGER AGREEMENT.
In connection with its review of the merger agreement and the related
transactions, the Special Committee addressed various negative factors before
recommending the transaction to the Board of Directors of Chancellor Media,
including the following:
- - the assumption of a large amount of LIN indebtedness by Chancellor Media;
- - the valuation of the NBC joint venture;
- - the decision to enter into the television industry, a new line of business for
management of Chancellor Media, and the increased capital requirements to
operate successfully in the television industry;
- - the payment of fees to Hicks Muse; and
- - the dilution of after-tax cash flow per share.
During its deliberations, the Special Committee discussed the foregoing factors
with Wasserstein Perella. Ultimately, the factors were resolved to the
satisfaction of the Special Committee prior to delivering its recommendation in
favor of the merger to the Board of Directors of Chancellor Media.
In approving the merger agreement and the related transactions, the Board of
Directors of Chancellor Media took into account a number of factors, including
the following:
- - the judgment, advice and analysis of Chancellor Media's management and
financial advisors, including Wasserstein Perella and Morgan Stanley;
- - the presentation of Wasserstein Perella to the Special Committee and the full
Board of Directors of Chancellor Media, including its oral opinion delivered
at the meetings held on July 6, 1998 to the effect that the exchange ratio was
fair, from a financial point of view, to Chancellor Media and the holders of
Chancellor Media common stock;
- - the prices paid in comparable transactions involving other television station
assets;
- - the historical financial condition, results of operations and cash flows of
LIN;
- - the terms and conditions of the merger agreement, including the exchange
ratio;
- - the requirement that Chancellor Media be provided with an opinion of counsel
as to the tax-free nature of the merger to Chancellor Media; and
- - the probability that the merger and the consummation of the Pending
Transactions would receive all necessary regulatory approvals.
In view of the number of factors considered by the Board of Directors of
Chancellor Media, the Board did not assign relative weights to the factors
considered by it in reaching its conclusions. Rather, the Board of Directors
viewed its conclusions and recommendations as being based on the totality of the
information being presented to and considered by it. In addition, it may be the
case that individual directors of Chancellor Media
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assigned different weights to the various factors considered by them in voting
to approve the merger.
OPINIONS OF FINANCIAL ADVISORS TO THE CHANCELLOR MEDIA BOARD OF DIRECTORS AND
SPECIAL COMMITTEE
Opinion of Financial Advisor to the Special Committee
Fairness Opinion. Wasserstein Perella has acted as financial advisor to the
Special Committee of the independent directors of the Board of Directors of
Chancellor Media in connection with the merger. At the meeting of the Special
Committee held on July 6, 1998, Wasserstein Perella delivered its oral opinion
to the Special Committee, subsequently confirmed in writing, to the effect that,
based upon and subject to various considerations set forth in such opinion, as
of July 6, 1998, the exchange ratio was fair from a financial point of view to
Chancellor Media and the holders of Chancellor Media common stock. No
limitations were imposed by the Board upon Wasserstein Perella with respect to
investigations made or procedures followed by Wasserstein Perella in rendering
the Wasserstein Perella fairness opinion.
THE FULL TEXT OF THE WASSERSTEIN PERELLA FAIRNESS OPINION, WHICH SETS FORTH THE
PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE
REVIEW TAKEN, IS ATTACHED HERETO AS ANNEX II TO THIS JOINT PROXY
STATEMENT/PROSPECTUS. STOCKHOLDERS ARE URGED TO READ THE WASSERSTEIN PERELLA
FAIRNESS OPINION CAREFULLY AND IN ITS ENTIRETY. THE WASSERSTEIN PERELLA FAIRNESS
OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE EXCHANGE RATIO TO CHANCELLOR
MEDIA AND THE HOLDERS OF CHANCELLOR MEDIA COMMON STOCK FROM A FINANCIAL POINT OF
VIEW, HAS BEEN PROVIDED TO THE SPECIAL COMMITTEE IN CONNECTION WITH ITS
EVALUATION OF THE MERGER, DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER AND
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW THE
STOCKHOLDER SHOULD VOTE. THE SUMMARY OF THE WASSERSTEIN PERELLA FAIRNESS OPINION
SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF THE WASSERSTEIN PERELLA FAIRNESS OPINION.
In arriving at the Wasserstein Perella fairness opinion, Wasserstein Perella
reviewed, among other things:
- - a draft of the merger agreement, and for purposes of its opinion had assumed
that the final form of the document did not differ in any material respect
from the draft provided;
- - selected publicly available business and financial information relating to LIN
and Chancellor Media for recent years and interim periods;
- - selected internal financial and operating information, including financial
forecasts, analyses and projections prepared by or on behalf of LIN and
Chancellor Media;
- - selected financial and stock market data relating to LIN and Chancellor Media,
and selected other companies in businesses similar to that of LIN and
Chancellor Media or one or more of Chancellor Media's respective businesses or
assets;
- - the financial terms of selected comparable acquisitions and business
combination transactions; and
- - a draft of a term sheet regarding $50.0 million aggregate amount of Series A
Preferred Stock that LIN would receive from Southwest Sports Group, and for
purposes of its opinion had assumed that the transaction described would be
consummated as described
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in the term sheet and otherwise in a customary manner. Wasserstein Perella had
discussions with the management of LIN and of Chancellor Media concerning
LIN's and Chancellor Media's businesses, operations, assets, financial
condition and future prospects. Wasserstein Perella also performed other
financial studies, analyses, and investigations and reviewed other information
as it considered appropriate for purposes of the Wasserstein Perella fairness
opinion.
In rendering the Wasserstein Perella fairness opinion, Wasserstein Perella
assumed and relied upon, without independent verification, the accuracy and
completeness of all financial and other information provided or that was
publicly available. With respect to financial forecasts and projections,
Wasserstein Perella assumed that they were reasonably prepared in good faith and
on bases reflecting the best currently available judgments and estimates of the
future performance of Chancellor Media and LIN. Wasserstein Perella expresses no
opinion as to, and assumes no responsibility for, the forecasts or projections
or the assumptions on which they are based. In addition, Wasserstein Perella has
not reviewed any of the books and records of LIN or Chancellor Media, or assumed
any responsibility for conducting a physical inspection of the properties or
facilities of LIN or Chancellor Media, or for making or obtaining an independent
valuation or appraisal of the assets or liabilities of LIN or Chancellor Media,
and no independent valuation or appraisal was provided to Wasserstein Perella.
Wasserstein Perella assumed that the merger will qualify as a tax-free
reorganization for United States federal income tax purposes. Wasserstein
Perella also assumed that obtaining all regulatory and other approvals and third
party consents required for consummation of the merger will not have an adverse
impact on Chancellor Media or LIN or on the anticipated benefits of the merger,
and assumed that the transactions described in the merger agreement will be
consummated without waiver or modification of any of the material terms or
conditions contained therein by any party thereto. The Wasserstein Perella
fairness opinion was prepared and delivered based upon economic and market
conditions and other circumstances as they existed and could be evaluated by
Wasserstein Perella as of the date of the opinion.
In delivering the Wasserstein Perella fairness opinion, representatives of
Wasserstein Perella considered and discussed various financial and other matters
that it deemed relevant. General valuation considerations deemed to be relevant
by Wasserstein Perella include, without limitation:
- - television broadcasting and demographic and advertising trends as a whole and
in LIN's markets;
- - LIN's historical financial and operating performance and future prospects in
the context of its business strategy, market position and current and
prospective competition;
- - LIN's technological, marketing and programming strategy; and
- - LIN's size and asset mix.
The following is a summary of the analyses presented by Wasserstein Perella to
the Special Committee at its meeting held on June 23, 1998, as updated by
Wasserstein Perella for the Special Committee at its meeting held on July 6,
1998, in connection with the delivery of the Wasserstein Perella fairness
opinion. The summary below includes reference ranges of implied prices per share
of LIN common stock based on Wasserstein Perella's judgment of the data
analyzed. These reference ranges include reference points implicit in the
exchange ratio under the merger agreement of 0.0300 shares of Chancellor Media
common stock for each outstanding share of LIN common stock. Wasserstein
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Perella applied a value range of $75-$89 million for the NBC joint venture and a
value range of $35 to $50 million for the Southwest Sports Group preferred
stock. Wasserstein Perella calculated the following reference points:
- - an enterprise value for LIN's consolidated stations based upon an aggregate
purchase price of $1,626.0 million less an estimated value for the NBC joint
venture of $75 million less an estimated value for the Southwest Sports Group
preferred stock of $35 million as a multiple of:
(1) broadcast cash flow ("BCF"), defined as operating income plus corporate
expenses plus depreciation and amortization plus amortization of program
rights plus non-cash compensation expenses less cash payment for program
rights, estimated for 1998 of 14.5x,
(2) BCF for the latest twelve months ("LTM") as of June 30, 1999 of 13.7x, and
(3) estimated 1999 BCF of 12.9x,
- - and an enterprise value based upon an aggregate purchase price of $1,626
million less an estimated value for the NBC joint venture of $89 million less
an estimated value for the Southwest Sports Group preferred stock of $50
million as a multiple of:
(1) BCF estimated for 1998 of 14.3x,
(2) BCF estimated for LTM as of June 30, 1999 of 13.4x, and
(3) estimated 1999 BCF of 12.7x.
In addition, Wasserstein Perella estimated reference ranges of implied prices
per share of LIN common stock based on a pre-tax value range for the LIN LMAs of
$150-$200 million. The reference points included:
- - an enterprise value for LIN's consolidated stations excluding the LIN LMA
Stations based upon an aggregate purchase price of $1,626.0 million less an
estimated value for the NBC joint venture of $75 million less an estimated
value for the Southwest Sports Group preferred stock of $35 million less an
estimated pre-tax value for the LIN LMA Stations of $150.0 million as a
multiple of:
(1) BCF estimated for 1998 of 13.5x,
(2) BCF estimated for LTM as of June 30, 1998 of 12.9x, and
(3) estimated 1999 BCF of 12.4x,
- - and an enterprise value based upon an aggregate purchase price of $1,626
million less an estimated value for the NBC joint venture of $89.0 million
less an estimated value for the Southwest Sports Group preferred stock of
$50.0 million less an estimated pre-tax value for the LIN LMA Stations of
$200.0 million as a multiple of:
(1) BCF estimated for 1998 of 12.7x,
(2) BCF estimated for LTM as of June 30, 1999 of 12.2x, and
(3) estimated 1999 BCF of 11.7x.
These reference points were all considered in the context of the analyses
described below. Each of these analyses supports the Wasserstein Perella
fairness opinion.
Precedent Merger and Acquisition Transactions. Wasserstein Perella reviewed and
analyzed selected merger and acquisition transactions involving other companies
in the television
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broadcasting industry that it deemed relevant. Among other factors, Wasserstein
Perella indicated that while there have been a number of recent television
broadcasting transactions, acquisition values paid in specific transactions have
historically been affected by several factors including the transaction
structure, the target's operating performance and geographic mix of assets, the
existence of a controlling/major shareholder, the strategic rationale for the
transaction and the existence and implied valuation of non-television
broadcasting assets in the target.
Wasserstein Perella analyzed the acquisition transaction by Hearst-Argyle
Television, Inc. ("H-A TV"), of Pulitzer Broadcasting Company ("Pulitzer") and
utilized estimated BCF multiples that reflected valuation benchmarks derived
from such transaction. Based on the valuations assigned to Pulitzer and in
Wasserstein Perella's judgment, the appropriate reference range for LIN, based
on a valuation for LIN that included the LIN LMA Stations and using a multiple
of estimated 1998 BCF of 15.5x, yielded an implied reference price of $1.72 per
share of LIN common stock, and using a multiple of estimated 1999 BCF of 14.3x,
yielded an implied reference price of $1.78 per share of LIN common stock. The
appropriate reference range for LIN based on a valuation for LIN that included
the LIN LMA Stations valued at $200 million and using a multiple of estimated
1998 BCF of 15.5x, yielded an implied reference price range of $1.98 per share
of LIN common stock, and using a multiple of estimated 1999 BCF of 14.3x,
yielded an implied reference price range of $1.95 per share of LIN common stock.
Wasserstein Perella also reviewed and analyzed other selected transactions
involving companies in the television broadcasting industry since January 1994
that it deemed relevant. The transactions reviewed included the following, which
are listed by acquiror/seller:
- - Raycom Media, Inc./Malrite Communications Group Inc.;
- - Sinclair Broadcast Group, Inc. ("Sinclair")/Sullivan Broadcast Holdings, Inc.;
- - Hicks Muse/LIN Television;
- - Sinclair/Heritage Media Corporation;
- - Paxson Communications Corporation/ITT Corp.-Dow Jones & Company;
- - News Corp./Heritage Media Corporation's Television Assets;
- - The Hearst Corp./Argyle Television, Inc.;
- - Meredith Corporation/First Media Television, L.P.;
- - A.H. Belo Corporation/The Providence Journal Company;
- - Raycom Media, Inc./AFLAC Incorporated;
- - Media General, Inc./Park Communications, Inc.;
- - News Corp./New World Communications Group Incorporated;
- - Tribune Company/Renaissance Communications Corp.;
- - The National Broadcasting Company, Inc./New World Communications Group
Incorporated;
- - Ellis Acquisition Inc. (Employees Retirement Systems of Alabama)/Ellis
Communications, Inc.;
- - The New York Times Company/Palmer Communications, Inc.;
- - Young Broadcasting Inc./The Walt Disney Company, Sinclair/River City
Broadcasting, L.P.;
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- - Benedek Broadcasting Corporation/Brissette Broadcasting Corporation;
- - Gannett Co., Inc./Multimedia, Inc.;
- - ITT Corp.-Dow Jones & Company/New York City;
- - Westinghouse Electric Corporation/CBS Inc.;
- - The Walt Disney Company/Capital Cities-ABC, Inc.;
- - The National Broadcasting Corporation, Inc./Outlet Communications, Inc.;
- - ABRY Broadcast Partners II, L.P./Act III Broadcasting, Inc.;
- - SF Broadcasting, LLC/Burnham Broadcasting Company;
- - New World Communications/Argyle Television;
- - Fox Broadcasting Company/Viacom Inc.;
- - New World Communications/Great American Communications;
- - River City Broadcasting L.P./Continental Broadcasting; and
- - Argyle Television, Inc./Times Mirror Co.
Wasserstein Perella's analysis of the selected acquisition transactions, based
on a valuation for LIN that included the LIN LMA Stations and using 12.0x-15.0x
as a multiple of estimated BCF, yielded an implied price range of $1.10-$1.64
per share of LIN common stock. A merger and acquisition transaction analysis,
based on a valuation for LIN that included the LIN LMA Stations valued at $200
million and using a multiple of estimated 1998 BCF of 12.0x-15.0x, yielded an
implied price range of $1.38-$1.90 per share of LIN common stock. Because the
market conditions and circumstances surrounding each of the transactions
analyzed were specific to each transaction, and because of the inherent
differences between the businesses, operations and market conditions of LIN and
Chancellor Media and the acquired businesses analyzed, Wasserstein Perella
believed it was inappropriate to, and therefore did not, rely solely on the
quantitative results of the analysis and, accordingly, also made qualitative
judgments concerning differences between the characteristics of these
transactions and the merger that would affect the acquisition values of LIN and
the acquired companies.
Discounted Cash Flow Analysis. Wasserstein Perella performed discounted cash
flow analyses based on the projections of LIN's management, and calculated
present values per share of LIN common stock as of January 1, 1999. In
performing its discounted cash flow analysis, Wasserstein Perella considered
various different assumptions that it deemed appropriate. Based on a review with
LIN's management of LIN's prospects and risks associated with the business of
LIN, Wasserstein Perella applied valuation parameters that it deemed appropriate
to the projections prepared by LIN's management. Wasserstein Perella believed it
appropriate to utilize discount rates of 9%-10% and terminal valuations based on
(1) perpetuity growth rates of 4.0%-4.5% and (2) multiples of estimated year
2002 BCF of 10.0x-12.0x. Based on the foregoing, in Wasserstein Perella's
judgment, a discounted cash flow analysis yielded a summary reference range of
implied prices of $1.17-$1.88 per share of LIN common stock based on a valuation
for LIN which included the LIN LMA Stations and a reference range of implied
prices of $1.32-$1.97 per share of LIN common stock based on a valuation for LIN
which included the LIN LMA Stations valued at $200 million.
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Public Company Trading Analysis. Wasserstein Perella reviewed, analyzed and
compared certain operating, financial, and trading information of LIN and four
other publicly traded television broadcasting companies H-A TV, Granite
Broadcasting Corporation ("Granite"), Sinclair and Young Broadcasting Inc.
("Young"), including market values, enterprise values and estimated enterprise
values as a multiple of each of estimated last 12 month, estimated 1998 and 1999
BCF. These values and multiples are set forth below.
<TABLE>
<CAPTION>
ESTIMATED ENTERPRISE
VALUE AS A
MULTIPLE OF:
MARKET ENTERPRISE --------------------
EQUITY VALUE VALUE LTM 1998E 1999E
($MM) ($MM) BCF BCF BCF
------------ ---------- ---- ----- -----
<S> <C> <C> <C> <C> <C>
H-A TV........................... $3,193 $4,349 15.2x 13.7x 12.5x
Granite.......................... 227 827 12.5 11.0 10.1
Sinclair......................... 2,961 6,285 16.6 15.0 13.5
Young............................ 1,034 1,667 14.0 13.0 12.1
</TABLE>
Based on the foregoing values and multiples and in Wasserstein Perella's
judgment, a public company trading analysis, based on a valuation for LIN that
included the LIN LMA Stations and using a multiple of estimated 1998 BCF of
11.5x-13.5x, yielded an implied reference price range of $1.01-$1.37 per share
of LIN common stock, and using a multiple of estimated 1999 BCF of 10.5x-12.5x,
yielded an implied reference price range of $1.04-$1.43 per share of LIN common
stock. A public company trading analysis, based on a valuation for LIN which
included the LIN LMA Stations valued at $200 million and using a multiple of
estimated 1998 BCF of 11.5x-13.5x, yielded an implied reference price range of
$1.30-$1.64 per share of LIN common stock, and using a multiple of estimated
1999 BCF of 10.5x-12.5x, yielded an implied reference price range of $1.25-$1.62
per share of LIN common stock. The reference ranges using public company trading
prices are not based on a purely mathematical analysis, but also take into
consideration a qualitative analysis of each publicly traded company and
Wasserstein Perella's judgments concerning the likely trading position of LIN in
the market of publicly traded television companies.
Pro Forma Analysis of the Merger. Wasserstein Perella analyzed the pro forma
impact of the merger on Chancellor Media's projected after-tax cash flow
("ATCF") per share of Chancellor Media common stock. The analysis was based on
certain financial projections for such periods prepared by LIN's management for
LIN, by Chancellor Media's management for Chancellor Media and by certain equity
research analysts with respect to Chancellor Media. Based on the foregoing, in
Wasserstein Perella's judgment, the merger was expected to be accretive to ATCF
per share of Chancellor Media common stock by approximately 3.1% in 1999 and
5.1% in 2000, based on equity research analysts' estimates for Chancellor Media,
and by approximately 1.6% in 1999 and 2.8% in 2000, based on the internal
estimates of Chancellor Media's management.
In arriving at the Wasserstein Perella fairness opinion, Wasserstein Perella
performed a variety of financial analyses, the material portions of which are
summarized above. The preparation of a fairness opinion is a complex analytical
process involving various determinations as to the most appropriate and relevant
methods of financial analyses and the application of those methods to the
particular circumstances and, therefore, such an opinion is not necessarily
susceptible to partial analysis or summary description. In arriving at its
opinion, Wasserstein Perella did not attribute any particular weight to any
analysis or
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factor considered by it, but rather made qualitative judgments as to
significance and relevance of each analysis and factor. Accordingly, Wasserstein
Perella believes that its analyses must be considered as a whole and that
selecting portions of such analyses and the factors considered by it, without
considering all such analyses and factors, could create an incomplete view of
the process underlying its analyses set forth in its opinion. In performing its
analysis, Wasserstein Perella relied on numerous assumptions made by the
management of LIN and of Chancellor Media, and made numerous judgments of its
own with regard to the performance of LIN, industry performance, general
business and economic conditions and other matters, many of which are beyond
LIN's and Chancellor Media's abilities to control. Actual values will depend
upon several factors, including changes in interest rates, dividend rates,
market conditions, general economic conditions and other factors that generally
influence the price of securities. Any estimates contained in such analysis are
not necessarily indicative of actual values or actual future results, which may
be significantly more or less favorable. In addition, analyses relating to
values of companies do not purport to be appraisals or to reflect the prices at
which companies may actually be sold. Since these estimates are inherently
subject to uncertainty, none of Chancellor Media, Wasserstein Perella or any
other person assumes responsibility for their accuracy. With regard to the
comparable public company analysis and the comparable transactions analysis
summarized above, Wasserstein Perella selected comparable public companies on
the basis of various factors; however, no public company or transactions
utilized as a comparison is identical to LIN, Chancellor Media or the merger.
Accordingly, an analysis of the foregoing is not mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the comparable companies and other
factors that could affect the acquisition or public trading value of the
comparable companies and transactions to which LIN and the merger are being
compared.
Wasserstein Perella is an investment banking firm engaged, among other things,
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, competitive bidding, and secondary
distributions of listed and unlisted securities and private placements.
Wasserstein Perella was selected to render the Wasserstein Perella fairness
opinion because it is a nationally recognized investment banking firm and
because of its experience in the valuation of companies, including companies in
the television broadcasting industry. In the ordinary course of its business,
Wasserstein Perella may actively trade the debt and equity securities of LIN and
Chancellor Media for its own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Wasserstein Perella advised Evergreen in its merger with Chancellor Radio
Broadcasting Company, which transaction resulted in the formation of Chancellor
Media. Wasserstein Perella advised Evergreen in its joint acquisition with
Chancellor Radio Broadcasting Company of Viacom Radio Group. In addition,
Wasserstein Perella advised the predecessor of LIN, LIN Television, and the
independent directors of the board of directors of LIN Television in its merger
with an affiliate of Hicks Muse.
The terms of Chancellor Media's retention of Wasserstein Perella as financial
advisor to the Special Committee are governed by an engagement letter dated June
9, 1998. Chancellor Media paid Wasserstein Perella a fee of $500,000 upon the
execution of its engagement letter and $2 million when Wasserstein Perella
rendered its opinion to the Special Committee with respect to the fairness, from
a financial point of view, to
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Chancellor Media and the holders of Chancellor Media common stock of the
exchange ratio. In addition to any of the compensation described above,
Chancellor Media agreed to reimburse Wasserstein Perella for its reasonable
out-of-pocket expenses, including fees, disbursement and other charges of its
counsel. Chancellor Media has agreed to indemnify Wasserstein Perella and its
affiliates, their respective directors, officers, partners, agents and employees
and controlling persons, and each of their respective successors and assigns
against selected liabilities and expenses, including selected liabilities under
the federal securities laws, relating to or arising out of such engagement.
Opinion of Financial Advisor to the Chancellor Media Board of Directors
Chancellor Media retained Morgan Stanley to act as financial advisor to the
Board of Directors of Chancellor Media in connection with the merger and related
matters. The terms of Chancellor Media's retention of Morgan Stanley are
governed by an engagement agreement dated June 9, 1998. Morgan Stanley delivered
to the Board of Directors of Chancellor Media its written opinion, dated as of
July 7, 1998, to the effect that, as of the date of Morgan Stanley's opinion,
based on the matters stated in the Morgan Stanley opinion, the consideration to
be paid by Chancellor Media pursuant to the merger agreement is fair from a
financial point of view to Chancellor Media.
THE FULL TEXT OF THE MORGAN STANLEY OPINION, WHICH SETS FORTH THE ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY MORGAN
STANLEY, IS ATTACHED AS ANNEX III TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND
IS INCORPORATED IN THE JOINT PROXY STATEMENT/PROSPECTUS BY REFERENCE. HOLDERS OF
CHANCELLOR MEDIA COMMON STOCK ARE URGED TO, AND SHOULD, READ THE MORGAN STANLEY
OPINION CAREFULLY AND IN ITS ENTIRETY. THE MORGAN STANLEY OPINION IS DIRECTED TO
THE BOARD OF DIRECTORS OF CHANCELLOR MEDIA. THE MORGAN STANLEY OPINION ADDRESSES
THE FAIRNESS TO CHANCELLOR MEDIA OF THE CONSIDERATION TO BE PAID BY CHANCELLOR
MEDIA UNDER THE MERGER AGREEMENT FROM A FINANCIAL POINT OF VIEW TO CHANCELLOR
MEDIA, AND DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER, NOR DOES IT
CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF SHARES OF CHANCELLOR MEDIA COMMON
STOCK AS TO HOW TO VOTE AT THE CHANCELLOR MEDIA SPECIAL MEETING. THE SUMMARY OF
THE MORGAN STANLEY OPINION SET FORTH IN THIS JOINT PROXY STATEMENT/ PROSPECTUS
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE MORGAN STANLEY
OPINION.
In arriving at its opinion, Morgan Stanley:
- - reviewed certain publicly available financial statements and other information
of Chancellor Media and LIN;
- - reviewed certain internal financial statements and other financial and
operating data concerning Chancellor Media and LIN prepared by the management
of Chancellor Media and LIN, respectively;
- - reviewed certain financial projections prepared by the management of
Chancellor Media and LIN, respectively;
- - discussed the past and current operations and financial condition and the
prospects of Chancellor Media and LIN with senior executives of Chancellor
Media and LIN, respectively;
- - reviewed the reported prices and trading activity for Chancellor Media common
stock;
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- - compared the financial performance of Chancellor Media and LIN with that of
certain other comparable publicly-traded companies;
- - reviewed the financial terms, to the extent publicly available, of certain
comparable acquisition transactions;
- - participated in discussions and negotiations among representatives of
Chancellor Media and LIN and their financial and legal advisors;
- - reviewed the merger agreement, and certain related documents; and
- - performed such other analyses as it deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by Morgan Stanley for purposes of its opinion. With respect to
financial projections, Morgan Stanley assumed that they had been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the future financial performance of Chancellor Media and LIN.
Morgan Stanley assumed that the merger will take place in accordance with the
merger agreement and related documents. Morgan Stanley did not make an
independent valuation or appraisal of LIN's assets or liabilities, nor was
Morgan Stanley furnished with any appraisals of LIN's assets or liabilities. The
Morgan Stanley opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to Morgan Stanley
as of, the date of the Morgan Stanley opinion.
The following is a brief summary of the financial analysis performed by Morgan
Stanley in connection with the delivery of the Morgan Stanley opinion to the
Board of Directors of Chancellor Media:
Transaction Overview. Morgan Stanley noted that, based on the exchange ratio and
the number of outstanding shares of LIN common stock, and based on a $51.00 per
share closing price of Chancellor Media common stock on June 26, 1998, the date
such valuation was established for the purposes of determining the exchange
ratio, the exchange ratio implied an aggregate value of $1,626 million for the
merger transaction and $1,488 million for LIN's television assets, net of other
assets and working capital. Morgan Stanley noted that the $1,626 million merger
transaction value represented a multiple of 12.7x LIN's 1999 projected BCF.
Including certain amounts which could potentially be required to be paid by
Chancellor Media in connection with a retirement of LIN's existing debt, the
exchange ratio implied an aggregate value of $1,675 million for the merger
transaction and $1,537 million for the LIN television assets. Morgan Stanley
noted that the $1,675 million merger transaction value represented a multiple of
13.1x LIN's 1999 projected BCF.
Precedent Transaction Multiples Analysis. Morgan Stanley reviewed and analyzed
public information relating to the financial terms of certain precedent
transactions in the television broadcasting industry, which, in Morgan Stanley's
judgment, were deemed to be the most comparable to the merger for purposes of
this analysis. These comparable transactions included:
- - the acquisition of Pulitzer radio and television operations by Hearst-Argyle
Television, Inc. ("Hearst-Argyle");
- - Raycom Media Inc.'s acquisition of Malrite Communications Group Inc.;
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- - Emmis Broadcasting Corp.'s purchase of four television stations from SF
Broadcasting;
- - Sinclair's purchase of Sullivan Broadcast Holdings Inc.;
- - Gray Communications Systems Inc.'s purchase of Busse Broadcasting Corp.;
- - Freedom Communications Inc.'s purchase of a television station from Granite;
- - an investor group's acquisition of Telemundo Group Inc.;
- - the acquisition of LIN Television by Hicks Muse;
- - the acquisition of certain television and radio stations from Heritage Media
Corporation by Sinclair;
- - the acquisition of Argyle Television, Inc. ("Argyle") by The Hearst
Corporation ("Hearst");
- - the acquisition of WXON-TV by Granite;
- - the acquisition of four television stations from First Media Television L.P.
by Meredith Corp.; and
- - certain older transactions announced in 1996.
Morgan Stanley reviewed the prices paid in the comparable transactions,
including an analysis of the aggregate value of the comparable transactions
expressed as multiples of publicly available estimates of projected cash flow
(BCF where available, or otherwise projected earnings before interest, taxes,
depreciation and amortization ("EBITDA")). The aggregate values for these
transactions, expressed as a multiple of projected BCF or EBITDA, as appropriate
("projected cash flow"), ranged from 11.9x to 17.8x projected cash flow for
transactions announced in 1996, from 11.0x to 14.9x projected cash flow for
transactions announced in 1997 and from 10.0x to 18.6x projected cash flow for
transactions announced in 1998 prior to July 6, 1998. The median cash flow
multiple for the comparable transactions was 12.8x in 1996, 13.0x in 1997 and
14.7x in 1998. Morgan Stanley noted that some of the comparable transactions
involved companies that had lower current operating margins than LIN, and some
of the comparable transactions were structured as sales of assets, rather than a
sale of stock, and thus may have conferred additional tax benefits to the buyer.
Morgan Stanley noted that, based on the Exchange Ratio, Morgan Stanley's
analysis yielded an implied aggregate value acquisition multiple range for LIN's
television assets of 12.7x to 13.1x LIN's estimated 1999 BCF. Morgan Stanley
noted that, based on its analysis of comparable transactions, the BCF
acquisition multiple range for LIN's television assets was within the range of
cash flow multiples for the Comparable Transactions and was below the implied
13.5x multiple paid to Pulitzer by Hearst-Argyle, the comparable transaction
which Morgan Stanley deemed most similar and closest in time to the merger.
No transaction utilized in the precedent transaction analysis is identical to
the merger. In evaluating the comparable transactions, Morgan Stanley made
judgments and assumptions with regard to industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond Chancellor Media and LIN's control, such as the impact of competition on
the business of Chancellor Media, LIN and the industry generally, industry
growth and the absence of any adverse material change in
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the financial condition and prospects of Chancellor Media, LIN or the industry
or in the financial markets in general. Mathematical analysis, such as
determining the average or median, is not in itself a meaningful method of using
comparable transaction data.
LIN Television Sum-of-Parts Analysis. Morgan Stanley compared the implied
aggregate valuation for the merger transaction and for LIN's television assets
described above with Morgan Stanley's evaluation of LIN based on its review of
the implied value of LIN's assets (the "LIN Asset Value"), including an
evaluation of the implied value of LIN's owned and operated television stations
(the "LIN Owned and Operated Stations"), the LIN LMA Stations, LIN's interest in
the Southwest Sports Group preferred stock, LIN's interest in the NBC joint
venture, LIN's option to purchase a television station from NBC (the "NBC
Option") and the potential value of tax benefits which could be used by
Chancellor Media as a result of the merger.
For the purposes of evaluating the LIN Owned and Operated Stations, Morgan
Stanley utilized multiples of BCF that reflected valuation benchmarks derived
from Chancellor Media's evaluation of a possible acquisition of the radio and
television operations of Pulitzer (the "Pulitzer Bid"). Morgan Stanley noted
that Pulitzer ultimately entered into an alternative transaction with
Hearst-Argyle. The Pulitzer/Hearst-Argyle transaction reflected higher valuation
multiples than Chancellor Media had considered in connection with the Pulitzer
Bid. Morgan Stanley considered Pulitzer's assets similar to LIN's assets for the
purpose of conducting its evaluation of LIN's assets. Accordingly, Morgan
Stanley implied a range of values for the LIN Owned and Operated Stations by
applying a multiple of 13.2x to LIN's estimated 1998 BCF, and applying a
multiple of 13.1x to LIN's estimated 1999 BCF, for the LIN Owned and Operated
Stations. The asset value of the LIN Owned and Operated Stations derived by
Morgan Stanley constituted the most significant asset class in the LIN Asset
Value. In addition, Morgan Stanley estimated a range of values for:
- - the LIN LMA Stations;
- - LIN's interest in the Southwest Sports Group preferred stock, the NBC joint
venture, and the NBC Option; and
- - potential tax benefits to be realized by Chancellor Media in connection with
the merger in relation to the tax benefits estimated to be realized by
Chancellor Media in connection with the Pulitzer Bid.
This analysis produced an implied range of transaction asset values of $1,513
million to $1,790 million. Morgan Stanley noted that the implied value to be
paid by Chancellor Media in the merger, based on the Exchange Ratio, was within
these ranges.
In connection with Morgan Stanley's LIN Asset Value analysis, Morgan Stanley
noted that in the Pulitzer Bid, the Board of Directors of Chancellor Media had
considered a range of values for LIN in the context of a potential transaction
involving Chancellor Media, LIN and Pulitzer (the "Proposed Chancellor
Media/LIN/Pulitzer Transaction"), which was lower in terms of implied aggregate
value than the range of valuations implied in connection with the merger. The
Board of Directors of Chancellor Media never submitted a firm proposal to LIN in
connection with its consideration of the Proposed Chancellor Media/LIN/Pulitzer
Transaction and no opinion by Morgan Stanley was requested or given. Morgan
Stanley noted that the number of shares of Chancellor Media common stock to be
issued in the merger was within the range of the number of shares of Chancellor
Media common stock that would have been offered to LIN in the Proposed
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Chancellor Media/LIN/Pulitzer Transaction, because, in part, the trading price
of Chancellor Media common stock increased in value from the time of the
Chancellor Media Board of Director's consideration of the Proposed Chancellor
Media/LIN/Pulitzer Transaction to the time of the Chancellor Media Board of
Directors' consideration of the merger.
Historical Public Market Trading Value. Morgan Stanley reviewed the historical
performance of Chancellor Media common stock based on an historical analysis of
closing prices and trading volumes from January 1, 1997 through July 2, 1998.
Based on the latest 12 months of trading activity through July 2, 1998, the
closing price of the Chancellor Media common stock ranged from a low of $20.625
per share to a high of $51.75. Morgan Stanley noted that Chancellor Media common
stock closed at its historical high of $51.75 on July 2, 1998.
Equity Research Analysts' Future Trading Price Targets. Morgan Stanley reviewed
and analyzed future public market trading price targets for the Chancellor Media
common stock prepared and published by certain equity research analysts at
Morgan Stanley, Goldman, Sachs & Co., Credit Suisse First Boston Corporation, BT
Alex. Brown Incorporated, Furman Selz L.L.C., Salomon Smith Barney, Bear,
Stearns & Co. Inc. and UBS Securities LLC in the period from May 1, 1998 through
June 26, 1998 reflecting the analysts' estimates of the future public market
trading price of Chancellor Media common stock at the end of the particular time
period considered in each analyst's estimate. The time period considered in each
analyst's estimate generally ended 12 months following the publication of the
estimate or at the end of the 1998 calendar year. The estimates of future price
targets reviewed and analyzed by Morgan Stanley ranged from a low of $54 per
share of Chancellor Media common stock to a high of $68 per share of Chancellor
Media common stock. Morgan Stanley noted that the future price targets published
by the analysts do not reflect current price targets for Chancellor Media common
stock and that the accuracy of the analysts' estimates may be affected by
uncertainties, including, without limitation, the future financial performance
of Chancellor Media and future financial market conditions.
Pro Forma Analysis of the Merger. Morgan Stanley analyzed the pro forma impact
of the merger on Chancellor Media's projected ATCF per share of Chancellor Media
common stock for the fiscal years ended 1998, 1999 and 2000. This analysis was
based on financial projections for the 1998-2000 period prepared by LIN
management for LIN, by Chancellor Media management for Chancellor Media and by
equity research analysts with respect to Chancellor Media. Based on this
analysis, Morgan Stanley noted that the merger was expected to be accretive to
ATCF per share of Chancellor Media common stock by approximately $0.06 per share
in 1999, based on the equity research analysts' estimates for Chancellor Media,
and by approximately $0.04 per share, based on Chancellor Media management's
internal estimates.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley performed a variety of financial
analyses, the material portions of which are summarized above. The summary set
forth above does not purport to be a complete description of the analyses
performed by Morgan Stanley. In addition, Morgan Stanley believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and the factors considered by it, without considering all such factors
and analyses,
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could create a misleading view of the process underlying the analyses set forth
in its opinion.
In performing its analysis, Morgan Stanley made numerous assumptions with
respect to industry performance, general business, regulatory and economic
conditions and other matters, many of which are beyond the control of Chancellor
Media and LIN. The analyses performed by Morgan Stanley are not necessarily
indicative of actual values, which may be significantly more or less favorable
than suggested by such analyses. Morgan Stanley's analyses were prepared solely
as part of Morgan Stanley's analysis of the fairness of the consideration to be
paid in the form of Chancellor Media common stock in the merger pursuant to the
merger agreement from a financial point of view to Chancellor Media, and were
provided to the Chancellor Media Board of Directors in connection with the
delivery of the Morgan Stanley opinion. The analyses do not purport to be
appraisals and do not necessarily reflect the prices at which businesses or
companies, including LIN, might actually be sold. As described above, the Morgan
Stanley opinion was one of many factors taken into consideration by the
Chancellor Media Board of Directors in making its determination to approve the
merger agreement and the transactions contemplated thereby. Consequently, the
Morgan Stanley analyses described above should not be viewed as determinative of
the opinions of the Chancellor Media Board of Directors with respect to the
value of Chancellor Media and LIN.
Morgan Stanley is an internationally recognized investment banking and financial
advisory firm. Morgan Stanley, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. In the ordinary course of its
trading, brokerage and financing activities, Morgan Stanley or its affiliates
may at any time hold long or short positions, and may trade or otherwise effect
transactions, for its own account or the accounts of customers, in debt or
equity securities or senior loans of LIN, Chancellor Media or any other company
that may be involved in the transactions contemplated by the merger agreement.
In the past, Morgan Stanley and its affiliates have provided financial advisory
or financing services to Chancellor Media, LIN and Hicks Muse, and have received
customary fees for the rendering of these services.
The engagement agreement between Chancellor Media and Morgan Stanley requires
Chancellor Media to pay Morgan Stanley a fee of $3 million at the time Morgan
Stanley was prepared to render an opinion to the Chancellor Media Board of
Directors as to the fairness of the consideration to be paid in a transaction to
acquire LIN. This fee has been paid to Morgan Stanley. In addition to the
foregoing compensation, Chancellor Media has agreed to reimburse Morgan Stanley
for its expenses, including reasonable out-of-pocket fees and expenses of its
counsel, and to indemnify Morgan Stanley for liabilities and expenses arising
out of Morgan Stanley's engagement by Chancellor Media and the transactions in
connection with the engagement, including liabilities under federal securities
laws.
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RECOMMENDATION OF THE LIN BOARD OF DIRECTORS AND LIN'S REASONS FOR THE MERGER
THE BOARD OF DIRECTORS OF LIN BELIEVES THAT THE MERGER IS FAIR TO, ADVISABLE AND
IN THE BEST INTERESTS OF THE STOCKHOLDERS OF LIN AND HAS APPROVED, ADOPTED AND
DECLARED ADVISABLE THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THE
MERGER AGREEMENT, AND RECOMMENDS THAT THE STOCKHOLDERS OF LIN VOTE IN FAVOR OF
THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED BY THE MERGER AGREEMENT.
In reaching its determination, the Board of Directors of LIN considered a number
of factors, including the following:
- - the judgment, advice and analysis of LIN's management and its financial and
legal advisors;
- - the presentation of Greenhill & Co., LLC, LIN's financial advisor, to the full
Board of Directors of LIN, including its oral opinion delivered at the meeting
held on July 6, 1998 to the effect that the consideration to be received by
LIN stockholders pursuant to the merger agreement was fair, from a financial
point of view, to the stockholders of LIN;
- - the opportunities that the merger would provide for economies of scale and
other operating efficiencies and synergies, particularly in terms of the
combined market share of Chancellor Media and LIN and the ability to provide
advertisers with access to television, radio and billboard advertising;
- - the greater competitive strengths, financial resources, and opportunities for
further expansion of the combined entity and the creation of a more attractive
vehicle for national advertisers;
- - the diversification of revenue and broadcast cash flow by the combined entity
across a larger number of geographic markets and different advertising media,
including television, radio and billboards, thus reducing reliance on any
individual market or advertising medium;
- - the increased growth potential of the combined entity compared to LIN as a
separate company;
- - the enhanced liquidity that the merger would provide LIN stockholders with
Chancellor Media common stock being publicly traded on the Nasdaq Stock
Market's National Market;
- - the structure, terms and conditions of the merger agreement, including the
nature and amount of the consideration to be received by the LIN stockholders
in the merger; and
- - the probability that the merger would receive all necessary regulatory
approvals.
In view of the number of factors considered by the Board of Directors of LIN,
the Board did not assign relative weights to the factors considered by it in
reaching its conclusions. Rather, the Board of Directors viewed its conclusions
and recommendations as being based on the totality of the information being
presented to and considered by it. In addition, it may be the case that
individual directors of LIN assigned different weights to the various factors
considered by them in voting to approve the merger.
While the Board of Directors of LIN believes that the merger will have a number
of material beneficial effects on LIN's stockholders, including the factors
considered by the Board in approving the merger, the merger may also have
certain material adverse effects
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on its stockholders. In reaching its determination that the merger is fair to,
advisable and in the best interests of the stockholders of LIN, the Board of
Directors of LIN addressed and, prior to voting to approve the merger, resolved
to its satisfaction various negative factors identified by the Board and LIN's
management, including the following:
- - the difficulties and management distractions inherent in completing the merger
and then integrating LIN's television broadcasting operations with the radio
and billboard advertising operations of Chancellor Media;
- - the greater emphasis that Chancellor Media may place on the radio and
billboard advertising industries rather than the television industry, which
would be a new line of business for management of Chancellor Media;
- - the ability to successfully integrate Chancellor Media's and LIN's management
teams;
- - the payment of fees to Hicks Muse; and
- - the possibility that the expected material benefits of the merger will not be
achieved.
OPINION OF FINANCIAL ADVISOR TO THE LIN BOARD OF DIRECTORS
Greenhill was retained by LIN to render a fairness opinion to the Board of
Directors of LIN in connection with the merger. The terms of LIN's retention of
Greenhill are governed by an engagement agreement, dated as of July 1, 1998. On
or around that date, management of LIN provided Greenhill with internally
prepared five-year estimates of LIN's future broadcast cash flow and other
operating and balance sheet data. Greenhill delivered to the Board of Directors
of LIN its written opinion, dated July 7, 1998, to the effect that on that date,
based on selected matters stated in its opinion, the consideration to be paid by
Chancellor Media under the merger agreement was fair from a financial point of
view to the stockholders of LIN.
THE FULL TEXT OF THE GREENHILL OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS
ANNEX IV TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED IN THIS
JOINT PROXY STATEMENT/PROSPECTUS BY REFERENCE. HOLDERS OF LIN COMMON STOCK ARE
URGED TO, AND SHOULD, READ THE GREENHILL OPINION CAREFULLY AND IN ITS ENTIRETY.
THE GREENHILL OPINION HAS BEEN PROVIDED TO THE BOARD OF DIRECTORS OF LIN IN
CONNECTION WITH ITS EVALUATION OF THE MERGER. THE GREENHILL OPINION ONLY
ADDRESSES THE FAIRNESS TO THE STOCKHOLDERS OF LIN OF THE CONSIDERATION TO BE
PAID BY CHANCELLOR MEDIA PURSUANT TO THE MERGER AGREEMENT FROM A FINANCIAL POINT
OF VIEW TO LIN'S STOCKHOLDERS, AND DOES NOT ADDRESS ANY OTHER ASPECT OF THE
MERGER, NOR DOES IT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF SHARES OF LIN
COMMON STOCK AS TO HOW THE STOCKHOLDER SHOULD VOTE. THE SUMMARY OF THE GREENHILL
OPINION SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at its opinion, Greenhill:
- - reviewed the merger agreement, the disclosure letter of LIN, the disclosure
letter of Chancellor Media and the Voting Agreement, all dated July 7, 1998;
- - analyzed the structure of the merger;
- - analyzed the value of the consideration against publicly available information
of other transactions that Greenhill deemed relevant;
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- - analyzed the value of the consideration using the trading values of television
broadcasting companies that Greenhill deemed relevant;
- - reviewed LIN financial information, including financial projections, and
operating information furnished to Greenhill by representatives of LIN;
- - performed a discounted cash flow analysis of LIN;
- - discussed the structure of the merger as well as the business, operations and
prospects of LIN with representatives of LIN;
- - discussed the recent and near-term prospects, both business and financial, for
Chancellor Media, as well as the capital structure of Chancellor Media with
representatives of Chancellor Media;
- - reviewed particular publicly available financial and other information on
Chancellor Media; and
- - considered other factors as Greenhill deemed appropriate.
Greenhill assumed and relied upon without independent verification the accuracy
and completeness of the information supplied or otherwise made available to
Greenhill by representatives of LIN and Chancellor Media for purposes of its
opinion and further relied upon the assurances of the representatives of LIN and
Chancellor Media that they were not aware of any facts or circumstances that
would make the information inaccurate or misleading.
With respect to the financial projections of LIN, upon advice of the
representatives of LIN, Greenhill assumed the projections had been reasonably
prepared on a basis reflecting the best available estimates at the time and good
faith judgements of the management of LIN as to the future financial performance
of LIN, and Greenhill relied upon these projections in arriving at its opinion.
Greenhill requested but was not provided with financial projections for
Chancellor Media. In arriving at its opinion, Greenhill did not conduct a
physical inspection of LIN or Chancellor Media nor did Greenhill undertake an
independent appraisal of the assets of LIN or of the assets of Chancellor Media
nor did Greenhill express an opinion as to any aspect of the merger other than
the fairness to the stockholders of LIN of the consideration from a financial
point of view. In addition, Greenhill assumed that the merger would be
consummated in accordance with the terms and conditions set forth in the merger
agreement. Greenhill's opinion is necessarily based on financial, economic,
market and other conditions as in effect on, and the information made available
to Greenhill as of, the date of its opinion.
The following is a brief summary of the financial analysis performed by
Greenhill in connection with the delivery of the Greenhill opinion to the Board
of Directors of LIN. The summary below includes reference ranges of implied
prices per share of LIN common stock based on Greenhill's judgment of the data
analyzed.
Transaction Overview. Greenhill noted that, under the merger agreement, each
share of LIN common stock would be converted into the right to receive 0.0300
shares of Chancellor Media common stock. Based on the exchange ratio and based
on a $51.00 price per share for Chancellor Media common stock, which was the
closing price of Chancellor Media common stock on July 1, 1998, the date such
valuation was established for the purposes of determining the exchange ratio,
the exchange ratio implied a consideration of $1.53 per share of LIN common
stock, which implied an aggregate value of $1,637 million for the merger,
representing a multiple of 13.9x LIN's 1999 projected
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BCF, defined as earnings before interest, taxes, depreciation and amortization
plus corporate overhead.
Public Company Trading Analysis. Greenhill reviewed and analyzed selected
publicly available financial and market information for a group of five publicly
traded television broadcasting companies: Hearst-Argyle Television, Inc.,
Sinclair, Gray Communications Systems, Inc., Granite and Young. Greenhill's
analysis included, among other things, a review of the enterprise value of each
of the respective comparable companies, which is the market value of equity plus
net debt, preferred stock and minority interests, expressed as a multiple of
estimated 1999 BCF, pro forma for announced acquisitions. For each comparable
company, the 1999 BCF estimates were based on publicly available reports
published by equity research analysts.
The BCF multiples derived from Greenhill's analysis of the comparable companies
ranged from 8.9x-13.1x 1999 estimated BCF. The median of the multiples for the
comparable companies was 9.9x 1999 estimated BCF. Based on the foregoing values
and multiples and in Greenhill's judgment, the appropriate reference ranges for
LIN derived from Greenhill's public company trading analysis were 12.5x-13.5x
estimated 1999 BCF, implying reference range prices of $1.23-$1.44 per share of
LIN common stock. Greenhill also analyzed the foregoing implied reference prices
per share of LIN common stock assuming an acquisition premium over the values
reflected in the stock market. Assuming a 30 percent premium, which Greenhill
believed approximates a typical acquisition premium over unaffected market
trading levels, the implied 1999 estimated BCF multiple reference range was
14.3x-15.6x and the price per share of LIN common stock was $1.60-$1.87.
However, Greenhill believed the difference between the foregoing implied price
per share of LIN common stock and the consideration was overstated because the
stock prices of the comparable companies reflected embedded acquisition premiums
due to the ongoing consolidation activity in the television broadcasting
industry.
The implied reference range prices of LIN common stock are not based on a purely
mathematical analysis, but also take into consideration a qualitative analysis
of each publicly traded company and Greenhill's judgments concerning the
hypothetical but likely trading position of LIN in the market of publicly traded
television broadcasting companies. No company utilized in the comparable company
analysis as a comparison is identical to LIN. In evaluating the comparable
companies, Greenhill made judgments and assumptions with regard to industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of LIN, for example the
impact of competition on the business of LIN and the industry generally,
industry growth and the absence of any adverse material change in the financial
condition and prospects of LIN or the industry or in the financial markets in
general. Mathematical analysis, for example, determining the average or median,
is not in itself a meaningful method of using comparable company data.
Precedent Merger and Acquisition Transactions. Greenhill reviewed and analyzed
selected merger and acquisition transactions since January 1, 1996 involving
companies in the television broadcasting industry that it deemed relevant. Among
other factors, Greenhill indicated that while there have been a number of recent
television broadcasting transactions, acquisition values paid in specific
transactions have historically been affected by several factors including the
transaction structure, the target's operating performance and geographic mix of
assets, the existence of a controlling/major shareholder, the
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strategic rationale for the transaction and the existence and implied valuation
of non-television broadcasting assets in the target.
Greenhill reviewed and analyzed the following transactions, which are listed by
acquiror/seller:
- - Hearst-Argyle Television, Inc./Pulitzer;
- - Sinclair/Sullivan Broadcast Holdings, Inc.;
- - Apollo/Bastion/Telemundo Group, Inc.;
- - Hicks Muse/LIN Television Corporation;
- - Sinclair Broadcast Group, Inc./Heritage Media Corporation;
- - Meredith Corporation/First Media Television, L.P.;
- - Hearst/Argyle;
- - A.H. Belo Corporation/The Providence Journal Company;
- - Raycom Media, Inc./AFLAC Incorporated;
- - The News Corporation Limited/New World Communications Group Incorporated;
- - Tribune Company/Renaissance Communications Corp.; and
- - Sinclair/River City Broadcasting, L.P.
Greenhill's analysis of the selected acquisition transactions yielded an
estimated multiple of BCF for the forward calendar year-end as of the
announcement date of these acquisitions in the range of 9.6x-21.4x.
Based on the foregoing values and multiples and in Greenhill's judgment, the
appropriate reference range derived from the precedent merger and acquisition
transactions analysis was 11.5x-12.5x forward calendar year BCF, implying a
reference price range of $1.02-$1.23 per share of LIN common stock.
No transaction utilized in the precedent transaction analysis is identical to
the merger. In evaluating the comparable transactions, Greenhill made judgments
and assumptions with regard to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond
Chancellor Media's and LIN's control, for example, the impact of competition on
the business of Chancellor Media, LIN and the industry generally, industry
growth and the absence of any adverse material change in the financial condition
and prospects of Chancellor Media, LIN or the industry or in the financial
markets in general. Mathematical analysis, for example, determining the average
or median, is not in itself a meaningful method of using comparable transaction
data.
Greenhill noted that the BCF multiples derived in the analysis of the comparable
companies and comparable transactions were based on reported BCF for each
company analyzed and were not adjusted for financial or other assets that did
not contribute to BCF or whose value was significantly out of proportion to its
contribution to BCF. Accordingly, Greenhill believed that, on balance, in
analyzing the value of LIN common stock based on an analysis of the comparable
companies and comparable transactions, it was more appropriate to focus on LIN's
projected BCF without any adjustments and therefore not to adjust the value of
LIN common stock for the value of LIN's interest in the NBC joint venture and
LIN's interest in the Southwest Sports Group preferred stock. However, Greenhill
noted that if these assets were separately valued, then the value paid for all
other assets of LIN was a multiple of 12.9x LIN's 1999 estimated BCF.
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Discounted Cash Flow Analysis. Greenhill conducted a discounted cash flow
analysis for LIN's television stations based on the projections of LIN's
management in order to estimate the present value of the unlevered free cash
flows that could be generated by LIN. Greenhill derived a range of discounted
cash flow values by calculating the estimated present value as of September 30,
1998 of projected unlevered free cash flow for LIN for the calendar years 1998
through 2002 and a terminal value based on a multiple of projected BCF for the
year 2002. Such analysis was based on certain assumptions, including:
- - certain financial projections prepared by the management of LIN;
- - terminal multiples, based on market trading multiples of 11.0x-13.0x BCF for
the year 2002;
- - a discount rate of 9.0%-11.0% and
- - various other assumptions.
Based on this analysis, Greenhill derived a reference price range of $0.99-$1.56
per share of LIN common stock.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Greenhill performed a variety of financial analyses,
the material portions of which are summarized above. The summary set forth above
does not purport to be a complete description of the analyses performed by
Greenhill. In arriving at its opinion, Greenhill did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, Greenhill believes that its analyses must be considered as
a whole and that selecting portions of its analyses and the factors considered
by it, without considering all of the factors and analyses, could create a
misleading view of the process underlying the analyses set forth in its opinion.
In performing its analysis, Greenhill relied on numerous assumptions made by the
management of LIN and made numerous assumptions of its own with respect to
industry performance, general business, regulatory and economic conditions and
other matters, many of which are beyond the control of LIN and Chancellor Media.
The analyses performed by Greenhill are not necessarily indicative of actual
values, which may be significantly more or less favorable than suggested by the
analyses. These analyses were prepared solely as part of Greenhill's analysis of
the fairness of the consideration to be paid in the form of Chancellor Media
common stock in the merger under the merger agreement from a financial point of
view to the stockholders of LIN, and were provided to the LIN Board of Directors
in connection with the delivery of the Greenhill opinion. The analyses do not
purport to be appraisals and do not necessarily reflect the prices at which
businesses or companies, including LIN, might actually be sold. As described
above, the Greenhill opinion was one of many factors taken into consideration by
the LIN Board of Directors in making its determination to approve the merger
agreement and the transactions contemplated thereby. Consequently, the Greenhill
analyses described above should not be viewed as determinative of the opinion of
the LIN Board of Directors with respect to the value of LIN.
Greenhill is an internationally recognized investment banking and financial
advisory firm. Greenhill, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions,
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competitive biddings and valuations for corporate and other purposes. In the
past, Greenhill has provided financial advisory services to Chancellor Media and
Hicks Muse, and has received customary fees for the rendering of these services.
Robert F. Greenhill, Chairman of Greenhill, owned 2 million common shares of LIN
common stock at the date the opinion was rendered, representing 0.3% of the
fully diluted common shares outstanding.
Pursuant to the Greenhill engagement agreement, LIN agreed to pay Greenhill a
fee of $3.0 million at the time Greenhill was prepared to render an opinion to
the LIN Board of Directors as to the fairness of the consideration. In addition
to the foregoing compensation, LIN has agreed to reimburse Greenhill for its
expenses, including reasonable out-of-pocket fees and expenses of its counsel,
and to indemnify Greenhill for liabilities and expenses arising out of the
engagement and the transactions in connection therewith, including liabilities
under federal securities laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain officers and directors of Chancellor Media have interests concerning the
merger separate from their interests as officers and directors of Chancellor
Media.
- - Each of Thomas O. Hicks and Michael J. Levitt are members of the Board of
Directors of each of Chancellor Media and LIN, with Mr. Hicks serving as the
Chairman of each company.
- - Eric C. Neuman, Senior Vice President of Chancellor Media, is also a director
of LIN, and Lawrence D. Stuart, Jr., a director of Chancellor Media, is also
an officer of LIN.
- - Additionally, each of Thomas O. Hicks, Michael J. Levitt and Lawrence D.
Stuart, Jr. serve as officers, directors and partners of various entities
affiliated with Hicks Muse, which currently controls through various
affiliated entities approximately 11.9% of the outstanding Chancellor Media
common stock and approximately 74.7% of the outstanding shares of LIN common
stock. None of Messrs. Hicks, Levitt or Stuart served on the Special
Committee, and each of them abstained from the vote on the merger by the
Chancellor Media Board of Directors. In addition, Messrs. Hicks, Levitt and
Neuman abstained from the vote on the merger by the LIN Board of Directors.
In addition, certain affiliates of Hicks Muse may indirectly receive benefits in
the merger as a result of the appreciation in value of their investment in LIN
Television, which was completed in March 1998. In connection with the
acquisition of LIN Television, Hicks Muse and other investors paid an aggregate
purchase price of approximately $1.7 billion for the common equity of LIN
Television, which was financed from a number of sources, including approximately
$558.1 million of equity financing, of which approximately $403.1 million was
provided by Hicks Muse and its affiliates. The purchase price for the LIN common
stock by Chancellor Media in the merger is based upon a fixed exchange ratio of
0.03 of a share of Chancellor Media common stock for each share of LIN common
stock. Accordingly, based upon a price of $50.75 per share of Chancellor Media
common stock, the closing price of Chancellor Media's common stock on February
11, 1999, the market value of shares of Chancellor Media common stock to be
received in the merger by Hicks Muse and its affiliates in exchange for its
$403.1 million equity investment in LIN in March 1998 would be approximately
$613.7 million.
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As discussed above, each of Thomas O. Hicks, Lawrence D. Stuart, Jr. and Michael
J. Levitt also serve as officers, directors and partners of various entities
affiliated with Hicks Muse. Pursuant to the partnership and other agreements
governing such entities, each of Messrs. Hicks, Stuart and Levitt may receive
financial benefits as the result of the conversion of LIN shares into Chancellor
Media shares in the merger that may be attributable to them as follows, assuming
a price of $50.75 per share of Chancellor Media common stock, the closing price
of Chancellor Media's common stock on February 11, 1999:
APPRECIATION IN VALUE OF LIN COMMON STOCK
<TABLE>
<CAPTION>
APPROXIMATE
FAIR MARKET VALUE
APPROXIMATE OF CHANCELLOR MEDIA
COST BASIS SHARES TO BE RECEIVED
NAME OF LIN SHARES IN MERGER
---- ------------- ---------------------
(IN THOUSANDS)
<S> <C> <C>
Thomas O. Hicks(1)................................. $3,577 $15,297
Lawrence D. Stuart, Jr............................. 555 2,631
Michael J. Levitt.................................. 675 3,190
</TABLE>
- ---------------
(1) Includes shares that may be attributable to Mr. Hicks' wife, trusts for the
benefit of his children and other related parties.
Finally, certain affiliates of Hicks Muse will receive, in addition to the
shares of Chancellor Media common stock received in the merger in exchange for
shares of LIN common stock, payments in satisfaction of certain contractual
arrangements with LIN. These contractual arrangements include:
- - a monitoring and oversight agreement, among LIN, LIN Holdings and LIN
Television and certain of their affiliates, and Hicks, Muse & Co. Partners,
L.P. ("Hicks Muse Partners"), an affiliate of Hicks Muse, pursuant to which
LIN has agreed to pay to Hicks Muse Partners an annual fee for monitoring and
oversight services, and
- - a financial advisory agreement, among LIN, LIN Holdings, and LIN Television
and certain of their affiliates and Hicks Muse Partners, pursuant to which
Hicks Muse Partners receives a financial advisory fee from LIN for each
transaction in which LIN or its subsidiaries is involved.
Under to the terms of the merger agreement, at the effective time of the merger:
- - the monitoring and oversight agreement will terminate and LIN shall deliver to
Hicks Muse Partners at the closing a one-time cash payment of $11 million;
- - Hicks Muse Partners will receive a fee from LIN, payable in cash at the
closing, of $11 million in satisfaction of its services performed under the
financial advisory agreement in connection with the merger; and
- - the Financial Advisory Agreement will terminate at the closing with respect to
LIN and, as successor in the merger, Chancellor Media, but not LIN's
subsidiaries (the "LIN Entities") and will be amended to provide that,
following the closing date:
(1) Hicks Muse Partners will be the exclusive financial advisor to the LIN
Entities; and
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(2) Hicks Muse Partners will receive a "market fee" for the services it
provides, provided that
(A) Hicks Muse Partners will not receive a fee in a transaction in which
the Chief Executive Officer of Chancellor Media does not elect to
retain an outside financial advisor to any of the LIN Entities, and
(B) if the Chief Executive Officer of Chancellor Media and Hicks Muse
mutually agree that a financial advisor to any of the LIN Entities
in addition to Hicks Muse Partners would be appropriate in a given
transaction, Hicks Muse Partners will split its fee equally with the
co-advisor unless otherwise agreed to by the Chief Executive Officer
of Chancellor Media and Hicks Muse Partners.
The approximate pro rata share of the fee income to be received by affiliates of
Hicks Muse and attributed to each of Messrs. Hicks, Stuart and Levitt is as
follows:
PRO RATA SHARE OF FEE INCOME
<TABLE>
<CAPTION>
NAME APPROXIMATE AMOUNT
---- ---------------------
(IN THOUSANDS)
<S> <C>
Thomas O. Hicks............................................. $4,569
Lawrence D. Stuart, Jr...................................... 892
Michael J. Levitt........................................... 1,695
</TABLE>
Various officers and directors of LIN also have interests concerning the merger
separate from their interests as officers and directors of LIN. The merger
agreement provides for Chancellor Media to maintain particular directors' and
officers' insurance and indemnification provisions for the benefit of the LIN
directors and officers for events occurring prior to the merger.
APPRAISAL AND DISSENTERS' RIGHTS
Chancellor Media Stockholders. The holders of Chancellor Media common stock do
not have appraisal rights under the DGCL as a result of the merger.
LIN Stockholders. Section 262 of the DGCL provides that all LIN stockholders who
follow the procedures under Section 262 of the DGCL will be entitled, instead of
receiving shares of Chancellor Media common stock in the merger, to have their
shares of LIN common stock appraised by the Delaware Court of Chancery and to
receive payment of the "fair value" of the shares, exclusive of any element of
value arising from the accomplishment or expectation of the merger, together
with a fair rate of interest, as determined by the court.
THE FOLLOWING SUMMARY OF APPRAISAL RIGHTS OF HOLDERS OF LIN COMMON STOCK IS
QUALIFIED IN ITS ENTIRETY BY THE FULL TEXT OF SECTION 262 OF THE DGCL, WHICH IS
ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS ANNEX V. ALL REFERENCES IN
SECTION 262 AND IN THIS SUMMARY TO A "STOCKHOLDER" ARE TO THE RECORD HOLDER OF
THE SHARES OF LIN COMMON STOCK AS TO WHICH APPRAISAL RIGHTS ARE ASSERTED. A
PERSON HAVING A BENEFICIAL INTEREST IN SHARES OF LIN COMMON STOCK HELD OF RECORD
IN THE NAME OF ANOTHER PERSON, FOR EXAMPLE, A NOMINEE, MUST ACT PROMPTLY TO
CAUSE THE RECORD HOLDER TO FOLLOW THE STEPS SUMMARIZED BELOW PROPERLY AND IN A
TIMELY MANNER TO PERFECT APPRAISAL RIGHTS.
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Under Section 262, where a merger is to be submitted for approval at a meeting
of stockholders, the corporation, not less than 20 days prior to the meeting,
must notify each of its stockholders entitled to appraisal rights that such
appraisal rights are available and include in the notice a copy of Section 262.
THIS JOINT PROXY STATEMENT/PROSPECTUS SHALL CONSTITUTE NOTICE TO THE HOLDERS OF
SHARES OF LIN COMMON STOCK, AND THE APPLICABLE STATUTORY PROVISIONS ARE ATTACHED
TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS ANNEX V. Any holder of shares of LIN
Common Stock who wishes to exercise appraisal rights or who wishes to preserve
the holder's right to do so should review the following discussion and Annex V
carefully because failure to timely and properly comply with the procedures
specified will result in the loss of appraisal rights under the DGCL.
A holder of shares of LIN common stock wishing to exercise appraisal rights must
deliver to LIN, before the vote on the merger at the LIN stockholders meeting, a
written demand for appraisal and must not vote in favor of the merger. A vote
against the merger, in person or by proxy, will not in and of itself constitute
a written demand for appraisal satisfying the requirements of Section 262. In
addition, a holder of shares of LIN common stock wishing to exercise appraisal
rights must hold of record the shares on the date the written demand for
appraisal is made and must continue to hold the shares until the Effective Time.
If any holder of shares of LIN common stock fails to comply with any of these
conditions and the merger becomes effective, the holder of shares of LIN common
stock will be entitled to receive the merger consideration, as defined in the
merger agreement, receivable with respect to the shares in the absence of a
valid assertion of appraisal rights in accordance with the merger agreement.
Only a holder of record of shares of LIN common stock is entitled to assert
appraisal rights for the shares of LIN common stock registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the holder of
record, fully and correctly, as the holder of record's name appears on the
holder of record's stock certificates, and must state that the stockholder
intends thereby to demand appraisal of his, hers or its shares in connection
with the merger. If the shares of LIN common stock are owned of record in a
fiduciary capacity, for example, by a trustee, guardian or custodian, execution
of the demand should be made in that capacity, and if the shares of LIN common
stock are owned of record by more than one person, as in a joint tenancy and
tenancy in common, the demand should be executed by or on behalf of all joint
owners. An authorized agent, including two or more joint owners, may execute a
demand for appraisal on behalf of a holder of record; however, the agent must
identify the record owner or owners and expressly disclose the fact that, in
executing the demand, the agent is agent for the owner or owners. A record
holder who holds shares of LIN common stock as nominee for several beneficial
owners may exercise appraisal rights with respect to the shares of LIN common
stock held for one or more beneficial owners while not exercising the rights
with respect to the shares of LIN common stock held for other beneficial owners.
Stockholders who hold their shares of LIN common stock in nominee forms and who
wish to exercise appraisal rights are urged to consult with their nominees to
determine the appropriate procedures for making a demand for appraisal by a
nominee.
All written demands for appraisal pursuant to Section 262 should be sent or
delivered to LIN at c/o LIN Television Corporation, 4 Richmond Square, Suite
200, Providence, Rhode Island 02906, Attention: General Counsel.
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Within 10 days after the effective time of the merger, the surviving corporation
must notify each holder of shares of LIN common stock who has complied with
Section 262 and has not voted in favor of or consented to the merger as of the
date that the merger has become effective. Within 120 days after the effective
time, but not thereafter, the surviving corporation or any holder of shares of
LIN common stock who is entitled to appraisal rights under Section 262 may file
a petition in the Delaware Court of Chancery demanding a determination of the
fair value of the holder's shares of LIN common stock. Notwithstanding the
foregoing, at any time within 60 days after the effective time, any stockholder
has the right to withdraw his demand for appraisal and to accept the terms
offered in respect of the merger. The surviving corporation will be under no
obligation to and has no present intention to file such a petition. Accordingly,
it is the obligation of the holders of shares of LIN common stock to initiate
all necessary action to perfect their appraisal rights within the time
prescribed in Section 262.
Within 120 days after the effective time, any holder of shares of LIN common
stock who has complied with the requirements for exercise of appraisal rights
will be entitled, upon written request, to receive from the surviving
corporation a statement setting forth the aggregate number of shares of LIN
common stock not voted in favor of the merger and with respect to which demands
for appraisal have been received and the aggregate number of holders of those
shares. The statement must be mailed to the stockholders within ten days after a
written request therefor has been received by the surviving corporation or
within ten days after the expiration of the period for delivery of demands for
appraisal, whichever is later. If a petition for an appraisal is timely filed by
a holder of shares of LIN common stock and a copy thereof is served upon LIN,
LIN will then be obligated within 20 days to file with the Delaware Register in
Chancery a duly verified list containing the names and addresses of all holders
of shares of LIN common stock who have demanded an appraisal of their shares and
with whom agreements as to the value of their shares have not been reached.
After notice to such stockholders as required by the Court, the Delaware Court
of Chancery is empowered to conduct a hearing on the petition to determine those
holders of shares of LIN common stock who have complied with Section 262 and who
have become entitled to appraisal rights thereunder.
The Delaware Court of Chancery may require the holders of shares of LIN common
stock who demanded payment for their shares to submit their stock certificates
to the Register in Chancery for notation thereon of the pendency of the
appraisal proceeding; and if any stockholder fails to comply with such
direction, the Court of Chancery may dismiss the proceedings as to the
stockholder. After determining the holders of shares of LIN common stock
entitled to appraisal, the Delaware Court of Chancery will appraise the "fair
value" of their shares of LIN common stock, exclusive of any element of value
arising from the accomplishment or expectation of the merger, together with a
fair rate of interest, if any, to be paid upon the amount determined to be the
fair value.
Holders of shares of LIN common stock considering seeking appraisal should be
aware that the fair value of their shares of LIN common stock as determined by
Section 262 could be more than, the same as or less than the consideration they
would receive pursuant to the merger if they did not seek appraisal of their
shares of LIN common stock, and that investment banking opinions as to fairness
from a financial point of view are not necessarily opinions as to fair value
under Section 262. The Delaware Supreme Court has stated that "proof of value by
any techniques or methods which are generally considered acceptable in the
financial community and otherwise admissible in court"
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should be considered in the appraisal proceedings. In addition, Delaware courts
have decided that the statutory appraisal remedy, depending on factual
circumstances, may or may not be a dissenter's exclusive remedy. The Court of
Chancery will also determine the amount of interest, if any, to be paid upon the
amounts to be received by persons whose shares of LIN common stock have been
appraised. The costs of the action may be determined by the Court and taxed upon
the parties as the Court deems equitable. The Court may also order that all or a
portion of the expenses incurred by any stockholder in connection with an
appraisal, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts utilized in the appraisal proceeding, be charged
pro rata against the value of all the shares of LIN common stock entitled to be
appraised.
Any holder of shares of LIN common stock who has duly demanded an appraisal in
compliance with Section 262 will not, after the effective time, be entitled to
vote the shares of LIN common stock subject to the demand for any purpose or be
entitled to the payment of dividends or other distributions on those shares of
LIN common stock (except dividends or other distributions payable to holders of
record of shares of LIN common stock as of a date prior to the effective time).
If any stockholder who demands appraisal of his, hers or its shares of LIN
common stock under Section 262 fails to perfect, or effectively withdraws or
loses, his, hers or its right to appraisal, as provided in the DGCL, the shares
of LIN common stock of the stockholder will be converted into the right to
receive the merger consideration in accordance with the terms of the merger
agreement. A stockholder will fail to perfect, or effectively lose or withdraw,
his, hers or its right to appraisal if no petition for appraisal is filed by the
holder within 120 days after the effective time, or if the stockholder delivers
to LIN or the surviving corporation a written withdrawal of his, hers or its
demand for appraisal and an acceptance of the merger, except that any attempt to
withdraw made more than 60 days after the effective time will require the
written approval of the surviving corporation and, once a petition for appraisal
is filed, the appraisal proceeding may not be dismissed as to any holder absent
court approval. It is not necessary that each holder of shares of LIN common
stock properly demanding appraisal file a petition for appraisal in the Delaware
Court of Chancery. Rather, a single valid petition suffices for the petitioning
and non-petitioning holders of shares of LIN common stock who have properly
demanded appraisal.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR PERFECTING
APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF THE RIGHTS, IN WHICH EVENT A
STOCKHOLDER WILL BE ENTITLED TO RECEIVE THE MERGER CONSIDERATION IN ACCORDANCE
WITH THE MERGER AGREEMENT FOR EACH SHARE OF LIN COMMON STOCK OWNED BY SUCH
STOCKHOLDER.
ACCOUNTING TREATMENT
The merger will be accounted for as a purchase of LIN by Chancellor Media for
financial accounting purposes in accordance with generally accepted accounting
principles. After the effective time, the results of operations of Chancellor
Media and LIN will be included in the consolidated financial statements of the
surviving corporation. The cost of LIN to Chancellor Media shall be based upon:
- - the value of Chancellor Media common stock issued in exchange for LIN common
stock;
- - the value of LIN stock options and phantom stock units assumed by Chancellor
Media in the merger; and
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- - direct costs of the merger.
The aggregate cost of LIN, as determined, shall be allocated to the assets
acquired and liabilities assumed by Chancellor Media based upon their respective
fair values.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a discussion of the material federal income tax consequences of
the merger to the holders of LIN common stock and to Chancellor Media and is
based on the opinions of Weil, Gotshal & Manges LLP, counsel to Chancellor
Media, and Vinson & Elkins L.L.P., counsel to LIN. The opinions are based upon
current provisions of the United States Internal Revenue Code of 1986, as
amended (the "Code"), existing regulations promulgated under the Code and
current administrative rulings and court decisions, all of which are subject to
change. No attempt has been made to comment on all federal income tax
consequences of the merger that may be relevant to particular holders, including
holders that are subject to special tax rules, for example, dealers in
securities, foreign persons, mutual funds, insurance companies, tax-exempt
entities and holders who do not hold their shares as capital assets. HOLDERS OF
LIN COMMON STOCK ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER IN LIGHT OF THEIR PERSONAL
CIRCUMSTANCES AND THE CONSEQUENCES UNDER APPLICABLE STATE, LOCAL AND FOREIGN TAX
LAWS.
Chancellor Media has received from its counsel, Weil, Gotshal & Manges LLP, an
opinion to the effect that the merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code
and that Chancellor Media and LIN will not recognize any gain or loss as a
result of the merger. LIN has received from its counsel, Vinson & Elkins L.L.P.,
an opinion to the effect that the merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code
and that no gain or loss will be recognized by a holder of LIN common stock upon
receipt of Chancellor Media common stock in exchange for shares of LIN common
stock in connection with the merger, except with respect to cash received by
such holder in lieu of fractional shares or cash received by holders of LIN
common stock who properly exercise their appraisal rights. In rendering their
opinions, counsel to each of Chancellor Media and LIN have relied upon
particular factual representations made by Chancellor Media, LIN and a
stockholder of LIN.
Assuming the merger is treated as a reorganization within the meaning of Section
368(a) of the Code, no gain or loss will be recognized for federal income tax
purposes by Chancellor Media or LIN as a result of the merger. Except as
described below with respect to cash received in lieu of fractional shares, a
holder of LIN common stock will not recognize gain or loss on the exchange of
shares of LIN common stock for Chancellor Media common stock pursuant to the
merger. The aggregate tax basis of the Chancellor Media common stock received by
a holder, including any fractional share deemed received, will be the same as
the aggregate tax basis of the LIN common stock surrendered therefor. The
holding period of the Chancellor Media common stock, including any fractional
share deemed received, will include the holding period of the LIN common stock
surrendered therefor, provided that the shares of LIN common stock are held as
capital assets at the effective time.
Cash In Lieu of a Fractional Share. Cash received by a holder of LIN common
stock in lieu of a fractional share of Chancellor Media common stock will be
treated as received in
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exchange for such fractional share interest, and gain or loss will be recognized
for federal income tax purposes, measured by the difference between the amount
of cash received and the portion of the basis of the LIN common stock allocable
to the fractional share interest. The gain or loss will be capital gain or loss
provided that the shares of LIN common stock were held as capital assets and
will be long term capital gain or loss if the LIN common stock had been held for
more than one year at the effective time.
Appraisal Rights. Cash received by a holder of LIN common stock in satisfaction
of appraisal rights will result in the recognition of gain or loss for federal
income tax purposes, measured by the difference between the amount of cash
received and the basis of the LIN common stock surrendered. The gain or loss
will be capital gain or loss provided that the shares of LIN common stock were
held as capital assets and will be long-term capital gain or loss if the LIN
common stock had been held for more than one year at the effective time.
Backup Withholding. Under the Code, a holder of LIN common stock may be subject,
under certain circumstances, to backup withholding at a rate of 31% with respect
to the amount of cash, if any, received in lieu of fractional share interests or
upon the exercise of appraisal rights pursuant to the merger unless the holder
provides proof of an applicable exemption or a correct taxpayer identification
number, and otherwise complies with applicable requirements of the backup
withholding rules. Any amounts withheld under the backup withholding rules are
not an additional tax and may be refunded or credited against the holder's
federal income tax liability, provided the required information is furnished to
the Internal Revenue Service.
CERTAIN REGULATORY MATTERS
FCC Approval
FCC Regulation. The ownership, operation and sale of television stations,
including those licensed to subsidiaries of LIN, are subject to the jurisdiction
of the FCC under authority granted it pursuant to the Communications Act.
Matters subject to FCC oversight include, but are not limited to:
- - the assignment of frequency bands for broadcast television;
- - the approval of a television station's frequency, location and operating
power;
- - the issuance, renewal, revocation or modification of a television station's
FCC license;
- - the approval of changes in the ownership or control of a television station's
licensee;
- - the regulation of equipment used by television stations;
- - and the adoption and implementation of regulations and policies concerning the
ownership and operation of television stations.
The FCC has the power to impose penalties, including fines or license
revocations, upon a licensee of a television station for violations of the FCC's
rules and regulations. Because the merger will result in the transfer of control
of LIN for the purposes of the Communications Act the prior approval of the FCC
is necessary before the merger may be consummated. An application for FCC
approval of a pro forma transfer of control was filed on December 16, 1998.
In reviewing an application for its approval to transfer of control, the FCC
considers whether such transfer will serve the public interest, convenience and
necessity, including
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whether the proposed transferee has the requisite qualifications to operate the
licensed entities. Upon grant of FCC approval, the transaction may be
consummated by the parties. Any "person who is aggrieved or whose interests are
adversely affected", as such terms are defined in Section 402(b) of the
Communications Act, may appeal the FCC's approval of the transfer to the United
States Court of Appeals for the District of Columbia Circuit. In addition, under
certain circumstances, the FCC may reconsider such approval at the request of a
third party or on its own motion. In the event the parties determine to
consummate the transaction prior to the deadline for the filing of an appeal or
for reconsideration by the FCC on its own motion, or to the completion of any
FCC or judicial review proceedings, they assume the risk that the FCC's approval
could be reversed or modified by the FCC or a reviewing court.
Programming and Operation. The Communications Act requires broadcasters to serve
the "public interest." Since the late 1970s, the FCC gradually has relaxed or
eliminated many of the more formalized procedures it had developed to promote
the broadcast of certain types of programming responsive to the needs of a
station's community of license. However, broadcast licensees are still required
to present programming that is responsive to local community problems, needs and
interests and to maintain records demonstrating responsiveness. Complaints from
viewers concerning a station's programming often will be considered by the FCC
when it evaluates license renewal applications of a licensee, although such
complaints may be filed at any time and generally may be considered by the FCC
at any time. Stations also must follow various rules promulgated under the
Communications Act that regulate, among other things, political advertising,
sponsorship identifications, the advertisement of contests and lotteries,
programming directed to children, obscene and indecent broadcasts and technical
operations, including limits on radio frequency radiation.
In addition, most broadcast licensees, including LIN's licensees, have
previously been required to develop and implement affirmative action programs
designed to promote equal employment opportunities and submit reports to the FCC
with respect to these matters on an annual basis and in connection with a
license renewal application. However, the United States Court of Appeals for the
District of Columbia Circuit has held that particular aspects of FCC's equal
employment rules are unconstitutional. In the wake of that ruling, the FCC has
suspended its requirement that broadcast stations file employment reports with
the FCC on an annual basis or in connection with a license renewal, transfer, or
assignment application. The FCC has commenced a rulemaking proceeding in which
it is considering the adoption of revised rules that it believes will comply
with the decision of the Court of Appeals. In addition, the FCC may petition the
Supreme Court to review the decision. It is uncertain whether the Supreme Court
would agree to take the case or, if it did, what its ultimate decision would be.
License Renewal. Under FCC rules adopted in January 1997, television station
licenses generally will be issued for an initial period of eight years, subject
to renewal upon application therefor. The FCC will ordinarily renew broadcast
licenses for the maximum eight-year term, but may grant renewals for shorter
terms in particular circumstances, such as those involving serious violations of
FCC rules by the licensee.
When a licensee files a license renewal application, no person may submit a
competing application for the frequency licensed to the renewal applicant unless
and until the FCC has determined that the incumbent is not qualified to continue
to hold the license. In
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determining whether to grant or renew a broadcasting license, the FCC considers
a number of factors pertaining to the applicant, including compliance with a
variety of ownership limitations and compliance with character and technical
standards. During limited periods when a renewal application is pending,
petitions to deny a license renewal may be filed by interested parties,
including members of the public. Such petitions may raise various issues before
the FCC. The FCC is required to hold evidentiary hearings on renewal
applications if, but only if, a petition to deny renewal of such license raises
a "substantial and material question of fact" as to whether the grant of the
renewal application would be inconsistent with the public interest, convenience
and necessity. The FCC must grant the renewal application if, after such a
hearing, it finds that the licensee has served the public interest and has not
committed any serious violation of FCC requirements. If the licensee fails to
meet that standard and does not show mitigating factors warranting a lesser
sanction, the FCC has authority to deny the renewal application.
Set forth below are the license expiration dates of each LIN television station:
LIN TV LICENSE EXPIRATION DATES
<TABLE>
<CAPTION>
DMA STATION LICENSE EXPIRATION
- --- --------------- ----------
<S> <C> <C>
Austin.................................................. KXAN-TV 8/1/06
Austin.................................................. KXAM-TV(b) 8/1/06
Austin.................................................. KBVO-LP(a) 8/1/06
Austin.................................................. KHPB-LP(a) 8/1/06
Austin.................................................. KHPF-LP(a) 8/1/06
Austin.................................................. KHPX-LP(a) 8/1/06
Austin.................................................. KHPG-LP(a) 8/1/06
Austin.................................................. KHPL-LP(a) 8/1/06
Austin.................................................. KHPZ-LP(a) 8/1/06
Austin.................................................. KHPM-LP(a) 8/1/06
Buffalo................................................. WIVB-TV 6/1/99
Champaign and Springfield-Decatur....................... WAND 12/1/05
Fort Wayne.............................................. WANE-TV 8/1/05
Hartford-New Haven...................................... WTNH-TV 4/1/99
Indianapolis............................................ WIIH-LP(a) 8/1/05
Indianapolis............................................ WISH-TV 8/1/05
Grand Rapids-Kalamazoo-Battle Creek..................... WOBC-LP(a) 10/1/05
Grand Rapids-Kalamazoo-Battle Creek..................... WOOD-TV(d) 10/1/05
Grand Rapids-Kalamazoo-Battle Creek..................... WOKZ-LP(a) 10/1/05
Grand Rapids-Kalamazoo-Battle Creek..................... WOWD-LP(a) 10/1/05
Grand Rapids-Kalamazoo-Battle Creek..................... WOMS-LP(a) 10/1/05
Grand Rapids-Kalamazoo-Battle Creek..................... W27BY(a) 10/1/05
Norfolk-Portsmouth-Newport News......................... WAVY-TV 10/1/04
Norfolk-Portsmouth-Newport News......................... W22BG(a)(c) N/A
Norfolk-Portsmouth-Newport News......................... WBTD-LP(a) 10/1/04
Norfolk-Portsmouth-Newport News......................... WKTD-LP(a) 10/1/04
Norfolk-Portsmouth-Newport News......................... W36BK(a) 10/1/04
Norfolk-Portsmouth-Newport News......................... WTTD-LP(a) 10/1/04
Norfolk-Portsmouth-Newport News......................... WITD-LP(a) 10/1/04
Norfolk-Portsmouth-Newport News......................... W35BH(a) 10/1/04
</TABLE>
- ---------------
(a) Low-power TV.
(b) Satellite station to KXAN-TV.
(c) Construction permit.
(d) Pending acquisition.
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In each case, renewal applications must be filed with the FCC at least four
months before the expiration date of the license, and any petitions to deny must
be filed at least one month prior to the expiration date. Chancellor Media is
not aware of any reason why any license renewal applications timely filed with
the FCC by LIN or Chancellor Media would not be granted.
Ownership Restrictions. The FCC's "multiple ownership" rules generally provide
that a license for a television station will not be granted if the applicant or
a party with an "attributable interest" in the applicant owns, or has an
"attributable interest" in, another station of the same type which covers a
similar service area. The FCC is conducting various inquiry and rulemaking
proceedings to determine whether to change its attribution rules and whether to
retain, modify, or eliminate its limitations on the number of television
stations that a person or entity may own, operate, or control, or have an
"attributable interest" in, within the same television market.
The FCC's rules provide that, with certain exceptions, the power to vote or
control the vote of 5% or more of the outstanding voting stock of a licensee is
the test for determining whether an entity has an "attributable interest" in a
licensee's stations for purposes of the multiple ownership rules. However, the
test for passive institutional investors, for example, qualifying investment
companies, insurance companies or bank trust departments, is voting control of
10% or more of the outstanding voting stock. The FCC is considering, inter alia,
proposals to increase the general "attributable interest" threshold to 10% of
the outstanding voting stock of a broadcast licensee and to increase the
threshold for passive institutional investors to 20%. The FCC has taken no final
action in that proceeding.
Under its duopoly regulations, the FCC prohibits ownership interests in
television stations with overlapping signals of specified strengths. In November
1996, the FCC proposed to relax this prohibition to permit, under particular
conditions, common ownership of television stations with greater signal overlap.
The FCC is implementing the proposed standard on an interim, conditional basis
pending the outcome of the rulemaking proceedings. Among the options being
considered are proposals to redefine the signal strength that would create a
prohibited overlap, to permit a single entity to own two UHF television stations
in the same television market, and to permit a single entity to own one UHF and
one VHF television station in the same market.
The recently enacted Telecom Act eliminated prior FCC restrictions on the total
number of radio stations in which one party or entity may have an attributable
interest on a national basis. On a local basis, depending on the size of the
local market, an individual or entity may have an attributable interest in up to
eight radio stations, no more than five of which are in the same service,
meaning AM or FM. Further, the ownership of a television station and one or more
radio stations in the same market may be restricted by the FCC's one-to-a-market
rule. Under the FCC's current rules, the FCC will "look favorably" upon requests
for waiver of the one-to-a-market rule to permit common ownership of one AM, one
FM, and one television station in the same area if the stations to be commonly
owned are located in one of the 25 largest television markets and more than 30
independently owned broadcast "voices" would remain in the market after the
proposed transaction. In addition, waivers may be available on a more rigorous
case-by-case basis to permit the common ownership of a television station and
more than one AM and one FM station in the same market. The FCC is considering
changes to its one-to-a-market rule that could eliminate or relax the
requirements of the one-to-a-market rule and could affect the
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standard by which the FCC grants waivers to the one-to-a-market rule. The
results and timing of FCC action cannot be predicted at this time.
The FCC's multiple ownership rules also prohibit a person from having an
attributable interest in both a television station and a cable television system
in the same market. Jeffrey A. Marcus, a director of Chancellor Media and its
President and Chief Executive Officer, also has an attributable interest in
Marcus Cable, which controls cable television systems located in the State of
Indiana, which is in the same market as LIN's Indianapolis television station.
Accordingly, Chancellor Media has filed a request with the FCC for a waiver of
the broadcast-cable cross-ownership rule to permit Mr. Marcus to temporarily
hold attributable interests in both Chancellor Media and Marcus Cable, in order
to effectuate the orderly divestiture of his interest in Marcus Cable. It is
uncertain whether the FCC will grant the requested waiver. However, Mr. Marcus
has taken other actions which are expected to eliminate his attributable
interest in Marcus Cable no later than March 31, 1999.
The FCC recently conformed its national television station multiple ownership
rules with the Telecom Act. Specifically, a single entity may hold "attributable
interests" in an unlimited number of U.S. television stations provided that
those stations operate in markets containing cumulatively no more than 35% of
the television homes in the U.S. For this purpose, only 50% of the television
households in a market are counted towards the 35% national restriction if the
owned station is a UHF station. An FCC rulemaking is under way to address how to
measure audience reach, including the "UHF discount," as part of the FCC's
biennial review of the broadcast rules mandated by the Telecom Act. The
television homes that LIN television stations reach is well below the 35%
national limit.
Under the foreign ownership restrictions of the Communications Act, a broadcast
license may not be held by a foreign national, a foreign government, a foreign
corporation, or any representative thereof. No more than 20% of the capital
stock of a corporation that holds a broadcast license may be owned or voted by
foreign interests. And absent a prior grant of special authority by the FCC, no
more than 25% of the capital stock of a company that directly or indirectly
controls a broadcast licensee may be owned or voted by foreign interests.
Network Affiliate Issues. Several FCC rules impose restrictions on network
affiliation agreements. Among other things, those rules prohibit a television
station from entering into any affiliation agreements that:
- - require the station to clear time for network programming that the station had
previously scheduled for other use; or
- - preclude the preemption of any network programs that the station believes are
unsuitable for its audience and the substitution of network programming a
program that it believes is of greater local or national importance (the
"right to reject rule").
The FCC is currently reviewing several of these rules governing the relationship
between broadcast television networks and their affiliates. Specifically, the
FCC is reviewing the following four rules:
- - the "right to reject rule;"
- - the "time option rule," which prohibits arrangements whereby a network
reserves an option to use specified amounts of an affiliate's broadcast time;
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- - the "exclusive affiliation rule," which prohibits arrangements that forbid an
affiliate from broadcasting the programming of another network; and
- - the "network territorial exclusivity rule," which prescribes arrangements
whereby a network affiliate may prevent other stations in its community from
broadcasting programming the affiliate rejects, and arrangements that inhibit
the ability of stations outside of the affiliate's community to broadcast
network programming.
Advanced Television Technology. At present, U.S. television stations broadcast
signals using the "NTSC" system, an analog transmission system named for the
National Television Systems Committee, an industry group established in 1940 to
develop the first U.S. television technical broadcast standards. The FCC in late
1996 approved a new digital television ("DTV") technical standard to be used by
television broadcasters, television set manufacturers, the computer industry and
the motion picture industry. This digital television standard will allow the
simultaneous transmission of multiple streams of video programming and data on
the bandwidth presently used by a single normal analog channel. It will be
possible to broadcast one "high definition" channel ("HDTV") with visual and
sound quality superior to present-day television or several "standard
definition" channels ("SDTV") with digital sound and pictures of a quality
slightly better than present television; to provide interactive data services,
including visual or audio transmission; or to provide some combination of these
possibilities on the multiple channels allowed by DTV. The FCC has already
allocated to every existing television broadcaster one additional channel to be
used for DTV during the transition between present-day analog television and DTV
and has established a timetable by which every current station must initiate DTV
operations. See "Risk Factors -- Potential Effects on Licenses and Ownership of
Regulation of the Radio and Television Broadcasting Industry." Broadcasters will
not be required to pay for this new DTV channel, but will be required to
relinquish their present analog channels when the transition to DTV is complete.
The FCC presently plans for the DTV transition period to end by 2006. At that
time, broadcasters will be required to discontinue analog operations and to
return their present channels to the FCC. The FCC has already begun issuing
construction permits to build DTV stations. The FCC has recently issued
regulations with respect to DTV allocations and interference criteria which are
not yet final, and other aspects of the DTV regulatory framework have not yet
been established. The FCC is expected to apply to DTV certain of the rules
applicable to analogous services in other contexts, including certain rules that
require broadcasters to serve the public interest and may seek to impose
additional programming or other requirements on DTV service. The Telecom Act
requires the FCC to impose fees upon broadcasters if they choose to use the DTV
channel to provide paid subscription services to the public. The FCC has also
recently initiated a rulemaking proceeding to determine whether and to what
extent cable systems will be required to carry broadcast DTV signals.
In some cases, conversion to DTV operations may reduce a station's geographical
coverage area. In addition, the FCC's current implementation plan would maintain
the secondary status of low-power stations in connection with its allotment of
DTV channels. The FCC has acknowledged that DTV channel allotment may involve
displacement of existing low-power stations, particularly in major television
markets. Accordingly, LIN's low-power broadcast stations may be materially
adversely affected. LIN has already filed displacement applications seeking new
channel allotments for thirteen of its low-power stations, which will be at
least partially displaced by DTV channels. Some of these applications face
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mutually exclusive applications from other applicants, and there is no assurance
that any of these applications will be granted by the FCC.
In addition, it is not yet clear:
- - when and to what extent DTV or other digital technology will become available
through the various media;
- - whether and how television broadcast stations will be able to avail themselves
of or profit by the transition to DTV;
- - how channel, tower height and power assignments will be configured so as to
allow that transition;
- - the extent of any potential interference to and from analog channels;
- - whether viewing audiences will make choices among services upon the basis of
such differences;
- - whether and how quickly the viewing public will embrace the cost of the new
digital television sets and monitors;
- - to what extent the DTV standard will be compatible with the digital standards
adopted by cable and other multi-channel video programming services;
- - whether cable systems will be required to carry DTV signals or, in the absence
of such a mandate, broadcasters will succeed in negotiating voluntary cable
carriage arrangements; or
- - whether significant additional expensive equipment will be required for
television stations to provide digital service, including HDTV and
supplemental or ancillary data transmission services.
Pursuant to the Telecom Act, the FCC must conduct a ten-year evaluation
regarding public interest in advanced television, alternative uses for the
spectrum and reduction of the amount of spectrum each licensee utilizes. Many
segments of the industry are also intensely studying these advanced
technologies. There can be no assurances as to the answers to these questions or
the nature of future FCC regulation.
Direct Broadcast Satellite Systems. There are currently in operation several DBS
systems that serve the United States, and it is anticipated that additional
systems will become operational over the next several years. DBS systems provide
programming on a subscription basis to those who have purchased and installed a
satellite signal receiving dish and associated decoder equipment. DBS systems
claim to provide visual picture quality comparable to that found in movie
theaters and aural quality comparable to digital audio compact discs. In the
future, competition from DBS systems could have a material adverse effect on the
financial condition and results of operations of LIN.
In 1988, Congress passed the Satellite Home Viewer Act ("SHVA"), which grants
DBS operators the right to provide, for a fee established by the Copyright
Office, network television signals to "unserved households." To be an unserved
household with respect to a particular network, the household must not be able
to receive, using a conventional rooftop antenna, the television signal of the
network's local affiliate at a specified intensity. Recently, litigation has
arisen in federal district courts in Florida, North Carolina, Colorado, and
Texas concerning the definition of an unserved household under the SHVA,
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and two of these district courts have so far adopted a definition of unserved
household that reduces the number of households that would qualify as unserved.
The FCC also has initiated a proceeding to determine how to establish the level
of intensity that the local network signal must fall below in order for a
household to be considered an unserved household. In addition, legislation was
introduced in Congress in 1997 to amend SHVA in a manner that would affect the
right of DBS providers to transmit network signals, and it is possible that
similar legislation will be introduced in 1999. It is impossible to predict what
the results of these judicial, regulatory, and legislative efforts will be, or
what affect they will have on LIN's television broadcasting business.
Recent Developments, Proposed Legislation and Regulation. Congress and the FCC
currently have under consideration, and may in the future adopt, new laws,
regulations and policies regarding a wide variety of matters that could affect,
directly or indirectly, the operation and ownership of LIN's broadcast
properties. In addition to the changes and proposed changes noted above, these
matters include, for example, spectrum use fees, political advertising rates,
potential restrictions on the advertising of certain products like hard liquor,
beer and wine, and revised rules and policies governing equal employment
opportunity. Other matters that could affect LIN's broadcast properties include
technological innovations and developments generally affecting competition in
the mass communications industry.
The foregoing does not purport to be a complete summary of all the provisions of
the Communications Act, the Telecom Act, or of the regulations and policies of
the FCC under either act. Proposals for additional or revised regulations and
requirements are pending before and are being considered by Congress and federal
regulatory agencies from time to time. Management is unable at this time to
predict the outcome of any of the pending FCC rulemaking proceedings referenced
above, the outcome of any reconsideration or appellate proceedings concerning
any changes in FCC rules or policies noted above, the possible outcome of any
proposed or pending Congressional legislation, or the impact of any of those
changes on LIN's broadcast operations.
Antitrust Review
Under the HSR Act and the rules promulgated under the act by the FTC, the merger
may not be consummated until notifications have been given and certain
information and materials have been furnished to the DOJ and the FTC and
specified waiting period requirements have been satisfied. On November 4, 1998,
Chancellor Media and LIN, as well as affiliates of Hicks Muse, filed all
appropriate Notification and Report Forms with the Antitrust Division of the DOJ
and the FTC with respect to the merger. The waiting period for this transaction
expired on November 16, 1998.
Additionally, at any time prior to or after the consummation of the merger, the
DOJ or the FTC could take action under the federal antitrust laws as it deems
necessary or desirable in the public interest, including seeking to enjoin the
merger or seeking the divestiture of substantial assets of Chancellor Media or
LIN. In addition, state antitrust authorities and private parties in certain
circumstances may bring legal action under the antitrust laws seeking to enjoin
the merger or seeking divestiture of assets of Chancellor Media or LIN. There
can be no assurances that a challenge to the merger on antitrust grounds will
not be made or, if a challenge is made, what the outcome of the challenge will
be.
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RESTRICTION ON RESALES OF CHANCELLOR MEDIA COMMON STOCK BY AFFILIATES OF LIN
The shares of Chancellor Media common stock issuable in connection with the
merger have been registered under the Securities Act. These shares will be
freely transferable under the Securities Act, except for shares issued to any
person who may be deemed to be an affiliate, as that term is defined under the
Securities Act for purposes of Rule 145 thereunder (an "Affiliate"), of LIN at
the time the merger agreement is submitted to the stockholders of LIN for
approval. Affiliates may not sell their shares of Chancellor Media common stock
acquired in connection with the merger except in connection with:
- - an effective registration statement under the Securities Act covering the
resale of such shares;
- - the conditions contemplated by paragraph (d) of Rule 145; or
- - any other applicable exemption from the registration requirements of the
Securities Act.
Under the terms of the merger agreement, LIN is required to deliver to
Chancellor Media prior to the closing date of the merger a letter identifying
all persons who, at the time the merger agreement was submitted to the
stockholders of LIN for approval, may be deemed to be Affiliates. Also, LIN is
required to use its best efforts to secure a written agreement from all such
persons of their acknowledgement that they may be deemed to be Affiliates and
that they will not sell or otherwise transfer shares of Chancellor Media common
stock received in the merger in violation of the provisions of Rule 145 and the
Securities Act.
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THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the merger
agreement, which is attached as Annex I to this joint proxy statement/prospectus
and incorporated herein by reference. Such summary is qualified in its entirety
by reference to the merger agreement. All stockholders are urged to read the
merger agreement in its entirety.
GENERAL
The merger agreement provides that, following the approval and adoption of the
merger agreement by the stockholders of Chancellor Media and LIN and the
satisfaction or waiver of the other conditions to the merger:
- - LIN will merge with and into Chancellor Media; and
- - LIN shall cease to exist and Chancellor Media shall continue as the surviving
corporation following such merger. As a result of the merger, as of the
effective time, Chancellor Media shall succeed to and assume all rights and
obligations of LIN, in accordance with the DGCL.
EFFECTIVE TIME
The merger agreement provides that, subject to the requisite approval of the
stockholders of Chancellor Media and LIN, and subject to the satisfaction or
waiver of other conditions, the merger will be consummated by the filing of an
appropriate certificate of merger, in accordance with the relevant provisions of
the DGCL, with the Secretary of State of the State of Delaware.
CONVERSION OF SHARES
Upon the consummation of the merger, as applicable:
- - Each share of LIN common stock issued and outstanding immediately prior to the
effective time, other than shares of LIN common stock held as treasury shares
by LIN and other than dissenting shares, will be reclassified, changed and
converted into the right to receive the exchange ratio of 0.03 of a share of
Chancellor Media common stock, provided however, in the event of changes in
Chancellor Media common stock and/or LIN common stock prior to the effective
time in accordance with the merger agreement, the exchange ratio will be
adjusted so as to maintain the relative proportionate interests of the holders
of LIN common stock and Chancellor Media common stock;
- - Each share of LIN common stock which is held as a treasury share by LIN at the
effective time shall be cancelled and retired and cease to exist; and
- - Each share of Chancellor Media common stock and Chancellor Media Convertible
Preferred Stock issued and outstanding immediately prior to the effective time
shall remain outstanding and shall be unaffected by the merger.
TREATMENT OF STOCK OPTIONS AND PHANTOM STOCK UNITS
At the effective time, subject to various conditions and limitations, each LIN
stock option that is outstanding and unexercised will be deemed to have been
assumed by Chancellor Media, and will thereafter be deemed an option to acquire,
on the same terms and conditions as were applicable under such option
immediately prior to the effective time,
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the number of shares of Chancellor Media common stock equal to the product of
the number of shares of LIN common stock subject to the original option and the
exchange ratio, rounded to the nearest 1/100 of a share. The exercise price per
share of Chancellor Media common stock under the new option shall be equal to
the exercise price per share of LIN common stock under the original option
divided by the exchange ratio, rounded to the nearest $0.01. In accordance with
the terms of the LIN stock option plan under which the LIN stock options were
issued, fractional shares resulting from these adjustments shall be eliminated.
LIN shall take all actions reasonably necessary to ensure that the consummation
of the merger is not deemed to constitute a "change of control," or transaction
of similar import, with respect to the stock options or otherwise result, in and
of itself, in the acceleration of any LIN stock option outstanding immediately
prior to the effective time, and to ensure that all the options shall be
exercisable after the merger solely for shares of Chancellor Media common stock.
At the effective time, Chancellor Media shall assume the LIN stock option plan,
with changes thereto as may be necessary to reflect the consummation of the
merger. In addition, at the effective time, Chancellor Media shall assume LIN's
obligations under its phantom stock plan. Each phantom stock unit outstanding
under the phantom stock plan that is outstanding immediately prior to the
effective time shall be appropriately adjusted to reflect the exchange ratio as
if each phantom stock unit was one share of LIN common stock immediately prior
to the effective time and was converted into the appropriate fraction of a share
of Chancellor Media common stock pursuant to the merger agreement.
EXCHANGE PROCEDURES
Promptly after the effective time, a form of letter of transmittal and
instructions will be mailed to each record holder of certificates that,
immediately prior to the effective time, represented shares of LIN common stock
which have been converted. After receipt of such transmittal form, each holder
of certificates should surrender the certificates to Chancellor Media's transfer
agent and registrar (the "Paying Agent"), together with the letter of
transmittal duly executed and completed in accordance with the instructions
thereto. Upon surrender of the certificates to and acceptance of the
certificates by the Paying Agent, each holder will be entitled to receive:
- - certificates of Chancellor Media common stock, evidencing the whole number of
shares of Chancellor Media common stock to which the holder is entitled;
- - any unpaid dividends or distributions with respect to the shares represented
by the certificates; and
- - with respect to LIN common stock, cash in lieu of fractional shares.
If any shares of Chancellor Media common stock are to be issued in a name other
than that in which the certificate(s) representing LIN common stock surrendered
in exchange for shares of Chancellor Media common stock is registered, the
certificates so surrendered must be properly endorsed or otherwise be in proper
form for transfer and the person requesting the exchange must pay to the Paying
Agent any applicable stock transfer taxes or must establish to the satisfaction
of the Paying Agent that the taxes have been paid or are not applicable. No
interest will be paid on the merger consideration.
After the effective time, no holder of a certificate which, immediately prior to
the effective time, represented shares of LIN common stock will be entitled to
receive any dividend or other distribution from Chancellor Media until the
holder surrenders the certificate for a
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certificate representing shares of Chancellor Media common stock. Upon the
surrender, there will be paid to the holder the amount of any dividends or other
distributions which after the effective time became payable with respect to the
number of whole shares of Chancellor Media common stock into which the shares of
LIN common stock are converted. No interest will be paid on the dividends or
other distributions.
No fractional shares of Chancellor Media common stock will be issued in the
merger. A holder of LIN common stock who would otherwise be entitled to receive
fractional shares of Chancellor Media common stock as a result of the merger
shall receive, in lieu of fractional shares, cash in an amount equal to the
price per share of Chancellor Media common stock, as determined in accordance
with the procedures described below, multiplied by the fraction the holder would
otherwise be entitled to. In order to satisfy the payment for the fractional
shares, the Paying Agent, as agent for the holders of the fractional shares,
will aggregate all fractional interests, will sell them at the then prevailing
price on the Nasdaq Stock Market and will distribute the proceeds to the holders
of the fractional interests. However, Chancellor Media may, in its sole
discretion, satisfy payment by delivering to the Paying Agent cash, without
interest, in an amount equal to the aggregate amount of all fractional shares
multiplied by the closing price per share of Chancellor Media common stock on
the Nasdaq Stock Market on the trading day immediately prior to the effective
time.
Any portion of the merger consideration, any dividends or distributions, or any
cash owed in lieu of fractional shares with respect to shares of Chancellor
Media common stock that has not been distributed to the holders of the
certificates representing shares of LIN common stock within 120 days after the
effective time will be delivered to Chancellor Media. Any holders who have not
surrendered their certificates in accordance with the relevant provisions of the
merger agreement may look only to Chancellor Media as a general creditor thereof
for payment of their claims for any merger consideration and any dividends or
distributions with respect to shares of Chancellor Media common stock.
Neither the surviving corporation nor the Paying Agent will be liable in respect
of any cash, shares, dividends or distributions payable from the merger
consideration or any dividends or distributions with respect to shares of
Chancellor Media common stock, delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. If any certificate or
certificates representing shares of LIN common stock are not surrendered prior
to five years after the effective time, or immediately prior to such earlier
date on which any merger consideration in respect of such certificate would
otherwise escheat to or become the property of any governmental agency or
regulatory authority, any cash, shares, dividends or distributions payable in
respect of such certificate or certificates will become the property of
Chancellor Media.
LIN STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES REPRESENTING LIN COMMON
STOCK TO CHANCELLOR MEDIA. CERTIFICATES FOR SHARES OF LIN COMMON STOCK WILL BE
EXCHANGED FOR CERTIFICATES OF SHARES OF CHANCELLOR MEDIA COMMON STOCK FOLLOWING
CONSUMMATION OF THE MERGER IN ACCORDANCE WITH INSTRUCTIONS WHICH CHANCELLOR
MEDIA OR THE PAYING AGENT WILL SEND TO HOLDERS OF LIN COMMON STOCK AFTER THE
MERGER.
Shares of LIN common stock outstanding immediately prior to the effective time
and held by a holder who has not voted in favor of or consented to the merger,
who properly demands in writing appraisal of his, hers or its shares of LIN
common stock in accordance with Section 262 of the DGCL, and who shall not have
withdrawn the demand or
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otherwise have forfeited appraisal rights, shall not be converted into or
represent the right to receive the merger consideration for the shares. The
stockholders shall be entitled to receive payment of the appraised value of the
shares of LIN common stock held by them in accordance with the provisions of
Section 262, except that all dissenting shares held by stockholders who shall
have failed to perfect or who effectively shall have withdrawn or lost their
rights to appraisal of the securities under Section 262 shall be deemed to have
been converted into, as of the effective time, the right to receive without any
interest, the applicable merger consideration, upon surrender as provided by the
merger agreement, of the certificate or certificates that formerly represented
such securities. See "The Merger -- Appraisal and Dissenters' Rights."
DIRECTORS AND OFFICERS
The Merger Agreement provides that the Board of Directors of the surviving
corporation immediately after the effective time will consist of the directors
of Chancellor Media immediately prior to the effective time, in the same class
and term expiration as the directors currently serve on the Chancellor Media
Board of Directors, and Gary R. Chapman, in such class and term expiration as
determined by the Board of Directors of Chancellor Media prior to closing. The
merger agreement further provides that the officers of the surviving corporation
from and after the effective time will be the officers of Chancellor Media
immediately prior to the effective time.
Each officer and director will hold office from the effective time until his
respective successor is duly elected or appointed and qualified in the manner
provided in the certificate of incorporation or bylaws of the surviving
corporation, or as otherwise provided by applicable law.
CERTIFICATE OF INCORPORATION AND BYLAWS
The merger agreement provides that:
- - the certificate of incorporation of Chancellor Media shall be the certificate
of incorporation of the surviving corporation until thereafter amended in
accordance with its terms and as provided by the DGCL; and
- - the bylaws of Chancellor Media in effect immediately prior to the merger will
be the bylaws of the surviving corporation until thereafter amended in
accordance within the terms and as provided by applicable law.
REPRESENTATIONS AND WARRANTIES
- - The merger agreement contains various customary representations and warranties
of LIN relating to, among other things:
(1) its organization, standing and similar corporate matters;
(2) its capital structure;
(3) authorization, execution, delivery, performance and enforceability of
the merger agreement and the absence of conflicts with its and its
subsidiaries' organizational and various other documents;
(4) documents filed by it and its subsidiaries with the SEC and the
accuracy of information contained in those documents;
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(5) the absence of material changes or events, except as otherwise provided
in the merger agreement;
(6) the absence of extraordinary payments or change in benefits, except as
otherwise provided in the merger agreement;
(7) voting requirements;
(8) the compliance in all material respects with the terms of the FCC
licenses issued to LIN and its respective subsidiaries and the timely
filing with the FCC of all applications, reports and other disclosures
with the FCC required to be made by LIN and its subsidiaries;
(9) the qualification of LIN and its subsidiaries under the Communications
Act to be transferors of control of the LIN FCC licenses;
(10) overall compliance in all material respects with all applicable laws;
(11) the absence of undisclosed liabilities;
(12) the absence of any pending or threatened litigation against it or any
of its subsidiaries, except as otherwise disclosed or pursuant to the
merger agreement, that would have a material adverse effect on LIN and
its subsidiaries, taken as a whole, or prevent or significantly delay
the consummation of the transactions contemplated by the merger
agreement;
(13) the absence of transactions, agreements, arrangements or
understandings between LIN and its subsidiaries with their affiliates
that would require disclosure with the SEC;
(14) labor matters;
(15) employee arrangements and benefit plans;
(16) LIN and its subsidiaries have timely filed all material tax returns
required to be filed through the effective time and will timely file
any material tax returns required to be filed on or prior to the
closing date;
(17) intellectual property;
(18) environmental matters; and
(19) material agreements.
- - The Merger Agreement contains various representations and warranties of
Chancellor Media relating to, among other things:
(1) its organization, standing and similar corporate matters;
(2) its capital structure;
(3) authorization, execution, delivery, performance and enforceability of
the merger agreement and the absence of conflicts with its and its
subsidiaries' organizational and various other documents;
(4) documents filed by it and its subsidiaries with the SEC and the
accuracy of the information contained in those documents;
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(5) the absence of material changes or events, except as otherwise provided
in the merger agreement;
(6) the absence of extraordinary payments or change in benefits, except as
otherwise provided in the merger agreement;
(7) the opinion of its financial advisor;
(8) the absence of undisclosed liabilities;
(9) the absence of any pending or threatened litigation against it or any
of its subsidiaries, except as otherwise disclosed pursuant to the
merger agreement, that would have a material adverse effect on
Chancellor Media and its subsidiaries, taken as a whole, or prevent or
significantly delay the consummation of the transactions contemplated
by the merger agreement;
(10) the absence of transactions, agreements, arrangements or
understandings between Chancellor Media and its subsidiaries with
their affiliates that would require disclosure with the SEC;
(11) the shares of Chancellor Media common stock to be issued in the merger
being duly authorized, validly issued, fully paid and nonassessable;
(12) voting requirements;
(13) Chancellor Media and its subsidiaries are fully qualified under the
Communications Act to be the transferees of control of the LIN FCC
licenses;
(14) employee arrangements and benefit plans;
(15) Chancellor Media and its subsidiaries have timely filed all material
tax returns required to be filed through the effective time and will
timely file any material tax returns required to be filed on or prior
to the closing date;
(16) intellectual property; and
(17) environmental matters.
COVENANTS
The merger agreement contains various customary covenants, including covenants
of LIN that during the period from the date of the merger agreement until the
effective time, except as permitted by or contemplated in the merger agreement,
LIN, and each of its subsidiaries, will, among other things: conduct its
operations in the ordinary course of business and use its reasonable best
efforts to preserve intact its business organizations and goodwill in all
material respects and keep available the services of its respective officers and
employees as a group.
- - Further, LIN has agreed that, among other things and subject to certain
conditions and exceptions, it will not and will cause its subsidiaries not to,
without the prior consent of Chancellor Media, not to be unreasonably
withheld:
(1) declare, set aside or pay any dividends on or make other distributions
in respect of its or its subsidiaries' outstanding capital stock, other
than as provided in the merger agreement;
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(2) split combine or reclassify any of its outstanding capital stock or
issue or authorize the issuance of any securities in lieu of or in
substitution for its outstanding capital stock;
(3) purchase, redeem or otherwise acquire any shares of outstanding capital
stock or any rights, warrants or options to acquire any shares, other
than as provided in the merger agreement;
(4) issue, sell, grant, pledge or otherwise encumber any shares of its
capital stock, any other equity securities or any securities
convertible into, or any rights, warrants or options to acquire any
shares, equity securities or convertible securities, other than as
provided in the merger agreement;
(5) amend its certificate of incorporation, bylaws or other comparable
charter or organizational documents other than as provided in the
merger agreement;
(6) acquire any business or any corporation, partnership, joint venture,
association or other business organization;
(7) sell, mortgage or otherwise encumber or subject to any lien or
encumbrance or otherwise dispose of any of its properties or assets
that are material to LIN and its subsidiaries, taken as a whole;
(8) other than working capital borrowings in the ordinary course of
business and consistent with past practices, incur any indebtedness for
borrowed money or guarantee any such indebtedness of another person,
other than as provided in the merger agreement, or make any material
loans or advances to any other person, other than to LIN or any of its
direct or indirect wholly owned subsidiaries and other than routine
advances to employees;
(9) make any tax election or settle or compromise any tax liability that
could reasonably be expected to be material to LIN and its
subsidiaries, taken as a whole or change its tax or accounting methods,
policies, practice or procedures, except as permitted by the merger
agreement;
(10) pay, discharge, settle or satisfy any material claims, liabilities or
obligations other than the payment, discharge or satisfaction of
certain liabilities as provided in the merger agreement;
(11) make any material commitments or agreements for capital expenditures
or capital additions or betterments except as materially consistent
with the budget for capital expenditures as of the effective time and
consistent with past practices;
(12) except as may be required by law, other than in the ordinary course of
business and consistent with past practice:
(A) make any representation or promise to any employee or former
director, officer or employee of LIN or any of its subsidiaries
which is inconsistent with the terms of any LIN employee benefit
plan;
(B) make any change to, or amend in any way, the contracts, salaries,
wages, or other compensation of any director, employee or any
agent or consultant of LIN or any of its subsidiaries other than
routine changes or amendments that are required under existing
contracts;
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(C) adopt, enter into, amend, alter or terminate, partially or
completely, any LIN employee benefit plan or any election made
pursuant to the provisions of any LIN employee benefit plan to
accelerate any payments, obligations or vesting schedules
thereunder; or
(D) approve any general or company-wide pay increases for employees;
(13) except in the ordinary course of business, modify amend or terminate
any material agreement, permit, concession, franchise, license or
similar instrument to which LIN or any of its subsidiaries is a party
or waive, release or assign any material rights or claims thereunder;
(14) authorize any of, or commit or agree to take any of the foregoing
actions.
Notwithstanding the foregoing, the merger agreement expressly permits LIN Texas
to enter into an Asset Purchase Agreement with Southwest Sports Group, which was
executed on August 1, 1998, pursuant to which LIN Texas will assign its purchase
option on KXTX-TV to Southwest Sports Group. In exchange, LIN Texas will receive
500,000 shares of Southwest Sports Group preferred stock.
CONDITIONS TO THE MERGER
- - The respective obligations of LIN and Chancellor Media to consummate the
merger are subject to the satisfaction or waiver of certain conditions,
including that:
(1) the merger agreement shall have been approved by the stockholders of
LIN and Chancellor Media holding a majority of the outstanding shares
of common stock;
(2) the FCC shall have issued an order, which order has not been reversed,
stayed, enjoined, set aside or suspended and with respect to which no
timely request for stay, petition for reconsideration or appeal has
been filed, approving the transfer of control of LIN's FCC licenses
without any material conditions or restrictions (see "The
Merger -- Certain Regulatory Matters" above);
(3) all required consents, approvals, permits and authorizations to the
consummation of the transactions contemplated by the merger agreement
by LIN and Chancellor Media shall have been obtained from any
governmental entity, as defined in the merger agreement, other than the
FCC, whose consent, approval, permission or authorization is required
by reason of a change in law after the date of the merger agreement,
except as provided in the merger agreement;
(4) any applicable waiting period under the HSR Act shall have been
terminated or shall have otherwise expired;
(5) there shall be in effect no temporary restraining order, preliminary or
permanent injunction or other order of any court or other legal
restraint or prohibition preventing the consummation of the merger;
(6) the Registration Statement shall have been declared effective by the
Commission and shall not be the subject of a stop order or proceeding
seeking a stop order; and
(7) the shares of Chancellor Media common stock to be issued pursuant to
the merger agreement shall have been approved for quotation on the
Nasdaq Stock Market.
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- - The obligations of LIN to effect the merger are further subject to
satisfaction of the following conditions:
(1) the representations and warranties of Chancellor Media shall have been
true and correct on the date that the merger agreement was entered and
shall be true and correct at and as of the closing date, except as
otherwise provided in the merger agreement;
(2) Chancellor Media shall have performed, in all material respects, all
obligations required to be performed by them at or prior to the closing
date;
(3) LIN shall have received an opinion from Vinson & Elkins L.L.P. on the
closing date to the effect that, among other things and subject to
certain conditions, the merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of
the Code; and
(4) Chancellor Media shall have amended the Chancellor Media Stockholders
Agreement, as defined in the merger agreement, as provided by the
merger agreement.
- - The obligations of Chancellor Media to effect the merger are further subject
to satisfaction of the following conditions:
(1) the representations and warranties of LIN shall have been true and
correct on the date that the merger agreement was entered and shall be
true and correct at and as of the closing date, except as provided in
the merger agreement;
(2) LIN shall have performed, in all material respects, all obligations
required to be performed by it at or prior to the closing date;
(3) Chancellor Media shall have received an opinion from Weil, Gotshal &
Manges LLP on the closing date to the effect that, among other things
and subject to certain conditions, the merger will be treated for
federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code;
(4) in the event that LIN shall have consummated the KXTX Transaction, LIN
or one of its other subsidiaries shall have received the convertible
preferred stock of Southwest Sports Group on substantially the terms
set forth in the merger agreement or such other consideration that is
deemed comparable by the Board of Directors of Chancellor Media;
(5) LIN and its subsidiaries shall have received any necessary consents
required as a result of the merger with respect to each network
affiliation agreement relating to a LIN Licensed Facility, defined in
the merger agreement, as provided by the merger agreement;
(6) LIN and certain of its subsidiaries and Hicks Muse Partners shall have
entered into an amendment to each of the monitoring and oversight
agreement and the financial advisory agreement as provided by the
merger agreement; and
(7) holders of not more than 5% of the outstanding shares of LIN common
stock shall have properly demanded appraisal rights for their shares
under the DGCL.
LIN and Chancellor Media have further agreed not to, and not to permit any of
their respective subsidiaries to, take any action that would or could reasonably
be expected to result in any of the conditions to the merger not being
satisfied.
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ADDITIONAL AGREEMENTS
Each of LIN and Chancellor Media has also agreed, among other things, and
subject to various conditions and exceptions:
- - as soon as practicable following the date of the merger agreement, that
Chancellor Media will prepare and file with the SEC the Registration
Statement, including this joint proxy statement/prospectus, and to use its
best efforts to have the Registration Statements declared effective under the
Securities Act as promptly as practicable after such filing;
- - to take all action necessary to convene a meeting of its stockholders to
submit the merger agreement for approval and to use its best efforts to hold
such stockholders' meeting as soon as practicable after the date of the merger
agreement;
- - to make, and cause its respective subsidiaries and its other affiliates to
make, all necessary filings as soon as practicable, including, without
limitation, those required under the HSR Act, the Securities Act, the Exchange
Act, and the Communications Act, in order to facilitate prompt consummation of
the merger and the other transactions contemplated by the merger agreement;
- - to cause it and its respective subsidiaries to afford to the other parties to
the merger agreement and to their respective officers, employees, counsel,
financial advisors and other representatives reasonable access, during the
period prior to the effective time to all of its properties, books, contracts,
commitments, personnel and records, and shall furnish such information
concerning its business, properties, financial condition, operations and
personnel as the parties may reasonably request;
- - not to, and cause its subsidiaries and Representatives, as defined below, not
to, use or disclose any nonpublic information obtained from Chancellor Media
or LIN to any other person, in whole or in part, except as provided for in the
merger agreement; and
- - to consult with each of the others before issuing, and will provide
opportunity to review and comment upon, any press release or other public
statements with respect to the merger or merger agreement.
LIN and Chancellor Media have also further agreed not to, and not to permit
their subsidiaries to, permit any of their or their respective subsidiaries'
officers, directors, partners, employees, agents, counsel, accountants,
financial advisors or any other representatives and affiliates (collectively,
"Representatives") to, directly or indirectly, solicit, initiate or encourage
the submission of any Acquisition Proposal, as defined below, or enter into or
participate in any discussions or negotiations regarding any Acquisition
Proposal. LIN has also agreed to:
- - immediately cease and terminate any existing solicitation, initiation,
encouragement, activity, discussion or negotiation with any persons conducted
to date by it or its Representatives with respect to the foregoing;
- - not release any third party from, or waive any provision of, any standstill
agreement to which it is a party or any confidentiality agreement between it
and another person who has made, or may reasonably be considered likely to
make, an Acquisition Proposal;
- - notify Chancellor Media of any such inquiries, offers or proposals; and
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- - neither through the Board of Directors of LIN nor any committee thereof:
(1) withdraw or modify, or propose to do so, in a manner adverse to
Chancellor Media, the approval or recommendation of its Board of
Directors or committee thereof of the merger or merger agreement;
(2) approve or recommend, or propose to do so, any Acquisition Proposal; or
(3) cause LIN to enter into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement related to any
Acquisition Proposal.
"Acquisition Proposal" is defined in the merger agreement to include any
proposal or offer from any person, other than Chancellor Media or any of its
subsidiaries, for a tender or exchange offer, merger, consolidation, other
business combination, recapitalization, liquidation, dissolution or similar
transaction involving LIN or any significant subsidiary, as defined in the
merger agreement, of LIN, or any proposal to acquire in any manner a substantial
equity interest in, or a substantial portion of the assets of LIN or a
significant subsidiary of LIN; provided, however, that any direct or indirect
acquisition or disposition of television broadcast stations, or the assets of
television broadcast stations, disclosed in the LIN disclosure letter to the
merger agreement shall not constitute an Acquisition Proposal.
Chancellor Media has also agreed to use its best efforts to cause the shares of
Chancellor Media common stock to be issued in the merger and upon exercise of
the assumed stock options to be approved for quotation in the Nasdaq Stock
Market.
LIN has also agreed to, among other things, and subject to exceptions and
conditions, deliver to Chancellor Media a letter identifying all persons who may
be, at the time the merger is submitted for approval to its stockholders,
"affiliates" of LIN for purposes of Rule 145 under the Securities Act, and to
use its best efforts to cause each affiliate to deliver to Chancellor Media on
or prior to the closing date a written agreement in the form attached to the
merger agreement.
INDEMNIFICATION AND INSURANCE
The certificate of incorporation of the surviving corporation shall contain the
provisions with respect to indemnification contained in the certificate of
incorporation of LIN, as in effect as of the effective time, and none of such
provisions shall be amended, repealed or otherwise modified for a period of six
years after the effective time in any manner that would adversely affect the
rights of individuals who at any time prior to the effective time were directors
or officers of LIN or any of their respective subsidiaries in respect of actions
or omissions occurring at or prior to the effective time, unless the
modification is required by law.
For a period of at least six years after the effective time, the surviving
corporation will maintain LIN's current directors' and officers' insurance and
indemnification policies to the extent that the policies provide coverage for
events occurring prior to the effective time, for all persons who were directors
and executive officers of LIN on the date of the merger agreement, so long as
the annual premium therefor would not be in excess of 250% of the last annual
premium paid prior to the date of the merger agreement; provided, however, that
Chancellor Media or its subsidiaries, may, in lieu of maintaining such existing
directors' and officers' insurance, cause coverage to be provided under any
policy
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maintained for the benefit of Chancellor Media and its subsidiaries so long as
the terms thereof are not less advantageous to the beneficiaries thereof than
the existing directors' and officers' insurance.
TERMINATION
The merger agreement may be terminated at any time prior to the effective time:
- - by mutual written consent of LIN and Chancellor Media;
- - by either LIN or Chancellor Media if:
(1) any required approval of the stockholders of the other party to the
merger agreement has not been obtained;
(2) the merger has not been consummated on or before June 30, 1999, other
than as the result of the willful and material breach of the merger
agreement by the party seeking to terminate it;
(3) any governmental entity shall have issued an order, decree or ruling or
take any other action permanently enjoining, restraining or otherwise
prohibiting the merger and the action has become final and
non-appealable; or
(4) the other party has breached the requirements of the Merger Agreement
regarding any representation, warranty, covenant or other agreement
giving rise to a failure of any representation and warranty or
condition precedent to the merger agreement that has not been, and
cannot be, cured within 30 days of written notice to the breaching
party, unless the party seeking to terminate is in material breach
under the merger agreement itself; or
- - by Chancellor Media if LIN has breached any agreements relating to an
Acquisition Proposal, unless Chancellor Media is then in material breach of
the merger agreement.
In the event of a termination of the merger agreement by LIN or Chancellor
Media, as a result of the other party's failure to obtain stockholders approval
or material breach, or by Chancellor Media in the event that LIN has breached
any agreements relating to an Acquisition Proposal, then the other party shall
reimburse such nonbreaching party for all substantiated out-of-pocket costs and
expenses incurred in connection with the merger agreement and the transactions
contemplated thereby. In addition, in the event that a party commits a willful
material breach of any of the provisions of the merger agreement, the other
party may seek damages or any other appropriate remedy at law or in equity.
AMENDMENT AND MODIFICATION
Subject to the applicable provisions of the DGCL, at any time prior to the
effective time, the parties may modify or amend the merger agreement by written
agreement; provided, however, that after the approval of the stockholders of LIN
has been obtained, no amendment may reduce the merger consideration or adversely
affect the rights of the LIN stockholders without their approval.
FEES AND EXPENSES
The merger agreement provides that, whether or not the merger is consummated,
each of LIN and Chancellor Media will pay its own costs and expenses incurred by
it in connection with the merger agreement and the consummation of the
transactions
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contemplated thereby, except as provided by the merger agreement in particular
events of termination of the merger agreement. See "-- Termination."
THE VOTING AGREEMENT
As a condition and inducement to Chancellor Media entering into the merger
agreement, Ranger Equity Partners, L.P., the record holder of approximately
74.7% of the outstanding LIN common stock and a Hicks Muse affiliate, has
entered into a voting agreement (the "Voting Agreement") with Chancellor Media.
Under the Voting Agreement, Ranger Equity Partners has agreed, among other
things:
- - to vote all shares of LIN common stock held by it in favor of the merger;
- - to vote all shares of LIN common stock held by it against
(1) any merger, other than the merger contemplated by the merger agreement,
takeover proposal or acquisition proposal; and
(2) any amendment to LIN's certificate of incorporation or bylaws or other
proposal or transaction involving LIN or any of its subsidiaries which
would impede, frustrate, prevent or nullify the merger, or change in
any manner the voting rights of the LIN common stock; and
- - not to sell, transfer, pledge, assign or otherwise dispose of shares of LIN
common stock or enter into any voting agreement, proxy or other voting
arrangement with any other person with respect to the shares of LIN common
stock held by it.
The Voting Agreement terminates upon the earlier to occur of 15 months from the
date of the Voting Agreement and the effective time of the merger. However, the
Voting Agreement may terminate earlier in the event that the merger agreement is
terminated in accordance with its terms and LIN is not in breach of its
obligations under the merger agreement and Ranger Equity Partners is not in
breach of its obligations under the Voting Agreement.
The vote of Ranger Equity Partners in favor of the merger and adoption of the
merger agreement is the only vote of the LIN stockholders necessary in order to
adopt and approve the merger agreement.
DIRECTORS AND MANAGEMENT FOLLOWING THE MERGER
The merger agreement provides that, immediately following the consummation of
the merger, the Board of Directors of Chancellor Media will consist of the
directors of Chancellor Media immediately prior to the merger, together with
Gary R. Chapman, currently the President and Chief Executive Officer of LIN
Holdings and LIN Television. Each of the current directors of Chancellor Media
will remain in the same class and with the same term expiration. The Board of
Directors of Chancellor Media shall determine immediately prior to the
consummation of the merger the class and term expiration for Mr. Chapman.
Following the consummation of the merger, the executive officers of Chancellor
Media immediately prior to the merger will continue to serve as the executive
officers of Chancellor Media.
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DIRECTORS AND MANAGEMENT OF CHANCELLOR MEDIA
The directors and executive officers of Chancellor Media are:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Thomas O. Hicks........................... 53 Chairman of the Board and Director
Jeffrey A. Marcus......................... 52 President, Chief Executive Officer and
Director
James E. de Castro........................ 46 President of Chancellor Radio Group and
Director
Thomas P. McMillin........................ 37 Senior Vice President and Chief
Financial Officer
Eric C. Neuman............................ 54 Senior Vice President -- Strategic
Development
James A. McLaughlin....................... 48 President of Chancellor Outdoor Group
Kenneth J. O'Keefe........................ 44 Executive Vice President -- Operations
Richard A. B. Gleiner..................... 46 Senior Vice President and General
Counsel
Thomas J. Hodson.......................... 55 Director
Perry J. Lewis............................ 61 Director
John H. Massey............................ 59 Director
Lawrence D. Stuart, Jr.................... 54 Director
Steven Dinetz............................. 52 Director
Vernon E. Jordan, Jr...................... 63 Director
J. Otis Winters........................... 66 Director
Michael J. Levitt......................... 40 Director
</TABLE>
Thomas O. Hicks
Mr. Hicks was elected Chairman of the Board and a director of Chancellor Media
in September 1997. He had been Chairman and a director of Chancellor
Broadcasting Company and Chancellor Radio Broadcasting Company prior to that
time, since April 1996. Mr. Hicks is Chairman of the Board and Chief Executive
Officer of Hicks Muse, a private investment firm located in Dallas, St. Louis,
New York, Mexico City and London specializing in strategic investments,
leveraged acquisitions and recapitalizations. From 1984 to May 1989, Mr. Hicks
was Co-Chairman of the Board and Co-Chief Executive Officer of Hicks & Haas,
Incorporated, a Dallas based private investment firm. Mr. Hicks serves as a
director of Capstar, LIN Holdings Corp., LIN Television, Sybron International
Corporation, Inc., Cooperative Computing, Inc., International Home Foods, Triton
Energy, D.A.C. Vision Inc. and Olympus Real Estate Corporation.
Jeffrey A. Marcus
Mr. Marcus became the President and Chief Executive Officer of Chancellor Media
on June 1, 1998, and Mr. Marcus became a director of Chancellor Media in
September 1997. Prior to the merger with Chancellor Broadcasting Company, Mr.
Marcus served as a director of Chancellor Broadcasting Company and Chancellor
Radio Broadcasting Company. Prior to joining Chancellor Media on June 1, 1998,
Mr. Marcus served as the Chairman and Chief Executive Officer of Marcus Cable
Properties, Inc. and Marcus Cable Company, L.L.C. (collectively "Marcus Cable"),
the ninth largest cable television
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multiple system operator (MSO) in the United States, which Mr. Marcus formed in
1990. Mr. Marcus continues to serve as Chairman of Marcus Cable and as a
director of Marcus Cable Properties, Inc. Until November 1988, Mr. Marcus served
as Chairman and Chief Executive Officer of WestMarc Communications, Inc., an MSO
formed through the merger in 1987 of Marcus Communications, Inc. and Western
TeleCommunications, Inc. Mr. Marcus has more than 29 years experience in the
cable television business. Mr. Marcus is a co-owner of the Texas Rangers
Baseball Club and serves as a director of Brinker International, Inc. and a
director or trustee of several charitable and civic organizations.
James E. de Castro
Mr. de Castro served as Chief Operating Officer of Chancellor Media from
September 22, 1997 to August 19, 1998, and on August 19, 1998, Mr. de Castro was
named President of the Chancellor Radio Group. From September 5, 1997 to
September 22, 1997, Mr. de Castro served as Co-Chief Operating Officer of
Chancellor Media. Mr. de Castro was elected Co-Chief Operating Officer and a
director of Chancellor Media in September 1997. Mr. de Castro was previously
President of Evergreen Media Corporation since 1993 and Chief Operating Officer
and a director of Evergreen Media Corporation since 1989. From 1987 to 1988, Mr.
de Castro held various positions with H&G Communications, Inc. and predecessor
entities. From 1981 to 1989, Mr. de Castro was general manager of radio stations
WLUP-FM and WLUP-AM (now known as WMVP-AM) in Chicago, and from 1989 to 1992,
Mr. de Castro was general manager of radio station KKBT-FM in Los Angeles.
Eric C. Neuman
Mr. Neuman became Senior Vice President -- Strategic Development of Chancellor
Media on July 1, 1998. From September 5, 1997 to May 19, 1998, Mr. Neuman served
as a director of Chancellor Media. Mr. Neuman became a director of Chancellor
Media in September 1997. Mr. Neuman previously served as a director of
Chancellor Broadcasting Company and Chancellor Radio Broadcasting Company since
April 1996. From May 1993 to July 1, 1998, Mr. Neuman had been an officer of
Hicks Muse and was most recently serving as Senior Vice President. From 1985 to
1993, Mr. Neuman was a Managing General Partner of Communications Partners,
Ltd., a private investment firm specializing in media and communications
businesses. Mr. Neuman currently serves as a director of Capstar, LIN Holdings
Corp. and LIN Television.
James A. McLaughlin
Mr. McLaughlin became the President of the Chancellor Outdoor Group effective on
August 18, 1998. Mr. McLaughlin most recently served as Chief Executive Officer
of privately-held Triumph Outdoor Holdings, LLC. Prior to forming Triumph, Mr.
McLaughlin served as President and Chief Executive Officer of POA Acquisition
Corporation, the successor to Peterson Outdoor Advertising. Prior to joining
POA, Mr. McLaughlin was the Managing Partner of Turner Outdoor Advertising which
was purchased from Ted Turner in 1983. Mr. McLaughlin began his outdoor
advertising career in 1974 with Creative Displays, holding various management
positions as the company grew to become the fourth largest outdoor advertising
company in the United States.
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Kenneth J. O'Keefe
Mr. O'Keefe became an Executive Vice President of Chancellor Media in September
1997. Mr. O'Keefe had been an Executive Vice President of Evergreen Media
Corporation since February of 1996 and served as a director of Evergreen from
May of 1996 until September 1997. Prior to joining Evergreen in 1996, Mr.
O'Keefe was a director, Chief Financial Officer and Executive Vice President of
Pyramid Communications, Inc. from March 1994 until Evergreen's acquisition of
Pyramid Communications, Inc. on January 17, 1996. Mr. O'Keefe served in various
capacities with Pyramid Communications, Inc. or predecessor entities during the
five-year period prior to his joining Evergreen in 1996.
Thomas P. McMillin
Mr. McMillin became a Senior Vice President of Chancellor Media on October 1,
1998 and was named Chief Financial Officer in January 1999. Mr. McMillin
previously served as Executive Vice President and Chief Financial Officer of
Marcus Cable. Mr. McMillin joined Marcus Cable in 1994 as Vice
President -- Finance & Development. Mr. McMillin continues to serve as a
director of Marcus Cable Properties, Inc. Prior to joining Marcus Cable, Mr.
McMillin served for three years as Vice President -- Corporate Development for
Crown Media, Inc., then a cable television subsidiary of Hallmark Cards. From
1987 to 1992, Mr. McMillin served in various financial and corporate development
positions, including Vice President Finance & Acquisitions, with Cencom Cable
Associates, Inc. From 1983 to 1987, Mr. McMillin was a member of the audit
practice of Arthur Andersen & Co.
Richard A. B. Gleiner
Mr. Gleiner became a Senior Vice President and General Counsel of Chancellor
Media on October 1, 1998. Mr. Gleiner has most recently served as Senior Vice
President, Secretary and General Counsel of Marcus Cable, with responsibility
for overseeing all of the legal affairs of Marcus Cable. Prior to joining Marcus
Cable in 1994, Mr. Gleiner had been of counsel to Dow, Lohnes & Albertson, New
York, New York from 1988 to 1991, primarily outside counsel to Marcus Cable.
Thomas J. Hodson
Mr. Hodson became a director of Chancellor Media in September 1997. Mr. Hodson
had previously served as a director of Evergreen Media Corporation since 1992.
Mr. Hodson is President of TJH Capital, Inc., a private investment company. He
had been the President and a director of Columbia Falls Aluminum Company from
January 1994 to March 1998. He had been a Vice President of Stephens, Inc. from
1986 through 1993.
Perry J. Lewis
Mr. Lewis became a director of Chancellor Media in September 1997. Mr. Lewis had
previously served as a director of Evergreen Media Corporation since Evergreen
Media Corporation acquired Broadcasting Partners, Inc. ("BPI") in 1995. Mr.
Lewis was the Chairman of BPI from its inception in 1988 until its merger with
Evergreen, and was Chief Executive Officer of BPI from 1993 to 1995. Mr. Lewis
is a founder of Morgan, Lewis, Githens & Ahn, an investment banking and
leveraged buyout firm which was
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established in 1982. Mr. Lewis serves as director of Aon Corporation, ITI
Technologies, Inc., Gradall Industries, Inc. and Stuart Entertainment, Inc.
John H. Massey
Mr. Massey became a director of Chancellor Media in September 1997. Prior to
that time, Mr. Massey served as a director of Chancellor Broadcasting Company
and Chancellor Radio Broadcasting Company. Until August 2, 1996, Mr. Massey
served as the Chairman of the Board and Chief Executive Officer of Life Partners
Group, Inc., an insurance holding company, having assumed those offices in
October 1994. Prior to joining Life Partners, he served, since 1992, as the
Chairman of the Board of, and currently serves as a director of, FSW Holdings,
Inc. Since 1986, Mr. Massey has served as a director of Gulf-California
Broadcast Company. From 1986 to 1992, he also was President of Gulf-California
Broadcast Company. From 1976 to 1986, Mr. Massey was President of Gulf Broadcast
Company. Mr. Massey currently serves as a director of Central Texas Bankshare
Holdings, Inc., Colorado Investment Holdings, Inc., Hill Bancshares Holdings,
Inc., Bank of The Southwest of Dallas, Texas, Columbus State Bank, Columbine JDS
Systems, Inc., The Paragon Group, Inc., the Brazos Fund Group Inc. and Sunrise
Television Group, Inc.
Lawrence D. Stuart, Jr.
Mr. Stuart became a director of Chancellor Media in September 1997. Mr. Stuart
previously served as a director of Chancellor Broadcasting Company and
Chancellor Radio Broadcasting Company since January 1997. Since October 1995,
Mr. Stuart has served as a Managing Director and Principal of Hicks Muse. Prior
to joining Hicks Muse, from 1990 to 1995 he served as the managing partner of
the Dallas office of the law firm Weil, Gotshal & Manges LLP. Mr. Stuart serves
as a director of Capstar.
Steven Dinetz
Mr. Dinetz was elected Co-Chief Operating Officer and a director of Chancellor
Media in September 1997. As of September 22, 1997, Mr. Dinetz no longer serves
as Co-Chief Operating Officer of Chancellor Media, but continues to serve as a
director for each such entity. Prior to September 1997, Mr. Dinetz served as
President, Chief Executive Officer and a director of Chancellor Broadcasting
Company and Chancellor Radio Broadcasting Company since their formation and
prior thereto was the President and Chief Executive Officer and a director of
Chancellor Communications, a predecessor entity of Chancellor Broadcasting
Company.
Vernon E. Jordan, Jr.
Mr. Jordan became a director of Chancellor Media on October 14, 1997. Mr. Jordan
currently serves as a senior partner in the Washington, D.C. office of the law
firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P. Mr. Jordan serves as a
director of American Express Company, Bankers Trust Company, Bankers Trust
Corporation, Dow Jones & Company, Inc., the Ford Foundation, Howard University,
J.C. Penney Company, Inc., Revlon Group, Revlon, Inc., Ryder System, Inc., Sara
Lee Corporation, Union Carbide Corporation, Xerox Corporation, LBJ Foundation,
National Academy Foundation and the Roy Wilkins Foundation.
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J. Otis Winters
Mr. Winters became a director of Chancellor Media on May 19, 1998. Mr. Winters
currently serves as the non-executive Chairman for The PWS Group (formerly Pate,
Winters & Stone, Inc.). Mr. Winters was Co-founder, President and director of
Avanti Energy Corporation. Mr. Winters also served as Executive Vice President
and a member of the board of directors of the First National Bank and Trust
Company of Tulsa. Mr. Winters was Executive Vice President and a member of the
board of directors of The Williams Companies, where he served as Chairman of two
major subsidiaries and was responsible for the corporate administrative
department. Mr. Winters also serves as a director and Chairman of the audit and
compensation committee of AMX Corporation, director and Chairman of the audit
committee for Arena Brands, Inc., director and Chairman of the finance and audit
committees for Dynegy, Inc. (formerly NGC Corporation), director for
OmniAmerica, Inc. and director and Chairman of the executive committee for
Walden Residential Properties, Inc.
Michael J. Levitt
Michael J. Levitt became a director of Chancellor Media on May 19, 1998. Mr.
Levitt is a Managing Director and Principal of Hicks Muse. Before joining Hicks
Muse, Mr. Levitt was a Managing Director and Deputy Head of Investment Banking
with Smith Barney Inc. from 1993 through 1995. From 1986 through 1993, Mr.
Levitt was with Morgan Stanley & Co. Incorporated, most recently as a Managing
Director responsible for the New York-based Financial Entrepreneurs Group. Mr.
Levitt also serves as a director of LIN Holdings Corp., LIN Television, Capstar,
STC Broadcasting, Inc., Atrium Companies, Inc. and International Home Foods,
Inc.
Compensation of Directors
Directors who are also officers of Chancellor Media receive no additional
compensation for their services as directors. Effective in September 1997,
directors of Chancellor Media who are not officers receive:
- - a fee of $36,000 per annum;
- - a $1,000 fee for attendance at meetings or, if applicable, a $500 fee for
attendance at meetings by telephone; and
- - a $2,000 fee for service as chairman of a board committee, a $1,000 fee for
attendance at committee meetings or, if applicable, a $500 fee for attendance
at committee meetings by telephone. Directors of Chancellor Media are also
reimbursed for travel expenses and other out-of-pocket costs incurred in
connection with such meetings. Additionally, all non-employee directors of
Chancellor Media in office on the day of Chancellor Media's annual
stockholders meeting are entitled to an award of options to purchase 25,000
shares of Chancellor Media common stock at an exercise price equal to the fair
market value of the shares on the date of grant.
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Compensation of Executive Officers
Summary Compensation. The following table sets forth all compensation, including
bonuses, stock option awards and other payments, paid or accrued by Chancellor
Media for the three fiscal years ending December 31, 1997, to Chancellor Media's
Chief Executive Officer and each of Chancellor Media's other executive officers
serving in such capacity at the end of the last completed fiscal year whose
total annual salary and bonus exceeded $100,000 during the fiscal year ended
December 31, 1997.
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
---------------------------------------- COMPENSATION
OTHER ------------ SECURITIES
NAME AND ANNUAL RESTRICTED UNDERLYING LTIP
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(2) STOCK AWARDS OPTIONS PAYOUTS
------------------ ---- -------- ---------- --------------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Scott K. Ginsburg........... 1997 $850,000 $3,615,000 -- -- 500,000 --
Former President 1996 750,000 956,000 -- -- 375,000 --
and Chief 1995 650,000 -- -- -- -- --
Executive Officer
James E. de Castro.......... 1997 $825,000 $2,581,000 -- -- 425,000 --
Chief Operating 1996 750,000 704,000 -- -- 75,000 --
Officer 1995 650,000 125,000 -- -- 300,000 --
Matthew E. Devine........... 1997 $375,000 $1,205,000 -- -- 262,500 --
Former Senior Vice 1996 300,000 352,000 -- -- 37,500 --
President, 1995 275,000 63,000 -- -- 150,000 --
Chief Financial
Officer and
Secretary
Kenneth J. O'Keefe.......... 1997 $320,000 $1,205,000 -- -- -- --
Executive Vice 1996 210,000(4) 210,000 -- -- 300,000 --
President -- 1995 -- -- -- -- -- --
Operations
<CAPTION>
NAME AND ALL OTHER
PRINCIPAL POSITION COMPENSATION(3)
------------------ ---------------
<S> <C>
Scott K. Ginsburg........... $9,101
Former President 9,776
and Chief 7,663
Executive Officer
James E. de Castro.......... 2,630
Chief Operating 2,455
Officer 2,455
Matthew E. Devine........... --
Former Senior Vice --
President, --
Chief Financial
Officer and
Secretary
Kenneth J. O'Keefe.......... --
Executive Vice --
President -- --
Operations
</TABLE>
- -------------------------
(1) No information is set forth herein regarding Steven Dinetz, who served as
Chancellor Media's Co-Chief Operating Officer from September 5, 1997 through
September 22, 1997, as amounts paid by the Company to Mr. Dinetz during 1997
for total annual salary and bonus did not exceed $100,000. On September 22,
1997, as part of the merger with Chancellor Broadcasting Company, Mr. Dinetz
resigned from his position as Co-Chief Operating Officer of Chancellor
Media, but retained his position as a director of Chancellor Media. Upon Mr.
Dinetz' resignation, Chancellor Media accelerated the exercisability of all
of Mr. Dinetz' stock options previously granted by Chancellor Broadcasting
Company. In February 1998, the Company made certain additional cash payments
to Mr. Dinetz. Both the acceleration of the exercisability of the stock
options and the cash payment were part of Mr. Dinetz' severance package
which he elected to receive after a change in job responsibilities directly
related to the merger with Chancellor Broadcasting Company.
(2) The aggregate annual amount of perquisites and other personal benefits,
securities or property does not exceed $50,000 or 10% of the total of the
annual salary and bonus for the named officer.
(3) Represents payments of term life insurance policies.
(4) Represents compensation for the period beginning March 1, 1996, when Mr.
O'Keefe joined Chancellor Media.
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Option Grants in Last Fiscal Year. The following table sets forth information
regarding options to purchase common stock granted by Chancellor Media to its
Chief Executive Officer and the other executive officers named in the Summary
Compensation Table during the 1997 fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------
NUMBER OF
SECURITIES % OF TOTAL GRANT DATE VALUE
UNDERLYING OPTIONS --------------------------
OPTIONS GRANTED TO EXERCISE OR GRANT DATE
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME (#)(1)(2) FISCAL YEAR ($/SHARE)(2) DATE $(3)
---- ---------- ------------ ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Scott K. Ginsburg...... 500,000 8.0% $23.25 9/5/07 $6,155,000
James E. de Castro..... 425,000 6.8% 23.25 9/5/07 5,231,750
Matthew E. Devine...... 262,500 4.2% 23.25 9/5/07 3,231,375
Kenneth J. O'Keefe..... -- -- -- -- --
</TABLE>
- -------------------------
(1) Represents options to purchase shares of common stock granted under
Chancellor Media's 1995 Stock Option Plan for Executive Officers and Key
Employees (the "1995 Stock Option Plan"). The options awarded to Mr.
Ginsburg, Mr. de Castro and Mr. Devine during the last fiscal year are
exercisable in whole or part beginning on September 5, 1997, and expire on
September 5, 2007. The options may expire earlier upon the occurrence of
selected merger or consolidation transactions involving Chancellor Media.
Chancellor Media is not required to issue and deliver any certificate for
shares of common stock purchased upon exercise of the option or any portion
thereof prior to fulfillment of certain conditions, including the completion
of registration or qualification of the shares of common stock under federal
or state securities laws and the payment to Chancellor Media of all amounts
required to be withheld upon exercise of the options under any federal,
state or local tax law. The holder of an option has no rights or privileges
of a stockholder in respect of any shares of common stock purchasable upon
exercise of the options unless and until certificates representing the
shares shall have been issued by Chancellor Media to such holder. Once
exercisable, the options are exercisable by the holder or, upon the death of
the holder, by his personal representatives or by any person empowered to do
so under the holder's will or under the applicable laws of descent and
distribution. The options are not transferable except by will or by the
applicable laws of descent and distribution or pursuant to a QDRO.
(2) Represents the estimated fair value of common stock on September 5, 1997,
the date of grant, as adjusted for the two-for-one stock split of Chancellor
Media's common stock effected in the form of a stock dividend, paid on
January 12, 1998.
(3) The present value of each grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions: dividend yield of 0% for all years; expected volatility of
41.88%; risk-free interest rate of 5.38%, and expected life of seven years.
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Aggregated Option Exercises in Last Fiscal Year and Year-End Values
The following table sets forth information concerning option exercises in the
year ended December 31, 1997 by the Company's Chief Executive Officer and the
other executive officers named in the Summary Compensation Table, and the value
of each of the executive officer's unexercised options at December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Scott K. Ginsburg....... -- -- 500,000 375,000 7,034,000 9,873,000
James E. de Castro...... 300,000 6,979,000 1,220,000 375,000 34,830,250 9,873,000
Matthew E. Devine....... -- -- 562,500 187,500 14,082,000 4,936,500
Kenneth J. O'Keefe...... -- -- -- 300,000 -- 7,992,000
</TABLE>
- -------------------------
(1) Based upon a per share price for Chancellor Media common stock of $37.31.
This price represents the closing price for the Chancellor Media common
stock on the Nasdaq National Market System on December 31, 1997, as adjusted
for the two-for-one stock split of Chancellor Media's common stock, effected
in the form of a stock dividend, paid on January 12, 1998.
Employment Agreements
Ginsburg Employment Agreement
Prior to April 14, 1998, Scott K. Ginsburg served as the President and Chief
Executive Officer of Chancellor Media. On September 4, 1997, Chancellor Media
entered into a new employment agreement with Mr. Ginsburg, to be effective on
the closing date of the merger with Chancellor Broadcasting Company. The
Ginsburg employment agreement, which had a term that extended through September
5, 2002, provided for an initial annual base salary of $1,000,000 for the first
year of the employment agreement, to be increased each year by a percentage
equal to the percentage change in the consumer price index during the preceding
year. In addition, the Ginsburg employment agreement provided for an annual
bonus based upon the financial performance of Chancellor Media in relation to
certain annual performance targets which are defined in the Ginsburg employment
agreement. The Ginsburg employment agreement provided that, on the closing date
of the merger with Chancellor Broadcasting Company and on each of the first four
anniversaries of that closing on which Mr. Ginsburg remained employed by
Chancellor Media, Mr. Ginsburg would be granted options to purchase 200,000
shares of Chancellor Media common stock. If Mr. Ginsburg's employment was
terminated without "cause," as defined in the Ginsburg employment agreement, or
if Mr. Ginsburg terminated his employment for "good reason," as defined in the
Ginsburg employment agreement, prior to the fifth annual anniversary of the
consummation of the merger with Chancellor Broadcasting Company, Mr. Ginsburg
would receive on the termination date a number of options equal to 1,000,000
minus the number of options previously granted to Mr. Ginsburg pursuant to the
preceding sentence prior to that date. In addition, in recognition of Mr.
Ginsburg's rights under his prior employment agreement, Chancellor Media granted
Mr. Ginsburg an option to acquire an additional 300,000 shares of Chancellor
Media common stock on the closing date of the merger with Chancellor
Broadcasting Company. The Ginsburg employment agreement provided that all
options granted pursuant to the Ginsburg employment
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agreement would be exercisable for ten years from the date of grant of the
option, notwithstanding any termination of employment, at a price per share
equal to the market price for Chancellor Media common stock at the close of
trading on the day immediately preceding the date of the grant. The Ginsburg
employment agreement provided that, in the event of termination of Mr.
Ginsburg's employment by Chancellor Media without "cause" or by Mr. Ginsburg
with "good reason," Chancellor Media would make a one-time cash payment to Mr.
Ginsburg in a gross amount so that the net payments retained by Mr. Ginsburg
shall equal $20,000,000. The Ginsburg employment agreement further provided
that, in the event of termination of Mr. Ginsburg's employment by reason of
expiration or non-renewal of the Ginsburg employment agreement, Chancellor Media
would make a one-time cash payment to Mr. Ginsburg equal to two times the amount
of his annual base salary for the contract year in which his employment
terminates. The Ginsburg employment agreement provided that Mr. Ginsburg would
have registration rights with respect to all Chancellor Media common stock
acquired by Mr. Ginsburg at any time which rights were no less favorable to Mr.
Ginsburg as the registration rights held by Hicks Muse and its affiliates with
respect to the common stock of Chancellor Broadcasting Company immediately prior
to the consummation of the merger with Chancellor Broadcasting Company. Under
the Ginsburg employment agreement, Chancellor Media also agreed to make to Mr.
Ginsburg a ten-year unsecured loan in the amount of $3,500,000 bearing interest
at a fixed rate equal to the applicable federal long-term rate in effect on the
date on which the loan is made. The terms of the loan require Mr. Ginsburg to
repay principal of the loan in five equal annual installments, commencing on the
sixth anniversary of the date on which the loan is made. As of April 15, 1998,
Mr. Ginsburg has borrowed $3,500,000 under the loan.
On April 14, 1998, Mr. Ginsburg resigned as President and Chief Executive
Officer of Chancellor Media, and on April 20, 1998, Mr. Ginsburg resigned as
director of Chancellor Media and from all appointments and positions with their
respective subsidiaries. On April 20, 1998, Chancellor Media entered into a
separation and consulting agreement with Mr. Ginsburg. The Ginsburg separation
and consulting agreement provides for:
- - a lump sum severance payment of $20,000,000 net of applicable employee
withholding taxes, which is the same amount Mr. Ginsburg would have been
entitled to under the Ginsburg employment agreement based upon a termination
of his employment by him for "good reason" or by Chancellor Media "without
cause," and
- - a grant to Mr. Ginsburg of stock options to acquire 800,000 shares of
Chancellor Media common stock, subject to the approval of Chancellor Media's
stockholders at the 1998 annual meeting of stockholders of a 1998 Chancellor
Media Corporation Employee Stock Option Plan, which is the same number of
stock options to which Mr. Ginsburg would have been entitled based upon a
termination of his employment by him for "good reason" or by Chancellor Media
"without cause," except that the Ginsburg separation and consulting agreement
provides that the exercise price for such stock options is $23.25 per share
and shall become exercisable as follows:
(1) options for 266,666 shares shall be exercisable beginning on April 20,
1998 for a period of seven years thereafter;
(2) options for 266,667 shares shall be exercisable beginning one year from
April 20, 1998 for a period of six years thereafter; and
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(3) options for 266,667 shares shall be exercisable beginning two years from
April 20, 1998 for a period of five years after that date.
Previously granted stock options were unaffected by the Ginsburg separation and
consulting agreement. The Ginsburg separation and consulting agreement also
provides that Chancellor Media shall retain Mr. Ginsburg as a consultant through
April 13, 2003, Mr. Ginsburg to be compensated for such consulting services in
an amount equal to $2,500,000 for each full year of consulting services. The
Ginsburg separation and consulting agreement further provides for three-year
non-solicitation and non-hire covenants by Mr. Ginsburg, as well as other mutual
releases and other provisions typically found in an employment termination
agreement, but does not provide for a noncompetition agreement from Mr.
Ginsburg.
de Castro Employment Agreement
Effective as of April 17, 1998, Chancellor Media entered into a new employment
agreement with Mr. de Castro. The de Castro employment agreement, which has a
term that extends through April 17, 2003, provides for an initial annual base
salary of $900,000 for the first year of the employment agreement, to be
increased each year by a percentage equal to the percentage change in the
consumer price index during the preceding year. In addition, the de Castro
employment agreement provides for an annual bonus based upon a percentage of the
amount by which Chancellor Media exceeds an annual performance target which is
defined in the de Castro employment agreement. The de Castro employment
agreement provides that, on the effective date of the employment agreement and
on each of the first four anniversaries of the employment agreement on which Mr.
de Castro remains employed by Chancellor Media, Mr. de Castro shall be granted
options to purchase 160,000 shares of Chancellor Media common stock. If Mr. de
Castro's employment is terminated without "cause," as defined in the de Castro
employment agreement, or if Mr. de Castro terminates his employment for "good
reason," as defined in the de Castro employment agreement, prior to the fifth
annual anniversary of the effective date of the de Castro employment agreement,
Mr. de Castro will receive on the termination date a number of options equal to
800,000 minus the number of options previously granted to Mr. de Castro under
the preceding sentence prior to that date. The de Castro employment agreement
provides:
- - for a signing bonus in the gross amount of $1,000,000;
- - that Chancellor Media shall make a one-time cash payment to Mr. de Castro in
the gross amount of $5,000,000 less applicable employee withholding taxes; and
- - that Chancellor Media shall grant to Mr. de Castro stock options to purchase
800,000 shares of Chancellor Media common stock at a price of $42.125.
All options granted pursuant to the de Castro employment agreement will be
exercisable for ten years from the date of grant of the option, notwithstanding
any termination of employment. The annual option grant shall be at a price per
share equal to the market price for Chancellor Media common stock at the close
of trading on the day immediately preceding the date of the grant. The de Castro
employment agreement provides that, in the event of termination of Mr. de
Castro's employment by Chancellor Media without "cause" or by Mr. de Castro with
"good reason," Chancellor Media shall make a one-time cash payment to Mr. de
Castro in a gross amount such that the net payments retained by Mr. de Castro
shall equal $5,000,000 less applicable employee withholding taxes.
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The de Castro employment agreement further provides that, in the event of
termination of Mr. de Castro's employment by Mr. de Castro for other than "good
reason," in exchange for Mr. de Castro's agreement not to induce any employee of
any radio station owned by Chancellor Media to terminate employment or to become
employed by any other radio station, Chancellor Media shall continue to pay Mr.
de Castro his applicable base salary through the fifth anniversary of the
effective date of the de Castro employment agreement. In the event of
termination of Mr. de Castro's employment for other than "good reason,"
Chancellor Media also has the right, in exchange for the payment at the end of
each calendar year through December 31, 2002, of an annual amount equal to the
product of Mr. de Castro's average bonus multiplied by the fraction of each
calendar year which precedes the fifth anniversary of the effective date of the
de Castro employment agreement, to require that Mr. de Castro not be employed by
or perform activities on behalf of or have ownership interest in any radio
broadcasting station serving the same market as any radio station owned by
Chancellor Media. The de Castro employment agreement further provides that if
Mr. de Castro's employment is terminated by reason of expiration or non-renewal
of the de Castro employment agreement, Chancellor Media shall make a one-time
cash payment to Mr. de Castro equal to two times the amount of his annual base
salary for the contract year in which such employment terminates. The de Castro
employment agreement provides that if Chancellor Media provides employment
related benefits in an aggregate amount greater than or on more favorable terms
as are granted to any other senior executives, except for benefits and
employment inducements provided to the Chief Executive Officer, Mr. de Castro
would be provided benefits in substantially comparable amount and/or under
substantially comparable terms, on an aggregate basis.
Devine Employment Agreement
Prior to January 6, 1999, Matthew E. Devine served as Senior Vice President and
Chief Financial Officer of Chancellor Media. In May 1998, Chancellor Media
entered into a new employment agreement with Mr. Devine. The Devine employment
agreement, which had a term that extended through April 17, 2003, provided for
an initial annual base salary of $500,000 for the first year of the employment
agreement, to be increased each year by $25,000. In addition, the Devine
employment agreement provided for an annual bonus based upon a percentage of the
amount by which Chancellor Media exceeds an annual performance target which is
defined in the Devine employment agreement. The Devine employment agreement
provided that, on the effective date of the employment agreement and on each of
the first four anniversaries of the employment agreement on which Mr. Devine
remained employed by Chancellor Media, Mr. Devine would be granted options to
purchase 120,000 shares of Chancellor Media common stock. If Mr. Devine's
employment was terminated without "cause," as defined in the Devine employment
agreement, or if Mr. Devine terminated his employment for "good reason," as
defined in the Devine employment agreement, prior to the fifth annual
anniversary of the effective date of the Devine employment agreement, Mr. Devine
would receive on the termination date a number of options equal to 600,000 minus
the number of options previously granted to Mr. Devine under the preceding
sentence prior to that date. In addition, the Devine employment agreement
provided:
- - for a signing bonus in the gross amount of $1,000,000;
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- - that Chancellor Media shall make a one-time cash payment to Mr. Devine of
$2,000,000 less applicable employee withholding taxes; and
- - that Chancellor Media shall grant to Mr. Devine stock options to purchase
600,000 shares of Chancellor Media common stock at a price of $42.125 per
share.
The Devine employment agreement provided that all options granted pursuant to
the Devine employment agreement would be exercisable for ten years from the date
of grant of the option, notwithstanding any termination of employment. The
annual option grant was to be at a price per share equal to the market price for
Chancellor Media common stock at the close of trading on the day immediately
preceding the date of the grant. The Devine employment agreement provided that,
in the event of termination of Mr. Devine's employment by Chancellor Media
without "cause" or by Mr. Devine with "good reason," Chancellor Media was to
make a one-time cash payment to Mr. Devine in a gross amount so that the net
payments retained by Mr. Devine shall equal $2,000,000 less applicable employee
withholding taxes.
The Devine employment agreement further provided that, in the event of
termination of Mr. Devine's employment by Mr. Devine for other than "good
reason," in exchange for Mr. Devine's agreement not to induce any employee of
any radio station owned by Chancellor Media to terminate employment or to become
employed by any other radio station, Chancellor Media would continue to pay Mr.
Devine his applicable base salary through the earlier of the fifth anniversary
of the effective date of the Devine employment agreement or the second
anniversary of the termination of employment. In the event of termination of Mr.
Devine's employment for other than "good reason," Chancellor Media also had the
right, in exchange for the payment at the end of each calendar year through the
year which includes the earlier of the fifth anniversary of the effective date
or the second anniversary of termination of an annual amount equal to the
product of Mr. Devine's average bonus multiplied by the fraction of each
calendar year which precedes the earlier of the fifth anniversary of the
effective date or the second anniversary of termination, to require that Mr.
Devine not be employed by or perform activities on behalf of or have an
ownership interest in any radio broadcasting station serving the same market as
any radio station owned by Chancellor Media. The Devine employment agreement
further provided that if Mr. Devine's employment is terminated by reason of
expiration or non-renewal of the Devine employment agreement, Chancellor Media
would make a one-time cash payment to Mr. Devine equal to two times the amount
of his annual base salary for the contract year in which such employment
terminates. The Devine employment agreement provided that if Chancellor Media
provides employment related benefits in an aggregate amount greater than or on
more favorable terms as are granted to any other senior executives, except for
benefits and employment inducements provided to the Chief Executive Officer or
Chief Operating Officer, Mr. Devine would be provided benefits in substantially
comparable amount and/or substantially comparable terms, on an aggregate basis.
In connection with Mr. Devine's resignation as Senior Vice President and Chief
Financial Officer in January 1999, Mr. Devine, his spouse, and Chancellor Media
and Chancellor Media Corporation of Los Angeles entered into a termination
agreement dated as of January 6, 1999. Pursuant to that agreement, Mr. Devine
resigned as Senior Vice President and Chief Financial Officer and from any other
appointments or positions which
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he may have held with Chancellor or any of its subsidiaries. In addition, the
agreement provides that:
- - Mr. Devine shall receive a one-time cash payment of $2,000,000 net of
applicable employee withholding taxes; and
- - Mr. Devine shall be granted options to purchase 480,000 shares of Chancellor
Media common stock at an exercise price of $46.125.
The agreement further provides for non-solicitation covenants by Mr. Devine
through April 17, 2000, as well as other mutual releases and other provisions
typically found in an employment termination agreement, but does not provide for
a noncompetition agreement from Mr. Devine.
O'Keefe Employment Agreement
In February of 1996, Chancellor Media entered into an employment agreement with
Mr. O'Keefe that has a term through February 28, 1999 and provides for an annual
base salary beginning at $300,000 in 1996 and increasing incrementally to
$350,000 in 1998. The O'Keefe employment agreement provides for Mr. O'Keefe to
receive an annual incentive bonus based upon a percentage of the amount by which
Chancellor Media exceeds various annual performance targets as defined in the
agreement. The agreement also provides that Mr. O'Keefe is eligible for options
to purchase Chancellor Media common stock. Under the agreement, Mr. O'Keefe was
awarded options to purchase 300,000 shares of common stock. The stock options
vest and become exercisable subject to Mr. O'Keefe's continued employment by
Chancellor Media through February 28, 1999. However, Mr. O'Keefe may be eligible
to exercise the options on a pro rata basis in the event he is terminated prior
to February 28, 1999 upon selected events specified in his employment agreement,
including Mr. O'Keefe's death or disability, a change in control of Chancellor
Media, termination without cause and a material breach of the employment
agreement by Chancellor Media leading to the resignation of Mr. O'Keefe. The
agreement terminates upon the death of Mr. O'Keefe and may be terminated by
Chancellor Media upon the disability of Mr. O'Keefe or for or without "cause,"
as defined in the agreement. During the term of the agreement, Mr. O'Keefe is
prohibited from engaging in certain activities competitive with the business of
Chancellor Media. However, with the approval of Chancellor Media, Mr. O'Keefe
may engage in activities not directly competitive with the business of
Chancellor Media as long as those activities do not materially interfere with
Mr. O'Keefe's employment obligations. On March 1, 1997, Evergreen Media
Corporation and Mr. O'Keefe amended the O'Keefe employment agreement in order to
make selected provisions of the O'Keefe employment agreement comparable to those
contained in Mr. de Castro's and Mr. Devine's former employment agreement.
On September 4, 1997, Chancellor Media amended its employment agreement with Mr.
O'Keefe. As a result of the O'Keefe amendment, the O'Keefe employment agreement
expired as of December 31, 1997, and the O'Keefe amendment was effective on
January 1, 1998. The O'Keefe amendment, which has a term through December 31,
2000, provides for an initial annual base salary of $500,000 for the first year
of the employment agreement, to be increased each year by $25,000. In addition,
the O'Keefe amendment provides for an annual bonus based upon the financial
performance of Chancellor Media in relation to various annual performance
targets which are defined in the O'Keefe amendment. The O'Keefe amendment
provides that, on January 1, 1998 and 1999,
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assuming that Mr. O'Keefe remains employed by Chancellor Media on those dates,
Mr. O'Keefe shall be granted options to purchase 100,000 shares of Chancellor
Media common stock. Furthermore, with respect to the option to purchase 300,000
shares of Chancellor Media common stock granted under the O'Keefe employment
agreement:
- - all options will become exercisable on February 28, 1999 if Mr. O'Keefe
remains employed by Chancellor Media on that date;
- - if Mr. O'Keefe's employment is terminated as a result of Mr. O'Keefe's death
or disability or resignation by Mr. O'Keefe following a material breach of the
O'Keefe amendment by Chancellor Media, a prorated portion of those options
will become exercisable; and
- - if Mr. O'Keefe's employment is terminated without "cause," as defined in the
O'Keefe amendment, or there is a "change of control," as defined in the
O'Keefe amendment, all of those options shall become exercisable.
The O'Keefe amendment provides that all options described in the O'Keefe
amendment will be exercisable for seven years from the date of grant of the
option, and that all options granted under to the O'Keefe amendment will be
granted at a price per share equal to the market price for common stock on the
date of the grant. The O'Keefe amendment provides that, in the event of
termination of Mr. O'Keefe's employment by Chancellor Media without "cause,"
Chancellor Media shall pay Mr. O'Keefe his base salary and a prorated annual
bonus and provide health and life insurance coverage until the earlier of the
expiration of the term of the O'Keefe amendment or the date on which Mr. O'Keefe
becomes employed in a position providing similar compensation.
Marcus Employment Agreement
Chancellor Media entered into an employment agreement with Jeffrey A. Marcus
which is effective as of June 1, 1998. The Marcus employment agreement, which
has a term that extends through May 31, 2003, provides for an initial annual
base salary of $1,125,000 for the first year of the employment agreement, to be
increased each year by a percentage equal to the percentage change in the
consumer price index during the preceding year. The Marcus employment agreement
provides for a one-time execution bonus in the gross amount of $1,000,000. In
addition, the Marcus employment agreement provides for an annual bonus in an
amount to be determined by the Chancellor Media compensation committee in its
reasonable discretion; provided, however, the annual bonus shall in no event be
less than $2,000,000 nor greater than $4,000,000. The Marcus employment
agreement provides that, on the effective date of the employment agreement and
on each of the four anniversaries of the employment agreement on which Mr.
Marcus remains employed by Chancellor Media, Mr. Marcus shall be granted options
to purchase 200,000 shares of Chancellor Media common stock. If Mr. Marcus'
employment is terminated without "cause," as defined in the Marcus employment
agreement, or if Mr. Marcus terminates his employment for "good reason," as
defined in the Marcus employment agreement, prior to the fourth annual
anniversary of the effective date of the Marcus employment agreement, Mr. Marcus
will receive on such termination date a number of options equal to 1,000,000
minus the number of options previously granted to Mr. Marcus under the preceding
sentence prior to that date. The Marcus employment agreement provides that all
options granted under the Marcus employment agreement will be exercisable for
ten years from the date of grant of the options, notwithstanding any termination
of employment, at a price per share equal to the market price for Chancellor
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Media common stock at the close of trading on the day immediately preceding the
date of the grant. Under the Marcus employment agreement, Mr. Marcus shall also
be granted options to purchase 1,250,000 shares of Chancellor Media common
stock, one-half of which will vest on the date of the grant and one-half of
which will vest on the 18th month anniversary of the date of the grant, with
each option exercisable for ten years from the date of grant of those options,
notwithstanding any termination of employment, at a price of $42.125 per share.
The Marcus employment agreement provides that, in the event of termination of
Mr. Marcus's employment by Chancellor Media without "cause" or by Mr. Marcus
with "good reason," Chancellor Media shall make a one-time cash payment to Mr.
Marcus in a gross amount such that the net payments retained by Mr. Marcus,
after payment by Chancellor Media of excise taxes imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended, with respect to that payment, to the
extent applicable, shall equal $6,250,000.
The Marcus employment agreement further provides that, in the event of
termination of Mr. Marcus's employment by Mr. Marcus for other than "good
reason," in exchange for Mr. Marcus's agreement not to induce any employee of
any radio station owned by Chancellor Media to terminate employment or to become
employed by any other radio station, Chancellor Media shall continue to pay Mr.
Marcus his applicable base salary through the fifth anniversary of the effective
date. In the event of termination of Mr. Marcus' employment for other than "good
reason," Chancellor Media also has the right, in exchange for the payment at the
end of each calendar year until each calendar year ending December 31, 2003, of
an annual amount equal to the product of Mr. Marcus's average bonus multiplied
by the fraction of each calendar year which precedes the fifth anniversary of
the effective date of the Marcus employment agreement, to require that Mr.
Marcus not be employed by or perform activities on behalf of or have ownership
interest in any radio or television broadcasting station serving the same market
as any radio station owned by Chancellor Media, or in connection with any
business enterprise that is directly or indirectly engaged in any of the
business activities in which any business owned by Chancellor Media has
significant involvement, subject to certain exceptions. The Marcus employment
agreement further provides that if Mr. Marcus's employment is terminated by
reason of expiration or non-renewal of the Marcus employment agreement,
Chancellor Media shall make a one-time cash payment to Mr. Marcus equal to two
times the amount of his annual base salary for the contract year in which
employment terminates. The Marcus employment agreement also provides that Mr.
Marcus shall be entitled to receive personal security services, to be paid for
by Chancellor Media, and certain other customary benefits and perquisites.
McLaughlin Employment Agreement
On August 18, 1998, Chancellor Media entered into an employment agreement with
Mr. McLaughlin, that has a term that extends through August 18, 2003, and
provides for an annual base salary of $500,000 for the first year of the
employment agreement, to be increased each year by a percentage equal to the
percentage change in the consumer price index during the preceding year. The
McLaughlin employment agreement provides for Mr. McLaughlin to receive an annual
bonus as determined by the Chancellor Media compensation committee, based upon
the recommendation of the Chief Executive Officer. The McLaughlin employment
agreement also provides that on the agreement date and on each of the first four
anniversaries of the employment agreement on which
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Mr. McLaughlin remains employed by Chancellor Media, Mr. McLaughlin shall be
granted options to purchase 60,000 shares of Chancellor Media common stock. If
Mr. McLaughlin's employment is terminated without "cause," as defined in the
McLaughlin employment agreement, or if Mr. McLaughlin terminates his employment
for "good reason," as defined in the McLaughlin employment agreement, prior to
the fifth anniversary of the effective date of the McLaughlin employment
agreement, Mr. McLaughlin will receive on the termination date a number of
options equal to 300,000 minus the number of options previously granted to Mr.
McLaughlin under the preceding sentence prior to that date. In addition, as an
execution bonus, Chancellor Media will grant to Mr. McLaughlin options to
purchase 300,000 shares of Chancellor Media common stock of Chancellor Media at
a price of $48.375 per share 25% of which shall vest on the effective date of
the employment agreement and 25% of which will vest on each of the three
anniversaries of the date of grant. Chancellor Media also paid to Mr. McLaughlin
a one-time execution bonus in the gross amount of $1,000,000. The McLaughlin
employment agreement provides that all options granted under the McLaughlin
employment agreement will be exercisable for ten years from the date of grant of
the option, notwithstanding any termination of employment. The annual option
grant shall be at a price per share equal to the market price for Chancellor
Media common stock at the close of trading on the day immediately preceding the
date of the grant. The McLaughlin employment agreement provides that, in the
event of termination of Mr. McLaughlin's employment by Chancellor Media without
"cause" or by Mr. McLaughlin with "good reason," Chancellor Media shall make a
one-time cash payment to Mr. McLaughlin in a gross amount so that the net
payments retained by Mr. McLaughlin, after payment by Chancellor Media of any
excise taxes imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended, with respect to that payment, shall equal $1,000,000. The McLaughlin
employment agreement further provides that, in the event of termination of Mr.
McLaughlin's employment by Mr. McLaughlin for other than "good reason," in
exchange for Mr. McLaughlin's agreement not to induce any employee of any media
company owned by Chancellor Media to terminate employment or to become employed
by any other media company, Chancellor Media shall continue to pay Mr.
McLaughlin one-half of his applicable base salary through the earlier of the
fifth anniversary of the effective date of the employment agreement or the
second anniversary of the termination of employment. In the event the
termination of the McLaughlin employment for other than "good reason,"
Chancellor Media also has the right, in exchange for the payment at the end of
each calendar year through the year which includes the earlier of the fifth
anniversary of the effective date or the second anniversary of termination of an
annual amount equal to the product of one-half of Mr. McLaughlin's average bonus
multiplied by the fraction of each calendar year which precedes the earlier of
the fifth anniversary of the effective date or the second anniversary of
termination, to require that Mr. McLaughlin not be employed by or perform
activities on behalf of or have an ownership interest in any media company
serving the same market as any media company owned by Chancellor Media.
Neuman Employment Agreement
On June 1, 1998, Chancellor Media entered into an employment agreement with Mr.
Neuman, to be effective July 1, 1998, that has a term that extends through July
1, 2003, and provides for an annual base salary of $500,000 for the first year
of the employment agreement, to be increased each year by $25,000. The Neuman
employment
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agreement provides for Mr. Neuman to receive an annual bonus as determined by
the Chancellor Media compensation committee, based upon the recommendation of
the Chief Executive Officer; provided, however, that the bonus shall in no event
be less than $500,000 nor greater than $1,500,000. The Neuman employment
agreement provides that on the agreement date and on each of the first four
anniversaries of the effective date of the employment agreement on which Mr.
Neuman remains employed by Chancellor Media, Mr. Neuman shall be granted options
to purchase 100,000 shares of Chancellor Media common stock. If Mr. Neuman's
employment is terminated without "cause," as defined in the Neuman employment
agreement, or if Mr. Neuman terminates his employment for "good reason," as
defined in the Neuman employment agreement, prior to the fifth anniversary of
the effective date of the Neuman employment agreement, Mr. Neuman will receive
on the termination date a number of options equal to 500,000 minus the number of
options previously granted to Mr. Neuman under the preceding sentence prior to
that date. In addition, as an execution bonus, Chancellor Media will grant to
Mr. Neuman options to purchase 300,000 shares of Chancellor Media common stock
at a price of $42.3125 per share. The Neuman employment agreement provides that
all options granted under the Neuman employment agreement will be exercisable
for ten years from the date of grant of the option, notwithstanding any
termination of employment. The annual option grant shall be at a price per share
equal to the market price for Chancellor Media common stock at the close of
trading on the day immediately preceding the date of the grant. The Neuman
employment agreement provides that, in the event of termination of Mr. Neuman's
employment by Chancellor Media without "cause" or by Mr. Neuman with "good
reason," Chancellor Media shall make a one-time cash payment to Mr. Neuman in a
gross amount so that the net payments retained by Mr. Neuman, after payment by
Chancellor Media of any excise taxes imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended, with respect to that payment, shall equal
$2,000,000.
The Neuman employment agreement further provides that, in the event of
termination of Mr. Neuman's employment by Mr. Neuman for other than "good
reason," in exchange for Mr. Neuman's agreement not to induce any employee of
any media company owned by Chancellor Media to terminate employment or to become
employed by any other media company, Chancellor Media shall continue to pay Mr.
Neuman his applicable base salary through the earlier of the fifth anniversary
of the effective date of the employment agreement or the second anniversary of
the termination of employment. In the event of termination of Mr. Neuman's
employment other than for "good reason," Chancellor Media also has the right, in
exchange for the payment at the end of each calendar year through the year which
includes the earlier of the fifth anniversary of the effective date or the
second anniversary of termination of an annual amount equal to the product of
Mr. Neuman's average bonus multiplied by the fraction of each calendar year
which precedes the earlier of the fifth anniversary of the effective date or the
second anniversary of termination, to require that Mr. Neuman not be employed by
or perform activities on behalf of or have an ownership interest in any media
company serving the same market as any media company owned by Chancellor Media.
The Neuman employment agreement further provides that if Mr. Neuman's employment
is terminated by reason of expiration or non-renewal of the Neuman employment
agreement, Chancellor Media shall make a one-time cash payment to Mr. Neuman
equal to two times the amount of his annual base salary for the contract year in
which his employment terminates. The Neuman employment agreement provides that
if Chancellor Media provides employment related
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benefits in an aggregate amount greater than or on more favorable terms as are
granted to any other senior executives, except for benefits and employment
inducements provided to the Chief Executive Officer or Chief Operating Officer,
Mr. Neuman would be provided benefits in a substantially comparable amount
and/or under substantially comparable terms, on an aggregate basis.
McMillin Employment Agreement
On October 1, 1998, Chancellor Media entered into an employment agreement with
Mr. McMillin, that has a term that extends through October 1, 2003, and provides
for an annual base salary of $500,000 for the first year of the employment
agreement, to be increased each year by a percentage equal to the percentage
change in the consumer price index during the preceding year. The McMillin
employment agreement provides for Mr. McMillin to receive an annual bonus as
determined by the Chancellor Media compensation committee, based upon the
recommendation of the Chief Executive Officer. The McMillin employment agreement
also provides that on the agreement date and on each of the first four
anniversaries of the employment agreement on which Mr. McMillin remains employed
by Chancellor Media, Mr. McMillin shall be granted options to purchase 40,000
shares of common stock of Chancellor Media. If Mr. McMillin's employment is
terminated without "cause," as defined in the McMillin employment agreement, or
if Mr. McMillin terminates his employment for "good reason," as defined in the
McMillin employment agreement, prior to the fifth anniversary of the effective
date of the McMillin employment agreement, Mr. McMillin will receive on the
termination date a number of options equal to 200,000 minus the number of
options previously granted to Mr. McMillin under to the preceding sentence prior
to that date. In addition, as an execution bonus, Chancellor Media granted to
Mr. McMillin options to purchase 200,000 shares of Chancellor Media common stock
at a price of $29.875 per share, 25% of which shall vest on the effective date
of the employment agreement and 25% of which will vest on each of the three
anniversaries of the date of grant. Chancellor Media also paid to Mr. McMillin a
one-time execution bonus in the gross amount of $1,000,000. The McMillin
employment agreement provides that all options granted under the McMillin
employment agreement will be exercisable for ten years from the date of grant of
the option, notwithstanding any termination of employment. The annual option
grant shall be at a price per share equal to the market price for common stock
at the close of trading on the day immediately preceding the date of the grant.
The McMillin employment agreement provides that, in the event of termination of
Mr. McMillin's employment by Chancellor Media without "cause" or by Mr. McMillin
with "good reason," Chancellor Media shall make a one-time cash payment to Mr.
McMillin in a gross amount so that the net payments retained by Mr. McMillin,
after payment by the Company of any excise taxes imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended, with respect to that payment, shall
equal two times Mr. McMillin's base salary then in effect.
The McMillin employment agreement further provides that, in the event of
termination of Mr. McMillin's employment by Mr. McMillin for other than "good
reason," in exchange for Mr. McMillin's agreement not to induce any employee of
any media company owned by Chancellor Media to terminate employment or to become
employed by any other media company, Chancellor Media shall continue to pay Mr.
McMillin one-half of his applicable base salary through the earlier of the fifth
anniversary of the effective date thereof or the second anniversary of the
termination of employment. In the event of termination of
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Mr. McMillin's employment other than for "good reason," Chancellor Media also
has the right, in exchange for the payment at the end of each calendar year
through the year which includes the earlier of the fifth anniversary of the
effective date or the second anniversary of termination of an annual amount
equal to the product of one-half of Mr. McMillin's average bonus multiplied by
the fraction of each calendar year which precedes the earlier of the fifth
anniversary of the effective date or the second anniversary of termination, to
require that Mr. McMillin not be employed by or perform activities on behalf of
or have an ownership interest in any media company serving the same market as
any media company owned by Chancellor Media.
In January 1999, Mr. McMillin's employment agreement was amended by Chancellor
Media. The amended agreement changed Mr. McMillin's title and duties to Senior
Vice President and Chief Financial Officer, increased his annual option grants
to 50,000 shares of Chancellor Media common stock, and provided for an
additional option grant of 60,000 shares as of the effective date of the
amendment at an exercise price of $46.125 per share. In addition, as a result of
the increase in annual option grants, if Mr. McMillin's employment is terminated
without "cause" or if Mr. McMillin terminates his employment for "good reason"
prior to the fifth anniversary of the effective date of the McMillin employment
agreement, Mr. McMillin will receive on the termination date a number of options
equal to 240,000 minus the number of options previously granted.
Amended and Restated Employment Agreements
In October 1998, Chancellor Media entered into amended and restated employment
agreements with each of Messrs. Marcus, de Castro, Neuman and McLaughlin. The
amended and restated employment agreements are on substantially the same terms
and conditions of the original employment agreements except:
- - the "change of control" provision has been modified to make clear that the
merger with Capstar Broadcasting Corporation will not be a change of control;
- - the annual option grant provisions in each agreement were modified to provide
for consistent treatment among the executives of timing of the grant and
determination of exercise price;
- - the annual consumer price index adjustments were modified to clarify that the
adjustment will not result in a decrease in base salary; and
- - the method of calculating the exercise price governing accelerated annual
option grants in the event of a change of control has been modified.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
The members of the compensation committee of Chancellor Media are Messrs. Hicks,
Massey, Jordan, Marcus and Lewis. Mr. Hicks serves as chairman of the
compensation committee, and also serves as the Chairman of the Board of
Chancellor Media. Messrs. Massey and Marcus previously served on the
compensation committee of Chancellor Broadcasting Company, and Mr. Lewis
previously served on the compensation committee of Evergreen Media Corporation.
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DIRECTORS AND MANAGEMENT OF LIN
In addition to the Chancellor Media directors and officers, Gary R. Chapman will
be elected an executive officer of Chancellor Media as the President of the
Chancellor Media Television Group. The following is a brief discussion of
certain biographical and historical compensation information concerning Mr.
Chapman.
Gary R. Chapman, 54 years old, has been President of LIN Television since 1989
and a director and Chief Executive Officer since November 1994. Mr. Chapman
became President and Chief Executive Officer of LIN Holdings in March 1998 in
connection with the consummation of the acquisition of LIN Television by Hicks
Muse. Mr. Chapman served as Joint Chairman of the National Association of
Broadcasters from 1991 to 1993, and serves as a board member of the Advanced
Television Test Center. Currently, Mr. Chapman serves on the Board of Directors
of the Association for Maximum Service Television and is Co-Chairman of the
Advisory Board of Governors for the National Association of Broadcasters
Education Foundation.
The following table sets forth compensation earned or paid, including deferred
compensation, by LIN Television to Mr. Chapman for services rendered for the
years ended December 31, 1995, 1996 and 1997.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------- ---------------------------
OTHER ANNUAL
COMPENSATION OPTIONS/SARS
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) (#)
- --------------------------- ---- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Gary R. Chapman.......... 1997 500,000 205,000 22,305 100,000
President and Chief 1996 475,000 146,250 46,632 75,000
Executive Officer 1995 475,000 134,000 24,978 0
</TABLE>
- -------------------------
(1) The amount set forth in Other Annual Compensation includes the value of
executive life and disability insurance and the personal use of company
automobiles and nonqualified pension contributions.
The following table discloses for Mr. Chapman information on options granted by
LIN Television during the 1997 fiscal year.
OPTION GRANTS DURING THE 1997 FISCAL YEAR(1)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS(2) OPTION TERM
---------------------------- -----------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTION/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTION/SAR EMPLOYEES IN BASE PRICE EXPIRATION
NAME SHARES FISCAL YEAR(%) ($/SHARE) DATE 5%($) 10%($)
- ---- ----------- -------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gary R. Chapman...... 100,000 15.1 41.44 1/2/07 2,606,139 6,604,469
</TABLE>
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- -------------------------
(1) Option grants in 1997 reflect the right to purchase shares of common stock
of LIN Television, prior to the acquisition of LIN Television by Hicks Muse,
which was then a publicly-traded company.
(2) All options granted to Mr. Chapman were to become exercisable in four equal
annual installments beginning one year after the grant date and had an
option term of ten years. In the event of a change of control, the vested
options could be exchanged to the company for a cash payment.
The following table discloses for Mr. Chapman individual exercises of options of
LIN Television in the fiscal year ended December 31, 1997 and the number and
value of options held by Mr. Chapman as of such date.
AGGREGATE EXERCISES DURING THE 1997 FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
SHARES VALUE OF
UNDERLYING UNEXERCISED
SHARES OPTION PRICE AT VALUE UNEXERCISED IN-THE-MONEY
ACQUIRED ON PRICE EXERCISE REALIZED OPTIONS AT FISCAL OPTIONS AT FISCAL
NAME EXERCISE(#) SHARE($) ($) ($) YEAR END(#) YEAR END($)
- ---- ----------- -------- -------- -------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Gary R. Chapman...... -- -- -- -- 571,110 14,782,843
</TABLE>
- -------------------------
(1) Fiscal year-end option shares and values reflect options to purchase
publicly-traded shares of LIN Television prior to the acquisition of LIN
Television by Hicks Muse. Additionally, share numbers and values at fiscal
year-end do not include options to purchase shares of common stock of AT&T
Corp. received by Mr. Chapman as compensation from LIN Broadcasting Corp.,
the former parent of LIN Television, prior to its public spin-off in
December 1994.
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<PAGE> 168
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF CHANCELLOR MEDIA
The following table lists information concerning the beneficial ownership of the
common stock of Chancellor Media on January 31, 1999 by (i) each director and
executive officer of Chancellor Media and their affiliates on January 31, 1999,
(ii) all directors and executive officers as a group and (iii) each person known
to Chancellor Media to own beneficially more than 5% of the common stock of
Chancellor Media.
<TABLE>
<CAPTION>
NAME OF STOCKHOLDER SHARES PERCENT(1)
- ------------------- ---------- ----------
<S> <C> <C>
Hicks Muse Parties(2)........................ 16,944,371 11.9%
c/o Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Putnam Investments, Inc.(3).................. 17,314,508 12.1%
One Post Office Square
Boston, Massachusetts 02109
Janus Capital Corporation(4)................. 11,846,915 8.3%
100 Fillmore Street
Denver, Colorado 80206-4923
Thomas O. Hicks.............................. 16,944,371(5) 11.9%
Jeffrey A. Marcus............................ 1,018,402(6) *
James E. de Castro........................... 2,405,000(7) 1.7%
Matthew E. Devine............................ 1,470,000(8) 1.0%
Eric C. Neuman............................... 406,356(9) *
James A. McLaughlin.......................... 75,000(10) *
Kenneth J. O'Keefe........................... 104,000(11) *
Thomas P. McMillin........................... 54,500(12) *
Richard A.B. Gleiner......................... 40,500(13) *
Thomas J. Hodson............................. 37,500(14) *
Perry J. Lewis............................... 140,715(15) *
Lawrence D. Stuart, Jr. ..................... 11,292 *
John H. Massey............................... 53,524(16) *
Steven Dinetz................................ 1,484,864(17) 1.0%
Vernon E. Jordan, Jr. ....................... 12,500(18) *
J. Otis Winters.............................. -- *
Michael J. Levitt............................ -- *
All directors and executive officers as a
group (17 persons)......................... 24,258,524(19) 16.2%
</TABLE>
- -------------------------
* Less than one percent (1%).
(1) Assumes that 142,939,577 shares of Chancellor Media Common Stock were
issued and outstanding as of January 31, 1999.
(2) Consists of 1,278,969 shares owned of record by Thomas O. Hicks, 346,736
shares owned of record by Mr. Hicks as trustee for certain trusts of which
his children are
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<PAGE> 169
beneficiaries and 20,816 shares owned of record by Mr. Hicks as co-trustee
of a trust for the benefit of unrelated parties. Also includes 15,297,850
shares owned of record by three limited partnerships of which the ultimate
general partners are entities controlled by Mr. Hicks or Hicks Muse. Mr.
Hicks is the controlling stockholder of Hicks Muse and serves as Chairman
of the Board, Chief Executive Officer and Secretary of Hicks Muse.
Accordingly, Mr. Hicks may be deemed to be the beneficial owner of all or a
portion of the stock owned of record by such limited partnerships. John R.
Muse, Charles W. Tate, Jack D. Furst, Lawrence D. Stuart, Jr., Michael J.
Levitt, David B. Deniger and Dan H. Blanks are officers, directors and
minority stockholders of Hicks Muse and as such may be deemed to share with
Mr. Hicks the power to vote or dispose of shares held by such partnerships.
Messrs. Hicks, Muse, Tate, Furst, Stuart, Levitt, Deniger and Blanks
disclaim the existence of a group and each of them disclaims beneficial
ownership of shares not owned of record by him.
(3) Based solely upon information contained in such person's filing on February
4, 1999 of Schedule 13G under the Exchange Act.
(4) Includes 5,906,880 shares owned by Janus Fund, an investment company
registered under the Investment Company Act of 1940, as amended. Based
solely upon information contained in such person's filing on February 12,
1999 of Schedule 13G under the Exchange Act.
(5) Consists of 1,278,969 shares owned of record by Mr. Hicks, 346,736 shares
owned of record by Mr. Hicks as trustee for certain trusts of which his
children are beneficiaries and 20,816 shares owned of record by Mr. Hicks
as co-trustee of a trust for the benefit of unrelated parties. Also
includes 15,297,850 shares owned of record by three limited partnerships of
which the ultimate general partners are entities controlled by Mr. Hicks
and Hicks Muse. Mr. Hicks is the controlling stockholder of Hicks Muse and
serves as Chairman of the Board, Chief Executive Officer and Secretary of
Hicks Muse. Accordingly, Mr. Hicks may be deemed to be the beneficial owner
of all or a portion of the stock owned of record by such limited
partnerships. Mr. Hicks disclaims beneficial ownership of shares not owned
of record by him.
(6) Includes options that are exercisable within 60 days of the date hereof to
purchase 849,242 shares, 825,000 of which are subject to options to be
granted pursuant to the Marcus Employment Agreement.
(7) Consists of options that are exercisable within 60 days of the date hereof
to purchase 2,405,000 shares, 960,000 of which are subject to options to be
granted pursuant to the de Castro Employment Agreement.
(8) Consists of options that are exercisable within 60 days of the date hereof
to purchase 1,470,000 shares, 720,000 of which are subject to options to be
granted pursuant to the Devine Employment Agreement.
(9) Includes options that are exercisable within 60 days of the date hereof to
purchase 400,000 shares to be granted pursuant to the Newman Employment
Agreement.
(10) Consists of options that are exercisable within 60 days of the date hereof
to purchase 75,000 shares to be granted pursuant to the McLaughlin
Employment Agreement.
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<PAGE> 170
(11) Includes options that are exercisable within 60 days of the date hereof to
purchase 100,000 shares.
(12) Includes options that are exercisable within 60 days of the date hereof to
purchase 50,000 shares.
(13) Includes options that are exercisable within 60 days of the date hereof to
purchase 37,500 shares.
(14) Consists of options that are exercisable within 60 days of the date hereof
to purchase 37,500 shares.
(15) Includes options that are exercisable within 60 days of the date hereof to
purchase 37,500 shares.
(16) Consists of options that are exercisable within 60 days of the date hereof
to purchase 36,742 shares and 16,782 shares held by Mr. Massey's wife as
her separate property.
(17) Includes (i) options that are exercisable within 60 days of the date hereof
to purchase 1,310,956 shares, (ii) 1,090 shares held by an individual
retirement account for the benefit of Mr. Dinetz and (iii) 1,000 shares
held by Mr. Dinetz' daughter. Mr. Dinetz disclaims beneficial ownership of
the shares of Chancellor Media Common Stock that are not owned by him of
record.
(18) Consists of options that are exercisable within 60 days of the date hereof
to purchase 12,500 shares.
(19) Includes options to purchase 6,821,940 shares.
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<PAGE> 171
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF LIN
The following table sets forth information concerning the beneficial ownership
of the LIN common stock on January 31, 1999 by (1) each director of LIN and
executive officer of LIN or LIN Television, (2) all such directors and executive
officers as a group, and (3) each person known to LIN to own beneficially more
than 5% of the LIN common stock.
<TABLE>
<CAPTION>
PERCENT
NAME OF STOCKHOLDER NO. OF SHARES OF CLASS
- ------------------- ------------- --------
<S> <C> <C>
Ranger Equity Partners, L.P. .............................. 403,071,532 74.7%
c/o Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Co-Investment Partners, L.P. .............................. 50,000,000 9.3
660 Madison Avenue, 23rd Floor
New York, New York 10021
Gary R. Chapman............................................ -- --
Thomas O. Hicks............................................ 403,071,532(1) 74.7
Michael J. Levitt.......................................... 403,071,532(2) 74.7
C. Dean Metropoulos........................................ 800,000(3) *
John R. Muse............................................... 403,071,532(4) 74.7
Eric C. Neuman............................................. -- --
James G. Babb, Jr. ........................................ -- --
Deborah R. Jacobson........................................ -- --
Paul Karpowicz............................................. -- --
Peter E. Maloney........................................... -- --
C. Robert Ogren, Jr. ...................................... -- --
Denise M. Parent........................................... -- --
Gregory M. Schmidt......................................... -- --
Lawrence D. Stuart, Jr. ................................... 403,071,532(5) 74.7
All directors and executive officers as a group (14
persons)................................................. 403,871,532(6) 74.8
</TABLE>
- ---------------
* Less than 1%
(1) Includes all shares held by Ranger Equity Partners. Mr. Hicks is the
Chairman and sole member of TOH/Ranger LLC, which is the general partner of
Ranger Equity Partners, and, accordingly, may be deemed to beneficially own
all or a portion of the shares of LIN common stock held by such entity. Mr.
Hicks disclaims beneficial ownership of all shares of LIN common stock not
held by him of record.
(2) Includes all shares held by Ranger Equity Partners. Mr. Levitt is a Vice
President of TOH/Ranger LLC, which is the general partner of Ranger Equity
Partners, and, accordingly, may be deemed to beneficially own all or a
portion of the shares of LIN common stock held by such entity. Mr. Levitt
disclaims beneficial ownership of all shares of LIN common stock not held
by him of record.
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<PAGE> 172
(3) Includes 100,000 shares that are issuable upon the exercise of stock
options that are currently vested.
(4) Includes all shares held by Ranger Equity Partners. Mr. Muse is a Vice
President of TOH/Ranger LLC, which is the general partner of Ranger Equity
Partners and, accordingly, may be deemed to beneficially own all or a
portion of the shares of LIN common stock held by such entity. Mr. Muse
disclaims beneficial ownership of all shares of LIN common stock not held
by him of record.
(5) Includes all shares held by Ranger Equity Partners. Mr. Stuart is a Vice
President of TOH/Ranger LLC, which is the general partner of Ranger Equity
Partners and, accordingly, may be deemed to beneficially own all or a
portion of the shares of LIN common stock held by such entity. Mr. Stuart
disclaims beneficial ownership of all shares of LIN common stock not held
by him of record.
(6) Includes 100,000 shares that are issuable upon the exercise of stock
options that are currently vested.
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<PAGE> 173
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Chancellor Media is subject to a financial monitoring and oversight agreement,
dated April 1, 1996, as amended on September 4, 1997 with Hicks, Muse & Co.
Partners, L.P. ("Hicks Muse Partners"), an affiliate of Hicks Muse. In
connection with the financial monitoring and oversight agreement, Chancellor
Media pays to Hicks Muse Partners an annual fee of not less than $1.0 million,
subject to increase or decrease, but not below $1.0 million, based upon changes
in the consumer price index. Hicks Muse Partners is also entitled to
reimbursement for any out-of-pocket expenses incurred in connection with
rendering services under the financial monitoring and oversight agreement. The
financial monitoring and oversight agreement provides that the agreement will
terminate at the time as Thomas O. Hicks and his affiliates collectively cease
to beneficially own at least two-thirds of the number of shares of Chancellor
Media common stock beneficially owned by them, collectively, at the effective
time of the merger with Chancellor Broadcasting Company. Chancellor Media and
Chancellor Broadcasting Company paid Hicks Muse Partners a total of $0.7 million
in 1997 in connection with the financial monitoring and oversight agreement of
which $0.3 million was paid by Chancellor Media following the merger with
Chancellor Broadcasting Company and which is included in corporate general and
administrative expense in the accompanying consolidated statement of operations.
In connection with the consummation of the merger with Chancellor Broadcasting
Company, a financial advisory agreement among Chancellor Broadcasting Company,
Chancellor Radio Broadcasting Company and HM2/Management Partners, L.P.
("HM2/Management"), an affiliate of Hicks Muse, was terminated. In consideration
thereof, in lieu of any payments required to be made under the financial
advisory agreement in respect of the transactions contemplated by the merger
with Chancellor Broadcasting Company, HM2/Management was paid a fee of $10.0
million in cash upon consummation of the merger with Chancellor Broadcasting
Company which was accounted for as a direct acquisition cost. As part of the
termination of the financial advisory agreement, Chancellor Media paid Hicks
Muse Partners $1.5 million for financial advisory services in connection with
the acquisition of Katz which was accounted for as a direct acquisition cost.
Upon the consummation of the merger with Capstar Broadcasting Corporation,
Chancellor Media will become subject to a financial advisory agreement under
which Hicks Muse will be entitled to be financial advisor on certain
transactions of Chancellor Media and its subsidiaries as follows:
- - on any acquisition, disposition or exchange transaction for which Chancellor
Media or any such subsidiaries retain any financial advisor, Hicks Muse shall
be entitled to serve as a co-financial advisor on the transaction and shall
have the right to mutually agree with Chancellor Media upon the selection of
any financial advisor or financial advisors so retained and, unless mutually
agreed to otherwise by Hicks Muse and Chancellor Media, Hicks Muse would be
entitled to receive a "market fee" for its services in connection therewith of
no less than 50% of the aggregate fees paid to all advisors including Hicks
Muse;
- - on any M&A transaction of Chancellor Media or any of its subsidiaries for
which a financial advisor is not retained by Chancellor Media or any of its
subsidiaries but has a transaction value in excess of $500 million, Hicks Muse
would be the exclusive financial
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<PAGE> 174
advisor of Chancellor Media and its subsidiaries and receive a "market fee"
for its services in connection therewith; and
- - on any underwriting, loan syndication, equity placement or other financing
transaction in which Chancellor Media or any of its subsidiaries retain one or
more financial advisors, Hicks Muse would have the right to mutually agree
with Chancellor Media on the selection of each financial advisor in connection
with a financing transaction. "Financial advisor" shall mean any investment
bank, commercial bank, underwriter, arranging or syndication agent or other
person or entity that provides investment banking, underwriting, financial
advice, valuation or other similar services with respect to any M&A
transaction or financing transaction; provided, however, that a financial
advisor shall not include ordinary business brokers.
Vernon E. Jordan, Jr., a director of Chancellor Media, also serves on the board
of directors of Bankers Trust Company and Bankers Trust Corporation. BT Alex.
Brown Incorporated, an affiliate of Bankers Trust Company and Bankers Trust
Corporation, has been engaged by Chancellor Media as a financial advisor to
explore strategic alternatives in an effort to maximize shareholder value. In
addition, affiliates of Bankers Trust Company and Bankers Trust Corporation have
in the past provided a variety of commercial banking, investment banking and
financial advisory services to Chancellor Media, and expect to continue to
provide services to the Company in the future.
Chancellor Media is subject to an Amended and Restated Stockholders Agreement,
dated as of February 14, 1996, as amended on September 4, 1997, among Chancellor
Media and certain holders of the Chancellor Media common stock held by former
stockholders of Chancellor Broadcasting Company, which provides for registration
rights for the shares of Chancellor Media common stock held by such holders. The
stockholders agreement relates to shares of Chancellor Media common stock held
by certain affiliates of Hicks Muse.
As part of the merger with Chancellor Broadcasting Company, Chancellor Media has
made selected cash payments and accelerated the vesting of selected stock
options previously granted by Chancellor Broadcasting Company to Steven Dinetz,
a director of Chancellor Media.
Chancellor Media has entered into an agreement relating to the acquisition of
stations from Capstar Broadcasting Corporation and the merger with Capstar
Broadcasting Corporation, which is affiliated with Chancellor Media. In
addition, Chancellor Media has entered into an agreement relating to the merger
with LIN. Affiliates of Hicks Muse have a controlling interest in Capstar and
LIN and a substantial investment in Chancellor Media.
Certain radio stations owned by Capstar have engaged Katz to sell national spot
advertising air time, and such stations pay customary commissions to Katz for
such services. Additionally, Capstar's radio stations are affiliated with the
AMFM Radio Networks and receive a portion of advertising revenues generated by
the network.
In October and November 1998, LIN purchased two airplanes and subsequently
entered into two lease agreements with respect to those airplanes with
Chancellor Media. The leases expire in October 1999 and 2003, respectively, and
as of February 15, 1999, Chancellor Media has paid to LIN approximately $0.8
million under the leases.
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<PAGE> 175
DESCRIPTION OF CHANCELLOR MEDIA CAPITAL STOCK
COMMON STOCK
General
Chancellor Media's authorized common stock consists of 200,000,000 shares of
Chancellor Media common stock, approximately 142,939,577 of which were issued
and outstanding as of January 31, 1999 and 75,000,000 shares of class A common
stock, par value $0.01 per share, none of which were issued and outstanding as
of January 31, 1999.
The shares of Chancellor Media common stock currently outstanding are validly
issued, fully paid and nonassessable.
It is not contemplated that any shares of Chancellor Media class A common stock
will be issued at any time. The amended and restated certificate of
incorporation of Chancellor Media provides that the issuance of any shares of
Chancellor Media class A common stock will require the unanimous affirmative
vote of the Board of Directors of Chancellor Media.
Dividends
Holders of shares of Chancellor Media common stock and Chancellor Media class A
common stock are entitled to receive such dividends as may be declared by the
Board of Directors of Chancellor Media out of funds legally available for such
purpose. The senior credit facility and the certificates of designation
governing the Chancellor Media $3.00 convertible exchangeable preferred stock
and the Chancellor Media 7% convertible preferred stock each directly restrict,
and the indentures governing CMCLA's senior subordinated notes will each
indirectly restrict, Chancellor Media's ability to pay cash dividends on the
Chancellor Media common stock and Chancellor Media class A common stock.
Neither Chancellor Media nor its predecessor has declared or paid any dividends
with respect to its common stock in the past, and it is not anticipated that
Chancellor Media will pay any cash dividends on the Chancellor Media common
stock and Chancellor Media class A common stock in the foreseeable future.
Voting Rights
Holders of shares of Chancellor Media common stock and Chancellor Media class A
common stock, each voting as a separate class, shall be entitled to vote on all
matters submitted to a vote of the stockholders, except as otherwise provided by
law. Each share of Chancellor Media common stock and Chancellor Media class A
common stock is entitled to one vote per share. Holders of Chancellor Media
common stock and Chancellor Media class A common stock are not entitled to
cumulative votes in the election of directors.
Under the DGCL, the affirmative vote of the holders of a majority of the
outstanding shares of any class of capital stock of Chancellor Media is required
to approve any amendment to the amended and restated certificate of
incorporation of Chancellor Media that would increase or decrease the aggregate
number of authorized shares of any class, increase or decrease the par value of
the shares of any class, or modify or change the powers, preferences or special
rights of the shares of any class so as to affect such class adversely.
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<PAGE> 176
Liquidation Rights
Upon liquidation, dissolution, or winding-up of Chancellor Media, the holders of
Chancellor Media common stock and Chancellor Media class A common stock are
entitled to share ratably in all assets available for distribution after payment
in full of creditors and the holders of preferred stock of Chancellor Media.
Change of Control Provisions
Certain provisions of Chancellor Media's amended and restated certificate of
incorporation and bylaws may have the effect of preventing, discouraging or
delaying any change of control of Chancellor Media and may maintain the
incumbency of the Board of Directors and management. The authorization of
50,000,000 shares of preferred stock makes it possible for the Board of
Directors to issue preferred stock with voting or other rights or preferences
that could impede the success of any attempt to effect a change of control of
Chancellor Media. In addition, the amended and restated certificate of
incorporation of Chancellor Media provides for three classes of directors
serving for staggered three-year terms. This provision could also impede the
success of any attempt to effect a change of control of Chancellor Media. Under
the DGCL, directors on a classified board may only be removed by stockholders
for cause.
Chancellor Media is subject to Section 203 of the DGCL. Section 203 prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless:
- - prior to that date, the board of directors of the corporation approves either
the business combination or the transaction which resulted in the stockholder
becoming an interested stockholder;
- - upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owns at least
85% of the outstanding voting stock, excluding shares held by persons who are
both directors and officers of the corporation and certain employee stock
plans; or
- - on or after the consummation date, the business combination is approved by the
board of directors and by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder.
For purposes of Section 203, a "business combination" includes, among other
things, a merger, asset sale or other transaction resulting in a financial
benefit to the interested stockholder, and an "interested stockholder" is
generally a person who, together with affiliates and associates, owns or within
three years, owned 15% or more of the corporation's voting stock.
Alien Ownership
Chancellor Media's amended and restated certificate of incorporation restricts
the ownership and voting of Chancellor Media's capital stock, including its
common stock, in accordance with the Communications Act and the rules of the
FCC, to prohibit ownership of more than 25% of Chancellor Media's outstanding
capital stock, or control of more than 25% of the voting power it represents, by
or for the account of aliens, foreign governments, or non-U.S. corporations or
corporations otherwise subject to control by such persons or
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<PAGE> 177
entities. The amended and restated certificate of incorporation also prohibits
any transfer of Chancellor Media's capital stock that would cause Chancellor
Media to violate this prohibition. In addition, the amended and restated
certificate of incorporation of Chancellor Media authorizes the Board of
Directors of Chancellor Media to adopt provisions as its deems necessary to
enforce these prohibitions.
Other Provisions
The holders of Chancellor Media common stock and Chancellor Media class A common
stock are not entitled to preemptive or similar rights. The shares of Chancellor
Media common stock are not subject to redemption or a sinking fund.
If a single stockholder controls more than 50.0% of the outstanding voting
shares of a corporation holding radio or television broadcast interests, the
ownership interests of other stockholders are not attributable to that
corporation. No single stockholder of Chancellor Media holds more than 50.0% of
the combined voting power of Chancellor Media. As a result, a holder of an
"attributable" interest in Chancellor Media may violate the FCC's multiple
ownership rules or cross interest rules if the holder also has an "attributable"
interest or, in some cases, a "meaningful" nonattributable interest in other
television or radio stations, or in daily newspapers, depending on the number
and location of those radio or television stations or daily newspapers. He, she
or it may also be restricted in the companies in which he, she or it may invest.
Transfer Agent
The Bank of New York serves as the Transfer Agent and Registrar for the
Chancellor Media common stock.
PREFERRED STOCK
General
Chancellor Media's authorized preferred stock consists of 50,000,000 shares of
preferred stock, par value $.01 per share. Chancellor Media has issued 2,200,000
shares of Chancellor Media 7% convertible preferred stock with a stated
liquidation preference of $50.00 per share and 5,990,000 shares of Chancellor
Media $3.00 convertible exchangeable preferred stock with a stated liquidation
preference of $50.00 per share.
Chancellor Media 7% Convertible Preferred Stock
Dividends
Holders of Chancellor Media 7% convertible preferred stock are entitled to
receive, when, as and if declared by the Board of Directors of Chancellor Media
out of legally available funds, cash dividends at an annual rate equal to 7% of
the $50.00 liquidation preference per share, payable quarterly. Accordingly, on
each January 15, April 15, July 15 and October 15 of each year, holders of
Chancellor Media 7% convertible preferred stock receive a cash dividend of
$0.875 per share.
The Chancellor Media 7% convertible preferred stock has priority as to dividends
over the Chancellor Media common stock and Chancellor Media class A common stock
of Chancellor Media and any other series or class of Chancellor Media's stock
that ranks junior to the Chancellor Media 7% convertible preferred stock as to
dividends (the "7%
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Junior Dividend Stock"). Notwithstanding the foregoing, the Chancellor Media 7%
convertible preferred stock shall rank junior as to dividends, redemption
payments and rights upon a liquidation, dissolution or winding-up of Chancellor
Media to any and all classes or series of capital stock, other than Chancellor
Media common stock, of Chancellor Media, issued in the future, that does not by
its terms expressly provide that it ranks on a parity with or junior to the
Chancellor Media 7% convertible preferred stock as to dividends and rights upon
a liquidation, dissolution or winding-up of Chancellor Media.
No dividend, other than dividends payable solely in Chancellor Media common
stock, any 7% Junior Dividend Stock or warrants or other rights to acquire such
Chancellor Media common stock or 7% Junior Dividend Stock, may be paid or
declared and set apart for payment on, and no purchase, redemption or other
acquisition shall be made by Chancellor Media of, the Chancellor Media common
stock or 7% Junior Dividend Stock unless all accrued and unpaid dividends on the
Chancellor Media 7% convertible preferred stock, including the full dividend for
the then-current quarterly dividend period, shall have been paid or declared and
set apart for payment without interest.
Except as provided below, Chancellor Media may not pay dividends on any class or
series of stock issued in the future having parity with the Chancellor Media 7%
convertible preferred stock as to dividends ("7% Parity Dividend Stock") unless
it has paid or declared and set apart for payment or contemporaneously pays or
declares and sets apart for payment all accrued and unpaid dividends for all
prior dividend payment periods on the Chancellor Media 7% convertible preferred
stock. In addition, except as provided below, Chancellor Media may not pay
dividends on the Chancellor Media 7% convertible preferred stock unless it has
paid or declared and set apart for payment or contemporaneously pays or declares
and sets apart for payment all accrued and unpaid dividends for all prior
dividend payment periods on the 7% Parity Dividend Stock. Whenever all accrued
dividends in respect of prior dividend payment periods are not paid in full on
Chancellor Media 7% convertible preferred stock and on any 7% Parity Dividend
Stock, all dividends declared on the Chancellor Media 7% Convertible Preferred
Stock and the 7% Parity Dividend Stock will be declared and made pro rata so
that the amount of dividends declared on the Chancellor Media 7% convertible
preferred stock and the 7% Parity Dividend Stock will bear the same ratio that
accrued and unpaid dividends in respect of prior dividend payment periods on the
Chancellor Media 7% convertible preferred stock and the 7% Parity Dividend Stock
bear to each other. The Chancellor Media $3.00 convertible exchangeable
preferred stock constitutes 7% Parity Dividend Stock for purposes of the
Chancellor Media 7% convertible preferred stock.
Chancellor Media may not purchase any shares of the Chancellor Media 7%
Convertible Preferred Stock or any 7% Parity Dividend Stock, except for
consideration payable in Chancellor Media common stock or 7% Junior Dividend
Stock, or redeem fewer than all the shares of the Chancellor Media 7%
convertible preferred stock and 7% Parity Dividend Stock then outstanding if
Chancellor Media has failed to pay any accrued dividend on the Chancellor Media
7% convertible preferred stock or on any 7% Parity Dividend Stock on a stated
payment date. Notwithstanding the foregoing, in such event, Chancellor Media may
purchase or redeem fewer than all the shares of the Chancellor Media 7%
convertible preferred stock and 7% Parity Dividend Stock if such repurchase or
redemption is made pro rata so that the amounts purchased or redeemed bear to
each other the same ratio that the required redemption payments on the shares of
the Chancellor Media 7% Convertible Preferred Stock and any 7% Parity Dividend
Stock then outstanding bear to each other.
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<PAGE> 179
If Chancellor Media issues any series or class of stock that ranks senior as to
dividends to the Chancellor Media 7% convertible preferred stock ("7% Senior
Dividend Stock") and fails to pay or declare and set apart for payment accrued
and unpaid dividends on any 7% Senior Dividend Stock, except to the extent
allowed by the terms of the 7% Senior Dividend Stock, Chancellor Media may not
pay or declare and set apart for payment any dividend on the Chancellor Media 7%
convertible preferred stock unless and until all accrued and unpaid dividends on
the 7% Senior Dividend Stock, including the full dividends for the then current
dividend period, have been paid or declared and set apart for payment without
interest.
Liquidation Rights
In the case of the voluntary or involuntary liquidation, dissolution or winding
up of Chancellor Media, subject to the payment in full, or until provision has
been made for the payment in full, of all claims of creditors of Chancellor
Media, holders of Chancellor Media 7% convertible preferred stock are entitled
to receive the liquidation preference of the Chancellor Media 7% convertible
preferred stock, plus an amount equal to any accrued and unpaid dividends,
whether or not declared, to the payment date, before any payment or distribution
is made to the holders of Chancellor Media common stock or any other series or
class of stock issued in the future that ranks junior as to liquidation rights
to the Chancellor Media 7% convertible preferred stock ("7% Junior Liquidation
Stock"). Holders of Chancellor Media 7% convertible preferred stock will not be
entitled to receive the liquidation preference of their shares until the
liquidation preference of any other series or class of stock that ranks senior
as to liquidation rights to the Chancellor Media 7% convertible preferred stock
("7% Senior Liquidation Stock"), if any, and any creditors of Chancellor Media
have been paid in full. The holders of Chancellor Media 7% convertible preferred
stock and any series or class of stock that ranks on a parity as to liquidation
rights with the Chancellor Media 7% convertible preferred stock ("7% Parity
Liquidation Stock") are entitled to share ratably, in accordance with the
respective preferential amounts payable on their stock, in any distribution,
after payment of the liquidation preference on any 7% Senior Liquidation Stock,
that is not sufficient to pay in full the aggregate liquidation preference on
both the Chancellor Media 7% convertible preferred stock and on any 7% Parity
Liquidation Stock. The Chancellor Media $3.00 convertible exchangeable preferred
stock constitutes 7% Parity Liquidation Stock for purposes of the Chancellor
Media 7% convertible preferred stock.
Voting Rights
The holders of Chancellor Media 7% convertible preferred stock will have no
voting rights except as described below or as required by law.
Whenever dividends on the Chancellor Media 7% convertible preferred stock are in
arrears in aggregate amount equal to at least six quarterly dividends, whether
or not consecutive, the size of Chancellor Media's Board of Directors will be
increased by two, and the holders of Chancellor Media 7% convertible preferred
stock, voting separately as a class together with holders of any 7% Parity
Dividend Stock of Chancellor Media then having voting rights, will be entitled
to elect two additional directors to the Board of Directors of Chancellor Media
at, subject to certain limitations, any annual meeting of stockholders at which
directors are to be elected held during the period when the dividends remain in
arrears or, under certain circumstances, at a special meeting of stockholders.
These voting
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rights will terminate when all dividends in arrears and for the current
quarterly period have been paid in full or declared and set apart for payment.
The term of office of the additional directors so elected will terminate
immediately upon that payment or provision for payment.
In addition, so long as any Chancellor Media 7% convertible preferred stock is
outstanding, Chancellor Media may not, without the affirmative vote or consent
of the holders of at least 66 2/3% of all outstanding shares of Chancellor Media
7% convertible preferred stock and outstanding 7% Parity Dividend Stock, voting
as a single class:
- - amend, alter or repeal, by merger or otherwise, any provision of the
certificate of designation for the Chancellor Media 7% convertible preferred
stock, the Certificate of Incorporation of Chancellor Media or the bylaws of
Chancellor Media so as to affect adversely the relative rights, preferences,
qualifications, limitations of restrictions of the Chancellor Media 7%
convertible preferred stock; or
- - effect any reclassification of the Chancellor Media 7% convertible preferred
stock.
Change of Control
The certificate of designation for the Chancellor Media 7% convertible preferred
stock provides that, upon the occurrence of a change of control, as defined in
the certificate of designation, each holder will have the right to require that
Chancellor Media purchase all or a portion of such holder's Chancellor Media 7%
convertible preferred stock in cash at a purchase price equal to 101% of the
liquidation preference thereof, plus, without duplication, all accumulated and
unpaid dividends per share to the date of repurchase. If the repurchase of the
Chancellor Media 7% convertible preferred stock would violate or constitute a
default under the senior credit facility or other indebtedness of Chancellor
Media, then, under the certificate of designation for the Chancellor Media 7%
convertible preferred stock, Chancellor Media will either:
- - repay in full all such indebtedness; or
- - obtain the requisite consents, if any, under the indebtedness required to
permit the repurchase of the Chancellor Media 7% convertible preferred stock.
Redemption at Option of Chancellor Media
The Chancellor Media 7% convertible preferred stock may not be redeemed prior to
January 19, 2000. Thereafter, the Chancellor Media 7% convertible preferred
stock may be redeemed by Chancellor Media, at its option, subject to contractual
and other restrictions with respect to the redemption, including limitations
under the senior credit facility and CMCLA's senior subordinated notes
indentures and to the legal availability of funds for the redemption, in whole
or in part at any time, if redeemed during the 12-month period
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beginning January 15, January 19 in the case of 2000, of any year specified
below at the following redemption prices, expressed as percentages of the
liquidation preference thereof:
<TABLE>
<CAPTION>
YEAR DIVIDEND
---- --------
<S> <C>
2000................................................. 104.90%
2001................................................. 104.20
2002................................................. 103.50
2003................................................. 102.80
2004................................................. 102.10
2005................................................. 101.40
2006................................................. 100.70
2007 and thereafter.................................. 100.00
</TABLE>
plus in each case accrued and unpaid dividends, whether or not declared, to the
redemption date.
Conversion Rights
Each holder of Chancellor Media 7% convertible preferred stock will have the
right, at the holder's option, to convert any or all shares of Chancellor Media
7% convertible preferred stock into Chancellor Media common stock at any time at
a conversion price, subject to adjustment, of $18.095 per share of underlying
Chancellor Media common stock. At this conversion price, each share of
Chancellor Media 7% convertible preferred stock would be entitled to receive
2.76 shares of Chancellor Media common stock upon conversion. If the Chancellor
Media 7% convertible preferred stock is called for redemption, the conversion
right, with respect to the called shares of Chancellor Media 7% convertible
preferred stock, will terminate at the close of business on the redemption date
fixed by the Board of Directors of Chancellor Media.
Chancellor Media $3.00 Convertible Exchangeable Preferred Stock
Dividends
Holders of Chancellor Media $3.00 convertible exchangeable preferred stock are
entitled to receive, when, as and if declared by the Board of Directors out of
legally available funds, cash dividends at an annual rate of $3.00, payable
quarterly, on each $50.00 liquidation preference share. Accordingly, on each
March 15, June 15, September 15 and December 15 of each year, holders of
Chancellor Media $3.00 convertible exchangeable preferred stock receive a cash
dividend of $0.75 per share.
The Chancellor Media $3.00 convertible exchangeable preferred stock has priority
as to dividends over the Chancellor Media common stock and any other series or
class of the Chancellor Media's stock that ranks junior to the Chancellor Media
$3.00 convertible exchangeable preferred stock as to dividends ("$3.00 Junior
Dividend Stock"). Notwithstanding the foregoing, the Chancellor Media $3.00
convertible exchangeable preferred stock shall rank junior as to dividends and
rights upon a liquidation, dissolution or winding-up of Chancellor Media to any
and all classes or series of capital stock, other than Chancellor Media common
stock, of Chancellor Media, whether currently issued or issued in the future,
that does not by its terms expressly provide that it ranks on a parity with or
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<PAGE> 182
junior to the Chancellor Media $3.00 convertible exchangeable preferred stock as
to dividends and rights upon a liquidation, dissolution or winding-up of
Chancellor Media.
No dividend, other than dividends payable solely in Chancellor Media common
stock, any $3.00 Junior Dividend Stock or warrants or other rights to acquire
such Chancellor Media common stock or $3.00 Junior Dividend Stock, may be paid
or set apart for payment on, and no purchase, redemption or other acquisition
shall be made by Chancellor Media of, the Chancellor Media common stock or $3.00
Junior Dividend Stock unless all accrued and unpaid dividends on the Chancellor
Media $3.00 convertible exchangeable preferred stock, including the full
dividend for the then-current quarterly dividend period, shall have been paid or
declared and set apart for payment without interest.
Except as provided below, the Company may not pay dividends on any class or
series of stock, if hereafter issued, having parity with the Chancellor Media
$3.00 convertible exchangeable preferred stock as to dividends ("$3.00 Parity
Dividend Stock") unless it has paid or declared and set apart for payment or
contemporaneously pays or declares and sets apart for payment all accrued and
unpaid dividends for all prior dividend payment periods on the convertible
preferred stock. The Chancellor Media 7% convertible preferred stock constitutes
$3.00 Parity Dividend Stock. In addition, except as provided below, the Company
may not pay dividends on the Chancellor Media $3.00 convertible exchangeable
preferred stock unless it has paid or declared and set apart for payment or
contemporaneously pays or declares and sets apart for payment all accrued and
unpaid dividends for all prior dividend payment periods on the $3.00 Parity
Dividend Stock. Whenever all accrued dividends in respect of prior dividend
payment periods are not paid in full on the Chancellor Media $3.00 convertible
exchangeable preferred stock and on any $3.00 Parity Dividend Stock, all
dividends declared on the Chancellor Media $3.00 convertible exchangeable
preferred stock and the $3.00 Parity Dividend Stock will be declared and made
pro rata so that the amount of dividends declared on the Chancellor Media $3.00
convertible exchangeable preferred stock and the $3.00 Parity Dividend Stock
will bear the same ratio that accrued and unpaid dividends in respect of prior
dividend payment periods on the Chancellor Media $3.00 convertible exchangeable
preferred stock and the $3.00 Parity Dividend Stock bear to each other.
Chancellor Media may not purchase any shares of the Chancellor Media $3.00
convertible exchangeable preferred stock or any $3.00 Parity Dividend Stock,
except for consideration payable in Chancellor Media common stock or $3.00
Junior Dividend Stock, or redeem fewer than all the shares of the Chancellor
Media $3.00 convertible exchangeable preferred stock and $3.00 Parity Dividend
Stock then outstanding if Chancellor Media has failed to pay any accrued
dividend on the Chancellor Media $3.00 convertible exchangeable preferred stock
or any $3.00 Parity Dividend Stock on a stated payment date. Notwithstanding the
foregoing, in such event, Chancellor Media may purchase or redeem fewer than all
the shares of the Chancellor Media $3.00 convertible exchangeable preferred
stock and $3.00 Parity Dividend Stock if such repurchase or redemption is made
pro rata so that the amounts purchased or redeemed bear to each other the same
ratio that the required redemption payments on the shares of the Chancellor
Media $3.00 convertible exchangeable preferred stock and any $3.00 Parity
Dividend Stock then outstanding bear to each other.
If Chancellor Media hereafter issues any series or class of stock that ranks
senior as to dividends to the Chancellor Media $3.00 convertible exchangeable
preferred stock
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("$3.00 Senior Dividend Stock") and fails to pay or declare and set apart for
payment accrued and unpaid dividends on any $3.00 Senior Dividend Stock, except
to the extent allowed by the terms of the $3.00 Senior Dividend Stock,
Chancellor Media may not pay or declare and set apart for payment any dividend
on the Chancellor Media $3.00 convertible exchangeable preferred stock unless
and until all accrued and unpaid dividends on the $3.00 Senior Dividend Stock,
including the full dividends for the then current dividend period, have been
paid or declared and set apart for payment without interest.
Liquidation Rights
In the case of the voluntary or involuntary liquidation dissolution or
winding-up of Chancellor Media, subject to the payment in full, or until
provision has been made for the payment in full, of all claims of creditors of
Chancellor Media, holders of Chancellor Media $3.00 convertible exchangeable
preferred stock are entitled to receive the liquidation preference of $50.00 per
share, plus an amount equal to any accrued and unpaid dividends, whether or not
declared, to the payment date, before any payment or distribution is made to the
holders of Chancellor Media common stock or any other series or class of stock
hereafter issued that ranks junior as to liquidation rights to the Chancellor
Media $3.00 convertible exchangeable preferred stock ("$3.00 Junior Liquidation
Stock"). Holders of Chancellor Media $3.00 convertible exchangeable preferred
stock will not be entitled to receive the liquidation preference of their shares
until the liquidation preference of any other series or class of stock hereafter
issued that ranks senior as to liquidation rights to the Chancellor Media $3.00
convertible exchangeable preferred stock ("$3.00 Senior Liquidation Stock"), if
any has been paid in full. The holders of Chancellor Media $3.00 convertible
exchangeable preferred stock and any series or class of stock hereafter issued
that ranks on a parity as to liquidation rights with the Chancellor Media $3.00
convertible exchangeable preferred stock ("$3.00 Parity Liquidation Stock") are
entitled to share ratably, in accordance with the respective preferential
amounts payable on their stock, in any distribution, after payment of the
liquidation preference on any $3.00 Senior Liquidation Stock, that is not
sufficient to pay in full the aggregate liquidation preference on both the
Chancellor Media $3.00 convertible exchangeable preferred stock and any $3.00
Parity Liquidation Stock. The Chancellor Media 7% convertible preferred stock
constitutes $3.00 Parity Liquidation Stock, for purposes of the Chancellor Media
$3.00 convertible exchangeable preferred stock.
Voting Rights
The holders of Chancellor Media $3.00 convertible exchangeable preferred stock
will have no voting rights except as described below or as required by law.
Whenever dividends on the Chancellor Media $3.00 convertible exchangeable
preferred stock are in arrears in an aggregate amount equal to at least six
quarterly dividends, whether or not consecutive, the size of Chancellor Media's
Board of Directors will be increased by two, and the holders of Chancellor Media
$3.00 convertible exchangeable preferred stock, voting separately as a class
together with holders of any $3.00 Parity Dividend Stock then having voting
rights, will be entitled to elect two additional directors to the Board of
Directors at, subject to certain limitations, any annual meeting of stockholders
at which directors are to be elected held during the period when the dividends
remain in arrears or, under certain circumstances, at a special meeting of
stockholders. These voting rights will terminate when all dividends in arrears
and for the current
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quarterly period have been paid in full or declared and set apart for payment.
The term of office of the additional directors so elected will terminate
immediately upon that payment or provision for payment.
In addition, so long as any Chancellor Media $3.00 convertible exchangeable
preferred stock is outstanding, Chancellor Media will not, without the
affirmative vote or consent of the holders of at least 66 2/3% of all
outstanding shares of Chancellor Media $3.00 convertible exchangeable preferred
stock and outstanding $3.00 Parity Dividend Stock, voting as a single class:
- - amend, alter or repeal, by merger or otherwise, any provision of the
certificate of incorporation or the by-laws of Chancellor Media so as to
affect adversely the relative rights, preferences, qualifications, limitations
or restrictions of the Chancellor Media $3.00 convertible exchangeable
preferred stock; or
- - effect any reclassification of the Chancellor Media $3.00 convertible
exchangeable preferred stock.
Redemption At The Option Of Chancellor Media
The Chancellor Media $3.00 convertible exchangeable preferred stock may not be
redeemed prior to June 16, 1999. Thereafter, the Chancellor Media $3.00
convertible exchangeable preferred stock may be redeemed by Chancellor Media, at
its option, subject to contractual and other restrictions with respect to the
redemption, including limitations under the senior credit facility and CMCLA's
senior subordinated notes indentures and to the legal availability of funds for
the redemption, in whole or in part at any time, if redeemed during the 12-month
period beginning June 15 of any year specified below, June 16 in the case of
1999, at the following redemption prices, expressed as percentages of the
liquidation preference thereof:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
1999............................................... 104.80%
2000............................................... 104.20
2001............................................... 103.60
2002............................................... 103.00
2003............................................... 102.40
2004............................................... 101.80
2005............................................... 101.20
2006............................................... 100.60
2007 and thereafter................................ 100.00
</TABLE>
plus in each case accrued and unpaid dividends, whether or not declared, to the
redemption date.
Conversion Rights
Each holder of Chancellor Media $3.00 convertible exchangeable preferred stock
will have the right at any time at the holder's option to convert any and all
shares of Chancellor Media $3.00 convertible exchangeable preferred stock into
Chancellor Media common stock at a conversion price, subject to adjustment, of
$25.00 per share of underlying Chancellor Media common stock, equivalent to a
conversion rate of 2.00 shares of Chancellor Media common stock per share of
Chancellor Media $3.00 convertible
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exchangeable preferred stock. If the Chancellor Media $3.00 convertible
exchangeable preferred stock is called for redemption, the conversion right will
terminate at the close of business on the redemption date fixed by the Board of
Directors.
Change Of Control
If there occurs a Change of Control, as defined in the certificate of
designation for the Chancellor Media $3.00 convertible exchangeable preferred
stock, then shares of the Chancellor Media $3.00 convertible exchangeable
preferred stock may be converted, at the option of the holder thereof at any
time from the date of such Change of Control until the expiration of 45 days
after the date of a note by the Company to all holders of the Chancellor Media
$3.00 convertible exchangeable preferred stock of the occurrence of the Change
of Control, into the number of shares of Chancellor Media common stock
determined by dividing the redemption price for the Chancellor Media $3.00
convertible exchangeable preferred stock (see "-- Redemption at the Option of
Chancellor Media") in effect on the date of the Change of Control by the
adjusted conversion price. The adjusted conversion price is the greater of the
average closing price per share of the common stock for the last five trading
days before the Change of Control or 66 2/3% of the last reported sales price of
the Chancellor Media common stock before the date hereof, as adjusted for stock
splits or combinations, unless otherwise provided in the certificate of
designation for the Chancellor Media $3.00 convertible exchangeable preferred
stock.
Chancellor Media may, at its option, elect to pay holders of the Chancellor
Media $3.00 convertible exchangeable preferred stock exercising their special
conversion rights an amount in cash equal to 101% of the liquidation preference
of the Chancellor Media $3.00 convertible exchangeable preferred stock plus any
accrued and unpaid dividends. The senior credit facility limits Chancellor
Media's ability to pay cash upon election of the holders of the Chancellor Media
$3.00 convertible exchangeable preferred stock to exercise their special
conversion rights.
Exchange
Shares of Chancellor Media $3.00 convertible exchangeable preferred stock will
be exchangeable at the option of Chancellor Media, in whole but not in part, on
any March 15, June 15, September 15 or December 15, commencing September 15,
2000 (a "Debenture Exchange Date"), through the issuance of Chancellor Media's
6% exchange debentures (the "6% Exchange Debentures") in redemption of and in
exchange for shares of Chancellor Media $3.00 convertible exchangeable preferred
stock, provided various conditions are met. Holders of the Chancellor Media
$3.00 convertible exchangeable preferred stock will be entitled to receive 6%
Exchange Debentures at the rate of $50.00 principal amount of 6% Exchange
Debentures for each share of Chancellor Media $3.00 convertible exchangeable
preferred stock. Since 6% Exchange Debentures will only be issued in
denominations of $1,000 or any multiple thereof, holders of Chancellor Media
$3.00 convertible exchangeable preferred stock holding less than such a multiple
will receive in cash the liquidation preference of the Chancellor Media $3.00
convertible exchangeable preferred stock not so exchanged. No shares of
Chancellor Media $3.00 convertible exchangeable preferred stock may be exchanged
for 6% Exchange Debentures unless Chancellor Media has paid or set aside for the
benefit of the holders of the Chancellor Media $3.00 convertible exchangeable
preferred stock all accrued and unpaid dividends on the Chancellor Media $3.00
convertible exchangeable preferred stock
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to the Debenture Exchange Date. The senior credit facility may limit Chancellor
Media's ability to cause the exchange of the Chancellor Media $3.00 convertible
exchangeable preferred stock for 6% Exchange Debentures. The ability of
Chancellor Media to exchange Chancellor Media $3.00 convertible exchangeable
preferred stock for 6% Exchange Debentures is also subject to various conditions
contained in the indenture relating to the 6% Exchange Debentures and to
limitations imposed under the DGCL and by applicable laws protecting the rights
of creditors.
COMPARATIVE RIGHTS OF HOLDERS OF CHANCELLOR MEDIA
COMMON STOCK AND LIN COMMON STOCK
The rights of Chancellor Media stockholders are governed by Chancellor Media's
amended and restated certificate of incorporation, its amended and restated
bylaws and Delaware law, including the DGCL. The rights of LIN stockholders are
governed by its certificate of incorporation, its bylaws and Delaware law,
including the DGCL.
Assuming approval of the stockholders of LIN, at the effective time, the holders
of LIN common stock will become holders of Chancellor Media common stock. The
rights of the holders of Chancellor Media common stock will be governed by
applicable Delaware law, including the DGCL, and by Chancellor Media's
certificate of incorporation and Chancellor Media's bylaws.
The following is a summary of the material differences between the rights of the
holders of LIN common stock as compared with the rights of holders of Chancellor
Media common stock. Because each of Chancellor Media and LIN is a Delaware
corporation, these differences arise principally from differences in the
provisions of Chancellor Media's amended and restated certificate of
incorporation and LIN's certificate of incorporation and the differences among
Chancellor Media's bylaws and LIN's bylaws.
The following summaries do not purport to be complete statements of the rights
of Chancellor Media stockholders under Chancellor Media's amended and restated
certificate of incorporation and Chancellor Media's bylaws as compared with the
rights of the LIN stockholders under LIN's certificate of incorporation and
LIN's bylaws and does not purport to be a complete description of the specific
provisions referred to herein. The identification of specific differences is not
meant to indicate that other equally or more significant differences do not
exist. These summaries are qualified in their entirety by reference to the
governing corporate instruments of Chancellor Media and LIN filed as exhibits to
the Registration Statement of which this joint proxy statement/prospectus is a
part, to which stockholders are referred. The terms of Chancellor Media common
stock are described under "Description of Chancellor Media Capital Stock."
AUTHORIZED CAPITAL STOCK
The authorized capital stock of LIN as of the date hereof consists of
1,000,000,000 shares of LIN common stock and 5,000,000 shares of preferred
stock, $0.01 par value.
At the effective time, the authorized capital stock of Chancellor Media will
consist of 200,000,000 shares of Chancellor Media common stock, 75,000,000
shares of Chancellor Media class A common stock and 50,000,000 shares of
Chancellor Media Preferred Stock.
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PREEMPTIVE RIGHTS
LIN's certificate grants preemptive rights to stockholders in particular
circumstances.
Chancellor Media's certificate of incorporation does not grant any preemptive
rights to stockholders.
LIQUIDATION RIGHTS
Chancellor Media's certificate of incorporation provides that upon liquidation,
dissolution, or winding-up of Chancellor Media, after distribution in full of
the preferential amounts, if any, to be distributed to the holders of Chancellor
Media Preferred Stock, the holders of Chancellor Media common stock and
Chancellor Media class A common stock shall be entitled to receive all of the
remaining assets of the corporation available for distribution to its
stockholders, ratably in proportion to the number of shares held by them.
LIN's certificate of incorporation provides that the Board of Directors of LIN
shall have the authority to issue one or more classes or series of LIN preferred
stock with such rights upon the dissolution of, or subsequent distribution of
assets of, LIN as the Board of Directors of LIN shall so determine. There are
currently no shares of LIN preferred stock issued and outstanding.
VOTING RIGHTS GENERALLY
LIN's bylaws provide that, except as otherwise required by Delaware law or LIN's
certificate of incorporation, the holders of a majority of the outstanding
shares entitled to vote on a matter, present in person or represented by proxy,
shall constitute a quorum at any meeting of stockholders for the transaction of
business. If a quorum exists, action on a matter is approved by the vote of a
majority of the votes entitled to vote who are present, in person or by proxy,
at the meeting, except as otherwise required by Delaware law or LIN's
certificate of incorporation.
Chancellor Media's bylaws provide that, except as required by Delaware law or
Chancellor Media's certificate of incorporation, a majority of the outstanding
shares entitled to vote on a matter, present in person or by proxy, shall
constitute a quorum at any meeting of stockholders for the transaction of
business. If a quorum exists, action on a matter is approved by the vote of a
majority of the shares entitled to vote that are present, in person or by proxy,
at the meeting, except as otherwise required by Delaware law or Chancellor
Media's certificate of incorporation.
LIN's certificate of incorporation provides that the holders of LIN's common
stock will be entitled to one vote per share and shall vote as a single class.
Chancellor Media's certificate of incorporation provides that holders of shares
of Chancellor Media common stock and Chancellor Media class A common stock, each
voting as a separate class, shall be entitled to vote on all matters submitted
to a vote of the stockholders of Chancellor Media and shall be entitled to one
vote for each share of Chancellor Media common stock or Chancellor Media class A
common stock held.
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AMENDMENT OF BYLAWS
Under Delaware law, an amendment to a corporation's bylaws requires the approval
of the stockholders, unless the certificate of incorporation confers the power
to amend the bylaws upon the Board of Directors.
LIN's certificate of incorporation grants the Board of Directors the power to
adopt, amend or repeal LIN's bylaws.
Chancellor Media's certificate of incorporation does not grant the Board of
Directors the power to adopt, amend or repeal Chancellor Media's bylaws.
NUMBER AND CLASSIFICATION OF THE BOARD OF DIRECTORS
LIN's bylaws provide for not less than one director. The number of directors
which shall constitute the entire board shall be four, as determined by
resolution. The directors need not be a stockholder of LIN nor a resident of the
State of Delaware.
Chancellor Media's certificate of incorporation and Chancellor Media's bylaws
provide for not less than five nor more than thirteen directors, plus such
number of directors as may be elected from time to time by the holders of any
class or series of Chancellor Media preferred stock. None of the directors of
Chancellor Media need be a stockholder of Chancellor Media or a resident of the
State of Delaware.
Delaware law permits, but does not require, a classified Board of Directors,
with staggered terms under which one-half to one-third of the directors are
elected for terms of two or three years, respectively.
LIN's certificate does not provide for a classified Board of Directors.
Chancellor Media's certificate of incorporation provides that the Board of
Directors of Chancellor Media will consist of three classes of directors. Class
II directors will hold their respective offices until the 1999 annual meeting of
the stockholders. Class III directors will hold their respective offices until
the 2000 annual meeting of the stockholders. Class I directors will hold their
respective offices until the 2001 annual meeting of stockholders. Each director
will hold office until his or her successor has been duly elected and qualified.
INDEMNIFICATION OF DIRECTORS AND OFFICERS AND LIMITATION OF LIABILITY
LIN's certificate of incorporation contains provisions indemnifying any person
who was or is threatened to be made a party to a proceeding by reason of the
fact that he or she:
- - is or was a director or officer LIN; or
- - while a director or officer, is or was serving at the request of LIN as a
director, officer, partner, venturer, proprietor, trustee, employee, agent, or
similar functionary of another foreign or domestic corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan, or other
enterprise, to the fullest extent permitted under the DGCL.
LIN's certificate of incorporation provides that no director shall be personally
liable to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability for:
- - breaches of the director's duty of loyalty to the corporation or its
stockholders;
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- - acts or omissions not in good faith or involving intentional misconduct or
knowing violations of laws;
- - the payment of unlawful dividends or unlawful stock repurchases or
redemptions; or
- - transactions in which the director received an improper personal benefit.
Chancellor Media's certificate of incorporation contains provisions indemnifying
any person who was or is threatened to be made a party to a proceeding by reason
of the fact that he or she:
- - is or was a director, officer, employee or agent of Chancellor Media; or
- - is or was serving at the request of Chancellor Media as a director, officer,
partner, venturer, proprietor, trustee, employee, agent, or similar
functionary of another foreign or domestic corporation, partnership, joint
venture, sole proprietorship, trust, employee benefit plan, or other
enterprise, to the fullest extent permitted under the DGCL.
Chancellor Media's certificate of incorporation provides that no director shall
be personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability for:
- - breaches of the director's duty of loyalty to the corporation or its
stockholders;
- - acts or omissions not in good faith or involving intentional misconduct or
knowing violations of laws;
- - the payment of unlawful dividends or unlawful stock repurchases or
redemptions; or
- - transactions in which the director received an improper personal benefit.
RESTRICTIONS ON FOREIGN OWNERSHIP
Chancellor Media's certificate of incorporation provides that, in accordance
with the Communications Act:
- - not more than 25% of the capital stock of the corporation may be owned of
record by Aliens, as defined in Chancellor Media's certificate of
incorporation;
- - no Alien shall be entitled to vote or direct or control the vote of more than
25% of the total number of shares of capital stock of the corporation
outstanding and entitled to vote at any time or more than 25% of the total
voting power of all shares of capital stock of the corporation outstanding and
entitled to vote at any time;
- - no Alien shall be qualified to act as an officer of the corporation; and
- - no more than 25% of the total number of directors of the corporation may be
Aliens.
In addition, the certificate authorizes the board of directors of Chancellor
Media to adopt such provisions as it deems necessary to enforce these
prohibitions.
LIN's certificate of incorporation has no such provision.
VOTING WITH RESPECT TO CERTAIN BUSINESS COMBINATIONS
Section 203 of the DGCL provides that a corporation shall not engage in any
business combination, generally defined as a merger, consolidation, sale of
greater than 10% of assets, issuance of stock or granting of other financial
benefits, with any interested stockholder, generally defined as any person
owning greater than 15% of the voting stock of
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a corporation, for a period of three years following the time that such
stockholder became an interested stockholder, unless:
- - prior to that time the Board of Directors of the corporation approved either
the business combination or the transaction which resulted in the stockholder
becoming an interested stockholder;
- - upon consummation of the transaction which resulted in the shareholder
becoming an interested shareholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned
(1) by persons who are directors and also officers; and
(2) employee stock plans in which employee participants do not have the right
to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer; or
- - at or subsequent to such time the business combination is approved by the
Board of Directors and authorized at an annual or special meeting of
shareholders, and not by written consent, by the affirmative vote of at least
two-thirds of the outstanding voting stock which is not owned by the
interested stockholder.
LIN's certificate of incorporation expressly elects not to be governed by
Section 203 of the DGCL.
Chancellor Media is subject to Section 203 of the DGCL.
LEGAL MATTERS
The validity of the shares of Chancellor Media common stock to be issued in the
merger will be passed upon and an opinion with respect to certain United States
federal income tax consequences of the merger will be rendered to Chancellor
Media by Weil, Gotshal & Manges LLP, Dallas, Texas and New York, New York.
Certain partners of Weil, Gotshal & Manges LLP own shares of Chancellor Media
common stock.
An opinion with respect to certain United States federal income tax consequences
of the merger on holders of shares of LIN common stock will be rendered to LIN
by Vinson & Elkins L.L.P., Dallas, Texas.
EXPERTS
The consolidated financial statements and financial statement schedules of
Chancellor Media Corporation and Subsidiaries as of December 31, 1997 and for
the year then ended included in this joint proxy statement/prospectus, have been
included herein in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The consolidated financial statements of Chancellor Media Corporation and
Subsidiaries, the combined financial statements of WMZQ Inc. and Viacom
Broadcasting East Inc., the combined financial statements of Riverside
Broadcasting Co., Inc. and WAXQ Inc., the financial statements of WLIT Inc., the
combined financial statements of KYSR Inc. and KIBB Inc., and the financial
statements of WDAS-AM/FM (station owned and operated
180
<PAGE> 191
by Beasley FM Acquisition Corp.), have been audited by KPMG LLP, independent
certified public accountants, to the extent and for the periods indicated in
their reports thereon, which reports are included herein. Such financial
statements are included herein in reliance upon the reports of KPMG LLP and upon
the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Chancellor Broadcasting Company and
Subsidiaries as of December 31, 1996 and 1995 and for each of the three years in
the period ended December 31, 1996 included in this joint proxy
statement/prospectus, have been included herein in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
The combined financial statements of Colfax Communications, Inc. Radio Group as
of December 31, 1996, 1995 and 1994 and for each of the three years in the
period ended December 31, 1996, incorporated in this joint proxy
statement/prospectus, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said report.
The combined statement of assets acquired as of April 3, 1998 and the related
combined statements of revenues and direct operating expenses of KBIG-FM,
KLDE-FM and WBIX-FM (formerly WNSR-FM) for each of the three years ended
December 31, 1997 included in this joint proxy statement/prospectus, have been
included herein in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The statement of assets acquired as of May 29, 1998 and the related statements
of revenues and direct operating expenses of KODA-FM for each of the two years
ended December 31, 1997 included in this joint proxy statement/prospectus, have
been included herein in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the consolidated financial
statements of LIN Television Corporation as of December 31, 1996 and 1997 and
for each of the three years in the period ended December 31, 1997. These
consolidated financial statements are included herein in reliance on their
report, given on their authority as experts in accounting and auditing.
The financial statements of the Outdoor Advertising Division of Whiteco
Industries, Inc. included in this joint proxy statement/prospectus have been
audited by BDO Seidman, LLP, independent certified public accountants, to the
extent and for the periods set forth in their report appearing elsewhere in the
joint proxy statement/prospectus, and are included in reliance upon the
authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Capstar Broadcasting Corporation and
Subsidiaries as of December 31, 1996 and 1997 and for each of the three years in
the period ended December 31, 1997 included in this joint proxy
statement/prospectus, have been included herein in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the consolidated financial
statements of Commodore Media, Inc. and Subsidiaries for the period from January
1, 1996 to October 16, 1996 and for the year ended December 31, 1995. These
consolidated
181
<PAGE> 192
financial statements are included herein in reliance on their report, given on
their authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the consolidated financial
statements of SFX Broadcasting, Inc. and Subsidiaries as of December 31, 1996
and 1997 and for each of the three years in the period ended December 31, 1997.
These consolidated financial statements are included herein in reliance on their
report, given on their authority as experts in accounting and auditing.
The financial statements of Martin Media as of December 31, 1997 and 1996 and
for each of the three years in the period ended December 31, 1997, included in
this joint proxy statement/prospectus, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
The financial statements of Martin & MacFarlane, Inc. as of December 31, 1997
and 1996 and for each of the two years in the period ended December 31, 1997 and
the six month period ended December 31, 1995, included in this joint proxy
statement/prospectus, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said report.
The financial statements of Martin & MacFarlane, Inc. as of June 30, 1995 and
for the year ended June 30, 1995, included in this joint proxy
statement/prospectus, have been audited by Barbich Longcrier Hooper & King
Accountancy Corporation, independent auditors, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said report.
STOCKHOLDER PROPOSALS FOR CHANCELLOR MEDIA 1999 ANNUAL MEETING
Proposals of stockholders intended to be presented at the Annual Meeting of
Stockholders of Chancellor Media to be held in 1999 must have been received by
Chancellor Media no later than December 25, 1998 in order to be considered for
inclusion in Chancellor Media's proxy statement and form of proxy relating to
such meeting. Such proposals should be directed to Chancellor Media Corporation,
300 Crescent Court, Suite 600, Dallas, Texas 75201, ATTENTION: Corporate
Secretary. Proposals must comply with the proxy rules of the Commission relating
to stockholder proposals in order to be included in the proxy materials.
In accordance with the rules and regulations of the SEC, Chancellor Media's
management will have discretionary authority to vote on any proposal raised by a
stockholder at the 1999 Annual Meeting if the proponent of such proposal fails
to notify Chancellor Media on or before March 9, 1999.
182
<PAGE> 193
CHANCELLOR MEDIA CORPORATION
PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial statements of
Chancellor Media Corporation, (together with its subsidiaries, the "Company")
are presented using the purchase method of accounting for all acquisitions and
reflect the combination of consolidated historical financial data of the Company
and each of the companies acquired in the transactions completed by the Company
during 1997 and 1998 and the elimination of the consolidated historical data of
the stations disposed in the transactions completed by the Company and
Chancellor Broadcasting Company ("Chancellor") (which merged into a subsidiary
of Chancellor Media in September 1997) during 1997 and 1998 (the "Completed
Transactions"). The unaudited pro forma condensed combined balance sheet data at
September 30, 1998 presents adjustments for the Completed Transactions, the
offering by Chancellor Media Corporation of Los Angeles ("CMCLA") of $750,000
aggregate principal amount of 8% Senior Notes due 2008 which was completed on
November 17, 1998 and the Pending Transactions (excluding the acquisition of
Petry Media Corporation), as if each such transaction had occurred at September
30, 1998. The unaudited pro forma condensed combined statement of operations
data for the twelve months ended December 31, 1997 and the nine months ended
September 30, 1998 presents adjustments for the Completed Transactions,
financing transactions undertaken by the Company and Chancellor during 1997, the
1998 Financing Transactions and the Pending Transactions (excluding the
acquisition of Petry), as if each such transaction occurred on January 1, 1997.
The acquisition of Petry, the Kasem Acquisition and the Other Outdoor
Acquisitions are excluded from the pro forma information included in this joint
proxy statement/prospectus for a number of reasons including (1) uncertainty as
to whether such transactions will be consummated and, if consummated, on what
terms, or (2) the availability to Chancellor Media of necessary financial
information. In the opinion of management of the Company, such information is
not material to such pro forma presentations, either individually or in the
aggregate.
The purchase method of accounting has been used in the preparation of the
unaudited pro forma condensed combined financial statements. Under this method
of accounting, the aggregate purchase price is allocated to assets acquired and
liabilities assumed based on their estimated fair values. For purposes of the
unaudited pro forma condensed combined financial statements, the purchase prices
of the assets acquired in the Completed Transactions have been allocated based
primarily on information furnished by management of the acquired or to be
acquired assets. The final allocation of the respective purchase prices of the
assets acquired in the Completed Transactions are determined a reasonable time
after consummation of such transactions and are based on a complete evaluation
of the assets acquired and liabilities assumed. Accordingly, the information
presented herein may differ from the final purchase price allocation; however,
such allocations are not expected to differ materially from the preliminary
amounts.
In the opinion of the Company's management, all adjustments have been made
that are necessary to present fairly the pro forma data.
The unaudited pro forma condensed combined financial statements should be
read in conjunction with the respective financial statements and related notes
thereto of the Company which have previously been reported. The unaudited pro
forma condensed combined financial statements are presented for illustrative
purposes only and are not necessarily indicative of the results of operations or
financial position that would have been achieved had the transactions reflected
therein been consummated as of the dates indicated, or of the results of
operations or financial positions for any future periods or dates.
P-1
<PAGE> 194
CHANCELLOR MEDIA CORPORATION
UNAUDITED PRO FORMA BALANCE SHEET
AT SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY
LIN AS AS ADJUSTED
PRO FORMA COMPANY ADJUSTED FOR THE
ADJUSTMENTS AS ADJUSTED FOR THE PRO FORMA COMPLETED
COMPANY FOR THE FOR THE PENDING ADJUSTMENTS TRANSACTIONS
HISTORICAL COMPLETED COMPLETED LIN FOR THE AND THE LIN
AT 9/30/98 TRANSACTIONS TRANSACTIONS TRANSACTIONS(3) LIN MERGER MERGER
---------- ------------ ------------ --------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Current assets..................... $ 376,797 $ 40,186(1) $ 416,983 $ 99,614 $ -- $ 516,597
Note receivable from affiliate..... 150,000 -- 150,000 -- -- 150,000
Property and equipment, net........ 299,906 628,519(1) 928,425 119,783 -- 1,048,208
Intangible assets, net............. 5,036,250 737,458(1) 5,773,708 1,531,306 410,077(4) 7,861,488
146,397(5)
Other assets....................... 162,142 27,164(1) 203,306 174,048 (48,138)(4) 329,216
(6,000)(1)
20,000(2)
---------- ---------- ---------- ---------- -------- -----------
Total assets............... $6,025,095 $1,447,327 $7,472,422 $1,924,751 $508,336 $ 9,905,509
========== ========== ========== ========== ======== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Current liabilities
Current portion of long-term
debt............................. $ -- $ -- $ -- $ 7,742 $ -- $ 7,742
Other current liabilities.......... 177,472 5,088(1) 182,560 46,187 -- 228,747
---------- ---------- ---------- ---------- -------- -----------
Total current
liabilities.............. 177,472 5,088 182,560 53,929 -- 236,489
Long-term debt..................... 3,018,000 1,386,412(1) 4,424,412 797,893 25,673(4) 5,247,978
750,000(2)
(730,000)(2)
Deferred tax liabilities........... 360,618 35,827(1) 396,445 523,950 146,397(5) 1,066,792
Other liabilities.................. 60,403 -- 60,403 10,898 -- 71,301
---------- ---------- ---------- ---------- -------- -----------
Total liabilities.......... 3,616,493 1,447,327 5,063,820 1,386,670 172,070 6,622,560
Redeemable preferred stock......... -- -- -- -- -- --
STOCKHOLDERS' EQUITY:
Preferred stock.................... 409,500 -- 409,500 -- -- 409,500
Common stock....................... 1,424 -- 1,424 5,393 (5,231)(4) 1,586
Additional paid in capital......... 2,243,350 -- 2,243,350 553,655 320,530(4) 3,117,535
Accumulated deficit................ (245,672) -- (245,672) (20,967) 20,967(4) (245,672)
---------- ---------- ---------- ---------- -------- -----------
Total stockholders'
equity................... 2,408,602 -- 2,408,602 538,081 336,266 3,282,949
---------- ---------- ---------- ---------- -------- -----------
Total liabilities and
stockholders' equity..... $6,025,095 $1,447,327 $7,472,422 $1,924,751 $508,336 $ 9,905,509
========== ========== ========== ========== ======== ===========
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR THE
PENDING COMPANY
TRANSACTIONS PRO FORMA
------------ -----------
<S> <C> <C>
ASSETS:
Current assets..................... $ 195,250(6) $ 711,847
Note receivable from affiliate..... (150,000)(7) --
Property and equipment, net........ 255,065(6) 1,303,273
Intangible assets, net............. 6,030,398(6) 13,891,886
Other assets....................... 28,509(6) 357,725
---------- -----------
Total assets............... $6,359,222 $16,264,731
========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Current liabilities
Current portion of long-term
debt............................. $ -- $ 7,742
Other current liabilities.......... 161,920(6) 390,667
---------- -----------
Total current
liabilities.............. 161,920 398,409
Long-term debt..................... 2,178,165(6) 7,276,143
(150,000)(7)
Deferred tax liabilities........... 1,477,367(6) 2,544,159
Other liabilities.................. 962(6) 72,263
---------- -----------
Total liabilities.......... 3,668,414 10,290,974
Redeemable preferred stock......... 278,694(6) 278,694
STOCKHOLDERS' EQUITY:
Preferred stock.................... -- 409,500
Common stock....................... 516(6) 2,102
Additional paid in capital......... 2,402,005(6) 5,519,540
Accumulated deficit................ 9,593(6) (236,079)
---------- -----------
Total stockholders'
equity................... 2,412,114 5,695,063
---------- -----------
Total liabilities and
stockholders' equity..... $6,359,222 $16,264,731
========== ===========
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements
P-2
<PAGE> 195
CHANCELLOR MEDIA CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
COMPANY AS LIN AS PENDING FOR THE
ADJUSTED FOR ADJUSTED FOR LIN PENDING LIN
COMPLETED COMPLETED LIN TRANSACTIONS LIN PRO FORMA
YEAR ENDED DECEMBER 31, 1997 TRANSACTIONS(8) TRANSACTIONS(9) HISTORICAL(10) TRANSACTIONS AS ADJUSTED
---------------------------- --------------- --------------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Gross revenues................................... $1,411,160 $224,845 $ 2,563 $ -- $227,408
Less: agency commissions......................... (154,451) (28,730) (1,275) -- (30,005)
---------- -------- ------- -------- --------
Net revenues..................................... 1,256,709 196,115 1,288 -- 197,403
Operating expenses excluding depreciation and
amortization................................... 704,936 119,069 (2,260) 305(11) 117,114
Depreciation and amortization.................... 464,160 47,595 (113) 2,487(12) 49,969
Corporate general and administrative............. 45,669 6,763 -- -- 6,763
Restructuring charge............................. 15,958 -- -- -- --
Stock option compensation........................ 3,083 -- -- -- --
Other nonrecurring costs......................... -- 2,697 (450) -- 2,247
---------- -------- ------- -------- --------
Operating income (loss).......................... 22,903 19,991 4,111 (2,792) 21,310
Interest expense................................. 349,584 71,031 -- 9,375(13) 80,406
Interest income.................................. (3,188) (1,332) -- (3,000)(14) (4,332)
Gain on disposition of assets.................... (18,380) -- -- -- --
Other (income) expense........................... (1,216) 4,989 -- -- 4,989
---------- -------- ------- -------- --------
Income (loss) before income taxes................ (303,897) (54,697) 4,111 (9,167) (59,753)
Income tax benefit............................... (108,107) (20,873) (1,068) (3,155)(15) (25,096)
Dividends and accretion on preferred stock of
subsidiary..................................... -- -- -- -- --
---------- -------- ------- -------- --------
Net income (loss)................................ (195,790) (33,824) 5,179 (6,012) (34,657)
Preferred stock dividends........................ 17,446 -- -- -- --
---------- -------- ------- -------- --------
Income (loss) attributable to common
stockholders................................... $ (213,236) $(33,824) $ 5,179 $ (6,012) $(34,657)
========== ======== ======= ======== ========
Basic and diluted income (loss) per common
share.......................................... $ (1.64)
==========
Weighted average common shares outstanding(24)... 130,253
==========
<CAPTION>
COMPANY AS
ADJUSTED FOR PRO FORMA
PRO FORMA COMPLETED ADJUSTMENTS
ADJUSTMENTS TRANSACTIONS PENDING FOR THE
FOR THE AND THE TRANSACTIONS PENDING COMPANY
YEAR ENDED DECEMBER 31, 1997 LIN MERGER LIN MERGER HISTORICAL(19) TRANSACTIONS PRO FORMA
---------------------------- ----------- ------------ -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Gross revenues................................... $ -- $1,638,568 $ 768,146 $ (54,058)(20) $2,352,656
Less: agency commissions......................... -- (184,456) (73,302) -- (257,758)
-------- ---------- --------- --------- ----------
Net revenues..................................... -- 1,454,112 694,844 (54,058) 2,094,898
Operating expenses excluding depreciation and
amortization................................... -- 822,050 451,221 (4,173)(20) 1,269,098
Depreciation and amortization.................... 28,993(16) 543,122 154,802 (38)(20) 977,600
279,714(21)
Corporate general and administrative............. -- 52,432 31,565 -- 83,997
Restructuring charge............................. -- 15,958 -- -- 15,958
Stock option compensation........................ -- 3,083 11,589 -- 14,672
Other nonrecurring costs......................... -- 2,247 16,353 -- 18,600
-------- ---------- --------- --------- ----------
Operating income (loss).......................... (28,993) 15,220 29,314 (329,561) (285,027)
Interest expense................................. (8,340)(17) 421,650 188,552 (15,122)(22) 595,080
Interest income.................................. -- (7,520) (8,572) -- (16,092)
Gain on disposition of assets.................... -- (18,380) (4,306) -- (22,686)
Other (income) expense........................... -- 3,773 4,251 -- 8,024
-------- ---------- --------- --------- ----------
Income (loss) before income taxes................ (20,653) (384,303) (150,611) (314,439) (849,353)
Income tax benefit............................... (1,215)(18) (134,418) (43,180) (110,954)(23) (288,552)
Dividends and accretion on preferred stock of
subsidiary..................................... -- -- 26,048 -- 26,048
-------- ---------- --------- --------- ----------
Net income (loss)................................ (19,438) (249,885) (133,479) (203,485) (586,849)
Preferred stock dividends........................ -- 17,446 -- -- 17,446
-------- ---------- --------- --------- ----------
Income (loss) attributable to common
stockholders................................... $(19,438) $ (267,331) $(133,479) $(203,485) $ (604,295)
======== ========== ========= ========= ==========
Basic and diluted income (loss) per common
share.......................................... $ (1.83) $ (3.05)
========== ==========
Weighted average common shares outstanding(24)... 16,180 146,433 51,644 198,077
======== ========== ========= ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements
P-3
<PAGE> 196
CHANCELLOR MEDIA CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
COMPANY AS LIN AS PENDING FOR THE
ADJUSTED FOR ADJUSTED FOR LIN PENDING LIN
NINE MONTHS ENDED COMPLETED COMPLETED LIN TRANSACTIONS LIN PRO FORMA
SEPTEMBER 30, 1998 TRANSACTIONS(8) TRANSACTIONS(9) HISTORICAL(10) TRANSACTIONS AS ADJUSTED
- ------------------ --------------- --------------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Gross revenues....................... $1,220,541 $186,555 $(3,250) $ -- $183,305
Less: agency commissions............. (137,298) (22,234) (651) -- (22,885)
---------- -------- ------- -------- --------
Net revenues......................... 1,083,243 164,321 (3,901) -- 160,420
Operating expenses excluding
depreciation and amortization...... 583,968 95,565 (7,914) 270(11) 87,921
Depreciation and amortization........ 399,271 40,199 (272) 1,923(12) 41,850
Corporate general and
administrative..................... 31,163 6,140 -- -- 6,140
Stock option compensation............ -- -- -- -- --
Executive severance charge........... 59,475 -- -- -- --
Other nonrecurring costs............. -- 3,055 (3,055) -- --
---------- -------- ------- -------- --------
Operating income (loss).............. 9,366 19,362 7,340 (2,193) 24,509
Interest expense..................... 262,188 50,189 -- 7,031(13) 57,220
Interest income...................... (10,640) (836) -- (2,250)(14) (3,086)
Gain on disposition of representation
contracts.......................... (29,767) -- -- -- --
Other (income) expense............... (121,916) 6,440 -- -- 6,440
---------- -------- ------- -------- --------
Income (loss) before income taxes.... (90,499) (36,431) 7,340 (6,974) (36,065)
Income tax benefit................... (23,362) (13,726) -- (1,421)(15) (15,147)
Dividends and accretion on preferred
stock of subsidiary................ -- -- -- -- --
---------- -------- ------- -------- --------
Net income (loss).................... (67,137) (22,705) 7,340 (5,553) (20,918)
Preferred stock dividends............ 19,252 -- -- -- --
---------- -------- ------- -------- --------
Income (loss) attributable to common
stockholders....................... $ (86,389) $(22,705) $ 7,340 $ (5,553) $(20,918)
========== ======== ======= ======== ========
Basic and diluted income (loss) per
common share....................... $ (0.63)
==========
Weighted average common shares
outstanding(24).................... 136,427
==========
<CAPTION>
COMPANY AS
ADJUSTED FOR PRO FORMA
PRO FORMA COMPLETED ADJUSTMENTS
ADJUSTMENTS TRANSACTIONS PENDING FOR THE
NINE MONTHS ENDED FOR THE AND THE TRANSACTIONS PENDING COMPANY
SEPTEMBER 30, 1998 LIN MERGER LIN MERGER HISTORICAL(19) TRANSACTIONS PRO FORMA
- ------------------ ----------- ------------ -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Gross revenues....................... $ -- $1,403,846 $ 585,984 $ (48,072)(20) $1,941,758
Less: agency commissions............. -- (160,183) (63,863) -- (224,046)
-------- ---------- --------- --------- ----------
Net revenues......................... -- 1,243,663 522,121 (48,072) 1,717,712
Operating expenses excluding
depreciation and amortization...... -- 671,889 310,358 (10,251)(20) 971,996
Depreciation and amortization........ 17,808(16) 458,929 110,811 (16,475)(20) 765,331
212,066(21)
Corporate general and
administrative..................... -- 37,303 18,793 -- 56,096
Stock option compensation............ -- -- 14,002 -- 14,002
Executive severance charge........... -- 59,475 -- -- 59,475
Other nonrecurring costs............. -- -- 7,505 -- 7,505
-------- ---------- --------- --------- ----------
Operating income (loss).............. (17,808) 16,067 60,652 (233,412) (156,693)
Interest expense..................... (3,170)(17) 316,238 141,682 (6,100)(20) 446,310
(5,510)(22)
Interest income...................... -- (13,726) (2,304) 6,100(20) (9,930)
Gain on disposition of representation
contracts.......................... -- (29,767) -- -- (29,767)
Other (income) expense............... -- (115,476) 30,894 -- (84,582)
-------- ---------- --------- --------- ----------
Income (loss) before income taxes.... (14,638) (141,202) (109,620) (227,902) (478,724)
Income tax benefit................... (554)(18) (39,063) (24,277) (86,592)(23) (149,932)
Dividends and accretion on preferred
stock of subsidiary................ -- -- 21,984 -- 21,984
-------- ---------- --------- --------- ----------
Net income (loss).................... (14,084) (102,139) (107,327) (141,310) (350,776)
Preferred stock dividends............ -- 19,252 -- -- 19,252
-------- ---------- --------- --------- ----------
Income (loss) attributable to common
stockholders....................... $(14,084) $ (121,391) $(107,327) $(141,310) $ (370,028)
======== ========== ========= ========= ==========
Basic and diluted income (loss) per
common share....................... $ (0.80) $ (1.81)
========== ==========
Weighted average common shares
outstanding(24).................... 16,180 152,607 51,644 204,251
======== ========== ========= ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements
P-4
<PAGE> 197
ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET RELATED TO
THE COMPLETED TRANSACTIONS
(1) Reflects the Completed Transactions that were completed after September
30, 1998 as follows:
<TABLE>
<CAPTION>
PURCHASE PRICE ALLOCATION
---------------------------------------------------------------------------------------------
PROPERTY AND DEFERRED
COMPLETED PURCHASE CURRENT EQUIPMENT, INTANGIBLE OTHER CURRENT TAX
TRANSACTIONS PRICE ASSETS NET(a) ASSETS, NET(b) ASSETS LIABILITIES LIABILITIES(c)
- ------------ ---------- ------- ------------ -------------- ------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Z-Spanish
Acquisition(d)......... $ 25,000 $ -- $ -- $ -- $25,000 $ -- $ --
Primedia
Acquisition(e)......... 74,770 -- 4,323 70,447 -- -- --
Kunz Option(f)........... 39,289 -- 23,573 15,716 -- -- --
Whiteco Acquisition(g)... 974,221 29,180 598,509 349,327 2,164 (4,959) --
Cleveland
Acquisitions(h)........ 279,132 11,006 2,114 301,968 -- (129) (35,827)
---------- ------- -------- -------- ------- ------- --------
$1,392,412 $40,186 $628,519 $737,458 $27,164 $(5,088) $(35,827)
========== ======= ======== ======== ======= ======= ========
<CAPTION>
FINANCING
-------------------------
DECREASE IN INCREASE IN
COMPLETED OTHER LONG-TERM
TRANSACTIONS ASSETS DEBT
- ------------ ----------- -----------
<S> <C> <C>
Z-Spanish
Acquisition(d)......... $ -- $ 25,000
Primedia
Acquisition(e)......... -- 74,770
Kunz Option(f)........... 6,000 33,289
Whiteco Acquisition(g)... -- 974,221
Cleveland
Acquisitions(h)........ -- 279,132
------ ----------
$6,000 $1,386,412
====== ==========
</TABLE>
- -------------------------
(a) The Company has assumed that the historical balances of net property
and equipment acquired approximate fair value for the preliminary
allocation of the purchase price. Such amounts are based on
information provided by management of the respective companies
acquired in the Completed Transactions.
(b) The Company, on a preliminary basis, has allocated the intangible
assets of the radio acquisitions to broadcast licenses with an
estimated average life of 15 years and has allocated the intangible
assets of the outdoor acquisitions to goodwill with an estimated
average life of 40 years. The amounts allocated to net intangible
assets are preliminary and are based upon historical information from
prior radio acquisitions and preliminary appraisals for the outdoor
acquisitions.
(c) Reflects the tax effect upon consummation of the transaction.
(d) On October 9, 1998, the Company acquired approximately a 24.1%
non-voting interest in Z-Spanish Media Corporation for $25,000 in
cash. Z-Spanish Media, which is headquartered in Sacramento,
California, is the owner and operator of 22 Hispanic format radio
stations in California, Texas, Arizona and Illinois.
(e) On October 23, 1998, the Company acquired Primedia Broadcast Group,
Inc. and certain of its affiliates, which own and operate eight FM
stations in Puerto Rico, for approximately $76,050 in cash less
working capital deficit of $1,280 plus various other direct
acquisition costs.
(f) On November 13, 1998, the Company acquired approximately 1,000
display faces from Kunz & Company for $33,289 in cash plus various
other direct acquisition costs (the "Kunz Option"). Martin had
previously paid $6,000 in cash to Kunz & Company on July 31, 1997.
Martin began operating these 1,000 display faces under a management
agreement effective July 31, 1997.
(g) On December 1, 1998, the Company acquired the assets of the Outdoor
Advertising division of Whiteco Industries, Inc., an outdoor
advertising company with over 22,000 billboards and outdoor displays
in 34 states, for $930,000 in cash plus working capital of $24,221
subject to certain adjustments and various other direct acquisition
costs of approximately $20,000.
(h) On January 28, 1999, the Company acquired Wincom Broadcasting
Corporation which owns WQAL-FM in Cleveland. The Company began
operating WQAL-FM under a time brokerage agreement effective October
1, 1998. On February 2, 1999, the Company acquired additional radio
stations in Cleveland including (i) WDOK-FM and WRMR-AM from
Independent Group Limited Partnership, (ii) WZAK-FM from Zapis
Communications and (iii) Zebra Broadcasting Corporation which owns
WZJM-FM and WJMO-AM. The six Cleveland stations were acquired for an
aggregate purchase price of $275,000 in cash plus working capital of
$4,132 subject to certain adjustments (the "Cleveland Acquisitions").
P-5
<PAGE> 198
(2) Reflects the proceeds of $730,000 received on November 17, 1998 from
the issuance of $750,000 of CMCLA's 8% Senior Notes due 2008, net of
deferred debt issuance costs of $20,000. The net proceeds from the 8%
senior notes offering were used to reduce bank borrowings under the
revolving credit portion of the senior credit facility and the excess
proceeds will be invested in short-term investment grade securities.
ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET RELATED TO
THE PENDING LIN TRANSACTIONS
(3) The historical balance sheet of LIN at September 30, 1998 and the pro
forma adjustments related to the Pending LIN Transactions are
summarized below:
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS LIN AS
FOR THE ADJUSTED FOR
LIN PENDING THE PENDING
HISTORICAL LIN LIN
AT 9/30/98 TRANSACTIONS(a) TRANSACTIONS
---------- --------------- ------------
<S> <C> <C> <C>
ASSETS:
Current assets................................... $ 97,887 $ 9,709 $ 99,614
(7,982)
Property and equipment, net...................... 121,522 (1,739) 119,783
Intangible assets, net........................... 1,450,821 80,485 1,531,306
Other assets..................................... 127,537 11 174,048
46,500
---------- -------- ----------
Total assets........................... $1,797,767 $126,984 $1,924,751
========== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Current portion of long-term debt................ $ 7,742 $ -- $ 7,742
Other current liabilities........................ 45,691 496 46,187
---------- -------- ----------
Total current liabilities.............. 53,433 496 53,929
Long-term debt, excluding current portion........ 672,893 125,000 797,893
Deferred tax liabilities......................... 523,294 656 523,950
Other liabilities................................ 11,051 (153) 10,898
---------- -------- ----------
Total liabilities...................... 1,260,671 125,999 1,386,670
Stockholders' equity:
Common stock..................................... 5,393 -- 5,393
Additional paid-in capital....................... 553,655 -- 553,655
Accumulated deficit.............................. (21,952) 985 (20,967)
---------- -------- ----------
Total stockholders' equity............. 537,096 985 538,081
---------- -------- ----------
Total liabilities and stockholders'
equity............................... $1,797,767 $126,984 $1,924,751
========== ======== ==========
</TABLE>
P-6
<PAGE> 199
- -------------------------
(a) Reflects the Pending LIN Transactions as follows:
<TABLE>
<CAPTION>
PURCHASE PRICE ALLOCATION
-----------------------------------------------------------------------------------------
PROPERTY
AND INTANGIBLE DEFERRED
PENDING LIN PURCHASE CURRENT EQUIPMENT, ASSETS, OTHER CURRENT TAX
TRANSACTIONS PRICE ASSETS NET(i) NET ASSETS LIABILITIES LIABILITIES(II)
------------ -------- -------- ---------- ---------- -------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
WOOD-TV/
WOTV-TV(iv)......... $132,982 $ 19,353 $ 13,505 $105,822 $ 1,592 $(5,416) $ --
KXTX-TV(v)........... (46,500) (9,644) (15,244) (25,337) (1,581) 4,920 (656)
-------- -------- -------- -------- -------- ------- -----
Total.......... $86,482 $ 9,709 $ (1,739) $ 80,485 $ 11 $ (496) $(656)
======== ======== ======== ======== ======== ======= =====
<CAPTION>
PURCHASE PRICE ALLOCATION FINANCING
-------------------------- -----------------------------------------
DECREASE IN INCREASE IN INCREASE IN
PENDING LIN OTHER ACCUMULATED CURRENT INVESTMENT LONG-TERM
TRANSACTIONS LIABILITIES DEFICIT(III) ASSETS IN SPORTS CO. DEBT
------------ ----------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
WOOD-TV/
WOTV-TV(iv)......... $(1,874) $ -- $7,982 $ -- $125,000
KXTX-TV(v)........... 2,027 (985) -- (46,500) --
------- ------ ------ -------- --------
Total.......... $ 153 $ (985) $7,982 $(46,500) $125,000
======= ====== ====== ======== ========
</TABLE>
(i) The Company has assumed that historical balances of net property and
equipment to be acquired approximate fair value for the preliminary
allocation of the purchase price. Such amounts are based primarily on
information provided by management of the respective stations to be
acquired in the Pending LIN Transactions.
(ii) Reflects the tax effect upon consummation of the transaction.
(iii) Represents the loss on sale, net of tax, upon consummation of the
transaction.
(iv) On August 12, 1997, LIN entered into an agreement to acquire certain
assets and assume certain liabilities of WOOD-TV and the LMA rights
related to WOTV-TV (the "Grand Rapid Stations"), which are both located
in the Grand Rapids-Kalamazoo-Battle Creek market, from AT&T Corporation
for approximately $125,500 in cash plus accretion of 8.0% (which
commenced on January 1, 1998) of $7,482. LIN currently provides services
to the Grand Rapid Stations pursuant to a consulting agreement with
AT&T. LIN, on a preliminary basis, has allocated the intangible assets
to network affiliations and broadcast licenses with an estimated average
life of 40 years. The amounts allocated to intangible assets are
preliminary and are based upon historical information from prior
acquisitions.
(v) On August 1, 1998, LIN Television of Texas, L.P., a subsidiary of LIN
("LIN Texas"), and Southwest Sports Group, Inc. entered into an Asset
Purchase Agreement pursuant to which LIN Texas will assign its purchase
option and LMA rights on KXTX-TV and sell certain assets and liabilities
of KXTX-TV to Southwest Sports Group. In exchange, LIN Texas will
receive 500,000 shares of Southwest Sports Group's series A convertible
preferred stock, par value $100.00 per share. The intangible assets of
KXTX-TV of $25,337 represent option value and LMA rights.
ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET RELATED TO
THE LIN MERGER
(4) Merger Purchase Price Information. In connection with the LIN merger,
each outstanding share of LIN common stock will be converted into the
right to receive 0.0300 shares of Chancellor Media common stock. For
purposes of the unaudited pro forma condensed combined financial
statements, the fair market value of Chancellor Media common stock is
calculated by using $51.00 per share which is based on the market price
of Chancellor Media common stock on or around the announcement date of
the LIN merger on July 7, 1998. The aggregate purchase price is
summarized below:
<TABLE>
<S> <C> <C>
EXCHANGE OF LIN COMMON STOCK:
Shares of LIN common stock outstanding...................... 539,321,532
Exchange ratio.............................................. .0300
-----------
Shares of Chancellor Media common stock issued in connection
with the LIN merger....................................... 16,179,646
===========
</TABLE>
P-7
<PAGE> 200
<TABLE>
<S> <C> <C>
AGGREGATE PURCHASE PRICE:
Estimated fair value of Chancellor Media common stock issued
in connection with the LIN merger (16,179,646 shares @
$51.00 per share)......................................... $ 825,162
LIN debt and equity assumed at fair values:
Long-term debt outstanding:
LIN term loan.......................................... 295,000
LIN 8 3/8% Senior Subordinated Notes due 2008.......... 292,620
LIN 10% Senior Discount Notes due 2008................. 213,688
-----------
Total long-term debt outstanding.................. 801,308
Stock options issued to LIN stock option holders.......... 27,532
Phantom stock outstanding................................. 21,653
Financial advisors, legal, accounting and other
professional fees...................................... 30,000
-----------
Aggregate purchase price.................................. $ 1,705,655
===========
</TABLE>
To record the aggregate purchase price of the LIN merger and eliminate
certain LIN historical balances as follows:
<TABLE>
<CAPTION>
ELIMINATION
OF LIN
PURCHASE HISTORICAL LIN
PRICE BALANCES MERGER NET
ALLOCATION AS ADJUSTED FINANCING ADJUSTMENT
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Current assets.......................... $ 99,614 $ (99,614) $ -- $ --
Property and equipment, net(a).......... 119,783 (119,783) -- --
Intangible assets(a).................... 1,941,383 (1,531,306) -- 410,077
Other assets............................ 125,910 (174,048) -- (48,138)
Current liabilities..................... (46,187) 46,187 -- --
Long-term debt(b)....................... -- 805,635 (831,308) (25,673)
Deferred tax liability.................. (523,950) 523,950 -- --
Other liabilities....................... (10,898) 10,898 -- --
Common Stock(c)......................... -- 5,393 (162) 5,231
Additional paid-in capital(d)........... -- 553,655 (874,185) (320,530)
Accumulated deficit..................... -- (20,967) -- (20,967)
---------- ----------- ----------- ---------
Aggregate purchase price................ $1,705,655 $ -- $(1,705,655) $ --
========== =========== =========== =========
</TABLE>
- -------------------------
(a) The Company has assumed that historical balances of net property and
equipment acquired approximate fair value for the preliminary allocation
of the purchase price. The Company, on a preliminary basis, has
allocated the $1,941,383 of intangible assets to goodwill and network
affiliations and broadcast licenses with estimated average lives of 40
years. This preliminary allocation is based upon historical information
from prior acquisitions provided by the management of LIN.
(b) Reflects the adjustment to record debt assumed or incurred by the
Company including (i) the fair value of LIN's long-term debt of $801,308
and (ii) additional bank borrowings of $30,000 required to finance
estimated financial advisors, legal, accounting and other professional
fees.
(c) Reflects 16,179,646 shares of Chancellor Media common stock at a par
value of $0.01 to be issued in connection with the LIN merger.
P-8
<PAGE> 201
(d) Reflects (i) additional paid-in capital of $825,000 related to
16,179,646 shares of Chancellor Media common stock issued in connection
with the LIN merger, (ii) additional paid-in capital of $21,653 related
to 424,569 shares of phantom stock to be issued in connection with the
LIN merger and (iii) the fair value of stock options assumed by
Chancellor Media of $27,532. The $27,532 fair value of the LIN stock
options was estimated using the Black-Scholes option pricing model and
the LIN merger exchange ratio of .0300 applied to LIN's outstanding
options and exercise prices. At September 30, 1998, LIN had 35,694,087
options outstanding with exercise prices ranging from $0.50 to $1.00.
(5) To record a $146,397 deferred tax liability related to the difference
between the financial statement carrying amount and the tax basis of
LIN acquired assets.
ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET RELATED TO
THE PENDING TRANSACTIONS
(6) Reflects the Pending Transactions as follows:
<TABLE>
<CAPTION>
PURCHASE PRICE ALLOCATION
-----------------------------------------------------------------------
PROPERTY
PURCHASE/ AND INTANGIBLE
(SALES) CURRENT EQUIPMENT, ASSETS, OTHER CURRENT
PENDING TRANSACTIONS PRICE ASSETS NET(a) NET(b) ASSETS LIABILITIES
-------------------- ---------- -------- ---------- ---------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Chicago Disposition(e)....... $ (21,000) $ -- $ (2,167) $ (2,844) $ -- $ --
Capstar Merger(f)............ 4,720,780 178,069 241,402 5,890,919 28,509 (146,997)
Pegasus Acquisition(g)....... 69,600 17,181 14,042 54,111 -- (14,923)
Phoenix Acquisition(h)....... 90,000 -- 1,788 88,212 -- --
---------- -------- -------- ---------- ------- ---------
Total.................. $4,859,380 $195,250 $255,065 $6,030,398 $28,509 $(161,920)
========== ======== ======== ========== ======= =========
<CAPTION>
PURCHASE PRICE ALLOCATION FINANCING
------------------------------------------ -------------------------------------------------
INCREASE
(DECREASE) INCREASE IN INCREASE INCREASE IN
DEFERRED IN REDEEMABLE IN ADDITIONAL
TAX OTHER ACCUMULATED LONG-TERM PREFERRED COMMON PAID-IN
PENDING TRANSACTIONS LIABILITIES(c) LIABILITIES DEFICIT(d) DEBT STOCK STOCK CAPITAL
-------------------- -------------- ----------- ----------- ---------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Chicago Disposition(e)....... $ (6,396) $ -- $(9,593) $ (21,000) $ -- $ -- $ --
Capstar Merger(f)............ (1,470,971) (151) -- 2,039,565 278,694 516 2,402,005
Pegasus Acquisition(g)....... -- (811) -- 69,600 -- -- --
Phoenix Acquisition(h)....... -- -- -- 90,000 -- -- --
----------- ----- ------- ---------- -------- ---- ----------
Total.................. $(1,477,367) $(962) $(9,593) $2,178,165 $278,694 $516 $2,402,005
=========== ===== ======= ========== ======== ==== ==========
</TABLE>
- -------------------------
(a) The Company has assumed that historical balances of net property and
equipment to be acquired approximate fair value for the preliminary
allocation of the purchase price. Such amounts are based primarily on
information provided by management of the respective companies to be
acquired in the Pending Transactions.
(b) The Company, on a preliminary basis, has allocated the intangible assets to
broadcast licenses with an estimated average life of 15 years. The amounts
allocated to net intangible assets are preliminary and are based upon
historical information from prior acquisitions.
(c) Reflects the tax effect upon consummation of the transaction.
(d) Reflects the gain on sale, net of tax, upon consummation of the
transaction.
(e) On August 20, 1998, the Company entered into an agreement to sell WMVP-AM
in Chicago to ABC, Inc. for $21,000 in cash (the "Chicago Disposition").
The Company entered into a time brokerage agreement to sell substantially
all of the broadcast time of WMVP-AM effective September 10, 1998.
(f) On August 26, 1998, the Company and Capstar Broadcasting Corporation and
its subsidiaries entered into an agreement to merge in a stock-for-stock
transaction that will create the nation's largest radio broadcasting
entity. Pursuant to this agreement, the Company will acquire Capstar in a
reverse merger in which Capstar will be renamed Chancellor Media
Corporation. Each share of Chancellor Media common stock will represent one
share in the combined entity. Each share of Capstar common stock will
represent 0.480 shares of common stock in the combined entity, subject to
an upward adjustment not to exceed 0.025 shares to the extent that
Capstar's 1998 cash flow from specified assets exceeds certain specified
targets. Capstar will own and operate or program more than 340 radio
stations serving 82 mid-sized markets nationwide upon completion of the
Pending Capstar Transactions.
Merger Purchase Price Information. In connection with the Capstar merger,
each outstanding share of Capstar common stock will be converted into the
right to receive 0.480 shares of the combined entity. For
P-9
<PAGE> 202
purposes of the unaudited pro forma condensed combined financial
statements, the fair market value of common stock is calculated by using
$44.75 per share which is based on the market price of the Chancellor Media
common stock on and around the announcement date of the Capstar merger on
August 26, 1998. The aggregate purchase price is summarized below:
<TABLE>
<S> <C> <C>
EXCHANGE OF CAPSTAR COMMON STOCK:
Shares of Capstar common stock outstanding.................. 107,591,598
Exchange ratio.............................................. 0.480
-----------
Shares of common stock to be issued in connection with the
Capstar merger............................................ 51,643,967
===========
AGGREGATE PURCHASE PRICE:
Estimated fair value of common stock to be issued in
connection with the Capstar merger (51,643,967 shares @
$44.75 per share)......................................... $ 2,311,068
Capstar debt and equity assumed at fair values:
Long-term debt outstanding:
Capstar credit facility................................ 1,087,300
Capstar 12 3/4% Senior Discount Notes due 2009......... 209,246
Capstar 9 1/4% Senior Subordinated Notes due 2007...... 200,580
Capstar 10 3/4% Senior Subordinated Notes due 2006..... 330,136
Capstar note payable to affiliate...................... 150,000
Capital lease obligation and other notes payable....... 12,303
---------
Total long-term debt outstanding.......................... 1,989,565
Capstar's 12% senior exchangeable preferred stock......... 128,652
Capstar's series E 12 5/8% cumulative preferred stock..... 150,042
Stock options issued by Capstar........................... 91,453
Financial advisors, legal, accounting and other professional
fees...................................................... 50,000
-----------
Aggregate purchase price.................................... $ 4,720,780
===========
</TABLE>
To record the aggregate purchase price of the Capstar merger as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 178,069
Property and equipment, net................................. 241,402
Intangible assets........................................... 5,890,919
Other assets................................................ 28,509
Current liabilities......................................... (146,997)
Deferred tax liabilities.................................... (1,470,971)
Other liabilities........................................... (151)
----------
$4,720,780
==========
</TABLE>
To record the financing of the Capstar merger as follows:
<TABLE>
<S> <C>
Long-term debt.............................................. $2,039,565(1)
Redeemable preferred stock.................................. 278,694(2)
Common stock................................................ 516(3)
Additional paid-in capital.................................. 2,402,005(4)
----------
$4,720,780
==========
</TABLE>
- -------------------------
(1)Reflects the adjustment to record the fair value of the debt assumed or
incurred by the Company including (i) the fair value of Capstar's
long-term debt of $1,989,565 and (ii) additional bank borrowings of
$50,000 required to finance estimated financial advisors, legal,
accounting and other professional fees.
P-10
<PAGE> 203
(2)Reflects the adjustment to record the estimated fair value of redeemable
preferred stock to be issued by the Company in exchange for (i)
Capstar's 12% senior exchangeable preferred stock of $128,652 and (ii)
Capstar's series E cumulative exchangeable preferred stock of $150,042.
(3)Reflects 51,643,967 shares of Chancellor Media common stock at a par
value of $0.01 to be issued in connection with the Capstar merger.
(4)Reflects additional paid-in capital of $2,402,005 related to 51,643,967
shares of Chancellor Media common stock to be issued in connection with
the Capstar merger and the fair value of stock options and warrants
assumed by the Company of $91,453. The $91,453 fair value of Capstar's
stock options and warrants was estimated using the Black-Scholes option
pricing model and the Capstar merger exchange ratio of 0.48 applied to
Capstar's outstanding options and warrants and exercise prices. At
September 30, 1998, Capstar had 3,976,218 options outstanding with
exercise prices ranging from $7.10 to $19.00 and 2,696,406 warrants
outstanding with exercise prices ranging from $14.00 to $18.10.
(g) On September 3, 1998, the Company entered into an agreement to acquire
Pegasus Broadcasting of San Juan, L.L.C., a television broadcasting company
which owns a television station in Puerto Rico, for approximately $69,600
in cash plus various other direct acquisition costs.
(h) On September 15, 1998, the Company entered into an agreement to acquire
KKFR-FM and KFYI-AM in Phoenix from The Broadcast Group, Inc. for $90,000
in cash plus various other direct acquisition costs. The Company began
operating KKFR-FM and KFYI-AM under a time brokerage agreement effective
November 5, 1998.
(7) Reflects the elimination of the $150,000 Capstar loan (as described on
page P-35) in connection with the Capstar merger.
P-11
<PAGE> 204
COMPANY'S HISTORICAL CONDENSED COMBINED STATEMENTS OF OPERATIONS AND ADJUSTMENTS
RELATED TO THE COMPLETED TRANSACTIONS
(8) The Company's historical condensed combined statement of operations for the
year ended December 31, 1997 and for the nine months ended September 30,
1998 and pro forma adjustments related to the Completed Transactions are
summarized below:
<TABLE>
<CAPTION>
ACQUISITIONS
----------------------------------------------------------------------------------------
CHANCELLOR AS
EVERGREEN ADJUSTED FOR
WUSL-FM VIACOM COMPLETED KDGE-FM
WDAS-FM/AM WIOQ-FM ACQUISITION CHANCELLOR KZPS-FM
COMPANY HISTORICAL HISTORICAL HISTORICAL TRANSACTIONS HISTORICAL
YEAR ENDED DECEMBER 31, 1997 HISTORICAL 1/1 - 5/1(a) 1/1 - 5/15(b) 1/1 - 7/2(c) 1/1 - 9/5(d) 1/1 - 7/31(e)
- ---------------------------- ---------- ------------ ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues..................... $663,804 $5,028 $7,088 $38,972 $241,481 $7,616
Less: agency commissions........... (81,726) (680) (829) (5,470) (30,754) (929)
-------- ------ ------ ------- -------- ------
Net revenues....................... 582,078 4,348 6,259 33,502 210,727 6,687
Operating expenses excluding
depreciation and amortization..... 316,248 2,533 3,649 14,936 119,328 5,293
Depreciation and amortization...... 185,982 875 -- 2,279 30,505 280
Corporate general and
administrative.................... 21,442 172 141 682 7,580 --
Merger expense..................... -- -- -- -- 6,124 --
Restructuring charge............... -- -- -- -- -- --
Stock option compensation.......... -- -- -- -- 3,083 --
Profit participation fee........... -- -- -- -- -- --
-------- ------ ------ ------- -------- ------
Operating income (loss)............ 58,406 768 2,469 15,605 44,107 1,114
Interest expense................... 85,017 19 990 -- 56,600 --
Interest income.................... (1,922) (21) -- -- (218) --
Gain on disposition of assets...... (18,380) -- -- -- -- --
Other (income) expense............. 383 884 -- -- (584) 12
-------- ------ ------ ------- -------- ------
Income (loss) before income
taxes............................. (6,692) (114) 1,479 15,605 (11,691) 1,102
Income tax expense (benefit)....... 7,802 -- -- 5,892 (1,676) --
Dividends and accretion on
preferred stock of subsidiary..... 12,901 -- -- -- 27,321 --
-------- ------ ------ ------- -------- ------
Net income (loss).................. (27,395) (114) 1,479 9,713 (37,336) 1,102
Preferred stock dividends.......... 12,165 -- -- -- 5,281 --
-------- ------ ------ ------- -------- ------
Income (loss) attributable to
common stockholders............... $(39,560) $ (114) $1,479 $ 9,713 $(42,617) $1,102
======== ====== ====== ======= ======== ======
Basic and diluted income (loss) per
common share...................... $ (0.41)
========
Weighted average common shares
outstanding(ii)................... 95,636
========
<CAPTION>
ACQUISITIONS
---------------------------------------------------------------------------------
KATZ KBIG-FM
ACQUISITION GANNETT KXPK-FM KLDE-FM
HISTORICAL HISTORICAL HISTORICAL WBIX-FM KODA-FM
YEAR ENDED DECEMBER 31, 1997 1/1 - 10/28(f) 1/1 - 12/29(g) 1/1 - 8/31(h) 1/1 - 10/10(i) 1/1 - 12/31(j)
- ---------------------------- -------------- -------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Gross revenues..................... $144,886 $61,057 $3,460 $33,125 $20,869
Less: agency commissions........... -- (8,052) (458) (4,636) (2,889)
-------- ------- ------ ------- -------
Net revenues....................... 144,886 53,005 3,002 28,489 17,980
Operating expenses excluding
depreciation and amortization..... 109,341 26,303 2,816 18,277 7,535
Depreciation and amortization...... 141 1,736 198 -- 1,848
Corporate general and
administrative.................... 8,105 -- -- -- --
Merger expense..................... -- -- -- -- --
Restructuring charge............... 15,958 -- -- -- --
Stock option compensation.......... -- -- -- -- --
Profit participation fee........... -- -- -- -- --
-------- ------- ------ ------- -------
Operating income (loss)............ 11,341 24,966 (12) 10,212 8,597
Interest expense................... 18,310 -- -- -- --
Interest income.................... (170) -- -- -- --
Gain on disposition of assets...... -- -- -- -- --
Other (income) expense............. -- (375) (81) -- --
-------- ------- ------ ------- -------
Income (loss) before income
taxes............................. (6,799) 25,341 69 10,212 8,597
Income tax expense (benefit)....... 1,912 10,127 -- -- --
Dividends and accretion on
preferred stock of subsidiary..... -- -- -- -- --
-------- ------- ------ ------- -------
Net income (loss).................. (8,711) 15,214 69 10,212 8,597
Preferred stock dividends.......... -- -- -- -- --
-------- ------- ------ ------- -------
Income (loss) attributable to
common stockholders............... $ (8,711) $15,214 $ 69 $10,212 $ 8,597
======== ======= ====== ======= =======
Basic and diluted income (loss) per
common share......................
Weighted average common shares
outstanding(ii)...................
<CAPTION>
ACQUISITIONS
----------------------------------------------------------------------------------
MARTIN AS
ADJUSTED FOR
COMPLETED PRIMEDIA WHITECO CLEVELAND
MARTIN ACQUISITION ACQUISITION ACQUISITIONS
WWDC-FM/AM TRANSACTIONS HISTORICAL HISTORICAL HISTORICAL
YEAR ENDED DECEMBER 31, 1997 1/1 - 12/31(k) 1/1 - 12/31(l) 1/1 - 12/31(m) 1/1 - 12/31(n) 1/1 - 12/31(o)
- ---------------------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Gross revenues..................... $11,416 $84,882 $15,732 $126,801 $ 33,728
Less: agency commissions........... (1,430) (8,983) (3,482) (8,703) (4,102)
------- ------- ------- -------- --------
Net revenues....................... 9,986 75,899 12,250 118,098 29,626
Operating expenses excluding
depreciation and amortization..... 5,597 38,836 7,986 63,984 16,433
Depreciation and amortization...... 90 25,326 2,916 11,525 673
Corporate general and
administrative.................... -- 1,080 -- 6,074 481
Merger expense..................... -- -- -- -- --
Restructuring charge............... -- -- -- -- --
Stock option compensation.......... -- -- -- -- --
Profit participation fee........... -- -- -- 2,322 --
------- ------- ------- -------- --------
Operating income (loss)............ 4,299 10,657 1,348 34,193 12,039
Interest expense................... 123 17,013 2,102 4 714
Interest income.................... (36) (293) (25) -- (513)
Gain on disposition of assets...... -- -- -- -- --
Other (income) expense............. (98) 1,767 66 (1,833) (1,357)
------- ------- ------- -------- --------
Income (loss) before income
taxes............................. 4,310 (7,830) (795) 36,022 13,195
Income tax expense (benefit)....... -- -- (53) -- 75
Dividends and accretion on
preferred stock of subsidiary..... -- -- -- -- --
------- ------- ------- -------- --------
Net income (loss).................. 4,310 (7,830) (742) 36,022 13,120
Preferred stock dividends.......... -- -- -- -- --
------- ------- ------- -------- --------
Income (loss) attributable to
common stockholders............... $ 4,310 $(7,830) $ (742) $ 36,022 $ 13,120
======= ======= ======= ======== ========
Basic and diluted income (loss) per
common share......................
Weighted average common shares
outstanding(ii)...................
</TABLE>
P-12
<PAGE> 205
<TABLE>
<CAPTION>
DISPOSITIONS
---------------------------------------------------------------------------------------------
WPEG-FM
WBAV-FM/AM
WRFX-FM WPNT-FM SAN FRANCISCO
WFNZ-AM WNKS-FM HISTORICAL WEJM-FM/AM WJZW-FM FREQUENCY
HISTORICAL HISTORICAL 5/30 - HISTORICAL HISTORICAL HISTORICAL
YEAR ENDED DECEMBER 31, 1997 1/1 - 5/15(b) 1/1 - 5/15(p) 6/19(q) 1/1 - 8/26(r) 1/1 - 7/7(s) 1/1 - 7/7(t)
- ---------------------------- ------------- ------------- -------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues..................... $(7,788) $(1,332) $(567) $(1,279) $(4,137) $(1,370)
Less: agency commissions........... 1,029 142 93 135 567 178
------- ------- ----- ------- ------- -------
Net revenues....................... (6,759) (1,190) (474) (1,144) (3,570) (1,192)
Operating expenses excluding
depreciation and amortization.... (3,569) (994) (285) (1,276) (2,161) (1,738)
Depreciation and amortization...... -- (212) (279) (305) (315) (84)
Corporate general and
administrative................... -- -- -- -- (70) --
Merger expense..................... -- -- -- -- -- --
Restructuring charge............... -- -- -- -- -- --
Stock option compensation.......... -- -- -- -- -- --
Profit participation fee........... -- -- -- -- -- --
------- ------- ----- ------- ------- -------
Operating income (loss)............ (3,190) 16 90 437 (1,024) 630
Interest expense................... -- -- -- -- -- --
Interest income.................... -- -- -- -- -- --
Gain on disposition of assets...... -- -- -- -- -- --
Other (income) expense............. -- -- -- -- -- --
------- ------- ----- ------- ------- -------
Income (loss) before income
taxes............................ (3,190) 16 90 437 (1,024) 630
Income tax expense (benefit)....... -- -- -- -- (260) --
Dividends and accretion on
preferred stock of subsidiary.... -- -- -- -- -- --
------- ------- ----- ------- ------- -------
Net income (loss).................. (3,190) 16 90 437 (764) 630
Preferred stock dividends.......... -- -- -- -- -- --
------- ------- ----- ------- ------- -------
Income (loss) attributable to
common stockholders.............. $(3,190) $ 16 $ 90 $ 437 $ (764) $ 630
======= ======= ===== ======= ======= =======
Basic and diluted income (loss) per
common share.....................
Weighted average common shares
outstanding(ii)..................
<CAPTION>
DISPOSITIONS
----------------------------------------------------------------------------------------------
WBAB-FM
WBZS-AM WBLI-FM
WZHF-AM WGBB-AM
KDFC-FM KDFC-AM BONNEVILLE WFLN-FM WHFM-FM
HISTORICAL HISTORICAL WLUP-FM OPTION HISTORICAL HISTORICAL
1/1 - 1/1 - HISTORICAL HISTORICAL 1/1 - 1/1 -
YEAR ENDED DECEMBER 31, 1997 1/31(u) 8/13(v) 1/1 - 7/14(e) 1/1 - 10/1(i) 4/30(w) 12/31(x)
- ---------------------------- ------------- ------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues..................... $(278) $(1,091) $(6,928) $(31,429) $(1,298) $(12,794)
Less: agency commissions........... 26 23 935 3,951 134 1,459
----- ------- ------- -------- ------- --------
Net revenues....................... (252) (1,068) (5,993) (27,478) (1,164) (11,335)
Operating expenses excluding
depreciation and amortization.... (224) (665) (5,642) (14,434) (728) (8,048)
Depreciation and amortization...... -- (54) (1,443) -- (800) --
Corporate general and
administrative................... -- (18) -- -- -- --
Merger expense..................... -- -- -- -- -- --
Restructuring charge............... -- -- -- -- -- --
Stock option compensation.......... -- -- -- -- -- --
Profit participation fee........... -- -- -- -- -- --
----- ------- ------- -------- ------- --------
Operating income (loss)............ (28) (331) 1,092 (13,044) 364 (3,287)
Interest expense................... -- -- -- (1) -- --
Interest income.................... -- -- -- 10 -- --
Gain on disposition of assets...... -- -- -- -- -- --
Other (income) expense............. -- -- -- -- -- --
----- ------- ------- -------- ------- --------
Income (loss) before income
taxes............................ (28) (331) 1,092 (13,053) 364 (3,287)
Income tax expense (benefit)....... -- (98) -- -- -- --
Dividends and accretion on
preferred stock of subsidiary.... -- -- -- -- -- --
----- ------- ------- -------- ------- --------
Net income (loss).................. (28) (233) 1,092 (13,053) 364 (3,287)
Preferred stock dividends.......... -- -- -- -- -- --
----- ------- ------- -------- ------- --------
Income (loss) attributable to
common stockholders.............. $ (28) $ (233) $ 1,092 $(13,053) $ 364 $ (3,287)
===== ======= ======= ======== ======= ========
Basic and diluted income (loss) per
common share.....................
Weighted average common shares
outstanding(ii)..................
<CAPTION>
COMPANY AS
ADJUSTED FOR
PRO FORMA COMPLETED
YEAR ENDED DECEMBER 31, 1997 ADJUSTMENTS TRANSACTIONS
- ---------------------------- ----------- ------------
<S> <C> <C>
Gross revenues..................... $ (17,651)(y) $1,411,160
(843)(z)
Less: agency commissions........... -- (154,451)
--------- ----------
Net revenues....................... (18,494) 1,256,709
Operating expenses excluding
depreciation and amortization.... (14,395)(y) 704,936
Depreciation and amortization...... (2,677)(y) 464,160
154,167(aa)
51,788(bb)
Corporate general and
administrative................... -- 45,669
Merger expense..................... (6,124)(dd) --
Restructuring charge............... -- 15,958
Stock option compensation.......... -- 3,083
Profit participation fee........... (2,322)(ee) --
--------- ----------
Operating income (loss)............ (198,931) 22,903
Interest expense................... (579)(y) 349,584
169,272(ff)
Interest income.................... -- (3,188)
Gain on disposition of assets...... -- (18,380)
Other (income) expense............. -- (1,216)
--------- ----------
Income (loss) before income
taxes............................ (367,624) (303,897)
Income tax expense (benefit)....... (131,828)(gg) (108,107)
Dividends and accretion on
preferred stock of subsidiary.... (40,222)(hh) --
--------- ----------
Net income (loss).................. (195,574) (195,790)
Preferred stock dividends.......... -- 17,446
--------- ----------
Income (loss) attributable to
common stockholders.............. $(195,574) $ (213,236)
========= ==========
Basic and diluted income (loss) per
common share..................... $ (1.64)
==========
Weighted average common shares
outstanding(ii).................. 34,617 130,253
========= ==========
</TABLE>
P-13
<PAGE> 206
<TABLE>
<CAPTION>
ACQUISITIONS
---------------------------------------------------------------------------------------
MARTIN AS
ADJUSTED FOR
COMPLETED PRIMEDIA WHITECO CLEVELAND
KODA-FM WWDC-FM/AM MARTIN ACQUISITION ACQUISITION ACQUISITIONS
NINE MONTHS ENDED COMPANY HISTORICAL HISTORICAL TRANSACTIONS HISTORICAL HISTORICAL HISTORICAL
SEPTEMBER 30, 1998 HISTORICAL 1/1-5/29 (j) 1/1-6/1 (k) 1/1-7/31 (l) 1/1-9/30 (m) 1/1-9/30 (n) 1/1-9/30 (o)
------------------ ---------- ------------ ----------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross revenues....... $1,015,562 $ 9,132 $4,273 $54,186 $11,749 $103,694 $27,008
Less: agency
commissions......... (116,466) (1,250) (528) (5,768) (3,070) (7,191) (3,539)
---------- ------- ------ ------- ------- -------- -------
Net revenues......... 899,096 7,882 3,745 48,418 8,679 96,503 23,469
Operating expenses
excluding
depreciation and
amortization........ 491,924 2,771 2,158 23,171 4,954 49,625 12,696
Depreciation and
amortization........ 315,772 841 45 15,083 2,158 8,760 174
Corporate general and
administrative...... 25,188 -- -- 1,035 317 5,193 --
Executive severance
charge.............. 59,475 -- -- -- -- -- --
Profit participation
fee................. -- -- -- -- -- 1,756 --
---------- ------- ------ ------- ------- -------- -------
Operating income
(loss).............. 6,737 4,270 1,542 9,129 1,250 31,169 10,599
Interest expense..... 145,992 -- 62 11,057 1,679 98 156
Interest income...... (10,283) -- (18) (261) -- (32) (46)
Gain on disposition
of representation
contracts........... (29,767) -- -- -- -- -- --
Other (income)
expense............. (127,404) -- (49) 5,461 23 (820) 873
---------- ------- ------ ------- ------- -------- -------
Income (loss) before
income taxes........ 28,199 4,270 1,547 (7,128) (452) 31,923 9,616
Income tax expense
(benefit)........... 32,507 -- -- -- -- -- --
Dividends on
preferred stock of
subsidiary.......... 17,601 -- -- -- -- -- --
---------- ------- ------ ------- ------- -------- -------
Net income (loss).... (21,909) 4,270 1,547 (7,128) (452) 31,923 9,616
Preferred stock
dividends........... 19,252 -- -- -- -- -- --
---------- ------- ------ ------- ------- -------- -------
Income (loss)
attributable to
common
stockholders........ $ (41,161) $ 4,270 $1,547 $(7,128) $ (452) 31,923 $ 9,616
========== ======= ====== ======= ======= ======== =======
Basic and diluted
income (loss) per
common share........ $ (0.30)
==========
Weighted average
common shares
outstanding(ii)..... 136,427
==========
<CAPTION>
DISPOSITIONS
------------
WBAB-FM
WBLI-FM
WGBB-AM COMPANY
WHFM-FM AS ADJUSTED FOR
NINE MONTHS ENDED HISTORICAL PRO FORMA COMPLETED
SEPTEMBER 30, 1998 1/1-5/29 (x) ADJUSTMENTS TRANSACTIONS
------------------ ------------ ----------- ---------------
<S> <C> <C> <C>
Gross revenues....... $(5,063) $ -- $1,220,541
Less: agency
commissions......... 514 -- (137,298)
------- --------- ----------
Net revenues......... (4,549) -- 1,083,243
Operating expenses
excluding
depreciation and
amortization........ (3,331) -- 583,968
Depreciation and
amortization........ -- 20,409(aa) 399,271
36,029(bb)
Corporate general and
administrative...... -- (570)(cc) 31,163
Executive severance
charge.............. -- -- 59,475
Profit participation
fee................. -- (1,756)(ee) --
------- --------- ----------
Operating income
(loss).............. (1,218) (54,112) 9,366
Interest expense..... -- 103,144(ff) 262,188
Interest income...... -- -- (10,640)
Gain on disposition
of representation
contracts........... -- -- (29,767)
Other (income)
expense............. -- -- (121,916)
------- --------- ----------
Income (loss) before
income taxes........ (1,218) (157,256) (90,499)
Income tax expense
(benefit)........... -- (55,869)(gg) (23,362)
Dividends on
preferred stock of
subsidiary.......... -- (17,601)(hh) --
------- --------- ----------
Net income (loss).... (1,218) (83,786) (67,137)
Preferred stock
dividends........... -- -- 19,252
------- --------- ----------
Income (loss)
attributable to
common
stockholders........ $(1,218) $ (83,786) $ (86,389)
======= ========= ==========
Basic and diluted
income (loss) per
common share........ $ (0.63)
==========
Weighted average
common shares
outstanding(ii)..... 136,427
==========
</TABLE>
P-14
<PAGE> 207
- -------------------------
(a) On May 1, 1997, the Company acquired, in the Beasley Acquisition,
WDAS-FM/AM in Philadelphia for $103,000 in cash plus various other direct
acquisition costs.
(b) On May 15, 1997, the Company exchanged, in the EZ Exchange, 5 of its 6
stations in the Charlotte market (WPEG-FM, WBAV-FM/AM, WRFX-FM and WFNZ-AM)
for WUSL-FM and WIOQ-FM in Philadelphia.
(c) On July 2, 1997, the Company acquired, in the Evergreen Viacom Acquisition,
WLTW-FM and WAXQ-FM in New York and WMZQ-FM, WJZW-FM, WZHF-AM, and WBZS-AM
in Washington, D.C. for approximately $612,388 in cash including various
other direct acquisition costs. The Evergreen Viacom Acquisition was
financed with (i) bank borrowings under the senior credit facility of
$552,559; (ii) $53,750 in escrow funds paid by the Company on February 19,
1997 and (iii) $6,079 financed through working capital. In June 1997, the
Company issued 5,990,000 shares of $3.00 convertible exchangeable preferred
stock for net proceeds of approximately $287,800 which were used to repay
borrowings under the senior credit facility and subsequently were
reborrowed on July 2, 1997 as part of the financing of the Evergreen Viacom
Acquisition. On July 7, 1997, the Company sold WJZW-FM in Washington, D.C.
to affiliates of Capital Cities/ABC Radio for $68,000 in cash. The assets
of WJZW-FM, as well as the assets of WZHF-AM and WBZS-AM, which were sold
on August 13, 1997, were accounted for as assets held for sale in
connection with the purchase price allocation of the Viacom Acquisition and
no gain or loss was recognized by the Company upon consummation of the
sales (see 8(s) and 8(v)).
(d) On September 5, 1997, pursuant to an Amended and Restated Agreement and
Plan of Merger, dated as of February 19, 1997 and amended and restated on
July 31, 1997 (the "Chancellor Media Merger Agreement"), among Chancellor,
Chancellor Radio Broadcasting Company ("CRBC"), Evergreen Media Corporation
("Evergreen"), Evergreen Mezzanine Holdings Corporation ("EMHC") and
Evergreen Media Corporation of Los Angeles ("EMCLA"), (i) Chancellor was
merged with and into EMHC, a direct, wholly-owned subsidiary of Evergreen,
with EMHC remaining as the surviving corporation and (ii) CRBC was merged
with and into EMCLA, a direct, wholly-owned subsidiary of EMHC, with EMCLA
remaining as the surviving corporation (collectively, the "Chancellor
Merger"). Upon consummation of the transactions, Evergreen was renamed
Chancellor Media Corporation and EMHC was renamed Chancellor Mezzanine
Holdings Corporation ("CMHC"), and EMCLA was renamed CMCLA. Consummation of
the Chancellor merger added 52 radio stations (36 FM and 16 AM) to the
Company's portfolio of stations, including 13 stations in markets in which
the Company previously operated. The total purchase price allocated to net
assets acquired was approximately $1,998,383 which included (i) the
conversion of each outstanding share of Chancellor Media common stock into
0.9091 shares of Chancellor Media common stock, resulting in the issuance
of 34,617,460 shares of Chancellor Media common stock at $15.50 per share,
(ii) the assumption of long-term debt of CRBC of $949,000 which included
$549,000 of borrowings outstanding under the CRBC senior credit facility,
$200,000 of CRBC's 9 3/8% senior subordinated notes due 2004 and $200,000
of CRBC's 8 3/4% senior subordinated notes due 2007, (iii) the issuance of
2,117,629 shares of CMCLA's 12% exchangeable preferred stock in exchange
for CRBC's substantially identical securities with a fair value of $215,570
including accrued and unpaid dividends of $3,807, (iv) the issuance of
1,000,000 shares of CMCLA's 12 1/4% series A senior cumulative exchangeable
preferred stock in exchange for CRBC's substantially identical securities
with a fair value of $120,217 including accrued and unpaid dividends of
$772, (v) the issuance of 2,200,000 shares of the Company's 7% convertible
preferred stock in exchange for Chancellor Media's substantially identical
securities with a fair value of $111,048 including accrued and unpaid
dividends of $1,048, (vi) the assumption of stock options issued to
Chancellor stock option holders with a fair value of $34,977 and (vii)
estimated acquisition costs of $31,000.
P-15
<PAGE> 208
Chancellor's historical condensed combined statement of operations for the
year ended December 31, 1997 and pro forma adjustments related to the
transactions completed by Chancellor prior to the Chancellor merger (the
"Completed Chancellor Transactions") is summarized below:
<TABLE>
<CAPTION>
ACQUISITIONS DISPOSITIONS
------------------------- ------------- PRO FORMA CHANCELLOR
CHANCELLOR ADJUSTMENTS AS ADJUSTED
VIACOM FOR THE FOR
CHANCELLOR COLFAX ACQUISITION WDRQ-FM COMPLETED COMPLETED
YEAR ENDED HISTORICAL HISTORICAL HISTORICAL HISTORICAL CHANCELLOR CHANCELLOR
DECEMBER 31, 1997 1/1-9/5 1/1-1/23(i) 1/1-7/2(ii) 1/1-8/11(iii) TRANSACTIONS TRANSACTIONS
----------------- ---------- ----------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues........................ $215,018 $3,183 $29,214 $(2,395) $ (3,539)(iv) $241,481
Less: agency commissions.............. (26,575) (384) (4,046) 251 -- (30,754)
-------- ------ ------- ------- -------- --------
Net revenues.......................... 188,443 2,799 25,168 (2,144) (3,539) 210,727
Operating expenses excluding
depreciation and amortization....... 110,548 1,872 13,326 (1,986) (4,432)(iv) 119,328
Depreciation and amortization......... 23,919 -- 2,370 (186) 4,484(v) 30,505
(82)(vi)
Corporate general and
administrative...................... 7,102 -- 520 (42) -- 7,580
Merger expense........................ 6,124 -- -- -- -- 6,124
Stock option compensation............. 3,083 -- -- -- -- 3,083
-------- ------ ------- ------- -------- --------
Operating income (loss)............... 37,667 927 8,952 70 (3,509) 44,107
Interest expense...................... 40,024 -- 3,178 -- 13,398(vii) 56,600
Interest income....................... (218) -- -- -- -- (218)
Other income.......................... (584) -- -- -- -- (584)
-------- ------ ------- ------- -------- --------
Income (loss) before income taxes..... (1,555) 927 5,774 70 (16,907) (11,691)
Income tax expense (benefit).......... 1,378 -- 1,558 18 (4,630)(viii) (1,676)
Dividends and accretion on preferred
stock of subsidiary................. 25,817 -- -- -- 1,504(ix) 27,321
-------- ------ ------- ------- -------- --------
Net income (loss)..................... (28,750) 927 4,216 52 (13,781) (37,336)
Preferred stock dividends............. 4,810 -- -- -- 471(x) 5,281
-------- ------ ------- ------- -------- --------
Income (loss) attributable to common
stock............................... $(33,560) $ 927 $ 4,216 $ 52 $(14,252) $(42,617)
======== ====== ======= ======= ======== ========
</TABLE>
- -------------------------
(i) On January 23, 1997, Chancellor acquired Colfax Communications, a radio
broadcasting company, with 12 radio stations (8 FM and 4 AM) located in 4
markets (Minneapolis-St. Paul, Phoenix, Washington, D.C. and Milwaukee
markets). The total purchase price, including acquisition costs, allocated
to net assets acquired was approximately $383,700. The acquisition of
Colfax was financed through (i) a private placement by CRBC of $200,000 of
12% exchangeable preferred stock for net proceeds of $191,817; (ii) a
private placement by Chancellor of $110,000 of 7% convertible preferred
stock for net proceeds of $105,546; (iii) additional bank borrowings under
CRBC's previous senior credit agreement of $65,937 and (iv) $20,400 in
escrow funds. On March 31, 1997, Chancellor sold WMIL-FM and WOKY-AM in
Milwaukee for $41,253 in cash. The assets of WMIL-FM and WOKY-AM are
classified as assets held for sale in connection with the purchase price
allocation of the acquisition of Colfax. Accordingly, WMIL-FM and WOKY-AM
net income of approximately $41 for the period January 23, 1997 through
March 31, 1997 has been excluded from the Colfax historical condensed
statement of operations for the year ended December 31, 1997.
(ii) On July 2, 1997, Chancellor acquired, in the Chancellor Viacom Acquisition,
KIBB-FM and KYSR-FM in Los Angeles, WLIT-FM in Chicago and WDRQ-FM in
Detroit for approximately $500,789 in cash including various other direct
acquisition costs. The Chancellor Viacom Acquisition was financed
P-16
<PAGE> 209
with (i) bank borrowings of $273,159 under CRBC's restated senior credit
agreement, dated July 2, 1997; (ii) borrowings under an interim loan (the
"Chancellor Broadcasting/Viacom Interim Financing") of $168,300; (iii)
escrow funds of $53,750 paid by Chancellor on February 19, 1997 and (iv)
$5,580 financed through working capital. The assets of WDRQ-FM in Detroit
are classified as assets held for sale in connection with the purchase
price allocation of the Chancellor Viacom Acquisition (see (iii) below).
(iii)On August 11, 1997, Chancellor sold, in the ABC/Detroit Disposition,
WDRQ-FM in Detroit for $37,000 in cash. The assets of WDRQ-FM were
classified as assets held for sale in connection with the purchase price
allocation of the Chancellor Viacom Acquisition (see 8(d)(ii)).
Accordingly, WDRQ-FM net income for the period July 2, 1997 to August 11,
1997 has been excluded from Chancellor's historical condensed statement of
operations.
(iv) Reflects the elimination of time brokerage agreement fees received and paid
by Chancellor as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 MARKET PERIOD REVENUE EXPENSE
---------------------------- ------ ------ ------- -------
<S> <C> <C> <C> <C>
WWWW-FM/WDFN-AM(1).......................................... Detroit 1/1-1/31 $ (235) $ (16)
WOMX-FM, WXXL-FM, WJHM-FM(2)................................ Orlando 1/1-2/13 -- (911)
WEAT-FM/AM, WOLL-FM(2)...................................... West Palm Beach 1/1-3/28 (593) (304)
WAPE-FM, WFYV-FM(3)......................................... Jacksonville 1/1-9/5 (2,711) (490)
WBAB-FM, WBLI-FM, WGBB-AM, WHFM-FM(3)....................... Long Island 1/1-9/5 -- (2,711)
------- -------
Total adjustment for decrease in gross revenues and
expenses.............................................. $(3,539) $(4,432)
======= =======
</TABLE>
- -------------------------
(1) On January 31, 1997, Chancellor sold WWWW-FM and WDFN-AM in Detroit to
the Company for $30,000 in cash. Prior to the completion of the sale,
Chancellor had entered into a joint sales agreement effective February
14, 1996 and a time brokerage agreement effective April 1, 1996 to sell
substantially all of the broadcast time of WWWW-FM and WDFN-AM to the
Company pending the completion of the sale.
(2) On February 13, 1997, Chancellor acquired substantially all of the
assets and assumed certain liabilities of the OmniAmerica Group
including WOMX-FM, WXXL-FM and WJHM-FM in Orlando, WEAT-FM/AM and
WOLL-FM in West Palm Beach, Florida and WAPE-FM AND WFYV-FM in
Jacksonville. The total purchase price, including acquisition costs,
allocated to net assets acquired was approximately $181,046. Prior to
the consummation of the acquisition of Omni, Chancellor had entered
into an agreement to program the stations under a time brokerage
agreement effective July 1, 1996. Additionally, prior to the
consummation of Chancellor's exchange of WEAT-FM/AM and WOLL-FM in West
Palm Beach for KSTE-FM in Sacramento and $33,000 in cash on March 28,
1997, Chancellor entered into time brokerage agreements to sell
substantially all of the broadcast time of WEAT-FM/AM and WOLL-FM in
West Palm Beach and WAPE-FM and WFYV-FM in Jacksonville effective July
1, 1996.
(3) On July 1, 1996, Chancellor entered into an agreement to exchange, in
the SFX Exchange, WAPE-FM and WFYV-FM in Jacksonville, Florida, and
$11,000 in cash to SFX for WBAB-FM, WBLI-FM, WGBB-AM, and WHFM-FM in
Long Island. Chancellor entered into time brokerage agreements to
program WBAB-FM, WBLI-FM, WGBB-AM, and WHFM-FM effective July 1, 1996
and entered into time brokerage agreements to sell substantially all of
the broadcast time of WAPE-FM and WFYV-FM effective July 1, 1996. On
November 6, 1997, the DOJ filed suit against the Company seeking to
enjoin under the HSR Act the acquisition of the four Long Island
properties under the SFX Exchange. On March 30, 1998, the Company and
SFX entered into a consent decree under which the Company and SFX
agreed that the SFX Exchange would not be consummated and that the time
brokerage agreements under which the Company programmed the Long Island
properties would be terminated as soon as possible but no later than
August 1, 1998. On May 29, 1998, the Company's time brokerage
agreements
P-17
<PAGE> 210
regarding the Long Island properties were terminated as part of the
Capstar/SFX Transaction. Furthermore, on May 29, 1998, the Company
exchanged WAPE-FM and WFYV-FM in Jacksonville plus $90,250 in cash to
Capstar in return for KODA-FM in Houston.
(v) Reflects incremental amortization related to the Completed Chancellor
Transactions and is based on the following allocation to intangible assets:
<TABLE>
<CAPTION>
INCREMENTAL HISTORICAL ADJUSTMENT
AMORTIZATION INTANGIBLE AMORTIZATION AMORTIZATION FOR NET
YEAR ENDED DECEMBER 31, 1997 PERIOD ASSETS, NET EXPENSE(1) EXPENSE INCREASE
---------------------------- ------------ ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Omni............................... 1/1-2/13 $171,837 $ 525 $ -- $ 525
Colfax............................. 1/1-1/23 317,894 508 -- 508
KSTE-FM............................ 1/1-3/28 (32,475) (198) -- (198)
Chancellor Viacom Acquisition...... 1/1-7/2 451,690 5,709 2,060 3,649
-------- ------ ------ ------
Total.................... $908,946 $6,544 $2,060 $4,484
======== ====== ====== ======
</TABLE>
- -------------------------
(1) Intangible assets consisting of broadcast licenses, goodwill and
advertising contracts were amortized on a straight-line basis over
lives ranging from two to 40 years by Chancellor. In connection with
purchase accounting for the Chancellor merger, intangible assets are
amortized over an estimated average life of 15 years in accordance with
the Company's accounting policies and procedures.
Historical depreciation expense of the Completed Chancellor Transactions is
assumed to approximate depreciation expense on a pro forma basis. Actual
depreciation and amortization may differ based upon final purchase price
allocations.
(vi) Reflects the elimination of disposed stations' historical depreciation and
amortization expense of $82 for the year ended December 31, 1997
(WWWW-FM/WDFN-AM for the period of January 1, 1997 to January 31, 1997)
recognized by Chancellor during the time brokerage agreement holding
period.
(vii)Reflects the adjustment to interest expense in connection with the
consummation of the Completed Chancellor Transactions, the issuance by
Chancellor of its 12 1/4% series A senior cumulative exchangeable preferred
stock, the refinancing of Chancellor's previous senior credit agreement on
January 23, 1997 and the offering on June 24, 1997 by Chancellor of $200.0
million aggregate principal amount of its 8 3/4% Senior Notes due 2007:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Additional bank borrowings related to:
Completed Chancellor Acquisitions......................... $727,192
Completed Chancellor Dispositions......................... (141,253)
New Loan Fees............................................. 8,573
--------
Total additional bank borrowings............................ $594,512
========
Interest expense on additional bank borrowings at 7 1/2%.... $ 16,118
Less: historical interest expense of the stations acquired
in the Completed Chancellor Transactions.................. (3,178)
--------
Net increase in interest expense............................ 12,940
</TABLE>
P-18
<PAGE> 211
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Reduction in interest expense on bank debt related to the
application of net proceeds of the following at 7 1/2%:
Chancellor 8 3/4% Senior Subordinated Notes due 2007
proceeds of $194,083 for the period January 1, 1997 to
June 24, 1997............................................. (7,036)
Reduction in interest expense resulting from the redemption
of Chancellor's 12 1/2% Senior Subordinated Notes of
$60,000 on June 5, 1997................................... (3,229)
Interest expense on $70,133 additional bank borrowings at
7 1/2% related to the redemption of Chancellor's 12 1/2%
Senior Subordinated Notes on June 5, 1997................. 2,265
Interest expense on Chancellor's $200,000 8 3/4% notes
issued June 24, 1997...................................... 8,458
--------
Total adjustment for net increase in interest expense....... $ 13,398
========
</TABLE>
(viii)
Reflects the income tax benefit related to pro forma adjustments. The
adjustment to income taxes reflects the application of the estimated
effective tax rate on a pro forma basis to income (loss) before income
taxes for historical and pro forma adjustment amounts.
(ix) Reflects incremental dividends and accretion of $1,504 on CRBC's 12%
exchangeable preferred stock for the period January 1, 1997 to January 23,
1997.
(x) Reflects incremental dividends on the Chancellor's 7% convertible preferred
stock of $471 for the period January 1, 1997 to January 23, 1997.
(e) On July 14, 1997, the Company completed the disposition of WLUP-FM in
Chicago to Bonneville for net proceeds of $80,000 which were held by a
qualified intermediary pending the completion of the deferred exchange of
WLUP-FM for KZPS-FM and KDGE-FM in Dallas. On October 7, 1997, the Company
applied the net proceeds from the disposition of WLUP-FM of $80,000 in
cash, plus an additional $3,500 and various other direct acquisition costs,
in a deferred exchange of WLUP-FM for KZPS-FM and KDGE-FM in Dallas. The
Company had previously operated KZPS-FM and KDGE-FM under time brokerage
agreements effective August 1, 1997.
(f) On October 28, 1997, the Company acquired Katz Media Group, Inc., a
full-service media representation firm, in a tender offer transaction for a
total purchase price of approximately $379,101 which included (i) the
conversion of each outstanding share of Katz common stock into the right to
receive $11.00 in cash, resulting in total cash payments of $149,601, (ii)
the assumption of long-term debt of Katz and its subsidiaries of $222,000
which included $122,000 of borrowings outstanding under the Katz senior
credit facility and $100,000 of the 10 1/2% Notes and (iii) estimated
acquisition costs of $7,500.
(g) On December 29, 1997, the Company acquired, in the Gannett Acquisition, 5
radio stations in 3 major markets from P&S, including WGCI-FM/AM in
Chicago, KHKS-FM in Dallas, and KKBQ-FM/AM in Houston for $340,000 in cash
plus various other direct acquisition costs.
(h) On January 30, 1998, the Company acquired, in the Denver Acquisition,
KXPK-FM in Denver from Ever Green Wireless LLC (which is unrelated to the
Company) for $26,000 in cash (including $1,650 paid by Chancellor in
escrow) plus various other direct acquisition costs. The Company had
previously been programming KXPK-FM under a time brokerage agreement since
September 1, 1997.
(i) On April 3, 1998, the Company exchanged WTOP-FM in Washington, KZLA-FM in
Los Angeles and WGMS-FM in Washington plus $57,000 in cash for Bonneville's
stations WBIX-FM in New York, KLDE-FM in Houston and KBIG-FM in Los Angeles
(the "Bonneville Option"). The Company had previously paid $3,000 in cash
to Bonneville on August 6, 1997. The Company had previously entered into
time brokerage agreements to program KLDE-FM and KBIG-FM effective October
1, 1997 and WBIX-FM effective October 10, 1997 and had entered into time
brokerage agreements to sell substantially all of the broadcast time of
WTOP-AM, KZLA-FM and WGMS-FM effective October 1, 1997.
P-19
<PAGE> 212
(j) On February 20, 1998, the Company entered into an agreement to acquire from
Capstar KTXQ-FM and KBFB-FM in Dallas/Ft. Worth, KODA-FM, KKRW-FM and
KQUE-AM in Houston, KPLN-FM and KYXY-FM in San Diego and WVTY-FM, WJJJ-FM,
WXDX-FM and WDVE-FM in Pittsburgh (collectively, the "Capstar/SFX
Stations") for an aggregate purchase price of approximately $637,500 plus
various other direct acquisition costs in a series of purchases and
exchanges over a period of three years (the "Capstar/SFX Transaction"). The
Capstar/SFX Stations were acquired by Capstar as part of Capstar's
acquisition of SFX on May 29, 1998. On May 29, 1998, as part of the
Capstar/SFX Transaction, the Company exchanged WAPE-FM and WFYV-FM in
Jacksonville (valued for purposes of the Capstar/SFX Transaction at
$53,000) plus $90,250 in cash to Capstar in return for KODA-FM in Houston
(the "Houston Exchange"). Chancellor entered into a time brokerage
agreement to sell substantially all of the broadcast time of WAPE-FM and
WFYV-FM effective July 1, 1996 (see 8 (d) (iv) (3)). Therefore, the results
of operations of WAPE-FM and WFYV-FM are not included in the Company's
historical condensed statements of operations for the year ended December
31, 1997 and the nine months ended September 30, 1998.
(k) On June 1, 1998, the Company acquired WWDC-FM/AM in Washington, D.C. from
Capitol Broadcasting Company and its affiliates for $74,062 in cash
(including $2,062 for the purchase of the stations' accounts receivable)
plus various other direct acquisition costs, of which $4,000 was previously
paid by the Company as escrow funds.
(l) On July 31, 1998, the Company acquired Martin Media and certain affiliated
companies, an outdoor advertising company with over 14,500 billboards and
outdoor displays in 12 states serving 23 markets, for $591,674 in cash plus
working capital of $19,443 subject to certain adjustments and direct
acquisition costs of approximately $10,000.
Martin's historical condensed combined statements of operations for the
year ended December 31, 1997 and the nine months ended September 30, 1998
and pro forma adjustments related to the significant transactions completed
by Martin prior to the acquisition of Martin (the "Completed Martin
Transactions") are summarized below. The pro forma adjustments for the
acquisition of Martin do not reflect certain acquisitions of assets by
Martin with an aggregate purchase price of approximately $17,000 which, in
the opinion of the Company's management is not material to such pro forma
presentations either individually or in the aggregate.
P-20
<PAGE> 213
<TABLE>
<CAPTION>
MARTIN LAS VEGAS NEWMAN
ACQUISITION KUNZ CONNELL OUTDOOR OUTDOOR POA
HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL
YEAR ENDED DECEMBER 31, 1997 1/1-12/31 1/1-7/31(i) 1/1-12/23(ii) 1/1-12/31(iii) 1/1-12/31(iv) 1/1-12/31(v)
---------------------------- ----------- ------------ ------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues..................... $70,044 $5,569 $3,459 $1,840 $2,400 $1,570
Less: agency commissions........... (7,894) -- (413) (181) (180) (315)
------- ------ ------ ------ ------ ------
Net revenues....................... 62,150 5,569 3,046 1,659 2,220 1,255
Operating expenses excluding
depreciation and amortization.... 31,196 2,318 1,553 1,353 1,628 788
Depreciation and amortization...... 12,084 281 518 30 279 --
Corporate general and
administrative................... 2,334 80 91 -- -- --
------- ------ ------ ------ ------ ------
Operating income (loss)............ 16,536 2,890 884 276 313 467
Interest expense................... 10,507 -- -- -- 243 --
Interest income.................... (293) -- -- -- -- --
Other expense...................... 1,737 -- -- -- 30 --
------- ------ ------ ------ ------ ------
Net income (loss).................. $ 4,585 $2,890 $ 884 $ 276 $ 40 $ 467
======= ====== ====== ====== ====== ======
<CAPTION>
PRO FORMA
ADJUSTMENTS MARTIN AS
FOR THE ADJUSTED
COMPLETED FOR COMPLETED
MARTIN MARTIN
YEAR ENDED DECEMBER 31, 1997 TRANSACTIONS TRANSACTIONS
---------------------------- ------------- -------------
<S> <C> <C>
Gross revenues..................... $ -- $84,882
Less: agency commissions........... -- (8,983)
--------- -------
Net revenues....................... -- 75,899
Operating expenses excluding
depreciation and amortization.... -- 38,836
Depreciation and amortization...... 12,134(vi) 25,326
Corporate general and
administrative................... (1,425)(vii) 1,080
--------- -------
Operating income (loss)............ (10,709) 10,657
Interest expense................... 6,263(viii) 17,013
Interest income.................... -- (293)
Other expense...................... -- 1,767
--------- -------
Net income (loss).................. $ (16,972) $(7,830)
========= =======
</TABLE>
P-21
<PAGE> 214
<TABLE>
<CAPTION>
PRO FORMA MARTIN AS
ADJUSTMENTS ADJUSTED
MARTIN FOR THE FOR
ACQUISITION POA COMPLETED COMPLETED
HISTORICAL HISTORICAL MARTIN MARTIN
NINE MONTHS ENDED SEPTEMBER 30, 1998 1/1-7/31 1/1-7/9(v) TRANSACTIONS TRANSACTIONS
------------------------------------ ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Gross revenues................................... $53,285 $ 901 $ -- $54,186
Less: agency commissions......................... (5,612) (156) -- (5,768)
------- ----- ------ -------
Net revenues..................................... 47,673 745 -- 48,418
Operating expenses excluding depreciation and
amortization................................... 22,671 500 -- 23,171
Depreciation and amortization.................... 14,694 88 301(vi) 15,083
Corporate general and administrative............. 3,030 -- (1,995)(vii) 1,035
------- ----- ------ -------
Operating income (loss).......................... 7,278 157 1,694 9,129
Interest expense................................. 10,781 1 275(viii) 11,057
Interest income.................................. (261) -- -- (261)
Other (income) expense........................... 5,448 13 -- 5,461
------- ----- ------ -------
Net income (loss)................................ $(8,690) $ 143 $1,419 $(7,128)
======= ===== ====== =======
</TABLE>
- -------------------------
(i) On July 31, 1997, Martin acquired approximately 500 display faces of the
Kunz Outdoor Advertising division from Kunz & Company, an outdoor
advertising company with approximately 1,500 billboards and outdoor
displays in five markets, for $20,500 in cash plus various other direct
acquisition costs.
(ii) On December 23, 1997, Martin acquired Connell Outdoor Advertising Co., an
outdoor advertising company with 88 billboards and outdoor displays in the
Las Vegas market, for $30,000 in cash plus various other direct acquisition
costs.
(iii)On January 2, 1998, Martin acquired Las Vegas Outdoor Advertising, Inc., an
outdoor advertising company with 90 billboards and outdoor displays in the
Las Vegas market, for $16,800 in cash plus various other direct acquisition
costs.
(iv) On January 2, 1998, Martin acquired Newman Outdoor of Texas, Inc., an
outdoor advertising company with over 1,200 billboards and outdoor displays
in three markets, for $12,500 in cash plus various other direct acquisition
costs.
(v) On July 9, 1998, Martin acquired POA, an outdoor advertising company with
over 1,240 billboards and outdoor displays in the Pittsburgh market, for
$5,867 in cash plus various other direct acquisition costs.
(vi) Reflects incremental amortization related to the Completed Martin
Transactions and is based on the following allocation to intangible assets:
<TABLE>
<CAPTION>
INCREMENTAL HISTORICAL ADJUSTMENT
AMORTIZATION INTANGIBLE AMORTIZATION AMORTIZATION FOR NET
YEAR ENDED DECEMBER 31, 1997 PERIOD ASSETS, NET EXPENSE(1) EXPENSE INCREASE
- ---------------------------- ------------ ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Kunz Acquisition.............. 1/1-7/31 $17,260 $ 2,014 $ 42 $ 1,972
Connell Acquisition........... 1/1-12/23 25,650 5,030 373 4,657
Las Vegas Outdoor
Acquisition................. 1/1-12/31 14,408 2,882 -- 2,882
Newman Acquisition............ 1/1-12/31 10,249 2,050 -- 2,050
POA Acquisition............... 1/1-12/31 2,867 573 -- 573
------- ------- ---- -------
Total............... $70,434 $12,549 $415 $12,134
======= ======= ==== =======
</TABLE>
P-22
<PAGE> 215
<TABLE>
<CAPTION>
INCREMENTAL HISTORICAL ADJUSTMENT
AMORTIZATION INTANGIBLE AMORTIZATION AMORTIZATION FOR NET
NINE MONTHS ENDED SEPTEMBER 30, 1998 PERIOD ASSETS, NET EXPENSE(1) EXPENSE INCREASE
- ------------------------------------ ------------ ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
POA Acquisition.................. 1/1-7/9 $ 2,867 $301 $-- $301
======= ==== === ====
</TABLE>
- ---------------
(1) Intangible assets were amortized on a straight-line basis over an
estimated average 5 year life by Martin.
Historical depreciation expense of the Completed Martin Transactions is
assumed to approximate depreciation expense on a pro forma basis. Actual
depreciation and amortization may differ based upon final purchase price
allocations.
(vii)On July 31, 1997, Martin paid $6,000 to Kunz for an option to purchase
approximately 1,000 display faces from its Kunz Outdoor Advertising
division for $33,289 in cash plus various other direct acquisition costs.
Martin began operating these 1,000 display faces under a management
agreement effective July 31, 1997. Pursuant to the management agreement,
Martin paid a management fee of $285 per month to Kunz. Reflects the
elimination of management fees paid by Martin to Kunz of $1,425 for the
year ended December 31, 1997 and $1,995 for the period January 1, 1998
through July 31, 1998.
(viii)
Reflects the adjustment to interest expense in connection with the
consummation of the Completed Martin Transactions:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Additional bank borrowings related to:
Completed Martin Acquisitions............................. $85,667 $35,167
------- -------
Interest expense on additional bank borrowings at 8.5%...... $ 6,506 $ 276
Less: historical interest expense of the companies acquired
in the Completed Martin Transactions...................... (243) (1)
------- -------
Net increase in interest expense............................ $ 6,263 $ 275
======= =======
</TABLE>
(m) On October 23, 1998, the Company acquired Primedia Broadcast Group, Inc.
and certain of its affiliates, which own and operate eight FM stations in
Puerto Rico, for approximately $76,050 in cash less working capital deficit
of $1,280 plus various other direct acquisition costs.
(n) On December 1, 1998, the Company acquired the assets of the Outdoor
Advertising division of Whiteco Industries, Inc., an outdoor advertising
company with over 22,000 billboards and outdoor displays in 34 states, for
$930,000 in cash plus working capital of $24,221 subject to certain
adjustments and various other direct acquisition costs of approximately
$20,000.
(o) On January 28, 1999, the Company acquired Wincom Broadcasting Corporation
which owns WQAL-FM in Cleveland. The Company began operating WQAL-FM under
a time brokerage agreement effective October 1, 1998. On February 2, 1999,
the Company acquired additional radio stations in Cleveland including (i)
WDOK-FM and WRMR-AM from Independent Group Limited Partnership, (ii)
WZAK-FM from Zapis Communications and (iii) Zebra Broadcasting Corporation
which owns WZJM-FM and WJMO-AM. The six Cleveland stations were acquired
for an aggregate purchase price of $275,000 in cash plus working capital of
$4,132 subject to certain adjustments (the "Cleveland Acquisitions").
(p) On May 15, 1997, the Company sold, in the EZ Sale, WNKS-FM in Charlotte for
$10,000 in cash.
(q) On May 30, 1997, the Company acquired, in the Century Acquisition, WPNT-FM
in Chicago for $75,750 in cash (including $2,000 for the purchase of the
station's accounts receivable) of which $5,500
P-23
<PAGE> 216
was paid as escrow funds in July 1996. On June 19, 1997, the Company sold,
in the Bonneville/WPNT Disposition, WPNT-FM in Chicago for $75,000 in cash
and recognized a gain of $500.
(r) On June 3, 1997, the Company sold, in the Crawford Disposition, WEJM-FM in
Chicago for $14,750 in cash. On August 26, 1997, the Company sold, in the
Douglas Chicago Disposition, WEJM-AM in Chicago for $7,500 in cash.
(s) On July 7, 1997, the Company sold, in the ABC/Washington Disposition,
WJZW-FM in Washington for $68,000 in cash. The assets of WJZW-FM were
classified as assets held for sale in connection with the purchase price
allocation of the Evergreen Viacom Acquisition (see 8(c)). Accordingly,
WJZW-FM net income for the period July 2, 1997 to July 7, 1997 has been
excluded from the Company's historical condensed statement of operations.
(t) On July 7, 1997, the Company sold, in the San Francisco Frequency
Disposition, the San Francisco 107.7 MHz FM dial position and transmission
facility and the call letters from Chancellor's KSAN-FM in San Francisco
for $44,000 in cash.
(u) On January 31, 1997, the Company acquired, in the KKSF/KDFC Acquisition,
KKSF-FM and KDFC-FM/AM in San Francisco for $115,000 in cash. The Company
had previously been programming KKSF-FM and KDFC-FM/AM under a time
brokerage agreement since November 1, 1996. On July 21, 1997, the Company
sold, in the Bonneville/KDFC Disposition, KDFC-FM in San Francisco for
$50,000 in cash. The assets of KDFC-FM were classified as assets held for
sale in connection with the purchase price allocation of the acquisition of
KKSF-FM/KDFC-FM/AM. Accordingly, KDFC-FM net income of approximately $791
for the period February 1, 1997 through July 21, 1997 has been excluded
from the Company's historical condensed statement of operations. Therefore,
the KDFC-FM condensed statement of operations includes the results of
operations for January 1, 1997 through January 31, 1997 (the time brokerage
agreement holding period in 1997) for the year ended December 31, 1997.
(v) On August 13, 1997, the Company sold, in the Douglas AM Dispositions,
WBZS-AM and WZHF-AM in Washington (acquired as part of the Evergreen Viacom
Acquisition -- see 8(c)) and KDFC-AM in San Francisco for $18,000 in the
form of a promissory note. The assets of WBZS-AM and WZHF-AM were
classified as assets held for sale in connection with the purchase price
allocation of the Evergreen Viacom Acquisition (see 8(c)). Accordingly,
WBZS-AM and WZHF-AM net income for the period July 2, 1997 to August 13,
1997 has been excluded from the Company's historical condensed statement of
operations.
(w) On April 13, 1998, the Company and Secret entered into a settlement
agreement regarding WFLN-FM in Philadelphia. Previously in August 1996, the
Company and Secret had entered into an agreement under which the Company
would acquire WFLN-FM from Secret for $37,750 in cash. In April 1997, the
Company entered into an agreement to sell WFLN-FM to Greater Media for
$41,800 in cash. On July 16, 1997, Secret purported to terminate the sale
of WFLN-FM to the Company. The Company subsequently brought suit against
Secret to enforce its rights to acquire WFLN-FM. Pursuant to a court
settlement entered in August 1997 and the settlement agreement between the
Company and Secret entered on April 13, 1998, (i) Secret sold WFLN-FM
directly to Greater Media for $37,750, (ii) Greater Media deposited $4,050
(the difference between the Company's proposed acquisition price for
WFLN-FM from Secret and the Company's proposed sale price for WFLN-FM to
Greater Media) with the court and (iii) the Company received $3,500 of such
amount deposited by Greater Media with the court, plus interest earned
during the period which the court held such amounts (the "WFLN
Settlement"), and Secret received the balance of such amounts.
(x) Chancellor began programming WBAB-FM, WBLI-FM, WGBB-AM and WHFM-FM in Long
Island under a time brokerage agreement effective July 1, 1996 (see
8(d)(iv)(3)). On May 29, 1998, as part of the Capstar/SFX Transaction, the
Company's time brokerage agreements regarding the Long Island properties
were terminated. The results of operations of WBAB-FM, WBLI-FM, WGBB-AM and
WHFM-FM in Long Island are included in Chancellor's historical condensed
statement of operations for January 1, 1997 through September 5, 1997 and
in the Company's historical condensed statement of
P-24
<PAGE> 217
operations for September 6, 1997 through December 31, 1997. Additionally,
the Company's historical condensed statement of operations for the nine
months ended September 30, 1998 includes the results of operations of
WBAB-FM, WBLI-FM, WGBB-AM and WHFM-FM in Long Island for January 1, 1998
through May 29, 1998.
(y) Reflects the elimination of intercompany transactions between the Company
and Katz for the year ended December 31, 1997.
(z) Reflects the elimination of time brokerage agreement fees received by the
Company as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 MARKET PERIOD REVENUE
---------------------------- ------ ------ -------
<S> <C> <C> <C>
KZLA-FM............................................ Los Angeles 10/1-12/31 $(567)
WTOP-AM............................................ Washington, D.C. 10/1-12/31 (276)
-----
$(843)
=====
</TABLE>
(aa) Reflects incremental amortization related to the Completed Transactions and
is based on the following allocation to intangible assets:
<TABLE>
<CAPTION>
ADJUSTMENT
INCREMENTAL HISTORICAL FOR NET
AMORTIZATION INTANGIBLE AMORTIZATION AMORTIZATION INCREASE
YEAR ENDED DECEMBER 31, 1997 PERIOD(i) ASSETS, NET EXPENSE(i) EXPENSE (DECREASE)
---------------------------- ------------ ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
WWWW-FM/WDFN-AM.................................. 1/1-1/31 $ 26,590 $ 148 $ -- $ 148
KKSF-FM(ii)...................................... 1/1-1/31 58,698 326 -- 326
WJLB-FM/WMXD-FM.................................. 1/1-3/31 165,559 2,759 -- 2,759
WWRC-AM.......................................... 1/1-4/2 16,808 286 -- 286
WDAS-FM/AM....................................... 1/1-4/30 98,185 2,182 820 1,362
Evergreen Viacom Acquisition(iii)................ 1/1-7/2 515,654 17,379 793 16,586
Chancellor Media Merger(iv)...................... 1/1-9/5 2,178,137 98,823 23,638 75,185
Chicago/Dallas Exchange.......................... 1/1-10/7 (613) (31) -- (31)
Katz Acquisition(v).............................. 1/1-10/28 354,058 10,267 7,616 2,651
Gannett Acquisition.............................. 1/1-12/29 334,892 22,264 1,228 21,036
Denver Acquisition............................... 1/1-12/31 24,589 1,639 268 1,371
Bonneville Option................................ 1/1-12/31 62,504 4,167 -- 4,167
KODA-FM.......................................... 1/1-12/31 93,294 6,220 1,441 4,779
WWDC-FM/AM....................................... 1/1-12/31 64,338 4,289 -- 4,289
Martin Acquisition(vi)........................... 1/1-12/31 382,033 14,276 20,322 (6,046)
Primedia Acquisition............................. 1/1-12/31 70,447 4,696 2,248 2,448
Kunz Option(vii)................................. 1/1-12/31 15,716 393 -- 393
Whiteco Acquisition(vii)......................... 1/1-12/31 349,327 8,733 6,114 2,619
Cleveland Acquisitions........................... 1/1-12/31 301,968 20,131 292 19,839
---------- -------- ------- --------
Total.................................... $5,112,184 $218,947 $64,780 $154,167
========== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
ADJUSTMENT
INCREMENTAL HISTORICAL FOR NET
AMORTIZATION INTANGIBLE AMORTIZATION AMORTIZATION INCREASE
NINE MONTHS ENDED SEPTEMBER 30, 1998 PERIOD(i) ASSETS, NET EXPENSE(i) EXPENSE (DECREASE)
------------------------------------ ------------ ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Denver Acquisition............................... 1/1-1/30 $ 24,589 $ 137 $ -- $ 137
Bonneville Option................................ 1/1-4/3 62,504 1,076 -- 1,076
KODA-FM.......................................... 1/1-5/29 93,294 2,574 656 1,918
WWDC-FM/AM....................................... 1/1-6/1 64,338 1,799 -- 1,799
Martin Acquisition(vi)........................... 1/1-7/31 382,033 8,328 12,009 (3,681)
Primedia Acquisition............................. 1/1-9/30 70,447 3,522 1,620 1,902
Kunz Option(vii)................................. 1/1-9/30 15,716 295 -- 295
Whiteco Acquisition(vii)......................... 1/1-9/30 349,327 6,550 4,666 1,884
Cleveland Acquisitions........................... 1/1-9/30 301,968 15,098 19 15,079
---------- -------- ------- --------
Total.................................... $1,364,216 $ 39,379 $18,970 $ 20,409
========== ======== ======= ========
</TABLE>
- -------------------------
(i) Intangible assets are amortized on a straight-line basis over an
estimated average 15 year life (except for the acquisition of Katz,
the acquisition of Martin, the acquisition of Whiteco and the
P-25
<PAGE> 218
Kunz Option -- see (v) and (vi) below). The incremental amortization
period represents the period of the year that the acquisition was
not completed. Actual amortization may differ based upon final
purchase price allocations.
(ii) Intangible assets for KKSF-FM excludes (1) $50,000 of the purchase
price allocated to KDFC-FM which has been classified as assets held
for sale, (2) $1,500 to be reimbursed by the buyers of KDFC-FM for
costs incurred in connection with relocating KKSF and (3) $4,802 of
the purchase price allocated to KDFC-AM which was sold, in the
Douglas AM Dispositions, on August 13, 1997.
(iii) Intangible assets for the Evergreen Viacom Acquisition of $515,654
excludes (1) $67,231 of the purchase price allocated to WJZW-FM
which was sold in the ABC/Washington Disposition on July 7, 1997 and
(2) $12,148 of the purchase price allocated to WZHF-AM and WBZS-AM
which were sold in the Douglas AM Dispositions on August 13, 1997.
(iv) Intangible assets for the Chancellor Merger of $2,178,137 includes
$293,548 of goodwill resulting from the recognition of deferred tax
liabilities.
(v) Intangible assets for the acquisition of Katz of $354,058 consist of
goodwill of $249,058 and representation contract value of $105,000
with estimated average lives of 40 years and 17 years, respectively.
(vi) Intangible assets for the acquisition of Martin consist of goodwill
and non-compete agreements of $355,033 and $27,000, respectively,
with estimated average lives of 40 years and 5 years, respectively.
The Martin goodwill of $355,033 includes $95,125 resulting from the
recognition of deferred tax liabilities.
(vii) Intangible assets for the Kunz Option and the acquisition of Whiteco
consist of goodwill of $15,716 and $349,327, respectively, with
estimated average lives of 40 years.
(bb) Historical depreciation expense of the Completed Transactions is assumed to
approximate depreciation expense on a pro forma basis, except as noted
below. Actual depreciation may differ based upon final purchase price
allocations. The following adjustments reflect incremental depreciation
related to the Completed Transactions and are based on the following
allocation to property and equipment:
<TABLE>
<CAPTION>
INCREMENTAL PROPERTY AND HISTORICAL ADJUSTMENT
DEPRECIATION EQUIPMENT, DEPRECIATION DEPRECIATION FOR NET
YEAR ENDED DECEMBER 31, 1997 PERIOD(i) NET EXPENSE(i) EXPENSE INCREASE
---------------------------- ------------ -------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Martin Acquisition............................ 1/1-12/31 $310,952 $20,730 $ 5,004 $15,726
Kunz Option................................... 1/1-12/31 23,573 1,572 -- 1,572
Whiteco Acquisition........................... 1/1-12/31 598,509 39,901 5,411 34,490
-------- ------- ------- -------
Total................................. $933,034 $62,203 $10,415 $51,788
======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
INCREMENTAL PROPERTY AND HISTORICAL ADJUSTMENT
DEPRECIATION EQUIPMENT, DEPRECIATION DEPRECIATION FOR NET
NINE MONTHS ENDED SEPTEMBER 30, 1998 PERIOD(i) NET EXPENSE(i) EXPENSE INCREASE
------------------------------------ ------------ -------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Martin Acquisition............................ 1/1- 7/31 $310,952 $12,093 $ 3,074 $ 9,019
Kunz Option................................... 1/1- 9/30 23,573 1,179 -- 1,179
Whiteco Acquisition........................... 1/1- 9/30 598,509 29,925 4,094 25,831
-------- ------- ------- -------
Total................................. $933,034 $43,197 $ 7,168 $36,029
======== ======= ======= =======
</TABLE>
--------------------
(i) Property and equipment is depreciated on a straight-line basis over an
estimated average 15 year life. The incremental depreciation period
represent the period of the year that the acquisition was not
completed.
(cc) Reflects the elimination of management fees paid by the Company to Kunz of
$570 for the period August 1, 1998 through September 30, 1998 in connection
with the Kunz Option.
(dd) Reflects the elimination of merger expenses of $6,124 for the year ended
December 31, 1997 incurred by Chancellor in connection with the Chancellor
Merger.
P-26
<PAGE> 219
(ee) Reflects the elimination of the profit participation fee paid by Whiteco to
Metro Management Associates of $2,322 and $1,756 for the year ended
December 31, 1997 and the nine months ended September 30, 1998,
respectively.
(ff) Reflects the adjustment to interest expense in connection with the
consummation of the Completed Transactions, the amendment and restatement
of CMCLA's senior credit agreement on April 25, 1997 (the "Senior Credit
Facility"), the Company's $3.00 convertible preferred stock offering
completed on June 16, 1997, the offering by CMCLA of the 8 1/8% Notes on
December 22, 1997, the Company's 1998 Equity Offering completed on March
13, 1998, the repurchase of CMCLA's 12% exchange debentures on June 10,
1998, the repurchase of CMCLA's 12 1/4% exchange debentures on August 19,
1998, the offering by CMCLA of the 9% Notes on September 30, 1998 and the
offering by CMCLA of the 8% Senior Notes on November 17, 1998:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Additional bank borrowings related to:
Completed Acquisitions.................................... $3,779,250 $2,252,191
Completed Dispositions.................................... (349,250) --
Chancellor Merger(1)...................................... 31,000 --
Katz Acquisition(2)....................................... 157,101 --
New Loan Fees............................................. 10,473 --
---------- ----------
Total additional bank borrowings............................ $3,628,574 $2,252,191
========== ==========
Interest expense at 7.0%.................................... $ 211,500 $ 104,048
Less: historical interest expense related to completed
station acquisitions and dispositions..................... (20,965) (13,052)
---------- ----------
Net increase in interest expense............................ 190,535 90,996
Reduction in interest expense on bank debt related to the
application of net proceeds of the following at 7.0%:
$3.00 convertible preferred stock offering proceeds of
$287,808 for the period January 1, 1997 to June 16,
1997................................................... (9,290) --
CMCLA 8 1/8% Senior Subordinated Notes due 2007 proceeds
of $485,000 for the period January 1, 1997 to December
22, 1997............................................... (33,196) --
1998 Equity Offering proceeds used to reduce bank
borrowings by $673,000 for the year ended December 31,
1997................................................... (47,110) (9,553)
CMCLA 9% Senior Subordinated Notes due 2008 proceeds of
$730,000 for the year ended December 31, 1997 and the
nine months ended September 30, 1998................... (51,100) (38,325)
CMCLA 8% Senior Notes due 2008 proceeds of $730,000 for
the year ended December 31, 1997 and the nine months
ended September 30, 1998............................... (51,100) (38,325)
Interest expense on CMCLA's $500,000 8 1/8% Senior
Subordinated Notes due 2007 issued December 22, 1997...... 39,722 --
Interest expense on borrowings to finance the repurchase of
CMCLA's 12% exchange debentures on June 10, 1998.......... 18,200 8,089
Interest expense on borrowings to finance the repurchase of
CMCLA's 12 1/4% exchange debentures on August 19, 1998.... 9,949 6,329
Interest expense on CMCLA's $750,000 9% Senior Subordinated
Notes due 2008 issued September 30, 1998.................. 67,500 50,625
Interest expense on CMCLA's $750,000 8% Senior Notes due
2008 issued November 17, 1998............................. 60,000 45,000
</TABLE>
P-27
<PAGE> 220
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Reduction in interest expense related to the application of
the 7.0% interest rate to the Company's bank debt prior to
the refinancing of the Senior Credit Facility, to
Chancellor's bank debt prior to consummation of the
Chancellor Merger and to Katz's bank debt prior to
consummation of the acquisition of Katz................... (24,838) (11,692)
---------- ----------
Total adjustment for net decrease in interest expense....... $ 169,272 $ 103,144
========== ==========
</TABLE>
- -------------------------
(1) The Company incurred additional bank borrowings of $31,000 to finance
estimated acquisition costs related to the Chancellor Merger.
(2) The Company incurred additional bank borrowings of $149,601 to finance
the payment of $11.00 in cash for each outstanding share of Katz common
stock and $7,500 to finance estimated acquisition costs related to the
acquisition of Katz.
(gg) Reflects the tax effect of the pro forma adjustments at the Company's
statutory tax rate of 42% for the periods presented. The pro forma tax
benefit is primarily the result of the reversal of temporary differences
related to the difference in the carrying amounts of FCC licenses for
financial reporting purposes and the amounts used for income tax purposes.
The deferred tax liability resulting from the temporary differences, which
have arisen out of the Company's various purchase business combinations,
has been recognized in connection with the purchase accounting for the
related acquisitions. The Company has not recorded a valuation allowance
for its pro forma tax benefit as it believes that, in accordance with
Financial Accounting Standards Board Statement No. 109, on a pro forma
basis, it is more likely than not to have adequate future taxable income to
utilize its deferred tax assets.
(hh) Reflects the elimination of preferred stock dividends and accretion on the
12% Preferred Stock and the 12 1/4% Preferred Stock of $40,222 and $17,601
for the year ended December 31, 1997 and the nine months ended September
30, 1998, respectively, in connection with the exchange of the 12%
Preferred Stock and 12 1/4% Preferred Stock into 12% Debentures and 12 1/4%
Debentures, respectively, and the subsequent repurchase of all the 12%
Debentures and 12 1/4% Debentures.
(ii) The pro forma combined loss per common share data is computed by dividing
pro forma loss attributable to common stockholders by the weighted average
common shares assumed to be outstanding. A summary of shares used in the
pro forma combined loss per common share calculation follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
<S> <C> <C>
Historical weighted average shares
outstanding............................. 95,636 136,427
Incremental weighted average shares
relating to:
Issuance of 34,617,460 shares of common
stock in connection with the
Chancellor Merger.................... 34,617 --
------- -------
Shares used in the pro forma combined
earnings per share calculation.......... 130,253 136,427
======= =======
</TABLE>
P-28
<PAGE> 221
ADJUSTMENTS TO LIN'S HISTORICAL CONDENSED STATEMENTS OF OPERATIONS RELATED TO
THE COMPLETED LIN TRANSACTIONS
(9) LIN's historical condensed statement of operations for the year ended
December 31, 1997 and the nine months ended September 30, 1998 and pro
forma adjustments related to the Completed LIN Transactions is summarized
below:
<TABLE>
<CAPTION>
PRO FORMA LIN
KXAS ADJUSTMENTS AS ADJUSTED
LIN HISTORICAL FOR COMPLETED FOR COMPLETED
YEAR ENDED DECEMBER 31, 1997 HISTORICAL 1/1-12/31(a) LIN TRANSACTIONS LIN TRANSACTIONS
- ---------------------------- ---------- ------------ ---------------- ----------------
<S> <C> <C> <C> <C>
Gross revenues............................. $335,243 $(110,398) -- $224,845
Less: agency commissions................... (43,724) 14,994 -- (28,730)
-------- --------- --------- --------
Net revenues............................... 291,519 (95,404) -- 196,115
Operating expenses excluding depreciation
and amortization......................... 149,815 (30,746) -- 119,069
Depreciation and amortization.............. 24,789 (2,445) 25,251(b) 47,595
Corporate general and administrative....... 6,763 -- -- 6,763
Tower write-offs........................... 2,697 -- -- 2,697
-------- --------- --------- --------
Operating income (loss).................... 107,455 (62,213) (25,251) 19,991
Interest expense........................... 21,340 -- 49,691(c) 71,031
Interest income............................ (1,332) -- -- (1,332)
Equity in joint venture.................... 1,532 -- 3,457(d) 4,989
Merger expenses............................ 7,206 -- (7,206)(e) --
-------- --------- --------- --------
Income (loss) before income taxes.......... 78,709 (62,213) (71,193) (54,697)
Income tax expense (benefit)............... 30,602 (21,121) (30,354)(f) (20,873)
-------- --------- --------- --------
Net income (loss).......................... $ 48,107 $ (41,092) $ (40,839) $(33,824)
======== ========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA LIN
KXAS ADJUSTMENTS AS ADJUSTED
LIN HISTORICAL FOR COMPLETED FOR COMPLETED
NINE MONTHS ENDED SEPTEMBER 30, 1998 HISTORICAL 1/1-3/3(a) LIN TRANSACTIONS LIN TRANSACTIONS
- ------------------------------------ ---------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
Gross revenues............................... $201,797 $(15,242) -- $186,555
Less: agency commissions..................... (24,223) 1,989 -- (22,234)
-------- -------- -------- --------
Net revenues................................. 177,574 (13,253) -- 164,321
Operating expenses excluding depreciation and
amortization............................... 100,906 (5,341) -- 95,565
Depreciation and amortization................ 36,436 (436) 4,199(b) 40,199
Corporate general and administrative......... 6,140 -- -- 6,140
KXTX management fee.......................... 3,055 -- -- 3,055
-------- -------- -------- --------
Operating income (loss)...................... 31,037 (7,476) (4,199) 19,362
Interest expense............................. 40,145 -- 10,044(c) 50,189
Interest income.............................. (836) -- -- (836)
Equity in joint venture...................... 4,966 -- 1,474(d) 6,440
Merger expenses.............................. 8,616 -- (8,616)(e) --
-------- -------- -------- --------
Income (loss) before income taxes............ (21,854) (7,476) (7,101) (36,431)
Income tax expense (benefit)................. 2,842 -- (16,568)(f) (13,726)
-------- -------- -------- --------
Net income (loss)............................ $(24,696) $ (7,476) $ 9,467 $(22,705)
======== ======== ======== ========
</TABLE>
P-29
<PAGE> 222
(a) LIN Holdings Corporation and LIN Acquisition Company, two newly formed
affiliates of Hicks Muse, entered into an Agreement and Plan of Merger with
LIN Television Corporation on August 12, 1997. Pursuant to this agreement,
on March 3, 1998, LIN Holdings acquired LIN Television by merging LIN
Acquisition, its wholly-owned subsidiary, with and into LIN Television,
with LIN Television surviving the merger and becoming a direct,
wholly-owned subsidiary of LIN Holdings. Furthermore, on March 3, 1998, in
connection with the acquisition of LIN by Hicks Muse, Hicks Muse and NBC
formed a television station joint venture. The joint venture consists of
KXAS-TV, formerly LIN Holdings' Dallas-Fort Worth NBC Affiliate, and
KNSD-TV, formerly NBC's San Diego station. A wholly-owned subsidiary of NBC
is the general partner of the joint venture and NBC operates the stations
owned by the joint venture. The NBC general partner holds an approximate
80% equity interest and LIN Television holds an approximate 20% equity
interest in the joint venture. Accordingly, this pro forma adjustment
reflects the elimination of KXAS-TV's results of operations from LIN
Television's historical condensed statements of operations for the year
ended December 31, 1997 and for the period of January 1, 1998 through March
3, 1998.
(b) Reflects incremental amortization related to the Completed LIN Transactions
and is based on the following allocation to intangible assets:
<TABLE>
<CAPTION>
INCREMENTAL INTANGIBLE HISTORICAL ADJUSTMENT
AMORTIZATION ASSETS, AMORTIZATION AMORTIZATION FOR NET
YEAR ENDED DECEMBER 31, 1997 PERIOD(i) NET EXPENSE(i) EXPENSE INCREASE
- ---------------------------- ------------ ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Hicks Muse Acquisition................. 1/1-12/31 $1,472,304 $36,808 $11,557 $25,251
</TABLE>
<TABLE>
<CAPTION>
INCREMENTAL INTANGIBLE HISTORICAL ADJUSTMENT
AMORTIZATION ASSETS, AMORTIZATION AMORTIZATION FOR NET
NINE MONTHS ENDED SEPTEMBER 30, 1998 PERIOD(i) NET EXPENSE(i) EXPENSE INCREASE
- ------------------------------------ ------------ ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Hicks Muse Acquisition................. 1/1-3/3 $1,472,304 $ 6,441 $ 2,242 $ 4,199
</TABLE>
- -------------------------
(i) Intangible assets are amortized on a straight-line basis over an
estimated average 40 year life. The incremental amortization period
represents the period of the year that the acquisition was not completed.
Historical depreciation expense of the Completed LIN Transactions is
assumed to approximate depreciation expense on a pro forma basis. Actual
depreciation and amortization may differ based upon final purchase price
allocations.
(c) Reflects the adjustment to interest expense in connection with the
consummation of the Completed LIN Transactions:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
<S> <C> <C>
Additional bank borrowings related to:
Hicks Muse Acquisition............................ $170,000 $170,000
======== ========
Interest expense at 7.5%............................ $ 12,750 $ 2,231
Interest expense on LIN Television's $300,000 8 3/8%
Senior Subordinated Notes due 2008 issued March 3,
1998.............................................. 25,125 4,397
Interest expense on LIN Holdings' $325,000 10%
Senior Discount Notes due 2008 issued March 3,
1998.............................................. 32,500 5,688
Interest expense on the unused portion of LIN's loan
commitment of $175,000 at .375%................... 656 492
Less: historical interest expense................... (21,340) (2,764)
-------- --------
Total adjustment for net increase in interest
expense........................................... $ 49,691 $ 10,044
======== ========
</TABLE>
P-30
<PAGE> 223
(d) Reflects LIN's 20% equity interest in the joint venture of $3,457 and
$1,474 for the year ended December 31, 1997 and the period of January 1,
1998 to March 3, 1998, respectively.
(e) Reflects the elimination of merger expenses of $7,206 and $8,616 for the
year ended December 31, 1997 and the nine months ended September 30, 1998,
respectively, incurred by LIN Television in connection with the acquisition
of LIN by Hicks Muse.
(f) Reflects the income tax benefit related to pro forma adjustments. The
adjustment to income taxes reflects the application of the estimated
effective tax rate on a pro forma basis to income (loss) before income
taxes for historical and pro forma adjustment amounts.
ADJUSTMENTS TO LIN'S HISTORICAL CONDENSED STATEMENT OF OPERATIONS RELATED TO THE
PENDING LIN TRANSACTIONS
(10) The detail of the historical financial data of the stations to be acquired
in the Pending LIN Transactions for the year ended December 31, 1997 and
the nine months ended September 30, 1998 and has been obtained from the
historical financial statements of the respective companies and is
summarized below:
<TABLE>
<CAPTION>
PENDING
WOOD-TV/WOTV-TV KXTX-TV LIN
HISTORICAL HISTORICAL TRANSACTIONS
YEAR ENDED DECEMBER 31, 1997 1/1-12/31(a) 1/1-12/31(b) HISTORICAL
---------------------------- --------------- ------------ ------------
<S> <C> <C> <C>
Gross revenues................................. $32,839 $(30,276) $ 2,563
Less: agency commissions....................... (4,487) 3,212 (1,275)
------- -------- -------
Net revenues................................... 28,352 (27,064) 1,288
Operating expenses excluding depreciation and
amortization................................. 16,664 (18,924) (2,260)
Depreciation and amortization.................. 2,720 (2,833) (113)
Tower write-offs............................... -- (450) (450)
------- -------- -------
Income (loss) before income taxes.............. 8,968 (4,857) 4,111
Income tax expense (benefit)................... -- (1,068) (1,068)
------- -------- -------
Net income (loss).............................. $ 8,968 $ (3,789) $ 5,179
======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
PENDING
WOOD-TV/WOTV-TV KXTX-TV LIN
HISTORICAL HISTORICAL TRANSACTIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 1/1 - 9/30(a) 1/1 - 9/30(b) HISTORICAL
- ------------------------------------ --------------- ------------- ------------
<S> <C> <C> <C>
Gross revenues.................................. $26,815 $(30,065) $(3,250)
Less: agency commissions........................ (3,595) 2,944 (651)
------- -------- -------
Net revenues.................................... 23,220 (27,121) (3,901)
Operating expenses excluding depreciation and
amortization.................................. 11,923 (19,837) (7,914)
Depreciation and amortization................... 2,033 (2,305) (272)
KXTX management fee............................. -- (3,055) (3,055)
------- -------- -------
Net income (loss)............................... $ 9,264 $ (1,924) $ 7,340
======= ======== =======
</TABLE>
(a) On August 12, 1997, LIN entered into an agreement to acquire certain
assets and assume certain liabilities of WOOD-TV and WOTV-TV, which are
both located in the Grand Rapids-Kalamazoo-Battle Creek market, from AT&T
Corporation for approximately $125,500 in cash plus accretion of
P-31
<PAGE> 224
8.0% which commenced on January 1, 1998 of $7,482. LIN currently provides
services to WOOD-TV and WOTV-TV pursuant to a consulting agreement with
AT&T.
(b) On August 1, 1998, LIN Texas and Southwest Sports Group, Inc. entered
into an Asset Purchase Agreement pursuant to which LIN Texas will assign
its purchase option and LMA rights on KXTX-TV and sell certain assets and
liabilities of KXTX-TV to Southwest Sports Group. In exchange, LIN will
receive 500,000 shares of Southwest Sports Group's series A convertible
preferred stock, par value $100.00 per share.
(11) Reflects the elimination of fee income received by LIN for services
provided to WOOD-TV and WOTV-TV of $305 and $270 for the year ended
December 31, 1997 and the nine months ended September 30, 1998,
respectively.
(12) Reflects incremental amortization related to the Pending LIN Transactions
and is based on the following allocation to intangible assets:
<TABLE>
<CAPTION>
INCREMENTAL INTANGIBLE HISTORICAL ADJUSTMENT
AMORTIZATION ASSETS, AMORTIZATION AMORTIZATION FOR NET
YEAR ENDED DECEMBER 31, 1997 PERIOD(i) NET EXPENSE(i) EXPENSE INCREASE
- ---------------------------- ------------ ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
WOOD-TV/WOTV-TV................. 1/1-12/31 $105,822 $2,646 $ 428 $2,218
KXTX-TV......................... 1/1-12/31 (25,337) (633) (903) 270
-------- ------ ----- ------
Total................. $ 80,485 $2,012 $(475) $2,487
======== ====== ===== ======
</TABLE>
<TABLE>
<CAPTION>
INCREMENTAL INTANGIBLE HISTORICAL ADJUSTMENT
AMORTIZATION ASSETS, AMORTIZATION AMORTIZATION FOR NET
NINE MONTHS ENDED SEPTEMBER 30, 1998 PERIOD(i) NET EXPENSE(i) EXPENSE INCREASE
- ------------------------------------ ------------ ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
WOOD-TV/WOTV-TV................... 1/1-9/30 $105,822 $1,984 $ 321 $1,663
KXTX-TV........................... 1/1-9/30 (25,337) (475) (735) 260
-------- ------ ----- ------
Total................... $ 80,485 $1,509 $(414) $1,923
======== ====== ===== ======
</TABLE>
- -------------------------
(i) Intangible assets are amortized on a straight-line basis over an
estimated average 40 year life. The incremental amortization period
represents the period of the year that the acquisition was not completed.
Historical depreciation expense of the Pending LIN Transactions is
assumed to approximate depreciation expense on a pro forma basis. Actual
depreciation and amortization may differ based upon final purchase price
allocations.
(13) Reflects the adjustment to interest expense in connection with the
consummation of the Pending LIN Transactions:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
<S> <C> <C>
Additional bank borrowings related to:
WOOD-TV/WOTV-TV................................... $125,000 $125,000
Interest expense at 7.5%............................ $ 9,375 $ 7,031
======== ========
</TABLE>
(14) Reflects dividend income from the Southwest Sports Co. 6% preferred stock
of $3,000 and $2,250 for the year ended December 31, 1997 and the nine
months ended September 30, 1998, respectively.
(15) Reflects the income tax benefit related to pro forma adjustments. The
adjustment to income taxes reflects the application of the estimated
effective tax rate on a pro forma basis to income (loss) before income
taxes for historical and pro forma adjustment amounts.
P-32
<PAGE> 225
ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
RELATED TO THE LIN MERGER
(16) Reflects incremental amortization related to the LIN merger and is based on
the allocation of the total consideration as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
<S> <C> <C>
Amortization expense on $2,611,730 additional
intangible assets, which includes $1,941,383 of
intangible assets and $670,347 resulting from the
recognition of deferred tax liabilities amortized
on a straight-line basis over a period of 40
years............................................. $ 65,293 $ 48,970
Less: Historical amortization expense............... (36,300) (31,162)
-------- --------
Adjustment for net increase in amortization
expense........................................... $ 28,993 $ 17,808
======== ========
</TABLE>
Historical depreciation expense of LIN is assumed to approximate
depreciation expense on a pro forma basis. Actual depreciation and
amortization may differ based upon final purchase price allocations.
(17) Reflects the adjustment to interest expense in connection with the
consummation of the LIN merger:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
<S> <C> <C>
Interest expense on additional bank borrowings
related to estimated financial advisors, legal,
accounting and other professional fees of $30,000
at 7.0%........................................... $ 2,100 $ 1,575
Reduction in interest expense related to the
application of the 7.0% interest rate to LIN
Television's bank debt prior to the consummation
of the LIN merger................................. (10,440) (4,745)
-------- -------
Net decrease in interest expense.................... $ (8,340) $(3,170)
======== =======
</TABLE>
(18) Reflects the tax effect of the pro forma adjustments at the Company's
statutory tax rate of 42% for the periods presented. The pro forma tax
benefit is primarily the result of the reversal of temporary differences
related to the difference in the carrying amounts of FCC licenses for
financial reporting purposes and the amounts used for income tax purposes.
The deferred tax liability resulting from the temporary differences, which
have arisen out of the Company's various purchase business combinations,
has been recognized in connection with the purchase accounting for the
related acquisitions. The Company has not recorded a valuation allowance
for its pro forma tax benefit as it believes that, in accordance with
Financial Accounting Standards Board Statement No. 109, on a pro forma
basis, it is more likely than not to have adequate future taxable income to
utilize its deferred tax assets.
P-33
<PAGE> 226
ADJUSTMENTS TO UNAUDITED CONDENSED COMBINED STATEMENTS OF OPERATIONS RELATED TO
THE PENDING TRANSACTIONS
(19) The detail of the historical financial data of the companies to be acquired
in the Pending Transactions for the year ended December 31, 1997 and the
nine months ended September 30, 1998 has been obtained from the historical
financial statements of the respective companies and is summarized below:
<TABLE>
<CAPTION>
ACQUISITIONS DISPOSITIONS
------------------------------------------------------------ ------------
CAPSTAR AS
ADJUSTED FOR
COMPLETED PHOENIX
CAPSTAR/SFX CAPSTAR AND PEGASUS ACQUISITION CHICAGO
TRANSACTION PENDING CAPSTAR ACQUISITION HISTORICAL DISPOSITION PENDING
YEAR ENDED HISTORICAL TRANSACTIONS HISTORICAL 1/1- HISTORICAL TRANSACTIONS
DECEMBER 31, 1997 1/1-12/31(a) 1/1-12/31(b) 1/1-12/31(c) 12/31(d) 1/1-12/31(e) HISTORICAL
----------------- ------------ --------------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues........................ $60,701 $ 676,509 $32,371 $13,796 $(15,231) $ 768,146
Less: agency commissions.............. (7,657) (61,123) (4,856) (1,656) 1,990 (73,302)
------- --------- ------- ------- -------- ---------
Net revenues.......................... 53,044 615,386 27,515 12,140 (13,241) 694,844
Operating expenses excluding
depreciation and amortization....... 37,857 388,397 34,083 7,132 (16,248) 451,221
Depreciation and amortization......... 7,564 146,084 1,562 184 (592) 154,802
Corporate general and
administrative...................... -- 31,565 -- -- -- 31,565
Stock option compensation............. -- 11,589 -- -- -- 11,589
Profit participation fee.............. -- -- -- -- -- --
Other nonrecurring costs.............. -- 16,353 -- -- -- 16,353
------- --------- ------- ------- -------- ---------
Operating income (loss)............... 7,623 21,398 (8,130) 4,824 3,599 29,314
Interest expense...................... 10 188,526 16 -- -- 188,552
Interest income....................... -- (8,572) -- -- -- (8,572)
Gain on disposition of assets......... -- (4,306) -- -- -- (4,306)
Other (income) expense................ -- 2,441 1,810 -- -- 4,251
------- --------- ------- ------- -------- ---------
Income (loss) before income taxes..... 7,613 (156,691) (9,956) 4,824 3,599 (150,611)
Income tax expense (benefit).......... -- (44,930) -- 1,750 -- (43,180)
Dividends and accretion on preferred
stock of subsidiary................. -- 26,048 -- -- -- 26,048
------- --------- ------- ------- -------- ---------
Net income (loss)..................... $ 7,613 $(137,809) $(9,956) $ 3,074 $ 3,599 $(133,479)
======= ========= ======= ======= ======== =========
</TABLE>
P-34
<PAGE> 227
<TABLE>
<CAPTION>
ACQUISITIONS DISPOSITIONS
------------------------------------------------------------- ------------
CAPSTAR AS
ADJUSTED FOR
THE COMPLETED
CAPSTAR AND
CAPSTAR/SFX PENDING PEGASUS PHOENIX CHICAGO
TRANSACTION CAPSTAR ACQUISITION ACQUISITION DISPOSITION PENDING
NINE MONTHS ENDED HISTORICAL TRANSACTIONS HISTORICAL HISTORICAL HISTORICAL TRANSACTIONS
SEPTEMBER 30, 1998 1/1 - 5/29(a) 1/1 - 9/30(b) 1/1 - 9/30(c) 1/1 - 9/30(d) 1/1 - 8/20(e) HISTORICAL
------------------ ------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues...................... $23,382 $ 536,090 $27,133 $10,310 $(10,931) $ 585,984
Less: agency commissions............ (2,866) (53,742) (7,359) (1,117) 1,221 (63,863)
------- --------- ------- ------- -------- ---------
Net revenues........................ 20,516 482,348 19,774 9,193 (9,710) 522,121
Operating expenses excluding
depreciation and amortization..... 14,269 285,956 20,916 5,243 (13,026) 310,358
Depreciation and amortization....... 3,101 106,724 1,207 146 (367) 110,811
Corporate general and
administrative.................... -- 18,793 -- -- -- 18,793
Stock option compensation........... -- 14,002 -- -- -- 14,002
Other nonrecurring costs............ -- 7,505 -- -- -- 7,505
------- --------- ------- ------- -------- ---------
Operating income (loss)............. 3,146 52,368 (2,349) 3,804 3,683 60,652
Interest expense.................... 4 141,394 9 275 -- 141,682
Interest income..................... 1 (2,305) -- -- -- (2,304)
Other (income) expense.............. -- 29,515 1,379 -- -- 30,894
------- --------- ------- ------- -------- ---------
Income (loss) before income taxes... 3,141 (116,236) (3,737) 3,529 3,683 (109,620)
Income tax expense (benefit)........ -- (25,548) -- 1,271 -- (24,277)
Dividends and accretion on preferred
stock of subsidiary............... -- 21,984 -- -- -- 21,984
------- --------- ------- ------- -------- ---------
Net income (loss)................... $ 3,141 $(112,672) $(3,737) $ 2,258 $ 3,683 $(107,327)
======= ========= ======= ======= ======== =========
</TABLE>
- -------------------------
(a) On February 20, 1998, the Company entered into an agreement to acquire from
Capstar the Capstar/ SFX Stations for an aggregate purchase price of
approximately $637,500 in the Capstar/SFX Transaction. The Capstar/SFX
Stations were acquired by Capstar as part of Capstar's acquisition of SFX
on May 29, 1998. On May 29, 1998, the Company completed the exchange of
WACE-FM and WFYV-FM in Jacksonville (valued for purposes of the Capstar/SFX
Transaction at $53,000) plus $90,250 in cash to Capstar in return for
KODA-FM in Houston and began programming the remaining ten Capstar/SFX
Stations under time brokerage agreements. The Company also provided a loan
to Capstar in the principal amount of $150,000 as part of the Capstar/SFX
Transaction. A portion of the Capstar loan will be prepaid in connection
with the Company's acquisition of, and the proceeds of such prepayment
would be used by the Company as a portion of the purchase price for, each
Capstar/SFX Station. The Company is currently assessing whether the terms
of the Capstar/SFX Transaction will be modified upon the consummation of
the Capstar merger. The purchase price for the remaining ten Capstar/SFX
Stations will be approximately $494,250.
(b) On August 26, 1998, the Company and Capstar entered into an agreement to
merge in a stock-for-stock transaction that will create the nation's
largest radio broadcasting entity. Pursuant to this agreement, the Company
will acquire Capstar in a reverse merger in which Capstar will be renamed
Chancellor Media Corporation. Each share of Chancellor Media common stock
will represent one share in the combined entity. Each share of Capstar
common stock will represent 0.480 shares of common stock in the combined
entity, subject to an upward adjustment not to exceed 0.025 shares to the
extent that Capstar's 1998 cash flow from specified assets exceeds certain
specified targets. Capstar will own and operate or program more than 340
radio stations serving 82 mid-sized markets nationwide upon completion of
the Pending Capstar Transactions. Capstar's historical condensed combined
statement of operations for the year ended December 31, 1997 and the nine
months ended September 30, 1998 and
P-35
<PAGE> 228
pro forma adjustments related to the transactions completed by Capstar
prior to the Capstar merger (the "Completed Capstar Transactions") and the
transactions to be completed by Capstar as of October 31, 1998 ("Pending
Capstar Transactions") is summarized below:
<TABLE>
<CAPTION>
CAPSTAR AS
ADJUSTED
PRO FORMA CAPSTAR PRO FORMA FOR THE
ADJUSTMENTS AS ADJUSTED ADJUSTMENTS COMPLETED
COMPLETED FOR THE FOR THE PENDING FOR THE CAPSTAR AND
CAPSTAR COMPLETED COMPLETED CAPSTAR PENDING PENDING
YEAR ENDED CAPSTAR TRANSACTIONS CAPSTAR CAPSTAR TRANSACTIONS CAPSTAR CAPSTAR
DECEMBER 31, 1997 HISTORICAL HISTORICAL(a) TRANSACTIONS TRANSACTIONS HISTORICAL(l) TRANSACTIONS TRANSACTIONS
- ----------------- ---------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross revenues............ $189,820 $445,173 $ -- $ 634,993 $41,516 $ -- $ 676,509
Less: agency
commissions............. (14,375) (42,694) -- (57,069) (4,054) -- (61,123)
-------- -------- --------- --------- ------- -------- ---------
Net revenues.............. 175,445 402,479 -- 577,924 37,462 -- 615,386
Operating expenses
excluding depreciation
and amortization........ 122,135 238,998 -- 361,133 27,264 -- 388,397
Depreciation and
amortization............ 28,934 47,329 62,575(B) 138,838 4,874 2,372(M) 146,084
Corporate general and
administrative.......... 14,221 15,276 -- 29,497 2,068 -- 31,565
Stock option
compensation............ 10,575 624 -- 11,199 390 -- 11,589
Other nonrecurring
costs................... -- 20,174 (3,821)(D) 16,353 -- -- 16,353
-------- -------- --------- --------- ------- -------- ---------
Operating income (loss)... (420) 80,078 (58,754) 20,904 2,866 (2,372) 21,398
Interest expense.......... 47,012 81,014 44,195(F) 172,221 5,341 10,964(N) 188,526
Interest income........... (4,572) (3,599) -- (8,171) (401) -- (8,572)
Gain (loss) on disposition
of assets............... (908) 5,214 -- 4,306 -- -- 4,306
Increase in the fair value
of redeemable
warrants................ -- (2,022) 2,022(G) -- -- -- --
Other (income) expense.... 4,729 (2,901) -- 1,828 613 -- 2,441
-------- -------- --------- --------- ------- -------- ---------
Income (loss) before
income taxes............ (48,497) 8,756 (100,927) (140,668) (2,687) (13,336) (156,691)
Income tax expense
(benefit)............... (11,720) 2,691 (31,042)(I) (40,071) -- (4,859)(O) (44,930)
Dividends and accretion on
preferred stock of
subsidiary.............. 6,560 -- 19,488(J) 26,048 -- -- 26,048
-------- -------- --------- --------- ------- -------- ---------
Net income (loss)......... (43,337) 6,065 (89,373) (126,645) (2,687) (8,477) (137,809)
Preferred stock
dividends............... 7,071 38,510 (45,581)(K) -- 5,507 (5,507)(P) --
-------- -------- --------- --------- ------- -------- ---------
Loss attributable to
common stockholders..... $(50,408) $(32,445) $ (43,792) $(126,645) $(8,194) $ (2,970) $(137,809)
======== ======== ========= ========= ======= ======== =========
</TABLE>
P-36
<PAGE> 229
<TABLE>
<CAPTION>
PRO FORMA CAPSTAR PRO FORMA
ADJUSTMENTS AS ADJUSTED ADJUSTMENTS
COMPLETED FOR THE FOR THE PENDING FOR THE
CAPSTAR COMPLETED COMPLETED CAPSTAR PENDING
NINE MONTHS ENDED CAPSTAR TRANSACTIONS CAPSTAR CAPSTAR TRANSACTIONS CAPSTAR
SEPTEMBER 30, 1998 HISTORICAL HISTORICAL(a) TRANSACTIONS TRANSACTIONS HISTORICAL(l) TRANSACTIONS
- ------------------ ---------- ------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues........................ $375,569 $ 127,904 $ -- $ 503,473 $32,617 $ --
Less: agency commissions.............. (37,666) (12,162) -- (49,828) (3,914) --
-------- --------- -------- --------- ------- -------
Net revenues.......................... 337,903 115,742 -- 453,645 28,703 --
Operating expenses excluding
depreciation and amortization....... 204,135 59,409 -- 263,544 19,412 --
Depreciation and amortization......... 64,823 12,833 23,813(B) 101,469 3,573 1,682(M)
Corporate general and
administrative...................... 13,996 3,208 -- 17,204 1,589 --
Stock option compensation............. 13,673 74,199 (73,969)(C) 13,903 99 --
Other nonrecurring costs.............. -- 35,318 (11,213)(D) 7,505 -- --
(16,600)(E)
-------- --------- -------- --------- ------- -------
Operating income (loss)............... 41,276 (69,225) 77,969 50,020 4,030 (1,682)
Interest expense...................... 79,164 32,284 17,718(F) 129,166 4,532 7,696(N)
Interest income....................... (1,846) (459) -- (2,305) -- --
Other (income) expense................ 28,475 3,269 (3,163)(H) 28,581 934 --
-------- --------- -------- --------- ------- -------
Income (loss) before income taxes..... (64,517) (104,319) 63,414 (105,422) (1,436) (9,378)
Income tax expense (benefit).......... (15,583) 459 (6,954)(I) (22,078) -- (3,470)(O)
Dividends and accretion on preferred
stock of subsidiary................. 15,206 -- 6,778(J) 21,984 -- --
-------- --------- -------- --------- ------- -------
Net income (loss)..................... (64,140) (104,778) 63,590 (105,328) (1,436) (5,908)
Preferred stock dividends............. -- 17,264 (17,264)(K) -- 4,131 (4,131)(P)
-------- --------- -------- --------- ------- -------
Income (loss) attributable to common
stockholders........................ $(64,140) $(122,042) $ 80,854 $(105,328) $(5,567) $(1,777)
======== ========= ======== ========= ======= =======
<CAPTION>
CAPSTAR
AS ADJUSTED
FOR THE
COMPLETED
CAPSTAR AND
PENDING
NINE MONTHS ENDED CAPSTAR
SEPTEMBER 30, 1998 TRANSACTIONS
- ------------------ ------------
<S> <C>
Gross revenues........................ $ 536,090
Less: agency commissions.............. (53,742)
---------
Net revenues.......................... 482,348
Operating expenses excluding
depreciation and amortization....... 282,956
Depreciation and amortization......... 106,724
Corporate general and
administrative...................... 18,793
Stock option compensation............. 14,002
Other nonrecurring costs.............. 7,505
---------
Operating income (loss)............... 52,368
Interest expense...................... 141,394
Interest income....................... (2,305)
Other (income) expense................ 29,515
---------
Income (loss) before income taxes..... (116,236)
Income tax expense (benefit).......... (25,548)
Dividends and accretion on preferred
stock of subsidiary................. 21,984
---------
Net income (loss)..................... (112,672)
Preferred stock dividends............. --
---------
Income (loss) attributable to common
stockholders........................ $(112,672)
=========
</TABLE>
P-37
<PAGE> 230
(A) The detail of the historical financial data of the stations to be acquired
or disposed of in the Completed Transactions by Capstar for the year ended
December 31, 1997 and the nine months ended September 30, 1998 has been
obtained from the historical financial statements of the respective stations
and is summarized below:
<TABLE>
<CAPTION>
COMMUNITY
OSBORN OSBORN PACIFIC BENCHMARK BENCHMARK MADISON
ACQUISITION ACQUISITION ACQUISITION ACQUISITION ACQUISITION ACQUISITION
YEAR ENDED HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL
DECEMBER 31, 1997 1/1-2/20(i) TRANSACTION(ii) 1/1-7/11(iii) 1/1-8/6(iv) TRANSACTION(v) 1/2-8/20(vi)
- ----------------- ----------- --------------- ------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues...................... $3,698 $349 $2,627 $21,362 $4,417 $4,647
Less: agency commissions............ (121) (79) (169) (1,796) (371) (517)
------ ---- ------ ------- ------ ------
Net revenues........................ 3,577 270 2,458 19,566 4,046 4,130
Operating expenses excluding
depreciation and amortization...... 2,937 201 1,315 12,956 2,048 2,588
Depreciation and amortization....... 418 -- 713 3,657 -- 752
Corporate general and
administrative..................... 268 -- 373 348 -- 75
Stock option compensation........... -- -- -- -- -- --
Other nonrecurring costs............ -- -- -- -- -- --
------ ---- ------ ------- ------ ------
Operating income (loss)............. (46) 69 57 2,605 1,998 715
Interest expense.................... 385 -- 469 4,689 -- 686
Interest income..................... -- -- -- -- -- --
Gain (loss) on disposition of
assets............................. 5,348 -- -- -- -- --
Increase in fair value of redeemable
warrants........................... -- -- -- -- -- --
Other (income) expense.............. (212) -- 3 (64) -- --
------ ---- ------ ------- ------ ------
Income (loss) before income taxes... 5,129 69 (415) (2,020) 1,998 29
Income tax expense.................. 32 -- -- -- -- --
------ ---- ------ ------- ------ ------
Net income (loss)................... 5,097 69 (415) (2,020) 1,998 29
Preferred stock dividends........... -- -- -- -- -- --
------ ---- ------ ------- ------ ------
Income (loss) attributable to common
stockholders....................... $5,097 $ 69 $ (415) $(2,020) $1,998 $ 29
====== ==== ====== ======= ====== ======
<CAPTION>
AMERON PATTERSON PATTERSON GULFSTAR SFX
ACQUISITION ACQUISITION ACQUISITION ACQUISITION ACQUISITION
YEAR ENDED HISTORICAL HISTORICAL 1/1- HISTORICAL HISTORICAL HISTORICAL
DECEMBER 31, 1997 1/1-10/3(vii) 12/31(viii) TRANSACTION(ix) TRANSACTION(x) 1/1-12/31(xi)
- ----------------- ------------- --------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Gross revenues...................... $6,885 $58,358 $739 $399 $306,842
Less: agency commissions............ (790) (5,305) (67) (30) (36,478)
------ ------- ---- ---- --------
Net revenues........................ 6,095 53,053 672 369 270,364
Operating expenses excluding
depreciation and amortization...... 4,352 37,334 489 273 167,063
Depreciation and amortization....... 506 5,273 -- -- 38,232
Corporate general and
administrative..................... -- 4,946 -- -- 6,837
Stock option compensation........... -- -- -- -- 624
Other nonrecurring costs............ -- -- -- -- 20,174
------ ------- ---- ---- --------
Operating income (loss)............. 1,237 5,500 183 96 37,434
Interest expense.................... 659 7,574 -- -- 64,506
Interest income..................... (13) (13) -- -- (2,821)
Gain (loss) on disposition of
assets............................. -- -- -- -- --
Increase in fair value of redeemable
warrants........................... -- (2,022) -- -- --
Other (income) expense.............. 160 63 -- -- --
------ ------- ---- ---- --------
Income (loss) before income taxes... 431 (4,146) 183 96 (24,251)
Income tax expense.................. -- 1,704 -- -- 810
------ ------- ---- ---- --------
Net income (loss)................... 431 (5,850) 183 96 (25,061)
Preferred stock dividends........... -- -- -- -- 38,510
------ ------- ---- ---- --------
Income (loss) attributable to common
stockholders....................... $ 431 $(5,850) $183 $ 96 $(63,571)
====== ======= ==== ==== ========
<CAPTION>
OTHER
SFX CHANCELLOR COMPLETED COMPLETED
HISTORICAL MEDIA CAPSTAR CAPSTAR
YEAR ENDED ACQUISITIONS EXCHANGE TRANSACTIONS TRANSACTIONS
DECEMBER 31, 1997 COMBINED(xii) HISTORICAL(xiii) COMBINED(xiv) HISTORICAL
- ----------------- ------------- ---------------- ------------- ------------
<S> <C> <C> <C> <C>
Gross revenues...................... $(52,188) $49,425 $37,612 $445,173
Less: agency commissions............ 7,469 -- (4,439) (42,694)
-------- ------- ------- --------
Net revenues........................ (44,719) 49,425 33,173 402,479
Operating expenses excluding
depreciation and amortization...... (24,446) -- 31,888 238,998
Depreciation and amortization....... (2,854) -- 632 47,329
Corporate general and
administrative..................... -- -- 2,429 15,276
Stock option compensation........... -- -- -- 624
Other nonrecurring costs............ -- -- -- 20,174
-------- ------- ------- --------
Operating income (loss)............. (17,419) 49,425 (1,776) 80,078
Interest expense.................... 492 -- 1,554 81,014
Interest income..................... -- -- (752) (3,599)
Gain (loss) on disposition of
assets............................. -- -- (134) 5,214
Increase in fair value of redeemable
warrants........................... -- -- -- (2,022)
Other (income) expense.............. (1,067) -- (1,784) (2,901)
-------- ------- ------- --------
Income (loss) before income taxes... (16,844) 49,425 (928) 8,756
Income tax expense.................. -- -- 145 2,691
-------- ------- ------- --------
Net income (loss)................... (16,844) 49,425 (1,073) 6,065
Preferred stock dividends........... -- -- -- 38,510
-------- ------- ------- --------
Income (loss) attributable to common
stockholders....................... $(16,844) $49,425 $(1,073) $(32,445)
======== ======= ======= ========
</TABLE>
P-38
<PAGE> 231
<TABLE>
<CAPTION>
OTHER
PATTERSON SFX SFX CHANCELLOR COMPLETED COMPLETED
ACQUISITION ACQUISITION HISTORICAL MEDIA CAPSTAR CAPSTAR
NINE MONTHS ENDED HISTORICAL HISTORICAL ACQUISITIONS EXCHANGE TRANSACTIONS TRANSACTIONS
SEPTEMBER 30, 1998 1/1-1/29(viii) 1/1-5/29(xi) COMBINED(xii) HISTORICAL(xiii) COMBINED(xiv) HISTORICAL
------------------ -------------- ------------- ------------- ---------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues................ $ 3,853 $ 141,369 $(45,485) $20,594 $ 7,573 $ 127,904
Less: agency commissions...... (350) (16,692) 5,479 -- (599) (12,162)
------- --------- -------- ------- ------- ---------
Net revenues.................. 3,503 124,677 (40,006) 20,594 6,974 115,742
Operating expenses excluding
depreciation and
amortization................ 2,523 78,235 (26,619) -- 5,270 59,409
Depreciation and
amortization................ 497 17,668 (4,875) -- (457) 12,833
Corporate general and
administrative.............. 171 3,069 -- -- (32) 3,208
Stock option compensation..... -- 74,199 -- -- -- 74,199
Other nonrecurring costs...... -- 35,318 -- -- -- 35,318
------- --------- -------- ------- ------- ---------
Operating income (loss)....... 312 (83,812) (8,512) 20,594 2,193 (69,225)
Interest expense.............. 645 31,565 (4) -- 78 32,284
Interest income............... -- (353) -- -- (106) (459)
Other expense................. 3,163 -- 160 -- (54) 3,269
------- --------- -------- ------- ------- ---------
Income (loss) before income
taxes....................... (3,496) (115,024) (8,668) 20,594 2,275 (104,319)
Income tax expense............ -- 210 -- -- 249 459
------- --------- -------- ------- ------- ---------
Net income (loss)............. (3,496) (115,234) (8,668) 20,594 2,026 (104,778)
Preferred stock dividends..... -- 17,264 -- -- -- 17,264
------- --------- -------- ------- ------- ---------
Income (loss) attributable to
common stockholders......... $(3,496) $(132,498) $ (8,668) $20,594 $ 2,026 $(122,042)
======= ========= ======== ======= ======= =========
</TABLE>
- ---------------
(i) On February 20, 1997, Capstar acquired Osborn Communications for
approximately $118,800 consisting of $117,000 in cash and $1,800 in common
stock. The purchase price includes $113,000 for 18 stations (12 FM and 6
AM) in 6 markets and $25,700 for five stations in Huntsville and
Tuscaloosa, Alabama which were pending acquisitions of Osborn and excludes
$11,000 received by Capstar upon the disposition of three stations in Ft.
Myers, Florida which were sold by Osborn.
(ii) Reflects the historical operating results and/or LMA or JSA expense and/or
revenue of the following stations which were acquired or sold by Osborn
prior to December 31, 1997: WYNU-FM and WTXT-FM.
(iii) In July 1997, Capstar acquired 11 stations (6 FM and 5 AM) in Des Moines,
Iowa; Modesto-Stockton, California and Anchorage, Alaska from Community
Pacific for approximately $35,000 in cash.
(iv) In August 1997, Capstar acquired 30 radio stations (20 FM and 10 AM) in 11
markets from Benchmark Partnerships.
(v) Reflects the historical operating results and/or LMA or JSA expense and/or
revenue of the following stations which were acquired or sold by Benchmark
prior to December 31, 1997: WSCQ-FM, WZHT-FM and WMCZ-FM.
(vi) In August 1997, Capstar acquired WIBA-AM, WIBA-FM, WMAD-FM, WTSO-AM,
WZEE-FM, and WMLI-FM (4 FM and 2 AM) in Madison, Wisconsin from Madison
Radio Group for approximately $38,800 in cash.
(vii) In October 1997, Capstar acquired WMJJ-FM, WERC-AM and WOWC-FM (2 FM and 1
AM) in Birmingham, Alabama from Ameron Broadcasting, Inc. for
approximately $31,500 in cash.
(viii)In January 1998, Capstar acquired 39 radio stations (25 FM and 14 AM) in
Savannah, Georgia; Allentown and Harrisburg, Pennsylvania; Fresno,
California; Honolulu, Hawaii; Battle Creek and Grand Rapids, Michigan;
Reno, Nevada; Springfield, Illinois; and Pensacola, Florida from Patterson
Broadcasting, Inc. for approximately $215,000 in cash.
P-39
<PAGE> 232
(ix) Reflects the historical operating results and/or LMA or JSA expense and/or
revenue of the following stations which were acquired or sold by Patterson
prior to December 31, 1997: WMEZ-FM, KRDU-AM and KJOI-FM.
(x) Reflects the historical operating results and/or LMA or JSA expense and/or
revenue of the following stations which were acquired or sold by GulfStar
Communications, Inc. prior to December 31, 1997: KTRA-FM, KCQL-AM, KDAG-FM
and KKFG-FM.
(xi) On May 19, 1998, pursuant to a merger agreement dated as of August 24,
1997 among SBI Holdings Corporation, a wholly owned subsidiary of Capstar,
and SFX Broadcasting, Inc., SBI Radio Acquisition Corporation, a wholly
owned subsidiary of Capstar, was merged with and into SFX, with SFX
remaining as the surviving corporation (the "SFX Merger"). Upon
consummation of the SFX Merger, SFX was renamed Capstar Communications,
Inc. ("CCI"). Consummation of the SFX Merger added 67 radio stations (50
FM and 17 AM) and two FM/AM radio stations in which SFX sold commercial
air time under a Joint Sales Agreement. The total purchase price allocated
to net assets acquired was approximately $1,500,000 which included (i) the
purchase and cancellation of 9,838,276 shares of SFX class A common stock
at $75 per share, (ii) the purchase and cancellation of 1,047,037 shares
of SFX class B common stock at $97.50 per share, (iii) the redemption of
SFX series D cumulative convertible exchangeable preferred stock at
$82.4025 per share, (iv) the redemption of SFX series C redeemable
preferred stock at $1,009.73 per share, (v) the repayment of borrowings
under the SFX credit facility of $313,000 and (vi) estimated transaction
costs of $54,000.
(xii) Reflects the combined historical results of operations of (i) the
following acquisitions and dispositions completed by SFX prior to the
consummation of the SFX Acquisition: WPYX-FM, WHFS-FM, KTXQ-FM, KRRW-FM,
WDSY-FM, WRFX-FM, WWYZ-FM, WISN-AM, WLTQ-FM, WVGO-FM, WLEE-FM, WKHK-FM,
WBZU-FM, WFBQ-FM, WRZX-FM, WNDE-AM, WQFN-FM, WJZC-FM, WLAC-FM and WLAC-AM,
(ii) the following completed acquisitions, dispositions and LMA's in
connection with the SFX acquisition: Austin, Jacksonville, Greenville,
Upper Fairfield, Daytona Beach -- WGNE, Houston -- KODA, Long Island and
Houston -- KKPN, (iii) the following stations included in the Chancellor
Exchange Agreement: WDVE-FM, WJJJ-FM, WXDX-FM, WVTY-FM, KPLN-FM, KYXY-FM,
KKRW-FM, KQUE-AM, KBFB-FM and KTXQ-FM, and (iv) stations WJDX-FM and
WTAE-AM to comply with the SFX Consent Decree.
(xiii)The adjustment represents the LMA fee revenue attributable to 10 SFX
stations in the Dallas, Houston, San Diego and Pittsburgh markets that the
Company began operating under time brokerage agreements effective May 29,
1998. The 10 SFX stations will be sold to the Company in connection with
the Chancellor Exchange Agreement. In accordance with Capstar's policy,
since Capstar's ownership costs, comprised of interest expense,
depreciation and amortization, exceed the LMA revenue for these stations,
the entire LMA fee has been recognized.
(xiv) Reflects the historical results of operations for various other Completed
Capstar Transactions as follows: (a) acquisitions including the Knight,
Quass, COMCO, Osborn Tuscaloosa, Osborn Huntsville, Space Coast, WRIS,
Cavalier, Griffith, Emerald City, American General, Booneville, KJEM,
McForhun, Livingston, KLAW, Class Act, Grant, East Penn, KOSO,
Commonwealth, KDOS, Prophet Systems, Americom, KRNA, University of Alaska,
ARS, Ogallala, the Reynolds Acquisitions, and Gibbons, (b) the Americom
Fresno/Reno Exchange and (c) dispositions including Wilmington, Osborn Ft.
Myers, Bryan, Allentown, Jackson, Westchester, Dayton, Salisbury-Ocean
City, and KASH.
P-40
<PAGE> 233
(B) Reflects incremental amortization related to the Completed Transactions
and is based on the following allocation to intangible assets:
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENT
COMPLETED TRANSACTIONS AMORTIZATION INTANGIBLE AMORTIZATION AMORTIZATION FOR NET
YEAR ENDED DECEMBER 31, 1997 PERIOD ASSETS, NET EXPENSE EXPENSE INCREASE
---------------------------- ------------ ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Osborn Acquisition............... 1/1-2/20 $ 140,028 $ 3,012 $ 246 $ 2,766
Community Pacific Acquisition.... 1/1-7/11 31,120 409 478 (69)
Benchmark Acquisition............ 1/1-8/6 168,583 2,517 2,011 506
Madison Acquisition.............. 1/1-8/20 38,246 608 474 134
Ameron Acquisition............... 1/1-10/3 29,264 553 278 275
Patterson Acquisition............ 1/1-12/31 268,220 6,706 2,795 3,911
SFX Acquisition.................. 1/1-12/31 3,185,515 79,638 27,277 52,361
Other Completed Capstar
Transactions................... Various 243,518 3,070 379 2,691
---------- ------- ------- -------
$4,104,494 $96,513 $33,938 $62,575
========== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENT
COMPLETED TRANSACTIONS AMORTIZATION INTANGIBLE AMORTIZATION AMORTIZATION FOR NET
NINE MONTHS ENDED SEPTEMBER 30, 1998 PERIOD ASSETS, NET EXPENSE EXPENSE INCREASE
------------------------------------ ------------ ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Patterson Acquisition............. 1/1-1/29 $ 268,220 $ 533 $ 263 $ 270
SFX Acquisition................... 1/1-5/29 3,185,515 32,510 9,515 22,995
Other Completed Capstar
Transactions.................... Various 7,358 91 (457) 549
---------- ------- ------- -------
$3,461,093 $33,134 $ 9,321 $23,813
========== ======= ======= =======
</TABLE>
(C) Reflects the elimination of non-recurring transaction-related compensation
expense of $73,969 attributable to the voluntary settlement of the
outstanding options, SARs and unit purchase options by SFX in connection
with Capstar's acquisition of SFX.
(D) Reflects the elimination of non-recurring transaction-related charges of
$3,821 and $11,213 for the year ended December 31, 1997 and the nine
months ended September 30, 1998, respectively, recorded by SFX in
connection with Capstar's acquisition of SFX and the spin-off of SFX
Entertainment. These charges consist primarily of legal, accounting and
regulatory fees.
(E) Reflects the elimination of the consent solicitation payments to the
holders of the 10 3/4% Senior Subordinated Notes due 2006 and series E
cumulative preferred stock of SFX incurred in connection with the spin-off
of SFX Entertainment of $16,600 for the nine months ended September 30,
1998. The spin-off of SFX Entertainment was consummated in April 1998.
(F) Reflects the adjustment to interest expense in connection with the
consummation of the Completed Capstar Transactions:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Additional bank borrowings related to:
Completed Acquisitions
9 1/4% Senior Subordinated Notes due
2007..................................... $ 199,262 $ 199,262
12 3/4% Senior Discount Notes due 2009..... 177,676 177,676
Capstar credit facility at 8 1/10%......... 1,126,278 1,126,278
Chancellor loan at 12%..................... 150,000 150,000
10 3/4% Senior Subordinated Notes due
2006..................................... 341,805 341,805
Completed Dispositions........................ (218,627) (218,627)
New loan fees................................. 26,300 26,300
---------- ----------
Total additional borrowings..................... $1,802,694 $1,802,694
========== ==========
</TABLE>
P-41
<PAGE> 234
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Interest expense on additional bank borrowings
9 1/4% Senior Subordinated Notes due 2007..... $ 19,332 $ 14,499
12 3/4% Senior Discount Notes due 2009........ 23,354 17,516
Capstar credit facility at 8 1/10%............ 74,791 56,093
Chancellor loan at 12%........................ 18,000 13,500
10 3/4% Senior Subordinated Notes due 2006.... 53,500 40,125
---------- ----------
Total interest expense on additional bank
borrowings.................................... 188,977 141,733
Less: historical interest expense of the
stations
acquired in the Completed Transactions........ (81,014) (32,284)
Less: historical interest expense of the
Company....................................... (47,012) (79,164)
---------- ----------
Net increase in interest expense................ 60,951 30,285
Reduction in interest expense on July 3, 1998
redemption of $154,000 aggregate principal
amount of the 10 3/4% Senior Subordinated
Notes due 2006................................ (16,555) (12,416)
Reduction in interest expense on July 10, 1998
redemption of $1,866 aggregate principal
amount of the 10 3/4% Senior Subordinated
Notes due 2006................................ (201) (151)
---------- ----------
Total adjustment for net increase in interest
expense....................................... $ 44,195 $ 17,718
========== ==========
</TABLE>
(G) Reflects the elimination of the increase in the fair value of the
redeemable warrants which were repurchased in connection with Capstar's
acquisition of Patterson.
(H) Adjustment represents the elimination of transaction expenses recorded by
Patterson in connection with Capstar's acquisition of Patterson.
(I) Reflects the tax effect of the pro forma adjustments at Capstar's
statutory tax rate of 38% for the periods presented. The pro forma tax
benefit is primarily the result of the reversal of temporary differences
related to the difference in the carrying amounts of FCC licenses for
financial reporting purposes and the amounts used for income tax purposes.
The deferred tax liability resulting from the temporary differences, which
have arisen out of Capstar's various purchase business combinations, has
been recognized in connection with the purchase accounting for the related
acquisitions. Capstar has not recorded a valuation allowance for its pro
forma tax benefit as it believes that, in accordance with Financial
Accounting Standards Board Statement No. 109, on a pro forma basis, it is
more likely than not to have adequate future taxable income to utilize its
deferred tax assets.
P-42
<PAGE> 235
(J) Reflects the pro forma effect of the dividends and accretion as if the
related preferred stock had been outstanding at January 1, 1997, including
the Capstar 12% senior exchangeable preferred stock issued June 17, 1997
as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Preferred stock dividends and accretion related to:
Completed Capstar transactions:
Dividends and accretion on 12% senior exchangeable preferred
stock..................................................... $12,214 $ 9,160
Dividends and accretion on series E 12 5/8% cumulative
preferred
stock..................................................... 13,834 10,376
------- --------
Total dividends and accretion............................... 26,048 19,536
Less: historical dividends and accretion for completed
transactions by Capstar................................... (6,560) (12,758)
------- --------
Total adjustment for net increase in dividends and
accretion................................................. $19,488 $ 6,778
======= ========
</TABLE>
(K) Reflects the elimination of the redeemable preferred stock redeemed in
connection with the acquisition of GulfStar Communications, Inc. and the
elimination of preferred stock dividends and accretion and subsequent
reclassification of a portion of the redeemable preferred stock dividends
and accretion due to the SFX Acquisition and redemption of $119,600 and
$500 liquidation preference on July 3, 1998 and July 10, 1998,
respectively, of the series E 12 5/8% cumulative preferred stock of SFX as
follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Preferred stock dividends related to:
Completed Capstar Transactions:
Redemption of GulfStar preferred stock............... $ 7,071 $ --
Dividends and accretion on series C 6% redeemable
preferred stock..................................... 193 112
Dividends and accretion on series D 6 1/2% cumulative
convertible exchangeable preferred stock............ 15,404 5,841
Dividends and accretion on series E 12 5/8%
cumulative preferred stock.......................... 22,913 11,311
------- -------
Total adjustment for net increase in dividends and
accretion........................................... $45,581 $17,264
======= =======
</TABLE>
P-43
<PAGE> 236
(L) The detail of the historical financial data of the stations to be acquired
or disposed of in the Pending Capstar Transactions for the year ended
December 31, 1997 and the nine months ended September 30, 1998 has been
obtained from the historical financial statements of the respective
stations and is summarized below:
<TABLE>
<CAPTION>
PENDING
CHAMPION CAPSTAR
TRIATHLON HISTORICAL TRANSACTIONS
YEAR ENDED DECEMBER 31, 1997 1/1-12/31(i) 1/1-12/31(ii) HISTORICAL
- ---------------------------- ------------ ------------- ------------
<S> <C> <C> <C>
Gross revenues........................................... $37,174 $ 4,342 $41,516
Less: agency commissions................................. (3,533) (521) (4,054)
------- ------- -------
Net revenues............................................. 33,641 3,821 37,462
Operating expenses excluding depreciation and
amortization........................................... 23,415 3,849 27,264
Depreciation and amortization............................ 4,135 739 4,874
Corporate general and administrative..................... 2,068 -- 2,068
Stock option compensation................................ 390 -- 390
------- ------- -------
Operating income (loss).................................. 3,633 (767) 2,866
Interest expense......................................... 4,766 575 5,341
Interest income.......................................... (401) -- (401)
Other (income) expense................................... 137 476 613
------- ------- -------
Net income (loss)........................................ (869) (1,818) (2,687)
Preferred stock dividends................................ 5,507 -- 5,507
------- ------- -------
Income (loss) attributable to common stockholders........ $(6,376) $(1,818) $(8,194)
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
PENDING
CAPSTAR
TRANSACTIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 HISTORICAL(i)
- ------------------------------------ -------------
<S> <C>
Gross revenues.............................................. $ 32,617
Less: agency commissions.................................... (3,914)
--------
Net revenues................................................ 28,703
Operating expenses excluding depreciation and
amortization.............................................. 19,412
Depreciation and amortization............................... 3,573
Corporate general and administrative........................ 1,589
Stock option compensation................................... 99
--------
Operating income (loss)..................................... 4,030
Interest expense............................................ 4,532
Other (income) expense...................................... 934
--------
Net income (loss)........................................... (1,436)
Preferred stock dividends................................... 4,131
--------
Income (loss) attributable to common stockholders........... $ (5,567)
========
</TABLE>
- ---------------
(i) On July 23, 1998, Capstar entered into an agreement to acquire Triathlon
Broadcasting Company for approximately $190,000 consisting of $130,000 in
cash, and the assumption of Triathlon's outstanding debt of approximately
$60,000. Triathlon operates 32 radio stations (22 FM and 10 AM) in six
markets: Wichita, Kansas; Colorado Springs, Colorado; Lincoln, Nebraska;
Omaha, Nebraska; Spokane, Washington; and Tri-Cities, Washington. Triathlon
also owns Pinnacle Sports Productions, L.L.C., a regional sports network
that controls the rights to the University of Nebraska football and other
sports events.
(ii) On January 26, 1998, Capstar entered into an agreement to acquire KRRV-FM,
KKST-FM, KZMZ-FM, and KDBS-AM in Alexandria, LA, KMML-FM, KBUY-FM, KNSY-FM
and KIXZ-AM in Amarillo, TX, and KCDQ-FM, KCHX-FM and KMRK-FM in Midland,
TX (collectively, the "Champion Stations") for $11,300 in cash. In addition
to the $11,300, Capstar will make payments based upon multiples of 1998 and
1999 broadcast cash flow, to be paid in 1999 and
P-44
<PAGE> 237
2000, respectively, pursuant to certain terms of the purchase agreement.
Capstar began programming the Champion Stations under a time brokerage
agreement effective January 1, 1998.
(M) Reflects incremental amortization related to the Pending Capstar
Transactions and is based on the following allocation to intangible
assets:
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENT
PENDING CAPSTAR TRANSACTIONS AMORTIZATION INTANGIBLE AMORTIZATION AMORTIZATION FOR NET
YEAR ENDED DECEMBER 31, 1997 PERIOD ASSETS, NET EXPENSE EXPENSE INCREASE
---------------------------- ------------ ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Triathlon................... 1/1-12/31 $ 200,257 $ 5,006 $ 2,396 $ 2,610
Champion.................... 1/1-12/31 8,210 205 443 (238)
---------- ------- ------- -------
$ 208,467 $ 5,212 $ 2,839 $ 2,372
========== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENT
PENDING CAPSTAR TRANSACTIONS AMORTIZATION INTANGIBLE AMORTIZATION AMORTIZATION FOR NET
NINE MONTHS ENDED SEPTEMBER 30, 1998 PERIOD ASSETS, NET EXPENSE EXPENSE INCREASE
------------------------------------ ------------ ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Triathlon....................... 1/1-9/30 200,257 3,754 2,072 1,682
--------- ------ ------ ------
200,257 3,754 2,072 1,682
========= ====== ====== ======
</TABLE>
(N) Reflects the adjustment to interest expense in connection with the
consummation of the Pending Capstar Transactions:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Additional bank borrowings related to:
Pending Acquisitions Capstar credit facility at 8 1/10%... $201,300 $201,300
======== ========
Interest expense on additional bank borrowings Capstar
credit facility at 8 1/10%................................ $ 16,305 $ 12,228
Less: historical interest expense of the stations to be
acquired in the Pending Capstar Transactions.............. (5,341) (4,532)
-------- --------
Total adjustment for net increase in interest expense....... $ 10,964 $ 7,696
======== ========
</TABLE>
(O) Reflects the tax effect of the pro forma adjustments at Capstar's statutory
tax rate of 38% for the periods presented. The pro forma tax benefit is
primarily the result of the reversal of temporary differences related to
the difference in the carrying amounts of FCC licenses for financial
reporting purposes and the amounts used for income tax purposes. The
deferred tax liability resulting from the temporary differences, which have
arisen out of Capstar's various purchase business combinations, has been
recognized in connection with the purchase accounting for the related
acquisitions. Capstar has not recorded a valuation allowance for its pro
forma tax benefit as it believes that, in accordance with Financial
Accounting Standards Board Statement No. 109, on a pro forma basis, it is
more likely than not to have adequate future taxable income to utilize its
deferred tax assets.
(P) Reflects the elimination of Triathlon's preferred stock dividends of $5,507
and $4,131 for the year ended December 31, 1997 and the nine months ended
September 30, 1998, respectively. The Triathlon preferred stock will be
redeemed in connection with Capstar's pending acquisition of Triathlon.
P-45
<PAGE> 238
(c) On September 3, 1998, the Company entered into an agreement to acquire
Pegasus Broadcasting of San Juan, L.L.C., a television broadcasting
company which owns a television station in Puerto Rico, for approximately
$69,600 in cash plus various other direct acquisition costs.
(d) On September 15, 1998, the Company entered into an agreement regarding
the Phoenix Acquisition. The Company began operating KKFR-FM and KFYI-AM
under a time brokerage agreement effective November 5, 1998.
(e) On August 20, 1998, the Company entered into an agreement regarding the
Chicago Disposition. The Company entered into a time brokerage agreement
to sell substantially all of the broadcast time of WMVP-AM effective
September 10, 1998.
(20) Reflects the elimination of intercompany transactions between the Company
and Capstar for the year ended December 31, 1997 and the nine months ended
September 30, 1998.
(21) Reflects incremental amortization related to the assets acquired in the
Pending Transactions and is based on the allocation of the total
consideration as follows:
<TABLE>
<CAPTION>
INCREMENTAL INTANGIBLE HISTORICAL ADJUSTMENT
AMORTIZATION ASSETS, AMORTIZATION AMORTIZATION FOR NET
YEAR ENDED DECEMBER 31, 1997 PERIOD(i) NET EXPENSE(i) EXPENSE INCREASE
- ---------------------------- ------------ ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Chicago Disposition.......... 1/1-12/31 (2,844) (190) (339) 149
Capstar Merger(ii)........... 1/1-12/31 5,890,919 392,728 122,521 270,207
Pegasus Acquisition.......... 1/1-12/31 54,111 3,607 27 3,580
Phoenix Acquisition.......... 1/1-12/31 88,212 5,881 103 5,778
---------- -------- -------- --------
Total...................... $6,030,398 $402,026 $122,312 $279,714
========== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
PENDING TRANSACTIONS INCREMENTAL INTANGIBLE HISTORICAL ADJUSTMENT
NINE MONTHS ENDED AMORTIZATION ASSETS, AMORTIZATION AMORTIZATION FOR NET
SEPTEMBER 30, 1998 PERIOD(i) NET EXPENSE(i) EXPENSE INCREASE
- -------------------- ------------ ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Chicago Disposition.......... 1/1-9/30 (2,844) (142) (189) 47
Capstar Merger(ii)........... 1/1-9/30 5,890,919 294,546 89,546 205,000
Pegasus Acquisition.......... 1/1-9/30 54,111 2,706 20 2,686
Phoenix Acquisition.......... 1/1-9/30 88,212 4,411 78 4,333
---------- -------- ------- --------
Total...................... $6,030,398 $301,521 $89,455 $212,066
========== ======== ======= ========
</TABLE>
- -------------------------
(i)
Intangible assets are amortized on a straight-line basis over an
estimated average 15 year life. The incremental amortization period
represents the period of the year that the acquisition was not
completed.
(ii)
Intangible assets for the Capstar Merger of $5,890,919 include
$1,470,971 of goodwill resulting from the recognition of deferred tax
liabilities.
Historical depreciation expense of the Pending Transactions is assumed to
approximate depreciation expense on a pro forma basis. Actual depreciation
and amortization may differ based upon final purchase price allocations.
P-46
<PAGE> 239
(22) Reflects the adjustment to interest expense in connection with the
consummation of the Pending Transactions:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Additional bank borrowings related to:
Pending Acquisitions.................................... $159,600 $159,600
Pending Disposition..................................... (21,000) (21,000)
Capstar Merger(i)....................................... 50,000 50,000
-------- --------
Total additional bank borrowings........................ $188,600 $188,600
======== ========
Interest expense at 7.0%................................ $ 13,202 $ 9,901
Less: historical interest expense related to completed
acquisitions and dispositions........................... (26) (288)
Less: reduction in interest expense related to the
application of the 7.0% interest rate to the Company's
bank debt prior to the refinancing of Capstar's bank
debt prior to consummation of the Capstar Merger........ (28,298) (15,123)
-------- --------
Total adjustment for net decrease in interest expense..... $(15,122) $ (5,510)
======== ========
</TABLE>
- -------------------------
(i) The Company will incur additional bank borrowings of $50,000 to finance
estimated acquisition costs related to the Capstar Merger.
(23) Reflects the tax effect of the pro forma adjustments at the Company's
statutory tax rate of 42% for the periods presented. The pro forma tax
benefit is primarily the result of the reversal of temporary differences
related to the difference in the carrying amounts of FCC licenses for
financial reporting purposes and the amounts used for income tax purposes.
The deferred tax liability resulting from the temporary differences, which
have arisen out of the Company's various purchase business combinations,
has been recognized in connection with the purchase accounting for the
related acquisitions. The Company has not recorded a valuation allowance
for its pro forma tax benefit as it believes that, in accordance with
Financial Accounting Standards Board Statement No. 109, on a pro forma
basis, it is more likely than not to have adequate future taxable income to
utilize its deferred tax assets.
P-47
<PAGE> 240
(24) The pro forma combined loss per common share data is computed by dividing
pro forma loss attributable to common stockholders by the weighted average
common shares assumed to be outstanding. A summary of shares used in the
pro forma combined loss per common share calculation follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
<S> <C> <C>
Historical weighted average shares outstanding........ 130,253 136,427
Incremental weighted average shares relating to:
16,179,646 shares of Common Stock to be issued in
connection with the LIN Merger................... 16,180 16,180
51,643,967 shares of Common Stock to be issued in
connection with the Capstar merger............... 51,644 51,644
-------- --------
Total incremental weighted average shares............. 67,824 67,824
-------- --------
Shares used in the pro forma combined earnings per
share calculation................................... 198,077 204,251
======== ========
</TABLE>
P-48
<PAGE> 241
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
Report of Independent Accountants......................... F-5
Independent Auditors' Report.............................. F-6
Consolidated Balance Sheets as of December 31, 1996 and
1997................................................... F-7
Consolidated Statements of Operations for the years ended
December 31, 1995, 1996 and 1997....................... F-8
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1995, 1996 and 1997........... F-9
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997....................... F-10
Notes to Consolidated Financial Statements................ F-11
Report of Independent Accountants......................... F-37
Schedule I -- Condensed Balance Sheets -- Parent Company
as of December 31, 1996 and 1997....................... F-38
Schedule I -- Condensed Statements of Operations -- Parent
Company for the years ended December 31, 1995, 1996 and
1997................................................... F-39
Schedule I -- Condensed Statement of Cash Flows -- Parent
Company for the years ended December 31, 1995, 1996 and
1997................................................... F-40
Schedule I -- Notes to Parent Company Condensed Financial
Statements............................................. F-41
Schedule II -- Valuation and Qualifying Accounts.......... F-42
Unaudited Consolidated Balance Sheets as of December 31,
1997 and September 30, 1998............................ F-43
Unaudited Consolidated Statements of Operations for the
three and nine months ended September 30, 1997 and
1998................................................... F-44
Unaudited Consolidated Statements of Cash Flows for the
nine months ended September 30, 1997 and 1998.......... F-45
Notes to Unaudited Consolidated Financial Statements...... F-46
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
Report of Independent Accountants......................... F-58
Consolidated Balance Sheets as of December 31, 1995 and
1996................................................... F-59
Consolidated Statements of Operations for the years ended
December 31, 1994, 1995 and 1996....................... F-60
Consolidated Statements of Changes in Common Stockholders'
Equity for the years ended December 31, 1994, 1995 and
1996................................................... F-61
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996....................... F-62
Notes to Consolidated Financial Statements................ F-63
OUTDOOR ADVERTISING DIVISION OF WHITECO INDUSTRIES, INC.
Independent Auditors' Report.............................. F-81
Balance Sheets as of December 31, 1996 and 1997 and
September 30, 1998 (unaudited)......................... F-82
Statements of Income for the years ended December 31,
1995, 1996, 1997 and the nine months ended September
30, 1997 and 1998 (unaudited).......................... F-83
Statements of Cash Flows for the years ended December 31,
1995, 1996, 1997 and the nine months ended September
30, 1997 and 1998 (unaudited).......................... F-84
Notes to Financial Statements (unaudited)................. F-85
RANGER EQUITY HOLDINGS CORPORATION
Condensed Consolidated Balance Sheets as of December 31,
1997 and September 30, 1998 (unaudited)................ F-88
Condensed Consolidated Statements of Operations for the
nine months ended September 30, 1997 and 1998
(unaudited)............................................ F-89
Condensed Consolidated Statement of Stockholders' Equity
as of September 30, 1998............................... F-90
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1997 and 1998
(unaudited)............................................ F-91
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................ F-92
</TABLE>
F-1
<PAGE> 242
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
LIN TELEVISION CORPORATION
Report of Independent Auditors............................ F-100
Consolidated Balance Sheets as of December 31, 1997 and
1996................................................... F-101
Consolidated Statements of Income for each of the years
ended December 31, 1997, 1996 and 1995................. F-102
Consolidated Statements of Stockholders' Equity for each
of the years in the period ended December 31, 1997..... F-103
Consolidated Statements of Cash Flows for each of the
years ended December 31, 1997, 1996 and 1995........... F-104
Notes to Consolidated Financial Statements................ F-105
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
Report of Independent Accountants......................... F-120
Consolidated Balance Sheets as of December 31, 1996 and
1997 and March 31, 1998 (unaudited).................... F-121
Consolidated Statements of Operations for each of the
three years in the period ended December 31, 1997 and
the three months ended March 31, 1997 and 1998
(unaudited)............................................ F-122
Consolidated Statements of Stockholders' Equity for each
of the three years in the period ended December 31,
1997 and the three months ended March 31, 1998
(unaudited)............................................ F-123
Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 1997 and
the three months ended March 31, 1997 and 1998
(unaudited)............................................ F-125
Notes to Consolidated Financial Statements................ F-126
Consolidated Balance Sheets as of December 31, 1997 and
September 30, 1998 (unaudited)......................... F-150
Consolidated Statements of Operations for the three months
ended September 30, 1997 and 1998 (unaudited).......... F-151
Consolidated Statements of Operations for the nine months
ended September 30, 1997 and 1998 (unaudited).......... F-152
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1997 and 1998
(unaudited)............................................ F-153
Consolidated Statement of Stockholders' Equity for the
nine months ended September 30, 1998 (unaudited)....... F-154
Notes to Consolidated Financial Statements (unaudited).... F-155
COMMODORE MEDIA, INC. AND SUBSIDIARIES
Report of Independent Auditors............................ F-169
Consolidated Statements of Operations for the period from
January 1, 1996 to October 16, 1996 and the year ended
December 31, 1995...................................... F-170
Consolidated Statements of Cash Flows for the period from
January 1, 1996 to October 16, 1996 and the year ended
December 31, 1995...................................... F-171
Notes to Consolidated Statements of Operations and Cash
Flows.................................................. F-172
MARTIN MEDIA
Report of Independent Public Accountants.................. F-179
Balance Sheets as of December 31, 1997 and 1996........... F-180
Statements of Operations for each of the years ended
December 31, 1997, 1996 and 1995....................... F-181
Statements of Partners' Capital (Deficit) for each of the
years ended December 31, 1997, 1996 and 1995........... F-182
Statements of Cash Flows for each of the years ended
December 31, 1997, 1996 and 1995....................... F-183
Notes to Financial Statements............................. F-184
Statements of Operations for the six months ended June 30,
1998 and 1997 (unaudited).............................. F-194
Statements of Cash Flows for the six months ended June 30,
1998 and 1997 (unaudited).............................. F-195
Note to Financial Statements.............................. F-196
</TABLE>
F-2
<PAGE> 243
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
MARTIN & MACFARLANE, INC.
Report of Independent Public Accountants.................. F-197
Balance Sheets as of December 31, 1997 and 1996........... F-198
Statements of Income for each of the years ended December
31, 1997 and 1996 and six month period ended December
31, 1995............................................... F-199
Statements of Retained Earnings for each of the years
ended December 31, 1997 and 1996 and six month period
ended December 31, 1995................................ F-200
Statements of Cash Flows for each of the years ended
December 31, 1997 and 1996 and six month period ended
December 31, 1995...................................... F-201
Notes to Financial Statements............................. F-202
Independent Auditors' Report.............................. F-213
Balance Sheet as of June 30, 1995......................... F-214
Statement of Income for the year ended June 30, 1995...... F-215
Statement of Retained Earnings for the year ended June 30,
1995................................................... F-216
Statement of Cash Flows for the year ended June 30,
1995................................................... F-217
Notes to Financial Statements............................. F-218
Statements of Operations for the six months ended June 30,
1998 and 1997 (unaudited).............................. F-225
Statements of Cash Flows for the six months ended June 30,
1998 and 1997 (unaudited).............................. F-226
Note to Financial Statements.............................. F-227
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
Independent Auditors' Report.............................. F-228
Combined Balance Sheets as of December 31, 1995 and 1996
and June 30, 1997 (unaudited).......................... F-229
Combined Statements of Earnings for the years ended
December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1996 and 1997 (unaudited)............... F-230
Combined Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1996 and 1997 (unaudited)............... F-231
Notes to Combined Financial Statements.................... F-232
WMZQ INC. AND VIACOM BROADCASTING EAST INC.:
Independent Auditors' Report.............................. F-237
Combined Balance Sheets as of December 31, 1995 and 1996
and June 30, 1997 (unaudited).......................... F-238
Combined Statements of Earnings for the years ended
December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1996 and 1997 (unaudited)............... F-239
Combined Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1996 and 1997 (unaudited)............... F-240
Notes to Combined Financial Statements.................... F-241
WDAS-AM/FM (STATION OWNED AND OPERATED BY BEASLEY FM
ACQUISITION CORP.):
Independent Auditors' Report.............................. F-246
Balance Sheets as of December 31, 1996 and March 31, 1997
(unaudited)............................................ F-247
Statements of Earnings and Station Equity for the year
ended December 31, 1996 and the three months ended
March 31, 1996 and 1997 (unaudited).................... F-248
Statements of Cash Flows for the year ended December 31,
1996 and the three months ended March 31, 1996 and 1997
(unaudited)............................................ F-249
Notes to Financial Statements............................. F-250
KYSR INC. AND KIBB INC.:
Independent Auditors' Report.............................. F-254
Combined Balance Sheets as of December 31, 1995 and 1996
and June 30, 1997 (unaudited).......................... F-255
Combined Statements of Operations for the years ended
December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1996 and 1997 (unaudited)............... F-256
Combined Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1996 and 1997 (unaudited)............... F-257
Notes to Combined Financial Statements.................... F-258
</TABLE>
F-3
<PAGE> 244
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
WLIT INC.:
Independent Auditors' Report.............................. F-263
Balance Sheets as of December 31, 1995 and 1996 and June
30, 1997 (unaudited)................................... F-264
Statements of Earnings for the years ended December 31,
1994, 1995 and 1996 and the six months ended June 30,
1996 and 1997 (unaudited).............................. F-265
Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996 and the six months ended June 30,
1996 and 1997 (unaudited).............................. F-266
Notes to Financial Statements............................. F-267
COLFAX COMMUNICATIONS, INC. RADIO GROUP
Report of Independent Public Accountants.................. F-272
Combined Balance Sheets as of December 31, 1996, 1995, and
1994................................................... F-273
Combined Statements of Income for the years ended December
31, 1996, 1995, and 1994............................... F-274
Combined Statements of Changes in Partners' Equity for the
years ended December 31, 1996, 1995, and 1994.......... F-275
Combined Statements of Cash Flows for the years ended
December 31, 1996, 1995, and 1994...................... F-276
Notes to Combined Financial Statements.................... F-277
SFX BROADCASTING, INC. AND SUBSIDIARIES
Report of Independent Auditors............................ F-284
Consolidated Balance Sheets as of March 31, 1998 and
December 31, 1997 and 1996............................. F-286
Consolidated Statements of Operations for the three months
ended March 31, 1998 and 1997 and for the years ended
December 31, 1997, 1996 and 1995....................... F-288
Consolidated Statements of Shareholders' Equity for the
three months ended March 31, 1998 and for the years
ended December 31, 1997. 1996 and 1995................. F-289
Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and 1997 and for the years ended
December 31, 1997, 1996 and 1995....................... F-290
Notes to Consolidated Financial Statements................ F-291
KBIG-FM, KLDE-FM AND WBIX-FM (FORMERLY WNSR-FM):
Report of Independent Accountants......................... F-311
Combined Statement of Assets Acquired as of April 3,
1998................................................... F-312
Combined Statements of Revenues and Direct Operating
Expenses for the years ended December 31, 1995, 1996
and 1997 and the three months ended March 31, 1997 and
1998 (unaudited)....................................... F-313
Notes to the Combined Financial Statements................ F-314
KODA-FM:
Report of Independent Accountants......................... F-316
Statement of Assets Acquired as of May 29, 1998........... F-317
Statements of Revenues and Direct Operating Expenses for
the years ended December 31, 1996 and 1997 and the
three months ended March 31, 1997 and 1998
(unaudited)............................................ F-318
Notes to the Financial Statements......................... F-319
</TABLE>
F-4
<PAGE> 245
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation:
We have audited the accompanying consolidated balance sheet of Chancellor
Media Corporation and subsidiaries (collectively, the "Company") as of December
31, 1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for the year ended December 31, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 1997, and the consolidated results of its
operations and its cash flows for the year ended December 31, 1997 in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
February 10, 1998, except for notes 2(b)
paragraphs 1 and 3-5 as to which the date
is February 20, 1998 and 9(b) paragraph 6
as to which the date is March 13, 1998
F-5
<PAGE> 246
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Chancellor Media Corporation:
We have audited the accompanying consolidated balance sheet of Chancellor
Media Corporation (formerly Evergreen Media Corporation) and subsidiaries as of
December 31, 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1995 and
1996. In connection with our audits of the consolidated financial statements, we
have also audited the financial statement schedules as of and for the years
ended December 31, 1995 and 1996. These consolidated financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Chancellor
Media Corporation and subsidiaries as of December 31, 1996, and the results of
their operations and their cash flows for the years ended December 31, 1995 and
1996 in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Dallas, Texas
January 31, 1997
F-6
<PAGE> 247
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 3,060 $ 16,584
Accounts receivable, less allowance for doubtful accounts
of $2,292 in 1996 and $12,651 in 1997.................. 85,159 239,869
Other current assets (note 3)............................. 6,352 27,208
---------- ----------
Total current assets.............................. 94,571 283,661
Property and equipment, net (note 4)........................ 48,193 159,797
Intangible assets, net (note 5)............................. 853,643 4,404,443
Other assets, net (note 3).................................. 24,552 113,576
---------- ----------
$1,020,959 $4,961,477
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses (note 6)............ $ 26,650 $ 171,017
Current portion of long-term debt (note 7)................ 26,500 --
---------- ----------
Total current liabilities......................... 53,150 171,017
Long-term debt, excluding current portion (note 7).......... 331,500 2,573,000
Deferred tax liabilities (note 11).......................... 86,098 361,640
Other liabilities........................................... 800 44,405
---------- ----------
Total liabilities................................. 471,548 3,150,062
---------- ----------
Redeemable preferred stock (note 8):
Redeemable senior cumulative exchangeable preferred stock
of subsidiary, par value $.01 per share; 1,000,000
shares authorized, issued and outstanding in 1997;
liquidation preference of $121,274..................... -- 119,445
Redeemable cumulative exchangeable preferred stock of
subsidiary, par value $.01 per share; 3,600,000 shares
authorized and 2,117,629 shares issued and outstanding
in 1997; liquidation preference of $223,519............ -- 211,763
Stockholders' equity (note 9):
Preferred stock, $.01 par value. 2,200,000 shares of 7%
convertible preferred stock authorized, issued and
outstanding in 1997.................................... -- 110,000
Preferred stock, $.01 par value. 6,000,000 shares
authorized; 5,990,000 shares of $3.00 convertible
exchangeable preferred stock issued and outstanding in
1997................................................... -- 299,500
Common stock, $.01 par value. Authorized 200,000,000
shares; issued and outstanding 78,077,696 shares in
1996 and 119,921,814 shares in 1997.................... 781 1,199
Class B common stock, $.01 par value. Authorized 4,500,000
shares; issued and outstanding 6,232,132 shares in
1996................................................... 62 --
Paid-in capital........................................... 662,080 1,226,930
Accumulated deficit....................................... (113,512) (157,422)
---------- ----------
Total stockholders' equity........................ 549,411 1,480,207
---------- ----------
Commitments and contingencies (notes 2, 7 and 12)...........
$1,020,959 $4,961,477
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 248
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Gross revenues.............................................. $186,365 $337,405 $663,804
Less agency commissions................................... 23,434 43,555 81,726
-------- -------- --------
Net revenues........................................... 162,931 293,850 582,078
-------- -------- --------
Operating expenses:
Station operating expenses excluding depreciation and
amortization........................................... 97,674 174,344 316,248
Depreciation and amortization............................. 47,005 93,749 185,982
Corporate general and administrative...................... 4,475 7,797 21,442
-------- -------- --------
Operating expenses..................................... 149,154 275,890 523,672
-------- -------- --------
Operating income....................................... 13,777 17,960 58,406
-------- -------- --------
Nonoperating (income) expenses:
Interest expense.......................................... 19,199 37,527 85,017
Interest income........................................... (55) (477) (1,922)
Gain on disposition of assets (note 2).................... -- -- (18,380)
Other expense, net........................................ 291 -- 383
-------- -------- --------
Nonoperating expenses, net............................. (19,435) (37,050) (65,098)
-------- -------- --------
Loss before income taxes and extraordinary item........ (5,658) (19,090) (6,692)
Income tax expense (benefit) (note 11)...................... 192 (2,896) 7,802
Dividends on preferred stock of subsidiary (note 8)......... -- -- 12,901
-------- -------- --------
Loss before extraordinary item......................... (5,850) (16,194) (27,395)
Extraordinary item -- loss on extinguishment of debt, net of
income tax benefit (note 7)............................... -- -- 4,350
-------- -------- --------
Net loss............................................... (5,850) (16,194) (31,745)
Preferred stock dividends (note 9(a))....................... 4,830 3,820 12,165
-------- -------- --------
Net loss attributable to common stockholders........... $(10,680) $(20,014) $(43,910)
======== ======== ========
Basic and diluted loss per common share (notes 1(l) and 9):
Before extraordinary item................................. $ (.26) $ (.33) $ (.41)
Extraordinary item........................................ -- -- (.05)
-------- -------- --------
Net loss............................................... $ (.26) $ (.33) $ (.46)
======== ======== ========
Weighted average common shares outstanding.................. 41,442 60,414 95,636
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 249
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE CLASS B
PREFERRED STOCK COMMON STOCK COMMON STOCK
--------------------- -------------------- ------------------- WARRANTS
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT (NOTE 9(c))
---------- -------- ----------- ------ ---------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994................... 1,610,000 $ 80,500 19,918,768 $ 199 6,296,632 $ 63 $ 12,488
Issuance of Common Stock in acquisition (note
9(b))......................................... -- -- 11,222,018 112 -- -- --
Issuance of Common Stock in public offering
(note 9(b))................................... -- -- 14,700,000 147 -- -- --
Exercise of common stock warrants (note 9(c))... -- -- 3,902,772 39 -- -- (12,488)
Conversion of Class B Common Stock to Common
Stock......................................... -- -- 64,500 1 (64,500) (1) --
Exercise of common stock options (note 9(d)).... -- -- 51,000 1 -- -- --
Convertible preferred stock dividends (note
9(a))......................................... -- -- -- -- -- -- --
Net loss........................................ -- -- -- -- -- -- --
---------- -------- ----------- ------ ---------- ---- --------
Balances at December 31, 1995................... 1,610,000 80,500 49,859,058 499 6,232,132 62 --
Issuance of Common Stock in public offering
(note 9(b))................................... -- -- 18,000,000 180 -- -- --
Conversion of 1993 Preferred Stock (note
9(a))......................................... (1,608,297) (80,415) 10,051,832 100 -- -- --
Redemption of 1993 Preferred Stock (note
9(a))......................................... (1,703) (85) -- -- -- -- --
Exercise of common stock options (note 9(d)).... -- -- 166,806 2 -- -- --
Convertible preferred stock dividends (note
9(a))......................................... -- -- -- -- -- -- --
Net loss........................................ -- -- -- -- -- -- --
---------- -------- ----------- ------ ---------- ---- --------
Balances at December 31, 1996................... -- -- 78,077,696 781 6,232,132 62 --
Issuance of $3.00 Convertible Preferred Stock
(note 9(a))................................... 5,990,000 299,500 -- -- -- -- --
Issuance of Common Stock in merger (note
9(b))......................................... -- -- 34,617,460 346 -- -- --
Issuance of common stock options in merger (note
9(d))......................................... -- -- -- -- -- -- --
Issuance of 7% Preferred Stock in merger (note
9(a))......................................... 2,200,000 110,000 -- -- -- -- --
Conversion of Class B Common Stock (note
9(b))......................................... -- -- 6,232,132 62 (6,232,132) (62) --
Exercise of common stock options (note 9(d)).... -- -- 994,526 10 -- -- --
Convertible preferred stock dividends (note
9(a))......................................... -- -- -- -- -- -- --
Net loss........................................ -- -- -- -- -- -- --
---------- -------- ----------- ------ ---------- ---- --------
Balances at December 31, 1997................... 8,190,000 $409,500 119,921,814 $1,199 -- $ -- $ --
========== ======== =========== ====== ========== ==== ========
<CAPTION>
TOTAL
PAID-IN ACCUMULATED STOCKHOLDERS'
CAPITAL DEFICIT EQUITY
---------- ----------- -------------
<S> <C> <C> <C>
Balances at December 31, 1994................... $ 101,921 $ (82,818) $ 112,353
Issuance of Common Stock in acquisition (note
9(b))......................................... 70,026 -- 70,138
Issuance of Common Stock in public offering
(note 9(b))................................... 132,574 -- 132,721
Exercise of common stock warrants (note 9(c))... 12,462 -- 13
Conversion of Class B Common Stock to Common
Stock......................................... -- -- --
Exercise of common stock options (note 9(d)).... 31 -- 32
Convertible preferred stock dividends (note
9(a))......................................... -- (4,830) (4,830)
Net loss........................................ -- (5,850) (5,850)
---------- --------- ----------
Balances at December 31, 1995................... 317,014 (93,498) 304,577
Issuance of Common Stock in public offering
(note 9(b))................................... 264,056 -- 264,236
Conversion of 1993 Preferred Stock (note
9(a))......................................... 80,315 -- --
Redemption of 1993 Preferred Stock (note
9(a))......................................... (5) -- (90)
Exercise of common stock options (note 9(d)).... 700 -- 702
Convertible preferred stock dividends (note
9(a))......................................... -- (3,820) (3,820)
Net loss........................................ -- (16,194) (16,194)
---------- --------- ----------
Balances at December 31, 1996................... 662,080 (113,512) 549,411
Issuance of $3.00 Convertible Preferred Stock
(note 9(a))................................... (11,692) -- 287,808
Issuance of Common Stock in merger (note
9(b))......................................... 536,225 -- 536,571
Issuance of common stock options in merger (note
9(d))......................................... 34,977 -- 34,977
Issuance of 7% Preferred Stock in merger (note
9(a))......................................... -- -- 110,000
Conversion of Class B Common Stock (note
9(b))......................................... -- -- --
Exercise of common stock options (note 9(d)).... 5,340 -- 5,350
Convertible preferred stock dividends (note
9(a))......................................... -- (12,165) (12,165)
Net loss........................................ -- (31,745) (31,745)
---------- --------- ----------
Balances at December 31, 1997................... $1,226,930 $(157,422) $1,480,207
========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 250
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................... $ (5,850) $ (16,194) $ (31,745)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation.................................... 5,508 7,707 14,918
Amortization of goodwill, intangible assets and
other assets.................................. 41,497 86,042 171,064
Provision for doubtful accounts................. 904 2,179 5,174
Deferred income tax benefit..................... (479) (4,353) (3,829)
Gain on disposition of assets................... -- -- (18,380)
Dividends on preferred stock of subsidiary...... 12,901
Loss on extinguishment of debt, net of income
tax benefit................................... -- -- 4,350
Changes in certain assets and liabilities, net
of effects of acquisitions:
Accounts receivable........................... (6,628) (28,146) (29,977)
Other current assets.......................... 724 (2,804) 733
Accounts payable and accrued expenses......... 3,711 3,991 20,004
Other assets.................................. (184) (354) (4,283)
Other liabilities............................. 490 (587) (1,416)
--------- --------- -----------
Net cash provided by operating
activities............................... 39,693 47,481 139,514
--------- --------- -----------
Cash flows from investing activities:
Acquisitions, net of cash acquired................. (188,004) (457,764) (1,631,505)
Escrow deposits on pending acquisitions............ -- (17,000) (4,655)
Proceeds from sale of assets....................... -- 32,000 269,250
Payments made on purchases of representation
contracts....................................... -- -- (31,456)
Payments received on sales of representation
contracts....................................... -- -- 9,296
Capital expenditures............................... (2,642) (6,543) (11,666)
Other.............................................. (1,466) (12,631) (22,273)
--------- --------- -----------
Net cash used by investing activities...... (192,112) (461,938) (1,423,009)
--------- --------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt........... 186,000 447,750 2,945,250
Principal payments on long-term debt............... (159,000) (290,750) (1,901,250)
Net proceeds from issuance of common stock,
preferred stock and warrants.................... 132,766 264,938 293,158
Dividends on preferred stock....................... (4,830) (3,820) (14,572)
Payments for debt issuance costs................... (303) (3,941) (25,567)
Redemption of preferred stock...................... -- (90) --
--------- --------- -----------
Net cash provided by financing
activities............................... 154,633 414,087 1,297,019
--------- --------- -----------
Increase (decrease) in cash and cash equivalents..... 2,214 (370) 13,524
Cash and cash equivalents at beginning of year....... 1,216 3,430 3,060
--------- --------- -----------
Cash and cash equivalents at end of year............. $ 3,430 $ 3,060 $ 16,584
========= ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 251
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Chancellor Media Corporation (formerly known as Evergreen Media
Corporation) ("Chancellor Media") and its subsidiaries (collectively, the
"Company") own and operate commercial radio stations in various geographical
regions across the United States. The Company's station portfolio as of December
31, 1997 included 96 stations (68 FM and 28 AM) comprising a total of 11 station
clusters of four or five FM stations ("superduopolies") in seven of the 12
largest radio markets -- Los Angeles, New York, Chicago, San Francisco,
Philadelphia, Washington, D.C. and Detroit -- and in four other large
markets -- Denver, Minneapolis/St. Paul, Phoenix and Orlando. The Company also
owns Katz Media Group, Inc. ("KMG" and, together with its operating
subsidiaries, "Katz"), a full-service media representation firm that sells
national spot advertising time for its clients in the television, radio and
cable industries.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of Chancellor
Media and its subsidiaries all of which are wholly owned. Significant
intercompany balances and transactions have been eliminated in consolidation.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Repair and maintenance costs are charged to expense when
incurred.
(d) Intangible Assets
Intangible assets consist primarily of broadcast licenses, goodwill,
representation contracts and other identifiable intangible assets. Intangible
assets resulting from acquisitions are valued based upon estimated fair values.
The Company amortizes such intangible assets using the straight-line method over
estimated useful lives ranging from 1 to 40 years. The Company continually
evaluates the propriety of the carrying amount of goodwill and other intangible
assets as well as the amortization period to determine whether current events or
circumstances warrant adjustments to the carrying value and/or revised estimates
of useful lives. This evaluation consists of the projection of undiscounted
operating income before depreciation, amortization, nonrecurring charges and
interest over the remaining amortization periods of the related intangible
assets. The projections are based on a historical trend line of actual results
since the acquisitions of the respective stations adjusted for expected changes
in operating results. To the extent such projections indicate that undiscounted
operating income is not expected to be adequate to recover the carrying amounts
of the related intangible assets, such carrying amounts are written down by
charges to expense. At this time, the Company believes that no significant
impairment of goodwill and other intangible assets has occurred and that no
reduction of the estimated useful lives is warranted.
(e) Debt Issuance Costs
The costs related to the issuance of debt are capitalized and amortized to
expense over the lives of the related debt. During the years ended December 31,
1995, 1996 and 1997, the Company recognized amortization of debt issuance costs
of $631, $1,113 and $1,337, respectively, which amounts are included in
amortization expense in the accompanying consolidated statements of operations.
F-11
<PAGE> 252
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(f) Barter Transactions
The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. An asset and
liability is recorded at the fair market value of the goods or services
received. Barter revenue is recorded and the liability relieved when commercials
are broadcast and barter expense is recorded and the asset relieved when goods
or services are received or used. Barter amounts are not significant to the
Company's consolidated financial statements.
(g) Income Taxes
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable earnings. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount more likely than not to be
realized. Income tax expense is the total of tax payable for the period and the
change during the period in deferred tax assets and liabilities which impacted
operations.
(h) Revenue Recognition
Revenue is derived primarily from the sale of radio advertising time to
local and national advertisers and from commissions on sales of advertising time
for radio and television stations and cable television systems under
representation contracts by the Company's media representation firm, Katz Media
Group, Inc. Revenue is recognized as advertisements are broadcast.
Fees received or paid pursuant to various time brokerage agreements are
recognized as gross revenues or amortized to expense, respectively, over the
term of the agreement using the straight-line method.
(i) Representation Contracts
Representation contracts typically may be terminated by either party upon
written notice one year after receipt of such notice. In accordance with
industry practice, in lieu of termination, an arrangement is typically made for
the purchase of such contracts by the successor representation firm. Under such
arrangements, the purchase price paid by the successor representation firm is
based upon the historic commission income projected over the remaining contract
period, including the evergreen notice period, plus 2 months.
Income resulting from the disposition of representation contracts is
recognized as other revenue over the remaining life of the contracts sold. Other
revenue on the disposition of representation contracts included in gross revenue
in the accompanying consolidated statement of operations was $153 for the year
ended December 31, 1997. Costs of obtaining representation contracts are
deferred and amortized over the related period of benefit. Amortization of costs
of obtaining representation contracts included in depreciation and amortization
in the accompanying consolidated statement of operations was $380 for the year
ended December 31, 1997.
(j) Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers
temporary cash investments purchased with original maturities of three months or
less to be cash equivalents.
F-12
<PAGE> 253
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company paid approximately $19,134, $37,042 and $84,610 for interest in
1995, 1996 and 1997, respectively. The Company paid approximately $733 and
$11,079 for income taxes in 1996 and 1997, respectively.
(k) Derivative Financial Instruments
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well-defined interest rate risks related to interest on the Company's
outstanding debt.
As interest rates change under interest rate swap and cap agreements, the
differential to be paid or received is recognized as an adjustment to interest
expense. The Company is not exposed to credit loss as its interest rate swap
agreements are with the participating banks under the Company's senior credit
facility.
(l) Loss Per Common Share
Loss per common share is based on the weighted average shares of common
stock outstanding during each year. Stock options, the $3.00 Convertible
Exchangeable Preferred Stock (the "$3.00 Convertible Preferred Stock") and the
7% Convertible Preferred Stock (the "7% Convertible Preferred Stock") are not
included in the calculation as their effect would be antidilutive.
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. On December
18, 1997, the Company declared a two-for-one stock split effected in the form of
a stock dividend payable on January 12, 1998 to shareholders of record at the
close of business on December 29, 1997. All share and per share data (other than
authorized share data) contained in the accompanying consolidated financial
statements have been retroactively adjusted to give effect to the stock
dividends.
The Company adopted the provisions of SFAS No. 128, Earnings Per
Share,effective for the year ended December 31, 1997. This Statement establishes
new standards for computing and presenting earnings per share and requires
restatement of all prior period earnings per share data. The adoption of this
Statement resulted in the dual presentation of basic and diluted earnings per
share on the Company's income statement. In accordance with this statement, the
Company has applied these provisions on a retroactive basis. Basic and diluted
loss per common share does not differ from previously reported primary loss per
share information for the years ended December 31, 1995 and 1996 due to the
Company's loss position.
(m) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of management, credit risk with respect to trade receivables
is limited due to the large number of diversified customers and the geographic
diversification of the Company's customer base. The Company performs ongoing
credit evaluations of its customers and believes that adequate allowances for
any uncollectible trade receivables are maintained. At December 31, 1995, 1996
and 1997, no receivable from any customer exceeded 5% of stockholders' equity
and no customer accounted for more than 10% of net revenues in 1995, 1996 or
1997.
F-13
<PAGE> 254
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(n) Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock option plans
in accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. SFAS
No. 123, Accounting for Stock-Based Compensation, permits entities to recognize
as expense over the vesting period the fair value of all stock-based awards on
the date of grant or to continue to apply the provisions of APB Opinion No. 25
and provide pro forma net income and pro forma earnings per share disclosures
for employee stock option grants made in 1995 and future years as if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosures of SFAS No. 123.
(o) Recently Issued Accounting Principles
The Company adopted the provisions of SFAS No. 129, Disclosures of
Information about Capital Structure, effective for the year ended December 31,
1997. This Statement consolidates existing pronouncements on required
disclosures about a company's capital structure including a brief discussion of
rights and privileges for securities outstanding. The adoption of this Statement
had no material effect on the Company's consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income. This Statement requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS No. 130 is effective for
financial statement periods beginning after December 15, 1997. Management does
not anticipate that this Statement will have a significant effect on the
Company's consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. This
Statement establishes standards for reporting information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997. Management does
not anticipate that this Statement will have a significant effect on the
Company's consolidated financial statements.
(p) Reclassifications
Certain reclassifications have been made to prior years' consolidated
financial statements to conform to the current year presentation.
(2) ACQUISITIONS AND DISPOSITIONS
(a) Completed Transactions
In May 1995, the Company acquired Broadcasting Partners, Inc. ("BPI"), a
publicly traded radio broadcasting company with seven FM and four AM radio
stations, eight of which are in the nation's ten largest radio markets (the "BPI
Acquisition"). The BPI Acquisition was effected through the merger of a
wholly-owned subsidiary of the Company with and into BPI, with BPI surviving the
merger as a wholly-owned subsidiary of the Company. The BPI Acquisition included
the conversion of each outstanding share of BPI common stock into the right to
receive $12.00 in cash and .69 shares of the Company's Common Stock,
F-14
<PAGE> 255
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
resulting in total cash payments of $94,813 and the issuance of 11,222,018
shares of the Company's Common Stock valued at $6.25 per share. In addition, the
Company retired existing BPI debt of $81,926 and incurred various other direct
acquisition costs. The total purchase price, including closing costs, allocated
to net assets acquired was approximately $258,634.
On January 17, 1996, the Company acquired Pyramid Communications, Inc.
("Pyramid"), a radio broadcasting company with nine FM and three AM radio
stations in five radio markets (Chicago, Philadelphia, Boston, Charlotte and
Buffalo) (the "Pyramid Acquisition"). The Pyramid Acquisition was effected
through the merger of a wholly-owned subsidiary of the Company with and into
Pyramid, with Pyramid surviving the merger as a wholly-owned subsidiary of the
Company. The total purchase price, including closing costs, allocated to net
assets acquired was approximately $316,343 in cash.
On May 3, 1996, the Company acquired WKLB-FM in Boston from Fairbanks
Communications for $34,000 in cash plus various other direct acquisition costs.
On November 26, 1996, the Company exchanged WKLB-FM in Boston (now known as
WROR-FM) for WGAY-FM in Washington, D.C. The exchange was accounted for as a
like-kind exchange and no gain or loss was recognized upon consummation of the
transaction. The Company had previously been operating WGAY-FM under a time
brokerage agreement and selling substantially all of the broadcast time of
WKLB-FM under a time brokerage agreement, in each case since June 17, 1996,
pending completion of the exchange.
On July 19, 1996, the Company sold WHTT-FM and WHTT-AM in Buffalo to
Mercury Radio for $19,500 in cash, and on August 1, 1996, the Company sold
WSJZ-FM in Buffalo to American Radio Systems for $12,500 in cash (collectively,
the "Buffalo Stations"). The assets of the Buffalo Stations were classified as
assets held for sale in the Pyramid Acquisition and no gain or loss was
recognized by the Company upon consummation of the sales. The combined net
income of the Buffalo stations of approximately $733 has been excluded from the
consolidated statement of operations for the year ended December 31, 1996. The
excess of the proceeds over the carrying amounts at the dates of sale
approximated $2,561 (including interest costs during the holding period of
approximately $1,169) and has been accounted for as an adjustment to the
original purchase price of the Pyramid Acquisition. The Company had previously
entered into time brokerage agreements (effective April 15, 1996 for WSJZ-FM and
April 25, 1996 for WHTT-FM and WHTT-AM) to sell substantially all of the
broadcast time of these stations pending completion of the sales.
On August 14, 1996, the Company acquired KYLD-FM in San Francisco from
Crescent Communications for $44,000 in cash plus various other direct
acquisition costs. The Company had previously been operating KYLD-FM under a
time brokerage agreement since May 1, 1996.
On October 18, 1996, the Company acquired WEDR-FM in Miami from affiliates
of the Rivers Group for $65,000 in cash plus various other direct acquisition
costs.
On January 31, 1997, the Company acquired WWWW-FM and WDFN-AM in Detroit
from affiliates of Chancellor Broadcasting Company ("Chancellor") for $30,000 in
cash plus various other direct acquisition costs. The Company had previously
provided certain sales and promotional functions to WWWW-FM and WDFN-AM under a
joint sales agreement since February 14, 1996 and subsequently operated the
stations under a time brokerage agreement since April 1, 1996.
On January 31, 1997, the Company acquired KKSF-FM and KDFC-FM/AM in San
Francisco from affiliates of the Brown Organization for $115,000 in cash plus
various other direct acquisition costs. The Company had previously been
operating KKSF-FM and KDFC-FM/AM under a time brokerage agreement since November
1, 1996. On July 21, 1997, the Company sold KDFC-FM to Bonneville International
Corporation ("Bonneville") for $50,000 in cash. The assets of KDFC-FM were
classified as assets held for sale in connection with the purchase price
allocation of the acquisition of KKSF-FM and KDFC-FM/AM
F-15
<PAGE> 256
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and no gain or loss was recognized by the Company upon consummation of the sale.
The combined net income of KDFC-FM of approximately $934 has been excluded from
the consolidated statement of operations for the year ended December 31, 1997.
The excess of the proceeds over the carrying amount at the date of sale
approximated $739 (including interest costs during the holding period of
approximately $1,750) and has been accounted for as an adjustment to the
original purchase price of the acquisition of KKSF-FM and KDFC-FM/AM.
On April 1, 1997, the Company acquired WJLB-FM and WMXD-FM in Detroit from
Secret Communications, L.P. ("Secret") for $168,000 in cash plus various other
direct acquisition costs. The Company had previously been operating WJLB-FM and
WMXD-FM under time brokerage agreements since September 1, 1996.
On April 3, 1997, the Company exchanged WQRS-FM in Detroit (which the
Company acquired on April 3, 1997 from Secret for $32,000 in cash plus various
other direct acquisition costs), to affiliates of Greater Media Radio, Inc. in
return for WWRC-AM in Washington, D.C. and $9,500 in cash. The exchange was
accounted for as a like-kind exchange and no gain or loss was recognized upon
consummation of the transaction. The net purchase price to the Company of
WWRC-AM was therefore $22,500. The Company had previously been operating WWRC-AM
under a time brokerage agreement since June 17, 1996.
On May 1, 1997, the Company acquired WDAS-FM/AM in Philadelphia from
affiliates of Beasley FM Acquisition Corporation for $103,000 in cash plus
various other direct acquisition costs.
On May 15, 1997, the Company exchanged five of its six stations in
Charlotte, North Carolina (WPEG-FM, WBAV-FM/AM, WRFX-FM and WFNZ-AM) for two FM
stations in Philadelphia (WIOQ-FM and WUSL-FM) owned by EZ Communications, Inc.
("EZ") in Philadelphia (the "Charlotte Exchange"), and also sold the Company's
sixth radio station in Charlotte, WNKS-FM, to EZ for $10,000 in cash and
recognized a gain of $3,536. The Charlotte Exchange was accounted for as a
like-kind exchange and no gain or loss was recognized upon consummation of the
transaction.
On May 30, 1997, the Company acquired WPNT-FM in Chicago from affiliates of
Century Broadcasting Company for $75,740 in cash (including $1,990 for the
purchase of the station's accounts receivable) plus various other direct
acquisition costs. On June 19, 1997, the Company sold WPNT-FM in Chicago to
Bonneville for $75,000 in cash and recognized a gain of $529.
On June 3, 1997, the Company sold WEJM-FM in Chicago to affiliates of
Crawford Broadcasting for $14,750 in cash and recognized a gain of $9,258.
On July 2, 1997, the Company acquired WLTW-FM and WAXQ-FM in New York and
WMZQ-FM, WJZW-FM, WZHF-AM and WBZS-AM in Washington, D.C. from Viacom
International, Inc. ("Viacom") for approximately $612,388 in cash including
various other direct acquisition costs (the "Viacom Acquisition"). The Viacom
Acquisition was financed with (i) bank borrowings under the Senior Credit
Facility (as defined) of $552,559; (ii) $53,750 in escrow funds paid by the
Company on February 19, 1997 and (iii) $6,079 financed through working capital.
In June 1997, the Company issued 5,990,000 shares of $3.00 Convertible
Exchangeable Preferred Stock for net proceeds of $287,808 which were used to
repay borrowings under the Senior Credit Facility and subsequently were
reborrowed on July 2, 1997 as part of the financing of the Viacom Acquisition.
On July 7, 1997, the Company sold WJZW-FM in Washington, D.C. to affiliates of
Capital Cities/ABC Radio for $68,000 in cash. The assets of WJZW-FM, as well as
the assets of WZHF-AM and WBZS-AM, which were sold on August 13, 1997, were
accounted for as assets held for sale in connection with the purchase price
allocation of the Viacom Acquisition and no gain or loss was recognized by the
Company upon consummation of the sales. The combined net income of WJZW-FM,
WZHF-AM and WBZS-AM of approximately $153 has been excluded from the
consolidated statement of operations for the
F-16
<PAGE> 257
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
year ended December 31, 1997. The excess of the carrying amounts over the
proceeds at the dates of sale approximated $894 and has been accounted for as an
adjustment to the original purchase price of the Viacom Acquisition.
On July 7, 1997, the Company sold the Federal Communications Commission
("FCC") authorizations and certain transmission equipment previously used in the
operation of KYLD-FM in San Francisco to Susquehanna Radio Corporation
("Susquehanna") for $44,000 in cash and recognized a gain of $1,726.
Simultaneously therewith, Chancellor sold the call letters "KSAN-FM" (which
Chancellor previously used in San Francisco) to Susquehanna. On July 7, 1997,
the Company and Chancellor entered into a time brokerage agreement to enable the
Company to operate KYLD-FM on the frequency previously assigned to KSAN-FM, and
on July 7, 1997, Chancellor changed the call letters of KSAN-FM to KYLD-FM. Upon
the consummation of the Chancellor Merger (as defined herein), the Company
changed the format of the new KYLD-FM to the format previously operated on the
old KYLD-FM.
On July 14, 1997, the Company completed the disposition of WLUP-FM in
Chicago to Bonneville for net proceeds of $80,000 which were held by a qualified
intermediary pending the completion of the deferred exchange of WLUP-FM for
KZPS-FM and KDGE-FM in Dallas. On October 7, 1997, the Company applied the net
proceeds from the disposition of WLUP-FM of $80,000 in cash, plus an additional
$3,500 and various other direct acquisition costs, in a deferred exchange of
WLUP-FM for KZPS-FM and KDGE-FM in Dallas. The exchange was accounted for as a
like-kind exchange and no gain or loss was recognized upon consummation of the
transaction. The Company had previously operated KZPS-FM and KDGE-FM under time
brokerage agreements effective August 1, 1997.
On July 21, 1997, the Company entered into a time brokerage agreement with
Chancellor whereby the Company began managing certain limited functions of
Chancellor's stations KBGG-FM, KNEW-AM and KABL-FM in San Francisco pending the
consummation of the Chancellor Merger (as defined herein), which occurred on
September 5, 1997.
On August 13, 1997, the Company sold WBZS-AM and WZHF-AM in Washington,
D.C. (acquired as part of the Viacom Acquisition) and KDFC-AM in San Francisco
to affiliates of Douglas Broadcasting ("Douglas") for $18,000 in the form of a
promissory note. The promissory note bears interest at 7 3/4%, with a balloon
principal payment due four years after closing. At closing, Douglas was required
to post a $1,000 letter of credit for the benefit of the Company that will
remain outstanding until all amounts due under the promissory note are paid.
On August 27, 1997, the Company sold WEJM-AM in Chicago to Douglas for
$7,500 in cash and recognized a gain of $3,331.
On September 5, 1997, pursuant to an Amended and Restated Agreement and
Plan of Merger, dated as of February 19, 1997 and amended and restated on July
31, 1997 (the "Chancellor Merger Agreement"), among Chancellor, Chancellor Radio
Broadcasting Company ("CRBC"), Evergreen Media Corporation ("Evergreen"),
Evergreen Mezzanine Holdings Corporation ("EMHC") and Evergreen Media
Corporation of Los Angeles ("EMCLA"), (i) Chancellor was merged (the "Parent
Merger") with and into EMHC, a direct, wholly-owned subsidiary of Evergreen,
with EMHC remaining as the surviving corporation and (ii) CRBC was merged (the
"Subsidiary Merger") with and into EMCLA, a direct, wholly-owned subsidiary of
EMHC, with EMCLA remaining as the surviving corporation (collectively, the
"Chancellor Merger"). Upon consummation of the Parent Merger, the Company was
renamed Chancellor Media Corporation and EMHC was renamed Chancellor Mezzanine
Holdings Corporation ("CMHC"). Upon consummation of the Subsidiary Merger, EMCLA
was renamed Chancellor Media Corporation of Los Angeles ("CMCLA"). Consummation
of the Chancellor Merger added 52 radio stations (36 FM and 16 AM) to the
Company's portfolio of stations, including 13 stations in markets in which the
Company previously operated. The total
F-17
<PAGE> 258
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
purchase price allocated to net assets acquired was approximately $1,998,383
which included (i) the conversion of each outstanding share of Chancellor Common
Stock into 0.9091 shares of the Company's Common Stock, resulting in the
issuance of 34,617,460 shares of the Company's Common Stock at $15.50 per share,
(ii) the assumption of long-term debt of CRBC of $949,000 which included
$549,000 of borrowings outstanding under the CRBC senior credit facility,
$200,000 of CRBC's 9 3/8% Senior Subordinated Notes due 2004 and $200,000 of
CRBC's 8 3/4% Senior Subordinated Notes due 2007 (iii) the issuance of 2,117,629
shares of CMCLA's 12% Exchangeable Preferred Stock in exchange for CRBC's
substantially identical securities with a fair value of $215,570 including
accrued and unpaid dividends of $3,807, (iv) the issuance of 1,000,000 shares of
CMCLA's 12 1/4% Series A Senior Cumulative Exchangeable Preferred Stock in
exchange for CRBC's substantially identical securities with a fair value of
$120,217 including accrued and unpaid dividends of $772, (v) the issuance of
2,200,000 shares of the Company's 7% Convertible Preferred Stock in exchange for
Chancellor's substantially identical securities with a fair value of $111,048
including accrued and unpaid dividends of $1,048, (vi) the assumption of stock
options issued to Chancellor stock option holders with a fair value of $34,977
and (vii) estimated acquisition costs of $31,000.
On October 28, 1997, the Company acquired Katz, a full-service media
representation firm, in a tender offer transaction for a total purchase price of
approximately $379,101 (the "Katz Acquisition") which included (i) the
conversion of each outstanding share of KMG Common Stock into the right to
receive $11.00 in cash, resulting in total cash payments of $149,601, (ii) the
assumption of long-term debt of KMG and its subsidiaries of $222,000 which
included $122,000 of borrowings outstanding under the KMG senior credit facility
and $100,000 of 10 1/2% Senior Subordinated Notes due 2007 of Katz Media
Corporation (a subsidiary of KMG) and (iii) estimated acquisition costs of
$7,500.
On December 29, 1997, the Company acquired five radio stations from Pacific
and Southern Company, Inc., a subsidiary of Gannett Co., Inc., consisting of
WGCI-FM/AM in Chicago for $140,000, KKBQ-FM/ AM in Houston for $110,000 and
KHKS-FM in Dallas for $90,000, for an aggregate purchase price of $340,000 in
cash plus various other direct acquisition costs.
On January 30, 1998, the Company acquired KXPK-FM in Denver from Ever Green
Wireless LLC (which is unrelated to the Company) for $26,000 in cash plus
various other direct acquisition costs, of which $1,655 was previously paid by
Chancellor as escrow funds and are classified as other assets at December 31,
1997. The Company had previously been operating KXPK-FM under a time brokerage
agreement since September 1, 1997.
The acquisitions discussed above were accounted for as purchases.
Accordingly, the accompanying consolidated financial statements include the
results of operations of the acquired entities from the dates of acquisition.
A summary of the net assets acquired follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- ----------
<S> <C> <C> <C>
Working capital, including cash of $492 in 1995,
$1,011 in 1996 and $9,724 in 1997................ $ 12,012 $ 11,218 $ 66,805
Property and equipment............................. 11,684 11,519 118,371
Assets held for sale (note 2)...................... -- 32,000 131,000
Intangible assets.................................. 264,650 465,824 3,823,746
Other assets....................................... -- -- 26,742
Deferred tax liability............................. (29,712) (61,218) (279,371)
Other liabilities.................................. -- -- (39,681)
-------- -------- ----------
$258,634 $459,343 $3,847,612
======== ======== ==========
</TABLE>
F-18
<PAGE> 259
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma consolidated condensed results of operations data for 1996
and 1997, as if the 1996 and 1997 acquisitions and dispositions discussed above,
the 1996 Common Stock offering, 1996 preferred stock conversion and redemption,
the 1997 preferred stock offering described in note 9, the 8 1/8% Notes offering
described in note 7(f) and the amendment and restatement of the Senior Credit
Facility described in note 7(a) occurred at January 1, 1996, follow:
<TABLE>
<CAPTION>
UNAUDITED
-----------------------
1996 1997
--------- ----------
<S> <C> <C>
Net revenues................................................ $ 882,054 $1,002,784
Net loss.................................................... (216,229) (149,683)
Basic and diluted net loss per common share................. (2.02) (1.46)
</TABLE>
The pro forma results are not necessarily indicative of what would have
occurred if the transactions had been in effect for the entire periods
presented.
(b) Pending Transactions
On July 1, 1996, Chancellor entered into an agreement with SFX
Broadcasting, Inc. ("SFX") pursuant to which Chancellor agreed to exchange
WAPE-FM and WFYV-FM in Jacksonville and $11,000 in cash to SFX in return for
WBAB-FM, WBLI-FM, WHFM-FM and WGBB-AM in Nassau/Suffolk (Long Island) (the "SFX
Exchange"). The Company currently operates WBAB-FM, WBLI-FM, WHFM-FM and WGBB-FM
pursuant to a time brokerage agreement effective July 1, 1996 and SFX currently
operates WAPE-FM and WFYV-FM pursuant to a time brokerage agreement effective
July 1, 1996. On November 6, 1997, the Antitrust Division of the United States
Department of Justice (the "DOJ") filed suit against the Company seeking to
enjoin, under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), the Company's acquisition of the four Long Island
properties from SFX. If the Company is unable to acquire the four Long Island
properties, the SFX Exchange will not be consummated. Furthermore, under the
terms of the Capstar Transaction (as defined below), upon consummation of
Capstar Broadcasting Corporation's pending acquisition of SFX, the SFX Exchange
would be terminated.
On August 6, 1997, the Company paid $3,000 to Bonneville for an option to
exchange WTOP-AM in Washington, KZLA-FM in Los Angeles and WGMS-FM in Washington
and $57,000 in cash for Bonneville's stations WBIX-FM in New York, KLDE-FM in
Houston and KBIG-FM in Los Angeles (the "Bonneville Option"). The Bonneville
Option was exercised on October 1, 1997, and definitive exchange documentation
is presently being negotiated. The Company has entered into time brokerage
agreements to operate KLDE-FM and KBIG-FM effective October 1, 1997 and WBIX-FM
effective October 10, 1997 and has entered into time brokerage agreements to
sell substantially all of the broadcast time of WTOP-AM, KZLA-FM and WGMS-FM
effective October 1, 1997.
On February 17, 1998, the Company entered into an agreement to acquire
WWDC-FM/AM in Washington, D.C. from Capitol Broadcasting Company and its
affiliates for $72,000 in cash (including $4,000 paid by the Company in escrow
on February 18, 1998), plus an amount equal to the value assigned to certain
accounts receivable for the stations (the "Capitol Broadcasting Acquisition").
Consummation of the Capitol Broadcasting Acquisition is conditioned, among other
things, on the consummation of the exchanges of the Company's Washington, D.C.
stations that are subject to the Bonneville Option.
On February 20, 1998, the Company entered into an agreement to acquire from
Capstar Broadcasting Corporation (together with its subsidiaries, "Capstar")
KTXQ-FM and KBFB-FM in Dallas/Ft.Worth, KODA-FM, KKRW-FM and KQUE-AM in Houston,
KPLN-FM and KYXY-FM in San Diego and WVTY-FM, WJJJ-FM, WXDX-FM and WDVE-FM in
Pittsburgh (collectively the "Capstar/SFX
F-19
<PAGE> 260
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stations") for an aggregate purchase price of approximately $637,500 (the
"Capstar Transaction"). The Capstar/SFX Stations are presently owned by SFX, and
are expected to be acquired by Capstar as part of Capstar's pending acquisition
of SFX (the "Capstar/SFX Acquisition"). The Capstar/SFX Stations would be
acquired by the Company in a series of purchases and exchanges over a period of
three years, and would be operated by the Company under time brokerage
agreements immediately upon the consummation of the Capstar/SFX Acquisition
until acquired by the Company. As part of the Capstar Transaction, the SFX
Exchange would, upon consummation of the Capstar/SFX Acquisition, be terminated
and the Company would exchange WAPE-FM and WFYV-FM in Jacksonville (valued for
purposes of the Capstar Transaction at $53,000) plus $90,250 in cash for
Capstar/SFX Station KODA-FM in Houston. The Company would pay approximately
$494,250 for the remaining ten Capstar/SFX Stations. As part of the Capstar
Transaction, the Company would, at the consummation of the Capstar/SFX
Acquisition, provide a subordinated loan to Capstar in the principal amount of
$250,000(the "Capstar Loan"). The Capstar Loan would bear interest at the rate
of 12% per annum (subject to increase in certain circumstances), and would be
secured by a senior pledge of common stock of Capstar's direct subsidiaries and
SFX and a senior guarantee by one of Capstar's direct subsidiaries. A portion of
the Capstar Loan would be prepaid by Capstar in connection with the Company's
acquisition of, and the proceeds of such prepayment would be used by the Company
as a portion of the purchase price for, each Capstar/SFX Station. The Company's
obligation to provide the Capstar Loan is conditioned, among other things, on
Capstar's receipt of at least $650,000 in equity investments that are
subordinate to the Capstar Loan between January 1, 1998 and the consummation of
the Capstar/SFX Acquisition. Hicks, Muse, Tate & Furst, Incorporated ("Hicks
Muse"), which is a substantial shareholder of the Company (see note 14),
controls Capstar, and certain directors of the Company are directors and/or
executive officers of Capstar and/or Hicks Muse.
Consummation of each of the transactions discussed above is subject to
various conditions, including approval from the FCC and the expiration or early
termination of any waiting period required under the HSR Act. Except with
respect to the SFX Exchange, which the Company expects will be terminated in
connection with the Capstar Transaction, the Company believes that such
conditions will be satisfied in the ordinary course, but there can be no
assurance that this will be the case.
Escrow funds of $4,655 paid by the Company in connection with the
acquisition of KXPK-FM in Denver on January 30, 1998 and the Bonneville Option
have been classified as other assets in the accompanying balance sheet at
December 31, 1997.
(3) OTHER ASSETS
Other current assets consist of the following at December 31, 1996 and
1997:
<TABLE>
<CAPTION>
1996 1997
------ -------
<S> <C> <C>
Representation contracts receivable......................... $ -- $16,462
Prepaid expenses and other.................................. 6,352 10,746
------ -------
$6,352 $27,208
====== =======
</TABLE>
F-20
<PAGE> 261
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other assets consist of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Deferred costs on purchases of representation contracts,
less accumulated amortization of $380 in 1997............. $ -- $ 35,411
Deferred debt issuance costs, less accumulated amortization
of $1,794 in 1996 and $943 in 1997........................ 7,086 24,624
Notes receivable (note 2)................................... -- 18,000
Representation contracts receivable......................... -- 12,187
Escrow deposits............................................. 17,000 4,655
Other....................................................... 466 18,699
------- --------
$24,552 $113,576
======= ========
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996 and
1997:
<TABLE>
<CAPTION>
ESTIMATED USEFUL LIFE 1996 1997
--------------------- ------- --------
<S> <C> <C> <C>
Broadcast and other equipment.................. 3-15 years $47,937 $115,440
Buildings and improvements..................... 3-20 years 11,735 24,308
Furniture and fixtures......................... 5-7 years 8,392 29,659
Land........................................... -- 7,379 23,122
------- --------
75,443 192,529
Less accumulated depreciation.................. 27,250 32,732
------- --------
$48,193 $159,797
======= ========
</TABLE>
(5) INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
ESTIMATED USEFUL LIFE 1996 1997
--------------------- ---------- ----------
<S> <C> <C> <C>
Broadcast licenses......................... 15-40 $ 498,766 $3,507,547
Goodwill................................... 15-40 131,775 717,576
Representation contracts................... 17 -- 105,000
Other intangibles.......................... 1-40 397,062 386,272
---------- ----------
1,027,603 4,716,395
Less accumulated amortization.............. 173,960 311,952
---------- ----------
$ 853,643 $4,404,443
========== ==========
</TABLE>
In addition to broadcast licenses, goodwill and representation contracts,
categories of other intangible assets include: (i) premium advertising revenue
base (the value of the higher radio advertising revenues in certain of the
Company's markets as compared to other markets of similar population); (ii)
advertising client base (the value of the well-established advertising base in
place at the time of acquisition of certain stations); (iii) talent contracts
(the value of employment contracts between certain stations and their key
employees); (iv) fixed asset delivery premium (the benefit expected from the
Company's ability to operate fully constructed and operational stations from the
date of acquisition), and (v) premium audience growth pattern (the value of
expected above-average population growth in a given market).
F-21
<PAGE> 262
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at December
31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Accounts payable............................................ $17,746 $ 83,738
Accrued payroll............................................. 7,262 31,349
Representation contracts payable............................ -- 21,680
Accrued interest............................................ 1,642 18,130
Accrued dividends........................................... -- 16,120
------- --------
$26,650 $171,017
======= ========
</TABLE>
(7) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
-------- ----------
<S> <C> <C>
Senior Credit Facility(a)................................... $348,000 $1,573,000
Senior Notes(b)............................................. 10,000 --
9 3/8% Notes(c)............................................. -- 200,000
8 3/4% Notes(d)............................................. -- 200,000
10 1/2% Notes(e)............................................ -- 100,000
8 1/8% Notes(f)............................................. -- 500,000
-------- ----------
Total long-term debt.............................. 358,000 2,573,000
Less current portion........................................ 26,500 --
-------- ----------
$331,500 $2,573,000
======== ==========
</TABLE>
(a) Senior Credit Facility
On April 25, 1997, the Company entered into a loan agreement which amended
and restated its prior senior credit facility. Under the amended and restated
agreement, as amended on June 26, 1997, August 7, 1997, October 28, 1997 and
February 10, 1998 (as amended, the "Senior Credit Facility"), the Company
established a $1,250,000 revolving facility (the "Revolving Loan Facility") and
a $500,000 term loan facility (the "Term Loan Facility"). Upon consummation of
the Chancellor Merger, the aggregate commitments under the Revolving Loan
Facility and the Term Loan Facility were increased to $1,600,000 and $900,000,
respectively. In connection with the amendment and restatement of the Senior
Credit Facility, the Company wrote off the unamortized balance of deferred debt
issuance costs of $4,350 (net of a tax benefit of $2,343) as an extraordinary
charge.
Borrowings under the Senior Credit Facility bear interest at a rate based,
at the option of the Company, on the participating banks' prime rate or
Eurodollar rate, plus an incremental rate. Without giving effect to the interest
rate swap and cap agreements described below, the interest rate on the $900,000
outstanding under the Term Loan at December 31, 1997 was 7.09% on a blended
basis, based on Eurodollar rates, and the interest rate on the $665,000 and
$8,000 of advances outstanding under the Revolving Loan were 7.06% on a blended
basis and 8.63% at December 31, 1997, based on the Eurodollar and prime rates,
respectively. The Company pays fees ranging from 0.25% to 0.375% per annum on
the aggregate unused portion of the loan commitment based upon the leverage
ratio for the most recent quarter end, in addition to an annual agent's fee.
F-22
<PAGE> 263
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pursuant to the Senior Credit Facility, the Company is required to enter
into interest hedging agreements that result in fixing or placing a cap on the
Company's floating rate debt so that no less than 50% of the principal amount of
total debt outstanding has a fixed or capped rate. At December 31, 1997,
interest rate swap agreements covering a notional balance of $1,325,000 were
outstanding. These outstanding swap agreements mature from 1998 through 1999 and
require the Company to pay fixed rates of 4.96% to 6.63% while the counterparty
pays a floating rate based on the three-month London Interbank Borrowing Offered
Rate ("LIBOR"). During the years ended December 31, 1995, 1996 and 1997, the
Company recognized charges (income) under its interest rate swap agreements of
$(275), $111 and $2,913, respectively. Because the interest rate swap agreements
are with banks that are lenders under the Senior Credit Facility, the Company is
not exposed to credit loss.
The Term Loan Facility is payable in quarterly installments commencing on
September 30, 2000 and ending June 30, 2005. The Revolving Loan Facility
requires scheduled annual reductions of the commitment amount, payable in
quarterly installments commencing on September 30, 2000 and ending on June 30,
2005. The capital stock of the Company's subsidiaries is pledged to secure the
performance of the Company's obligations under the Senior Credit Facility, and
each of the Company's subsidiaries have guaranteed those obligations.
(b) Senior Notes
The Company issued $20,000 of senior notes (the "Senior Notes") in 1989.
The Senior Notes bear interest at 11.59% per annum payable quarterly and
principal is payable in equal quarterly installments of $1,000 through May 1999.
In connection with the amendment and restatement of the Senior Credit Facility,
on April 25, 1997, the Company repaid all amounts outstanding under the Senior
Notes.
(c) 9 3/8% Notes
Upon consummation of the Chancellor Merger, on September 5, 1997, the
Company assumed CRBC's $200,000 aggregate principal amount of 9 3/8% Senior
Subordinated Notes due 2004 (the "9 3/8% Notes"). Interest on the 9 3/8% Notes
is payable semiannually, commencing on April 1, 1996. The 9 3/8% Notes mature on
October 1, 2004 and are redeemable, in whole or in part, at the option of the
Company on or after February 1, 2000, at redemption prices ranging from 104.688%
at February 1, 2000 and declining to 100% on or after February 1, 2003, plus in
each case accrued and unpaid interest. In addition, on or prior to January 31,
1999, the Company may redeem up to 25% of the original aggregate principal
amount of the 9 3/8% Notes at a redemption price of 107.031% plus accrued and
unpaid interest with the net proceeds of one or more public equity offerings of
CMHC or CMCLA. Upon the occurrence of a change in control (as defined in the
indenture governing the 9 3/8% Notes), the holders of the 9 3/8% Notes have the
right to require the Company to repurchase all or any part of the 9 3/8% Notes
at a purchase price equal to 101% plus accrued and unpaid interest.
(d) 8 3/4% Notes
Upon consummation of the Chancellor Merger, on September 5, 1997, the
Company assumed CRBC's $200,000 aggregate principal amount of 8 3/4% Senior
Subordinated Notes due 2007 (the "8 3/4% Notes"). Interest on the 8 3/4% Notes
is payable semiannually, commencing on December 15, 1997. The 8 3/4% Notes
mature on June 15, 2007 and are redeemable, in whole or in part, at the option
of the Company on or after June 15, 2002, at redemption prices ranging from
104.375% at June 15, 2002 and declining to 100% on or after June 15, 2005, plus
in each case accrued and unpaid interest. In addition, prior to June 15, 2000,
the Company may redeem up to 25% of the original aggregate principal amount of
the 8 3/4% Notes at a redemption price of
F-23
<PAGE> 264
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
108.75% plus accrued and unpaid interest with the net proceeds of one or more
public equity offerings of CMHC or CMCLA. Upon the occurrence of a change in
control (as defined in the indenture governing the 8 3/4% Notes) on or prior to
June 15, 2000, the 8 3/4% Notes may be redeemed as a whole at the option of the
Company at a redemption price of 100% plus the Applicable Premium (as defined in
the indenture governing the 8 3/4% Notes) and accrued and unpaid interest. Upon
the occurrence of a change in control after June 15, 2000, the holders of the
8 3/4% Notes have the right to require the Company to repurchase all or any part
of the 8 3/4% Notes at a purchase price equal to 101% plus accrued and unpaid
interest.
(e) 10 1/2% Notes
Upon consummation of the Katz Acquisition, on October 28, 1997, the Company
assumed Katz Media Corporation's $100,000 aggregate principal amount of 10 1/2%
Senior Subordinated Notes due 2007 (the "10 1/2% Notes"). Interest on the
10 1/2% Notes is payable semiannually, commencing on July 15, 1997. The 10 1/2%
Notes mature on January 15, 2007 and are redeemable, in whole or in part, at the
option of the Company on or after January 15, 2002, at redemption prices ranging
from 105.25% at January 15, 2002 and declining to 100% on or after January 15,
2006, plus in each case accrued and unpaid interest. In addition, prior to
January 15, 2000, the Company may redeem up to 35% of the original aggregate
principal amount of the 10 1/2% Notes at a redemption price of 109.5% plus
accrued and unpaid interest with the net proceeds of one or more offerings of
equity interests of Chancellor Media, CMHC or CMCLA. Upon the occurrence of a
change in control (as defined in the indenture governing the 10 1/2% Notes), the
holders of the 10 1/2% Notes have the right to require the Company to repurchase
all or any part of the 10 1/2% Notes at a purchase price equal to 101% plus
accrued and unpaid interest.
(f) 8 1/8% Notes
On December 22, 1997, the Company issued $500,000 aggregate principal
amount of 8 1/8% Senior Subordinated Notes due 2007 (the "8 1/8% Notes") for
estimated net proceeds of $485,000. Interest on the 8 1/8% Notes is payable
semiannually, commencing on June 15, 1998. The 8 1/8% Notes mature on December
15, 2007 and are redeemable, in whole or in part, at the option of the Company
on or after December 15, 2002, at redemption prices ranging from 104.063% at
December 15, 2002 and declining to 100% on or after December 15, 2005, plus in
each case accrued and unpaid interest. In addition, prior to December 15, 2000,
the Company may redeem up to 35% of the original aggregate principal amount of
the 8 1/8% Notes at a redemption price of 108.125% plus accrued and unpaid
interest with the net proceeds of one or more public equity offerings of
Chancellor Media, CMHC or CMCLA. Also, upon the occurrence of a change in
control (as defined in the indenture governing the 8 1/8% Notes), the 8 1/8%
Notes may be redeemed as a whole at the option of the Company at a redemption
price of 100% plus the Applicable Premium (as defined in the indenture governing
the 8 1/8% Notes) and accrued and unpaid interest. Upon the occurrence of a
change in control after December 15, 2000, the holders of the 8 1/8% Notes have
the right to require the Company to repurchase all or any part of the 8 1/8%
Notes at a purchase price equal to 101% plus accrued and unpaid interest.
(g) Other
The 9 3/8% Notes, the 8 3/4% Notes, the 10 1/2% Notes and the 8 1/8% Notes
(collectively, the "Notes") are unsecured obligations of the Company,
subordinated in right of payment to all existing and any future senior
indebtedness of the Company. The Notes are fully and unconditionally guaranteed,
on a joint and several basis, by all of the Company's direct and indirect
subsidiaries other than certain inconsequential subsidiaries (the "Subsidiary
Guarantors"). The Subsidiary Guarantors are wholly-owned subsidiaries of the
Company.
F-24
<PAGE> 265
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Senior Credit Facility and the indentures governing the Notes contain
customary restrictive covenants, which, among other things and with certain
exceptions, limit the ability of the Company and its subsidiaries to incur
additional indebtedness and liens in connection therewith, enter into certain
transactions with affiliates, pay dividends, consolidate, merge or effect
certain asset sales, issue additional stock, effect an asset swap and make
acquisitions. The Company is required under the Senior Credit Facility to
maintain specified financial ratios, including leverage, cash flow and debt
service coverage ratios (as defined).
A summary of the future maturities of long-term debt at December 31, 1997
follows:
<TABLE>
<S> <C>
1998........................................................ $ --
1999........................................................ --
2000........................................................ 67,500
2001........................................................ 157,500
2002........................................................ 180,000
Thereafter.................................................. 2,168,000
</TABLE>
(8) REDEEMABLE PREFERRED STOCK
(a) 12 1/4% Preferred Stock
Upon consummation of the Chancellor Merger, on September 5, 1997, the
Company issued 1,000,000 shares of CMCLA's 12 1/4% Series A Senior Cumulative
Exchangeable Preferred Stock (the "12 1/4% Preferred Stock") in exchange for
CRBC's substantially identical securities with a fair value of $120,217
including accrued and unpaid dividends of $772. The liquidation preference of
each share of 12 1/4% Preferred Stock is $119.445 plus accrued and unpaid
dividends of $1,829 at December 31, 1997. The dividend rate on the 12 1/4%
Preferred Stock is 12.25% per annum of the liquidation preference and is payable
quarterly. If any dividend payable on any dividend payment date on or before
February 15, 2001 is not declared or paid in full in cash on such dividend
payment date, the amount not paid on such dividend payment date will be added to
the liquidation preference of the 12 1/4% Preferred Stock and will be deemed
paid in full and will not accumulate. The 12 1/4% Preferred Stock is redeemable
in whole or in part, at the option of the Company on or after February 15, 2001,
at redemption prices ranging from 106.125% at February 15, 2001 and declining to
100.0% of the liquidation preference on or after February 15, 2006, plus in each
case accrued and unpaid dividends. In addition, prior to February 15, 1999, the
Company may redeem up to 25% of the shares of 12 1/4% Preferred Stock originally
issued at a redemption price of 109.8% of the liquidation preference plus
accrued and unpaid dividends with the net proceeds of one or more public equity
offerings of CMCLA. The Company is required, subject to certain conditions, to
redeem all of the 12 1/4% Preferred Stock outstanding on February 15, 2008, at a
redemption price of 100% of the liquidation preference, plus accrued and unpaid
dividends. The 12 1/4% Preferred Stock is exchangeable, subject to certain
conditions, at the option of the Company, in whole but not in part, for 12 1/4%
Subordinated Exchange Debentures due 2008 (the "12 1/4% Exchange Debentures") at
a rate of $1.00 principal amount of 12 1/4% Exchange Debentures for each $1.00
in liquidation preference of 12 1/4% Preferred Stock. Upon the occurrence of a
change in control (as defined in the certificate of designation governing the
12 1/4% Preferred Stock), the holders of the 12 1/4% Preferred Stock have the
right to require the Company to repurchase all or any part of the 12 1/4%
Preferred Stock at a price of 101% of the liquidation preference plus accrued
and unpaid dividends. The 12 1/4% Preferred Stock is senior in liquidation
preference to the Common Stock of CMCLA and to the 12% Preferred Stock.
(b) 12% Preferred Stock
Upon consummation of the Chancellor Merger, on September 5, 1997, the
Company issued 2,117,629 shares of CMCLA's 12% Exchangeable Preferred Stock (the
"12% Preferred Stock") in exchange for
F-25
<PAGE> 266
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CRBC's substantially identical securities with a fair value of $215,570
including accrued and unpaid dividends of $3,807. The liquidation preference of
each share of 12% Preferred Stock is $100.00 plus accrued and unpaid dividends
of $11,756 at December 31, 1997. The dividend rate on the 12% Preferred Stock is
12% per annum of the liquidation preference and is payable semi-annually.
Dividends may be paid, at the Company's option, on any dividend payment date
occurring on or prior to January 15, 2002 either in cash or in additional shares
of 12% Preferred Stock. The 12% Preferred Stock is redeemable in whole or in
part, at the option of the Company, on or after January 15, 2002, at redemption
prices ranging from 106% at January 15, 2002 and declining to 100% of the
liquidation preference on or after January 15, 2007, plus in each case accrued
and unpaid dividends. In addition, prior to January 15, 2000, the Company may
redeem all but $150,000 of the aggregate liquidation preference of 12% Preferred
Stock at a redemption price of 112% of the liquidation preference plus accrued
and unpaid dividends with the net proceeds of one or more public equity
offerings of CMCLA. The Company is required, subject to certain conditions, to
redeem all of the 12% Preferred Stock outstanding on January 15, 2009, at a
redemption price of 100% of the liquidation preference, plus accrued and unpaid
dividends. The 12% Preferred Stock is exchangeable, subject to certain
conditions, at the option of the Company, in whole but not in part, for 12%
Subordinated Exchange Debentures due 2009 (the "12% Exchange Debentures") at a
rate of $1.00 principal amount of 12% Exchange Debentures for each $1.00 in
liquidation preference of 12% Preferred Stock. Upon the occurrence of a change
in control (as defined in the certificate of designation governing the 12%
Preferred Stock), the holders of the 12% Preferred Stock have the right to
require the Company to repurchase all or any part of the 12% Preferred Stock at
a price of 101% of the liquidation preference plus accrued and unpaid dividends.
In addition, upon the occurrence of a change in control, the Company may redeem
the 12% Preferred Stock in whole but not in part at a redemption price of 112%
of the liquidation preference plus accrued and unpaid dividends. The 12%
Preferred Stock is senior in liquidation preference to the Common Stock of CMCLA
and is subordinate to the 12 1/4% Preferred Stock.
(9) STOCKHOLDERS' EQUITY
(a) Preferred Stock
(i) 1993 Convertible Preferred Stock
In October 1993, the Company issued 1,610,000 shares of $3.00 Convertible
Exchangeable Preferred Stock (the "1993 Convertible Preferred Stock") for net
proceeds of approximately $76,645. The Company converted 1,608,297 shares of the
1993 Convertible Preferred Stock into 10,051,832 shares of the Company's Common
Stock and redeemed the remaining 1,703 shares of 1993 Convertible Preferred
Stock at $52.70 per share in 1996 (the "1996 Preferred Stock Conversion"). The
1993 Convertible Preferred Stock had a liquidation preference of $50.00 per
share plus accrued and unpaid dividends and a dividend rate of $3.00 per share,
payable quarterly.
(ii) $3.00 Convertible Exchangeable Preferred Stock
In June 1997, the Company issued 5,990,000 shares of Chancellor Media's
$3.00 Convertible Exchangeable Preferred Stock (the "$3.00 Convertible Preferred
Stock") for net proceeds of $287,808. The liquidation preference of each share
of Convertible Preferred Stock is $50.00 plus accrued and unpaid dividends of
$749 at December 31, 1997. Dividends on the $3.00 Convertible Preferred Stock
are cumulative and payable quarterly commencing September 15, 1997 at a rate per
annum of $3.00 per share, when, as and if declared by the Board of Directors of
the Company. The $3.00 Convertible Preferred Stock is convertible at the option
of the holder at any time unless previously redeemed or exchanged, into the
Company's Common Stock, par value $.01 per share at a conversion price of $25.00
per share, subject to adjustment in certain events. The $3.00 Convertible
Preferred Stock is redeemable in whole or in part, at the option of the Company,
on or after June 16, 1999, at redemption prices ranging from 104.8% and
declining to 100% of the
F-26
<PAGE> 267
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
liquidation preference on or after June 15, 2007, plus in each case accrued and
unpaid dividends, provided that on or prior to June 15, 2000, the closing price
of the Common Stock has equaled or exceeded 150% of the conversion price for 20
out of any 30 consecutive trading days. The $3.00 Convertible Preferred Stock is
exchangeable, subject to certain conditions, at the option of the Company, in
whole but not in part, commencing September 15, 2000, for 6% Convertible
Subordinated Exchange Debentures due 2012 (the "6% Exchange Debentures") at a
rate of $50.00 principal amount of 6% Exchange Debentures for each share of
$3.00 Convertible Preferred Stock. Upon the occurrence of a change in control
(as defined in the certificate of designation governing the $3.00 Convertible
Preferred Stock), holders will have special conversion rights, subject to cash
redemption by the Company. The $3.00 Convertible Preferred Stock is senior in
liquidation preference to the Common Stock of Chancellor Media and pari passu
with the 7% Convertible Preferred Stock.
(iii) 7% Convertible Preferred Stock
Upon consummation of the Chancellor Merger, on September 5, 1997, the
Company issued 2,200,000 shares of Chancellor Media's 7% Convertible Preferred
Stock (the "7% Convertible Preferred Stock") in exchange for Chancellor's
substantially identical securities with a fair value of $111,048 including
accrued and unpaid dividends of $1,048. The liquidation preference of each share
of 7% Convertible Preferred Stock is $50.00 plus accrued and unpaid dividends of
$1,604 at December 31, 1997. Dividends on the 7% Convertible Preferred Stock are
payable quarterly, commencing July 15, 1997. The 7% Convertible Preferred Stock
is convertible at the option of the holder at any time unless previously
redeemed or exchanged, into the Company's Common Stock, par value $.01 per share
at a conversion price of $18.095 per share, subject to adjustment in certain
events. The 7% Convertible Preferred Stock is redeemable in whole or in part, at
the option of the Company, on or after January 15, 2000, at redemption prices
ranging from 104.9% at January 15, 2000 and declining to 100% of the liquidation
preference on or after January 15, 2007, plus in each case accrued and unpaid
dividends. Upon the occurrence of a change in control (as defined in the
certificate of designation governing the 7% Convertible Preferred Stock), the
holders of the 7% Convertible Preferred Stock have the right to require the
Company to repurchase all or any part of the 7% Convertible Preferred Stock at a
price of 101% of the liquidation preference, plus accrued and unpaid dividends.
The 7% Convertible Preferred Stock is senior in liquidation preference to the
Common Stock of Chancellor Media and pari passu with the $3.00 Convertible
Preferred Stock.
(b) Common Stock
In May 1995, the Company issued 11,222,018 shares of Common Stock in
connection with the BPI Acquisition.
In July 1995, the Company completed a secondary public offering of
16,575,000 shares of its Common Stock (the "1995 Offering"). The Company issued
and sold 14,700,000 shares in the offering, while 1,875,000 shares were issued
and sold in connection with the exercise of certain warrants. Furthermore,
2,027,772 shares were issued in the offering in connection with the exercise of
the remaining warrants outstanding pursuant to the over-allotment option. The
net proceeds to the Company in connection with the 1995 Offering of
approximately $132,721 were used to reduce borrowings under the Company's prior
senior credit facility.
On October 17, 1996, the Company completed a secondary public offering of
18,000,000 shares of its Common Stock (the "1996 Offering"). The net proceeds to
the Company in connection with the 1996 Offering of approximately $264,236 were
used to reduce borrowings under the Company's prior senior credit facility.
F-27
<PAGE> 268
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On September 5, 1997, the Company issued 34,617,460 shares of Common Stock
at $15.50 per share in connection with the Chancellor Merger. In addition, upon
consummation of the Chancellor Merger, each share of the Company's formerly
outstanding Class A Common Stock and Class B Common Stock was reclassified,
changed and converted into one share of Common Stock.
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. On December
18, 1997, the Company declared a two-for-one stock split effected in the form of
a stock dividend payable on January 12, 1998 to shareholders of record at the
close of business on December 29, 1997. All share and per share data (other than
authorized share data) contained in the accompanying consolidated financial
statements have been retroactively adjusted to give effect to the stock
dividend.
On March 13, 1998, the Company completed a secondary public offering of
21,850,000 shares of its Common Stock for net proceeds of approximately $995.1
million.
(c) Common Stock Purchase Warrants
In November 1992, the Company issued certain warrants which, immediately
prior to the consummation of the common stock offering in July 1995, entitled
holders to purchase an aggregate of 2,601,848 shares of Common Stock at $.01 per
share. These warrants were assigned a value at date of issuance of $12,488. Such
warrants were exercised in connection with the common stock offering in July
1995.
(d) Stock Options
The Company has established the 1992, 1993 and 1995 Key Employee Stock
Option Plans (the "Employee Option Plans") which provide for the issuance of
stock options to officers and other key employees of the Company and its
subsidiaries. The Employee Option Plans make available for issuance an aggregate
of 7,215,000 shares of Common Stock. Options issued under the Employee Option
Plans have varying vesting periods as provided in separate stock option
agreements and generally carry an expiration date of ten years subsequent to the
date of issuance. Options issued under the 1993 and 1995 Employee Option Plans
are required to have exercise prices equal to or in excess of the fair market
value of the Company's Common Stock on the date of issuance.
In May 1995, the Company also established the Stock Option Plan for
Non-Employee Directors (the "Director Plan") which provides for the issuance of
stock options to non-employee directors of the Company. The Director Plan makes
available for issuance an aggregate of 450,000 shares of Common Stock. Options
issued under the Director Plan have exercise prices equal to the fair market
value of the Company's Common Stock on the date of issuance, vest over a three
year period and have an expiration date of ten years subsequent to the date of
issuance.
In connection with the BPI Acquisition, the Company assumed outstanding
options to purchase 310,276 shares of the Company's Common Stock (the "BPI
Options"). The BPI Options vested and became exercisable on May 12, 1996 and
have an expiration date of ten years subsequent to the original date of issuance
by BPI.
In connection with the Chancellor Merger, the Company assumed outstanding
options to purchase 3,526,112 shares of the Company's Common Stock (the
"Chancellor Options") with a fair value of $34,977. The Chancellor Options have
varying vesting periods as provided in separate stock option agreements and
generally carry an expiration date of ten years subsequent to the original date
of issuance by Chancellor.
F-28
<PAGE> 269
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The total options available for grant were 3,679,500 and 1,115,894 at
December 31, 1996 and 1997, respectively.
The Company applies APB Opinion No. 25 in accounting for its Employee
Option Plans and, accordingly, no compensation cost has been recognized for its
stock options in the consolidated financial statements. Had the Company
determined compensation cost based on the fair value at the grant date for its
stock options under SFAS No. 123, the Company's net loss would have been
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Net loss:
As reported....................................... $(5,850) $(16,194) $(31,745)
Pro forma......................................... (8,787) (20,969) (36,650)
Basic and diluted loss per common share:
As reported....................................... (.26) (.33) (.46)
Pro forma......................................... (.33) (.41) (.51)
</TABLE>
Pro forma net loss reflects only options granted in 1995, 1996 and 1997.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net loss amounts presented
above because compensation cost is reflected over the options' vesting period of
one year and compensation cost for options granted prior to 1995 is not
considered.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants: expected volatility of 44.5% for 1995 and 1996 and
41.9% for 1997; risk-free interest rate of 6.0% for 1995 and 1996 and 5.4% for
1997; dividend yield of 0% and expected lives ranging from three to seven years
for 1995, 1996 and 1997.
Following is a summary of activity in the employee option plans and
agreements discussed above for the years ended December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year...................... 1,956,000 $ 1.55 2,579,748 $ 3.46 3,559,984 $ 5.97
Granted..................... 516,000 10.08 1,174,500 11.56 2,773,590 22.89
Assumed in acquisitions..... 310,276 4.85 -- -- 3,526,112 9.29
Exercised................... (51,000) 0.65 (166,806) 4.27 (994,526) 5.43
Canceled.................... (151,528) 4.30 (27,458) 4.96 (38,464) 19.46
--------- ------ --------- ------ --------- ------
Outstanding at end of
year...................... 2,579,748 $ 3.46 3,559,984 $ 5.97 8,826,696 $12.98
========= ====== ========= ====== ========= ======
Options exercisable at year
end....................... 1,890,000 1,935,484 5,687,960
========= ========= =========
Weighted average fair value
of options granted during
the year.................. 4.27 4.88 10.25
========= ========= =========
</TABLE>
F-29
<PAGE> 270
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- -------------------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AT AVERAGE WEIGHTED EXERCISABLE AT WEIGHTED
RANGE OF DECEMBER 31, REMAINING AVERAGE DECEMBER 31, AVERAGE
EXERCISE PRICES 1997 CONTRACTUAL LIFE EXERCISE PRICE 1997 EXERCISE PRICE
--------------- -------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$0.01................... 1,000,000 5.3 years $ 0.01 1,000,000 $ 0.01
$4.13 to 6.17........... 2,186,056 7.2 years 4.58 2,039,692 4.60
$10.67 to 15.81......... 2,378,562 8.3 years 11.49 983,624 11.63
$17.05 to 23.75......... 2,769,078 9.5 years 21.38 1,464,644 22.50
$26.38 to 31.63......... 493,000 9.8 years 28.32 200,000 27.50
--------- ------ --------- ------
8,826,696 12.98 5,687,960 10.44
========= ====== ========= ======
</TABLE>
(10) EMPLOYEE BENEFIT PLANS
(a) 401(k) Plan
The Company offers substantially all of its employees voluntary
participation in a 401(k) Plan. The Company may make discretionary contributions
to the plan; however, no such contributions were made by the Company during
1995, 1996 or 1997.
(b) Katz Savings and Profit Sharing Plan
Katz has a defined contribution retirement plan, The Katz Media Group
Savings and Profit Sharing Plan (the "Katz Plan"). The Katz Plan covers
substantially all employees of Katz with greater than six months of service. The
Katz Plan permits Katz to match a percentage of a participant's contribution up
to a stated maximum percentage of an employee's salary. Cash contributions
included in operating expenses approximated $200 for the year ended December 31,
1997. Effective January 1, 1998, the Company elected to discontinue cash
contributions under the matching provision of the Katz Plan. The Company intends
to merge the Katz Plan into the Company's 401(k) Plan during 1998.
(c) Katz Other Postretirement Benefits
Prior to the Company's acquisition of Katz on October 28, 1997, Katz
provided for certain medical, dental and life insurance benefits for employees
who retire beginning at age 55 with a minimum of 15 years of service and for
employees who retire at age 65 with a minimum of 10 years of service. The
Company will continue providing this coverage only for retirees and
beneficiaries currently receiving coverage and those active employees who have,
or will have attained by December 31, 1998, the age and service necessary to
receive coverage.
The accumulated post retirement benefit obligation ("APBO") consists of
$703 for retirees and $337 for active employees fully eligible for benefits for
a total APBO of $1,040 at December 31, 1997. As of December 31, 1997, Katz and
its subsidiaries have not funded any portion of the accumulated postretirement
benefit obligation. The net periodic postretirement benefit cost consists of
interest cost on the APBO of $11 for the year ended December 31, 1997. The APBO
was determined using an assumed discount rate of 6.5% and a health care cost
trend rate of 5% per annum for all future years. The effect of a 1% increase in
the health care cost trend rate would increase the APBO by $368 and would
increase the service and interest cost components of the net periodic
postretirement benefit cost by $24.
F-30
<PAGE> 271
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) INCOME TAXES
Income tax expense (benefit) from continuing operations consists of the
following:
<TABLE>
<CAPTION>
1995 1996 1997
----- ------- -------
<S> <C> <C> <C>
Current tax expense:
Federal............................................... $ 246 $ 485 $ 6,840
State................................................. 425 972 4,791
----- ------- -------
Total current tax expense............................... 671 1,457 11,631
Deferred benefit........................................ (479) (4,353) (3,829)
----- ------- -------
Total income tax expense (benefit)...................... $ 192 $(2,896) $ 7,802
===== ======= =======
</TABLE>
During 1997, the Company incurred an extraordinary loss on extinguishment
of debt. The tax benefit related to the extraordinary loss is approximately
$2,343. This tax benefit, which reduces current taxes payable, is separately
allocated to the extraordinary item.
Total income tax expense (benefit) differed from the amount computed by
applying the U.S. federal statutory income tax rate of 35% to loss from
continuing operations for the years ended December 31, 1995, 1996 and 1997 as a
result of the following:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Computed "expected" tax benefit....................... $(1,980) $(6,682) $(2,342)
Amortization of goodwill.............................. 788 2,477 5,744
Net operating loss carryforwards for which no tax
benefit was recognized.............................. 923 -- --
State income taxes, net of federal benefit............ 276 632 2,533
Other, net............................................ 185 677 1,867
------- ------- -------
$ 192 $(2,896) $ 7,802
======= ======= =======
</TABLE>
F-31
<PAGE> 272
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1996 and
1997 are presented below:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss and credit carryforwards............... $ 13,519 $ 38,552
Accrued compensation primarily relating to stock
options................................................ 1,687 1,720
Differences in book and tax bases related to media
representation contracts............................... -- 39,908
Differences in book and tax bases of lease liabilities.... -- 4,727
Other..................................................... 1,215 3,147
--------- ---------
Total deferred tax assets......................... 16,421 88,054
--------- ---------
Deferred tax liabilities:
Property and equipment and intangibles, primarily
resulting from difference in bases from BPI, Pyramid,
Chancellor Merger and Katz acquisitions................ (101,761) (445,992)
Other..................................................... (758) (3,702)
--------- ---------
Total deferred tax liabilities.................... (102,519) (449,694)
--------- ---------
Net deferred tax liability........................ $ (86,098) $(361,640)
========= =========
</TABLE>
Deferred tax assets and liabilities are computed by applying the U.S.
federal and state income tax rate in effect to the gross amounts of temporary
differences and other tax attributes, such as net operating loss carryforwards.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. The Company expects the
deferred tax assets at December 31, 1997 to be realized as a result of the
reversal during the carryforward period of existing taxable temporary
differences giving rise to deferred tax liabilities and the generation of
taxable income in the carryforward period.
At December 31, 1997, the Company has net operating loss carryforwards
available to offset future taxable income of approximately $85,000, expiring
from 1998 to 2012 and has alternative minimum tax credit carryforwards of
approximately $3,600 that do not expire. All of the net operating loss and tax
credit carryforwards at December 31, 1997 are subject to annual use limitations
under tax rules governing changes of ownership.
F-32
<PAGE> 273
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) COMMITMENTS AND CONTINGENCIES
The Company has noncancelable operating leases, primarily for office space.
These leases generally contain renewal options for periods ranging from one to
ten years and require the Company to pay all executory costs such as maintenance
and insurance. Rental expense for operating leases (excluding those with lease
terms of one month or less that were not renewed) was approximately $3,073,
$5,462 and $10,913 during 1995, 1996 and 1997, respectively. Future minimum
lease payments under noncancelable operating leases (with initial or remaining
lease terms in excess of one year) as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1998..................................................... 30,784
1999..................................................... 28,644
2000..................................................... 26,533
2001..................................................... 25,188
2002..................................................... 23,506
Thereafter............................................... 156,335
</TABLE>
In August 1993, the Company terminated an agreement with Sagittarius
Broadcasting Company (an affiliate of Infinity Broadcasting Corporation) and One
Twelve, Inc. (collectively, the "Claimants" or the "Plaintiffs") pursuant to
which programming featuring radio personality Howard Stern was broadcast on
radio station WLUP-AM (now WMVP-AM) in Chicago. The Claimants allege that
termination of the agreement was wrongful and have sued the Company in the
Supreme Court of the State of New York, County of New York (the "Court"). The
agreement required payments to the Claimants in the amount of $2.6 million plus
five percent of advertising revenues generated by the programming over the
three-year term of the agreement. A total of approximately $680,000 was paid to
the Claimants pursuant to the agreement prior to termination. Claimants'
complaint alleged claims for breach of contract, indemnification, breach of
fiduciary duty and fraud. Claimants' aggregate prayer for relief totaled $45.0
million. On July 12, 1994, the Court granted the Company's motion to dismiss
Claimants' claims for fraud and breach of fiduciary duty. On June 6, 1995, the
Court denied the Claimants' motion for summary judgment on their contract and
indemnification claims and this order has been affirmed on appeal. On May 17,
1996, after the close of discovery, the Company filed a motion for summary
judgment, seeking the dismissal of the remaining claims in the original
complaint. On July 1, 1996, Claimants moved for leave to amend their complaint
in order to add claims for breach of the covenant of good faith and fair
dealing, tortious interference with business advantage and prima facia tort. In
the proposed amended complaint, Claimants seek compensatory and punitive damages
in excess of $25.0 million. On March 13, 1997, the Court denied the Company's
motion for summary judgment, allowed Claimants' request to amend the complaint
to add a claim for breach of the covenant of good faith and fair dealing and
denied Claimants' request to amend the complaint to add claims for tortious
interference with business advantage and prima facia tort. On April 25, 1997,
the Company filed a notice of appeal of the denial of the Company's motion for
summary judgment. In October 1997, the N.Y. State Supreme Court, Appellate
Division, granted a portion of the appeal seeking to strike certain damages
sought, but otherwise affirmed the denial of the motion for summary judgement
and sent the case back to the trial court for trial. The Company believes that
it acted within its rights in terminating the agreement.
The Company is also involved in various other claims and lawsuits which are
generally incidental to its business. The Company is vigorously contesting all
such matters and believes that their ultimate resolution will not have a
material adverse effect on its consolidated financial position, results of
operations or cash flows.
F-33
<PAGE> 274
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1996 and 1997. The fair
value of a financial instrument is defined as the amount at which the instrument
could be exchanged in a current transaction between willing parties.
<TABLE>
<CAPTION>
1996 1997
------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Interest rate swaps..................... $ -- $ 199 $ -- $ 3,919
Long-term debt -- Senior Credit
Facility.............................. 348,000 348,000 1,573,000 1,573,000
Long-term debt -- Senior Notes.......... 10,000 10,572 -- --
Long-term debt -- 9 3/8% Notes.......... -- -- 200,000 209,000
Long-term debt -- 8 3/4% Notes.......... -- -- 200,000 205,000
Long-term debt -- 10 1/2% Notes......... -- -- 100,000 110,000
Long-term debt -- 8 1/8% Notes.......... -- -- 500,000 500,000
Redeemable preferred stock -- 12 1/4%
Preferred Stock....................... -- -- 119,444 133,000
Redeemable preferred stock -- 12%
Preferred Stock....................... -- -- 211,764 239,821
Preferred stock -- $3.00 Convertible
Preferred Stock....................... -- -- 299,500 473,959
Preferred stock -- 7% Preferred Stock... -- -- 110,000 237,875
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
Cash and cash equivalents, accounts receivable and accounts
payable: The carrying amount of these assets and liabilities approximates
fair value because of the short maturity of these instruments.
Interest rate swaps: The fair value of the interest rate swap and cap
contracts is estimated by obtaining quotations from brokers. The fair value
is an estimate of the amounts that the Company would (receive) pay at the
reporting date if the contracts were transferred to other parties or
canceled by the broker.
Long-term debt: The fair values of the Company's 9 3/8% Notes, 8 3/4%
Notes, 10 1/2% Notes and 8 1/8% Notes are based on December 31, 1997 quoted
market prices. As amounts outstanding under the Company's Senior Credit
Facility agreements bear interest at current market rates, their carrying
amounts approximate fair market value.
Redeemable preferred stock: The fair values of the Company's 12 1/4%
Preferred Stock and 12% Preferred Stock are based on December 31, 1997
quoted market prices.
Preferred stock: The fair values of the Company's $3.00 Convertible
Preferred Stock and 7% Convertible Preferred Stock are based on December
31, 1997 quoted market prices.
(14) RELATED PARTY TRANSACTIONS
As of December 31, 1997, Thomas O. Hicks and affiliates of Hicks Muse
beneficially owned an aggregate 18,727,028 shares of Common Stock of the
Company. Mr. Hicks was elected Chairman of the Board and a director of the
Company upon consummation of the Chancellor Merger.
F-34
<PAGE> 275
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is subject to a financial monitoring and oversight agreement,
dated April 1, 1996, as amended on September 4, 1997, (the "Financial Monitoring
and Oversight Agreement") with Hicks, Muse & Co. Partners, L.P. ("Hicks Muse
Partners"), an affiliate of Hicks Muse. Pursuant thereto, the Company pays to
Hicks Muse Partners an annual fee of not less than $1,000 , subject to increase
or decrease (but not below $1,000), based upon changes in the Consumer Price
Index. Hicks Muse Partners is also entitled to reimbursement for any
out-of-pocket expenses incurred in connection with rendering services under the
Financial Monitoring and Oversight Agreement. The Financial Monitoring and
Oversight Agreement provides that the agreement will terminate at such time as
Thomas O. Hicks and his affiliates collectively cease to beneficially own at
least two-thirds of the number of shares of Common Stock beneficially owned by
them, collectively. The Company paid Hicks Muse Partners $333 in 1997 pursuant
to the Financial Monitoring and Oversight Agreement which is included in
corporate general and administrative expense in the accompanying consolidated
statement of operations.
In connection with the consummation of the Chancellor Merger, a Financial
Advisory Agreement among Chancellor, CRBC and HM2/Management Partners, L.P.
("HM2/Management"), an affiliate of Hicks Muse, was terminated. In consideration
thereof, in lieu of any payments required to be made under the Financial
Advisory Agreement in respect of the transactions contemplated by the Chancellor
Merger, HM2/Management was paid a fee of $10,000 in cash upon consummation of
the Chancellor Merger which was accounted for as a direct acquisition cost.
Notwithstanding the termination of the Financial Advisory Agreement, the Company
paid Hicks Muse Partners $1,500 for financial advisory services in connection
with the Katz Acquisition which was accounted for as a direct acquisition cost.
Vernon E. Jordan, Jr., a director of the Company, also serves on the board
of directors of Bankers Trust Company and Bankers Trust New York Corporation.
Affiliates of Bankers Trust Company and Bankers Trust New York Corporation have
provided a variety of commercial banking, investment banking and financial
advisory services to the Company, and expect to continue to provide such
services to the Company in the future.
(15) SEGMENT DATA
The Company operated in two principal business segments -- radio
broadcasting and media representation -- in 1997. The Company's radio
broadcasting segment included a portfolio of 96 stations (68 FM and 28 AM) for
which the Company owned at December 31, 1997 in 21 large markets, including each
of the nation's 12 largest radio revenue markets. The Company entered into the
media representation segment with the acquisition of Katz on October 28, 1997.
Katz is a full-service media representation firm serving multiple types of
electronic media, with leading market share in the representation of radio and
television stations and cable television systems. Katz is retained on an
exclusive basis by radio stations, television stations and cable television
systems in over 200 designated market areas throughout the United States,
including at least one radio or television station in each of the 50 largest
designated market areas, to sell national spot advertising air time. The media
representation segment data for 1997 includes the results of operations of Katz
from the date of acquisition.
<TABLE>
<CAPTION>
DEPRECIATION
NET OPERATING AND IDENTIFIABLE CAPITAL
1997 REVENUES INCOME AMORTIZATION ASSETS EXPENDITURES
---- -------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Radio broadcasting............... $548,856 $52,219 $182,314 $4,465,526 $11,430
Media representation............. 33,222 6,187 3,668 495,951 436
-------- ------- -------- ---------- -------
Total.................. $582,078 $58,406 $185,982 $4,961,477 $11,866
======== ======= ======== ========== =======
</TABLE>
F-35
<PAGE> 276
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(16) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
1996:
Net revenues............................ $ 53,371 $ 72,991 $ 78,768 $ 88,720
Operating income (loss)................. (8,223) 7,062 9,351 9,770
Net income (loss) attributable to common
stockholders......................... (15,481) (3,429) (1,997) 893
Basic and diluted income (loss) per
common share......................... (0.28) (0.06) (0.04) 0.01
1997:
Net revenues............................ $ 81,897 $106,364 $145,022 $248,795
Operating income........................ 568 16,968 15,002 25,868
Income (loss) before extraordinary
item................................. (6,011) 9,870 (6,000) (25,254)
Net income (loss) attributable to common
stockholders......................... (6,011) 4,821 (11,049) (31,671)
Basic and diluted income (loss) per
common share:
Before extraordinary item............ (0.07) 0.11 (0.12) (0.27)
Net income (loss).................... (0.07) 0.06 (0.12) (0.27)
</TABLE>
Basic and diluted net loss per common share for the years ended December
31, 1996 and 1997 differs from the sum of basic and diluted net loss per common
share for the quarters during the respective year due to the different periods
used to calculate weighted average shares outstanding.
F-36
<PAGE> 277
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Chancellor Media Corporation:
Our report on the consolidated financial statements of Chancellor Media
Corporation and subsidiaries is included in this Form 10-K. In connection with
our audit of such financial statements, we have also audited the related
financial statement schedules of Chancellor Media Corporation and subsidiaries
as of and for the year ended December 31, 1997 included herein.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
February 10, 1998, except for notes 2(b)
paragraphs 1 and 3-5 as to which the date
is February 20, 1998 and 9(b) paragraph 6
as to which the date is March 13, 1998
F-37
<PAGE> 278
SCHEDULE I
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
CONDENSED BALANCE SHEETS -- PARENT COMPANY
DECEMBER 31, 1996 AND 1997
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1996 1997
--------- ----------
<S> <C> <C>
Investment in subsidiaries, at equity....................... $ 549,411 $1,480,207
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable............................................ $ -- $ --
Stockholders' equity:
Preferred stock........................................... -- 409,500
Common stocks............................................. 843 1,199
Paid-in capital........................................... 662,080 1,226,930
Accumulated deficit....................................... (113,512) (157,422)
--------- ----------
Total stockholders' equity........................ 549,411 1,480,207
--------- ----------
Total liabilities and stockholders' equity........ $ 549,411 $1,480,207
========= ==========
</TABLE>
See accompanying notes to condensed financial statements.
F-38
<PAGE> 279
SCHEDULE I, CONT.
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS -- PARENT COMPANY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Net loss -- equity in losses of unconsolidated
subsidiaries.............................................. $(5,850) $(16,194) $(31,745)
======= ======== ========
</TABLE>
See accompanying notes to condensed financial statements.
F-39
<PAGE> 280
SCHEDULE I, CONT.
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS -- PARENT COMPANY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................ $ (5,850) $ (16,194) $ (31,745)
Equity in undistributed losses of unconsolidated
subsidiaries......................................... 5,850 16,194 31,745
--------- --------- ---------
Net cash provided by operating activities....... -- -- --
Cash flows from investing activities -- investment in
subsidiaries............................................ (127,936) (261,028) (282,244)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock, preferred stock
and warrants......................................... 132,766 264,938 293,158
Redemption of redeemable preferred stock................ -- (90) --
Dividends on preferred stock............................ (4,830) (3,820) (10,914)
Distributions from subsidiaries......................... -- -- --
Net cash provided by financing activities....... 127,936 261,028 282,244
--------- --------- ---------
Net change in cash and cash equivalents................... -- -- --
Cash and cash equivalents at beginning of year............ -- -- --
--------- --------- ---------
Cash and cash equivalents at end of year.................. $ -- $ -- $ --
========= ========= =========
</TABLE>
See accompanying notes to condensed financial statements.
F-40
<PAGE> 281
SCHEDULE I, CONT.
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
(1) GENERAL
The accompanying condensed financial statements of Chancellor Media
Corporation (the "Company") should be read in conjunction with the consolidated
financial statements of the Company and its subsidiaries included in the
Company's Annual Report on Form 10-K.
(2) OBLIGATIONS, GUARANTEES AND COMMITMENTS
On November 6, 1992, the Company organized a new wholly-owned subsidiary to
which the Company transferred and assigned substantially all of its assets and
liabilities. The Company has guaranteed the obligations under a loan agreement
of this subsidiary (the "Senior Credit Facility"). Prior to such time the
Company was the debtor on such obligations. See note 7 to consolidated financial
statements regarding these obligations.
(3) OTHER
See note 9 to consolidated financial statements for a description of the
preferred stock, common stock and other equity securities of the Company.
F-41
<PAGE> 282
SCHEDULE II
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS ADDITIONS
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS WRITEOFFS OF PERIOD
----------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1997............. $ 2,292 5,174 7,049(1) 1,864 $12,651
======= ===== ======= ===== =======
Year ended December 31, 1996............. $ 2,000 2,179 156(1) 2,043 $ 2,292
======= ===== ======= ===== =======
Year ended December 31, 1995............. $ 835 904 1,644(1) 1,383 $ 2,000
======= ===== ======= ===== =======
Deferred tax asset valuation allowance:
Year ended December 31, 1997............. $ -- -- -- -- $ --
======= ===== ======= ===== =======
Year ended December 31, 1996............. $ -- -- -- -- $ --
======= ===== ======= ===== =======
Year ended December 31, 1995............. $14,458 -- (14,458) -- $ --
======= ===== ======= ===== =======
</TABLE>
- ---------------
(1) Additions (deductions) result from the application of purchase accounting
relating to the BPI Acquisition in 1995, the Pyramid Acquisition in 1996
and the Chancellor Merger, the Viacom Acquisition and the Katz Acquisition
in 1997.
F-42
<PAGE> 283
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
(RESTATED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 16,584 $ 13,063
Accounts receivable, less allowance for doubtful accounts
of $12,651 in 1997 and $13,002 in 1998................. 239,869 321,391
Other current assets...................................... 27,208 42,343
---------- ----------
Total current assets.............................. 283,661 376,797
Note receivable from affiliate.............................. -- 150,000
Property and equipment, net................................. 159,797 299,906
Intangible assets, net...................................... 4,404,443 5,036,250
Other assets, net........................................... 113,576 162,142
---------- ----------
$4,961,477 $6,025,095
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 171,017 $ 177,472
Long-term debt.............................................. 2,573,000 3,018,000
Deferred tax liabilities.................................... 361,640 360,618
Other liabilities........................................... 44,405 60,403
---------- ----------
Total liabilities................................. 3,150,062 3,616,493
---------- ----------
Redeemable preferred stock:
Redeemable senior cumulative exchangeable preferred stock
of subsidiary, par value $.01 per share; 1,000,000
shares authorized, issued and outstanding; liquidation
preference of $121,274 in 1997......................... 119,445 --
Redeemable cumulative exchangeable preferred stock of
subsidiary, par value $.01 per share; 3,600,000 shares
authorized and 2,117,629 shares issued and outstanding;
liquidation preference of $223,519 in 1997............. 211,763 --
Stockholders' equity:
Preferred stock, $.01 par value. 2,200,000 shares of 7%
convertible preferred stock authorized, issued and
outstanding............................................ 110,000 110,000
Preferred stock, $.01 par value. 6,000,000 shares
authorized; 5,990,000 shares of $3.00 convertible
exchangeable preferred stock issued and outstanding.... 299,500 299,500
Common stock, $.01 par value. Authorized 200,000,000
shares; issued and outstanding 119,921,814 shares in
1997 and 142,392,516 in 1998........................... 1,199 1,424
Paid-in capital............................................. 1,226,930 2,243,350
Accumulated deficit......................................... (157,422) (245,672)
---------- ----------
Total stockholders' equity........................ 1,480,207 2,408,602
---------- ----------
$4,961,477 $6,025,095
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-43
<PAGE> 284
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- -----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1997 1998
------------- ------------- ------------- -------------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C>
Gross revenues................................ $166,817 $389,551 $382,994 $1,015,562
Less agency commissions..................... (21,795) (45,722) (49,711) (116,466)
-------- -------- -------- ----------
Net revenues........................ 145,022 343,829 333,283 899,096
Operating expenses:
Operating expenses, excluding depreciation
and amortization......................... 73,551 175,062 184,713 491,924
Depreciation and amortization............... 50,474 120,648 104,386 315,772
Corporate general and administrative........ 5,995 10,109 11,646 25,188
Executive severance charge.................. -- -- -- 59,475
-------- -------- -------- ----------
Operating expenses.................. 130,020 305,819 300,745 892,359
-------- -------- -------- ----------
Operating income.................... 15,002 38,010 32,538 6,737
-------- -------- -------- ----------
Other (income) expense:
Interest expense, net....................... 22,295 48,624 45,036 135,709
Gain on disposition of representation
contracts................................ -- (18,497) -- (29,767)
Other income................................ (5,057) -- (18,380) (127,404)
-------- -------- -------- ----------
Other (income) expense.............. 17,238 30,127 26,656 (21,462)
-------- -------- -------- ----------
Income (loss) before income taxes
and extraordinary item............ (2,236) 7,883 5,882 28,199
Income tax expense............................ 985 722 5,244 32,507
Dividends on preferred stock of subsidiary.... 2,779 899 2,779 17,601
-------- -------- -------- ----------
Income (loss) before extraordinary
item.............................. (6,000) 6,262 (2,141) (21,909)
Extraordinary loss, net of income tax
benefit..................................... -- 15,224 4,350 47,089
-------- -------- -------- ----------
Net loss............................ (6,000) (8,962) (6,491) (68,998)
Preferred stock dividends..................... 5,049 6,417 5,748 19,252
-------- -------- -------- ----------
Net loss attributable to common
stockholders...................... $(11,049) $(15,379) $(12,239) $ (88,250)
======== ======== ======== ==========
Basic and diluted loss per common share:
Before extraordinary item................... $ (0.12) $ -- $ (0.09) $ (0.31)
Extraordinary item.......................... -- (0.11) (0.05) (0.34)
-------- -------- -------- ----------
Net loss............................ $ (0.12) $ (0.11) $ (0.14) $ (0.65)
======== ======== ======== ==========
Weighted average common shares outstanding.... 94,166 142,345 87,690 136,427
======== ======== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-44
<PAGE> 285
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1998
------------- -------------
(RESTATED)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (6,491) $ (68,998)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation........................................... 9,091 18,632
Amortization of goodwill, intangible assets and other
assets................................................ 95,295 297,140
Executive severance charge -- stock option
compensation.......................................... -- 16,000
Provisions for doubtful accounts....................... 3,409 4,573
Deferred income tax expense............................ 5,244 32,507
Gain on disposition of representation contracts........ -- (29,767)
Dividends on preferred stock of subsidiary............. 2,779 17,601
Gain on disposition of assets.......................... (18,380) (123,845)
Loss on extinguishment of debt......................... 4,350 47,089
Other.................................................. -- (1,893)
Changes in certain assets and liabilities, net of
effects of acquisitions:
Accounts receivable.................................. (15,171) (73,528)
Other current assets................................. 4,481 (10,283)
Accounts payable and accrued expenses................ 8,445 12,737
Other assets......................................... 54 (4,114)
Other liabilities.................................... 197 12,608
----------- -----------
Net cash provided by operating activities......... 93,303 146,459
----------- -----------
Cash flows from investing activities:
Acquisitions, net of cash acquired........................ (2,083,701) (905,264)
Escrow deposits on pending acquisitions................... (10,005) --
Payments made on purchases of representation contracts.... -- (25,724)
Proceeds from sale of representation contracts............ -- 20,283
Proceeds from sale of assets.............................. 269,250 --
Issuance of note receivable from affiliate................ -- (150,000)
Capital expenditures...................................... (6,436) (21,684)
Other..................................................... (20,914) (39,750)
----------- -----------
Net cash used by investing activities............. (1,851,806) (1,122,139)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.................. 2,105,000 1,973,000
Principal payments on long-term debt...................... (606,000) (1,528,000)
Proceeds from issuance of common stock and preferred
stock.................................................. 288,898 1,000,645
Repurchase of 12% and 12 1/4% Exchange Debentures......... -- (403,213)
Dividends on preferred stock.............................. (5,748) (50,436)
Payments for debt issuance costs.......................... (10,567) (19,837)
Other..................................................... (158) --
----------- -----------
Net cash provided by financing activities......... 1,771,425 972,159
----------- -----------
Increase (decrease) in cash and cash equivalents............ 12,922 (3,521)
Cash and cash equivalents at beginning of period............ 3,060 16,584
----------- -----------
Cash and cash equivalents at end of period.................. $ 15,982 $ 13,063
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-45
<PAGE> 286
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
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 Chancellor Media Corporation and its subsidiaries (collectively,
"the Company" or "Chancellor Media") 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, 1997.
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 December 18, 1997, the Company declared a two-for-one stock split
effected in the form of a stock dividend payable on January 12, 1998 to
shareholders of record at the close of business on December 29, 1997. 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.
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. Stock options, the $3.00 Convertible Exchangeable Preferred Stock
(the "$3.00 Convertible Preferred Stock") and the 7% Convertible Preferred Stock
(the "7% Convertible Preferred Stock") are not included in the calculation as
their effect would be antidilutive.
The Company adopted SFAS No. 130, Reporting Comprehensive Income, effective
January 1, 1998. This statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. The Company has no items of comprehensive income for
any period presented and therefore is not required to report comprehensive
income.
Certain Consolidated Balance Sheet, Consolidated Statement of Operations
and Consolidated Statement of Cash Flows items have been restated (see Note 2).
2. ACQUISITIONS AND DISPOSITIONS
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 $30,000 in
cash plus various other direct acquisition costs. The Company had previously
provided certain sales and promotional functions to WWWW-FM and WDFN-AM under a
joint sales agreement since February 14, 1996 and subsequently operated the
stations under a time brokerage agreement since April 1, 1996.
On January 31, 1997, the Company acquired KKSF-FM and KDFC-FM/AM in San
Francisco from affiliates of the Brown Organization for $115,000 in cash plus
various other direct acquisition costs. The Company had previously been
operating KKSF-FM and KDFC-FM/AM under a time brokerage agreement since November
1, 1996. On July 21, 1997, the Company sold KDFC-FM to Bonneville International
Corporation ("Bonneville") for $50,000 in cash. The assets of KDFC-FM were
classified as assets held for
F-46
<PAGE> 287
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
sale in connection with the purchase price allocation of the acquisition of
KKSF-FM and KDFC-FM/AM and no gain or loss was recognized by the Company upon
consummation of the sale.
On April 1, 1997, the Company acquired WJLB-FM and WMXD-FM in Detroit from
Secret Communications Limited Partnership ("Secret") for $168,000 in cash plus
various other direct acquisition costs. The Company had previously been
operating WJLB-FM and WMXD-FM under time brokerage agreements since September 1,
1996.
On April 3, 1997, the Company exchanged WQRS-FM in Detroit (which the
Company acquired on April 3, 1997 from Secret for $32,000 in cash plus various
other direct acquisition costs), to affiliates of Greater Media Radio, Inc.
("Greater Media") in return for WWRC-AM in Washington, D.C. (now known as
WTEM-AM) and $9,500 in cash. The exchange was accounted for as a like-kind
exchange and no gain or loss was recognized upon consummation of the
transaction. The net purchase price to the Company of WWRC-AM was therefore
$22,500. The Company had previously been operating WWRC-AM under a time
brokerage agreement since June 17, 1996.
On May 1, 1997, the Company acquired WDAS-FM/AM in Philadelphia from
affiliates of Beasley FM Acquisition Corporation for $103,000 in cash plus
various other direct acquisition costs.
On May 15, 1997, the Company exchanged five of its six stations in
Charlotte, North Carolina (WPEG-FM, WBAV-FM/AM, WRFX-FM and WFNZ-AM) for two FM
stations in Philadelphia (WIOQ-FM and WUSL-FM) owned by EZ Communications, Inc.
("EZ") in Philadelphia (the "Charlotte Exchange"), and also sold the Company's
sixth radio station in Charlotte, WNKS-FM, to EZ for $10,000 in cash and
recognized a gain of $3,536. The Charlotte Exchange was accounted for as a
like-kind exchange and no gain or loss was recognized upon consummation of the
transaction.
On May 30, 1997, the Company acquired WPNT-FM in Chicago from affiliates of
Century Broadcasting Company for $75,740 in cash (including $1,990 for the
purchase of the station's accounts receivable) plus various other direct
acquisition costs. On June 19, 1997, the Company sold WPNT-FM in Chicago to
Bonneville for $75,000 in cash and recognized a gain of $529.
On June 3, 1997, the Company sold WEJM-FM in Chicago to affiliates of
Crawford Broadcasting for $14,750 in cash and recognized a gain of $9,258.
On July 2, 1997, the Company acquired WLTW-FM and WAXQ-FM in New York and
WMZQ-FM, WJZW-FM, WZHF-AM and WBZS-AM in Washington, D.C. from Viacom
International, Inc. ("Viacom") for approximately $612,388 in cash including
various other direct acquisition costs (the "Viacom Acquisition"). The Viacom
Acquisition was financed with (i) bank borrowings under the Senior Credit
Facility (as defined) of $552,559; (ii) $53,750 in escrow funds paid by the
Company on February 19, 1997 and (iii) $6,079 financed through working capital.
In June 1997, the Company issued 5,990,000 shares of $3.00 Convertible Preferred
Stock for net proceeds of $287,808 which were used to repay borrowings under the
Senior Credit Facility and subsequently were reborrowed on July 2, 1997 as part
of the financing of the Viacom Acquisition. On July 7, 1997, the Company sold
WJZW-FM in Washington, D.C. to affiliates of Capital Cities/ABC Radio for
$68,000 in cash. The assets of WJZW-FM, as well as the assets of WZHF-AM and
WBZS-AM, which were also sold on August 13, 1997, were accounted for as assets
held for sale in connection with the purchase price allocation of the Viacom
Acquisition and no gain or loss was recognized by the Company upon consummation
of the sales.
On July 7, 1997, the Company sold the Federal Communications Commission
("FCC") authorizations and certain transmission equipment previously used in the
operation of KYLD-FM in San Francisco to Susquehanna Radio Corporation
("Susquehanna") for $44,000 in cash and recognized a gain of $1,726.
Simultaneously therewith, Chancellor sold the call letters "KSAN-FM" (which
Chancellor previously used in
F-47
<PAGE> 288
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
San Francisco) to Susquehanna. On July 7, 1997, the Company and Chancellor
entered into a time brokerage agreement to enable the Company to operate KYLD-FM
on the frequency previously assigned to KSAN-FM, and on July 7, 1997, Chancellor
changed the call letters of KSAN-FM to KYLD-FM. Upon the consummation of the
Chancellor Merger (as defined herein), the Company changed the format of the new
KYLD-FM to the format previously operated on the old KYLD-FM.
On July 14, 1997, the Company completed the disposition of WLUP-FM in
Chicago to Bonneville for net proceeds of $80,000 which were held by a qualified
intermediary pending the completion of the deferred exchange of WLUP-FM for
KZPS-FM and KDGE-FM in Dallas. On October 7, 1997, the Company applied the net
proceeds from the disposition of WLUP-FM of $80,000 in cash, plus an additional
$3,500 and various other direct acquisition costs, in a deferred exchange of
WLUP-FM for KZPS-FM and KDGE-FM in Dallas. The exchange was accounted for as a
like-kind exchange and no gain or loss was recognized upon consummation of the
transaction. The Company had previously operated KZPS-FM and KDGE-FM under time
brokerage agreements effective August 1, 1997.
On July 21, 1997, the Company entered into a time brokerage agreement with
Chancellor whereby the Company began managing certain limited functions of
Chancellor's stations KBGG-FM, KNEW-AM and KABL-FM in San Francisco pending the
consummation of the Chancellor Merger (as defined herein), which occurred on
September 5, 1997.
On August 13, 1997, the Company sold WBZS-AM and WZHF-AM in Washington,
D.C. (acquired as part of the Viacom Acquisition) and KDFC-AM in San Francisco
to affiliates of Douglas Broadcasting ("Douglas") for $18,000 in the form of a
promissory note. The promissory note, as amended on May 1, 1998, bears interest
at 7 3/4% from the closing date through February 28, 1998 and at 10.0% from
March 1, 1998 through the remainder of the term of the note, with a balloon
principal payment due four years after closing. At closing, Douglas posted a
$1,000 letter of credit for the benefit of the Company that will remain
outstanding until all amounts due under the promissory note are paid.
On August 27, 1997, the Company sold WEJM-AM in Chicago to Douglas for
$7,500 in cash and recognized a gain of $3,331.
On September 5, 1997, pursuant to an Amended and Restated Agreement and
Plan of Merger, dated as of February 19, 1997 and amended and restated on July
31, 1997 (the "Chancellor Merger Agreement"), among Chancellor, Chancellor Radio
Broadcasting Company ("CRBC"), Evergreen Media Corporation ("Evergreen"),
Evergreen Mezzanine Holdings Corporation ("EMHC") and Evergreen Media
Corporation of Los Angeles ("EMCLA"), (i) Chancellor was merged with and into
EMHC, a direct, wholly-owned subsidiary of Evergreen, with EMHC remaining as the
surviving corporation and (ii) CRBC was merged with and into EMCLA, a direct,
wholly-owned subsidiary of EMHC, with EMCLA remaining as the surviving
corporation (collectively, the "Chancellor Merger"). Upon consummation of the
Chancellor Merger, the Company was renamed Chancellor Media Corporation, EMHC
was renamed Chancellor Mezzanine Holdings Corporation ("CMHC") and EMCLA was
renamed Chancellor Media Corporation of Los Angeles ("CMCLA"). Consummation of
the Chancellor Merger added 52 radio stations (36 FM and 16 AM) to the Company's
portfolio of stations, including 13 stations in markets in which the Company
previously operated. The total purchase price allocated to net assets acquired
was approximately $1,998,383 which included (i) the conversion of each
outstanding share of Chancellor Common Stock into 0.9091 shares of the Company's
Common Stock, resulting in the issuance of 34,617,460 shares of the Company's
Common Stock at $15.50 per share, (ii) the assumption of long-term debt of CRBC
of $949,000 which included $549,000 of borrowings outstanding under the CRBC
senior credit facility, $200,000 of CRBC's 9 3/8% Senior Subordinated Notes due
2004 and $200,000 of CRBC's 8 3/4% Senior Subordinated Notes due 2007, (iii) the
issuance of 2,117,629 shares of CMCLA's 12% Exchangeable Preferred Stock in
exchange for CRBC's substantially identical securities with a fair value of
$215,570 including accrued and unpaid dividends of $3,807, (iv) the issuance of
F-48
<PAGE> 289
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1,000,000 shares of CMCLA's 12 1/4% Series A Senior Cumulative Exchangeable
Preferred Stock in exchange for CRBC's substantially identical securities with a
fair value of $120,217 including accrued and unpaid dividends of $772, (v) the
issuance of 2,200,000 shares of the Company's 7% Convertible Preferred Stock in
exchange for Chancellor's substantially identical securities with a fair value
of $111,048 including accrued and unpaid dividends of $1,048, (vi) the
assumption of stock options issued to Chancellor stock option holders with a
fair value of $34,977 and (vii) estimated acquisition costs of $31,000.
On October 28, 1997, the Company acquired Katz Media Group, Inc. ("KMG"), a
full-service media representation firm, in a tender offer transaction for a
total purchase price of approximately $379,101 (the "Katz Acquisition") which
included (i) the conversion of each outstanding share of KMG Common Stock into
the right to receive $11.00 in cash, resulting in total cash payments of
$149,601, (ii) the assumption of long-term debt of KMG and its subsidiaries of
$222,000 which included $122,000 of borrowings outstanding under the KMG senior
credit facility and $100,000 of 10 1/2% Senior Subordinated Notes due 2007 of
Katz Media Corporation (a subsidiary of KMG) and (iii) estimated acquisition
costs of $7,500.
On December 29, 1997, the Company acquired five radio stations from Pacific
and Southern Company, Inc., a subsidiary of Gannett Co., Inc., consisting of
WGCI-FM/AM in Chicago for $140,000, KKBQ-FM/AM in Houston for $110,000 and
KHKS-FM in Dallas for $90,000, for an aggregate purchase price of $340,000 in
cash plus various other direct acquisition costs.
1998 Completed Transactions
On January 30, 1998, the Company acquired KXPK-FM in Denver from Ever Green
Wireless LLC (which is unrelated to the Company) for $26,000 in cash plus
various other direct acquisition costs, of which $1,650 was previously paid by
Chancellor as escrow funds and are classified as other assets at December 31,
1997. The Company had previously operated KXPK-FM under a time brokerage
agreement since September 1, 1997.
On April 3, 1998, the Company exchanged WTOP-AM in Washington, KZLA-FM in
Los Angeles and WGMS-FM in Washington plus $63,000 in cash (including $3,000
paid by the Company in escrow and classified as other assets at December 31,
1997) to Bonneville for WBIX-FM in New York, KLDE-FM in Houston and KBIG-FM in
Los Angeles (the "Bonneville Exchange"). The Company had previously operated
KLDE-FM and KBIG-FM under time brokerage agreements since October 1, 1997 and
WBIX-FM since October 10, 1997, and had sold substantially all of the broadcast
time of WTOP-AM, KZLA-FM and WGMS-FM to Bonneville since October 1, 1997.
Based on discussions with the Securities and Exchange Commission, the
Company has restated its previously reported results for the nine months ended
September 30, 1998 to recognize a pre-tax gain of $123,845 related to the
Bonneville Exchange. This transaction was previously accounted for as a
like-kind exchange and is now recorded as a business combination in accordance
with Accounting Principles Board Opinion No. 16, "Business Combinations." A
summary of the impact on the results of operations follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
--------------------------- ---------------------------
(AS PREVIOUSLY (AS PREVIOUSLY
REPORTED) (RESTATED) REPORTED) (RESTATED)
-------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Income (loss) before extraordinary item....... $ 7,500 $ 6,262 $ (93,739) $(21,909)
Net loss attributable to common
stockholders................................ (14,141) (15,379) (160,080) (88,250)
Basic and diluted income (loss) per common
share
Before extraordinary item................... $ 0.01 $ -- $ (0.83) $ (0.31)
Net loss.................................... (0.10) (0.11) (1.17) (0.65)
</TABLE>
F-49
<PAGE> 290
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On April 13, 1998, the Company and Secret entered into a settlement
agreement regarding WFLN-FM in Philadelphia. Previously in August 1996, the
Company and Secret had entered into an agreement under which the Company would
acquire WFLN-FM from Secret for $37,750 in cash. In April 1997, the Company
entered into an agreement to sell WFLN-FM to Greater Media for $41,800 in cash.
On July 16, 1997, Secret purported to terminate the sale of WFLN-FM to the
Company. The Company subsequently brought suit against Secret to enforce its
rights to acquire WFLN-FM. Pursuant to a court settlement entered in August 1997
and the settlement agreement between the Company and Secret entered on April 13,
1998, (i) Secret sold WFLN-FM directly to Greater Media for $37,750, (ii)
Greater Media deposited $4,050 (the difference between the Company's proposed
acquisition price for WFLN-FM from Secret and the Company's proposed sale price
for WFLN-FM to Greater Media) with the court and (iii) the Company received
$3,500 of such amount deposited by Greater Media with the court, plus interest
earned during the period which the court held such amounts (the "WFLN
Settlement"), and Secret received the balance of such amounts.
On May 29, 1998, as part of the Capstar/SFX Transaction (defined below),
the Company exchanged WAPE-FM and WFYV-FM in Jacksonville (valued for purposes
of the Capstar/SFX Transaction at $53,000) plus $90,250 in cash to Capstar
Broadcasting Corporation (together with its subsidiaries, "Capstar") in return
for KODA-FM in Houston (the "Houston Exchange"). Furthermore, on May 29, 1998,
Capstar sold KKPN-FM in Houston (acquired by Capstar as part of Capstar's
acquisition (the "SFX Acquisition") of SFX Broadcasting, Inc. ("SFX")) due to
the attributable ownership of Hicks, Muse, Tate & Furst, Incorporated ("Hicks
Muse") in both Capstar and the Company in order to comply with the FCC's
multiple ownership limits. In connection with Capstar's sale of KKPN-FM, the
Company received a commission from Capstar of $1,730. On May 29, 1998, the
Company also provided a loan to Capstar in the principal amount of $150,000 as
part of the Capstar/SFX Transaction (the "Capstar Loan"). The Capstar Loan bears
interest at the rate of 12% per annum (subject to increase in certain
circumstances), and is secured by a senior pledge of common stock of Capstar's
direct subsidiary. A portion of the Capstar Loan will be prepaid by Capstar in
connection with the Company's acquisition of, and the proceeds of such
prepayment would be used by the Company as a portion of the purchase price for,
each Capstar/SFX Station. Hicks Muse, which is a substantial shareholder of the
Company, controls Capstar, and certain officers and directors of the Company are
directors and/or executive officers of Capstar and/or Hicks Muse.
On June 1, 1998, the Company acquired WWDC-FM/AM in Washington, D.C. from
Capitol Broadcasting Company and its affiliates for $74,062 in cash (including
$2,062 for the purchase of the stations' accounts receivable) plus various other
direct acquisition costs, of which $4,000 was previously paid by the Company as
escrow funds and are classified as other assets at December 31, 1997 (the
"Capitol Broadcasting Acquisition").
On May 1, 1998, the Company formed a new marketing group division, in an
effort to enhance the revenues the Company derives from its sales promotion
activities. On June 1, 1998, the Company acquired Global Sales Development,
Inc., a consulting firm based in Richmond, Virginia, for $675 in cash plus
various other direct acquisition costs to lead its marketing efforts for this
new division.
On June 15, 1998, the Company's national radio network, The AMFM Radio
Networks, acquired the syndicated programming shows of Global Satellite Network
for $14,000 in cash plus various other direct acquisition costs. The syndicated
programming shows acquired include "Rockline", "Modern Rock Live", "Reelin' in
the Years" and the concert series "Live from the Pit".
On July 31, 1998, the Company acquired Martin Media, L.P. and certain
affiliated companies ("Martin Media"), an outdoor advertising company with over
14,500 billboards and outdoor displays in 12 states serving 23 markets, for
$591,674 in cash plus working capital of $19,443 subject to certain adjustments
and various other direct acquisition costs of approximately $10,000.
F-50
<PAGE> 291
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On August 28, 1998, the Company acquired various syndicated programming
shows of Casey Kasem and the related programming libraries for $7,150 in cash
and $7,000 in the form of a note due August 2000.
In September 1998, the Company acquired approximately 325 billboards and
outdoor displays in various markets for approximately $10,166 in cash.
On October 9, 1998, the Company acquired approximately a 22.4% non-voting
equity interest in Z-Spanish Media Corporation ("Z-Spanish Media") for
approximately $25,000 in cash (the "Z-Spanish Acquisition"). Z-Spanish Media,
which is headquartered in Sacramento, California, is the owner and operator of
22 Hispanic format radio stations in California, Texas, Arizona and Illinois.
On October 23, 1998, the Company acquired Primedia Broadcast Group, Inc.
and certain of its affiliates, which own and operate eight FM stations in Puerto
Rico, for approximately $76,050 in cash less working capital deficit of $1,280
plus various other direct acquisition costs (the "Primedia Acquisition").
In November 1998, the Company acquired approximately 290 billboards and
outdoor displays in various markets for approximately $12,978 in cash.
Pending Transactions
On July 31, 1997, Martin Media paid $6,025 to Kunz & Company for an option
to purchase approximately 1,000 display faces of its Kunz Outdoor Advertising
division for $33,289 in cash plus various other direct acquisition costs (the
"Kunz Option"). Although there can be no assurance, the Company expects that the
exercise of the Kunz Option will be consummated in the fourth quarter of 1998.
On February 20, 1998, the Company entered into an agreement to acquire from
Capstar KTXQ-FM and KBFB-FM in Dallas/Ft. Worth, KODA-FM, KKRW-FM and KQUE-AM in
Houston, KPLN-FM and KYXY-FM in San Diego and WDRV-FM, WJJJ-FM, WXDX-FM and
WDVE-FM in Pittsburgh (collectively, the "Capstar/SFX Stations") for an
aggregate purchase price of approximately $637,500 in a series of purchases and
exchanges over a period of three years (the "Capstar/SFX Transaction"). The
Capstar/SFX stations were acquired by Capstar as part of Capstar's acquisition
of SFX on May 29, 1998. On May 29, 1998, the Company completed the Houston
Exchange (defined above) and began operating the remaining ten Capstar/SFX
Stations under time brokerage agreements. The Company is currently assessing
whether the terms of the Capstar/SFX Transaction will be modified upon the
consummation of the Capstar Merger.
On April 8, 1998, the Company entered into an agreement to acquire Petry
Media Corporation, a leading independent television representation firm (the
"Petry Acquisition"). The agreement currently provides for a purchase price of
$129.5 million in cash. On June 3, 1998, the Antitrust Division of the United
States Department of Justice (the "DOJ") issued a second request for additional
information under the HSR Act in connection with the Petry Acquisition to which
the Company has responded. The Company and Petry are still negotiating with the
DOJ regarding this transaction and have agreed to extend the waiting period
under the HSR Act pending completion of these discussions. Accordingly at this
time, the Company cannot be sure of the terms on which this transaction will be
completed, if at all.
On July 7, 1998, the Company entered into an agreement whereby the ultimate
parent of LIN Television Corporation ("LIN") will merge into the Company (the
"LIN Merger"). Pursuant to this agreement, the Company will issue .0300 shares
of Chancellor Media Common Stock for each share of LIN's Common Stock resulting
in the issuance of approximately 17,700,000 shares (comprised of approximately
16,200,000 newly issued shares, the assumption of LIN phantom stock units
representing approximately 425,000 shares and the assumption of LIN options
representing the right to purchase approximately 1,075,000 shares). Upon
F-51
<PAGE> 292
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
consummation of the LIN Merger, it is expected that LIN will own or operate 12
television stations in eight markets in the United States. Although there can be
no assurance, the Company expects that the LIN Merger will be consummated in the
first quarter of 1999.
On August 11, 1998, the Company entered into agreements to acquire four FM
and two AM radio stations in Cleveland for an aggregate purchase price of
approximately $275,000 in cash plus various other direct acquisition costs (the
"Cleveland Acquisitions"). The Cleveland Acquisitions consist of the purchase by
the Company of (i) WDOK-FM and WRMR-AM from Independent Group Limited
Partnership, (ii) WZAK-FM from Zapis Communications, (iii) Zebra Broadcasting
Corporation which owns WZJM-FM and WJMO-AM and (v) Wincom Broadcasting
Corporation which owns WQAL-FM (the "Wincom Acquisition"). The consummation of
each of the Cleveland Acquisitions (other than the Wincom Acquisition) is
contingent upon the consummation of each of the other Cleveland Acquisitions
(other than the Wincom Acquisition). The Company began operating WQAL-FM under a
time brokerage agreement effective October 1, 1998. Although there can be no
assurance, the Company expects that the Cleveland Acquisitions will be
consummated in the first quarter of 1999.
On August 20, 1998, the Company entered into an agreement to sell WMVP-AM
in Chicago to ABC, Inc. for $21,000 in cash (the "Chicago Disposition"). The
Company entered into a time brokerage agreement to sell substantially all of the
broadcast time of WMVP-AM effective September 10, 1998. Although there can be no
assurance, the Company expects that the Chicago Disposition will be consummated
in the fourth quarter of 1998.
On August 26, 1998, the Company and Capstar entered into an agreement to
merge in a stock-for-stock transaction that will create the nation's largest
radio broadcasting entity. Pursuant to this agreement, the Company will acquire
Capstar in a reverse merger in which Capstar will be renamed Chancellor Media
Corporation. Each share of Chancellor Media Common Stock will represent one
share in the combined entity. Each share of Capstar Common Stock will represent
0.480 shares of Common Stock in the combined entity, subject to an upward
adjustment not to exceed 0.025 shares to the extent that Capstar's 1998 cash
flow from specified assets exceeds certain specified targets. Capstar owns and
operates more than 355 radio stations serving 83 mid-sized markets nationwide.
Although there can be no assurance, the Company expects that the Capstar Merger
will be consummated in the second quarter of 1999.
On August 31, 1998, the Company entered into an agreement to acquire the
assets of the Outdoor Advertising Division of Whiteco Industries, Inc., an
outdoor advertising company with over 21,800 billboards and outdoor displays in
34 states, for $930,000 in cash plus working capital and various other direct
acquisition costs (the "Whiteco Acquisition"). The DOJ has requested that the
Company and Whiteco submit certain additional information on a voluntary basis
in connection with the DOJ's review of the Whiteco Acquisition. The Company and
Whiteco have responded to this request and are currently in discussions with the
DOJ regarding the terms on which this transaction may be completed. Although
there can be no assurance, the Company expects that the Whiteco Acquisition will
be consummated in the fourth quarter of 1998.
On September 3, 1998, the Company entered into an agreement to acquire
Pegasus, a television broadcasting company which owns a television station in
Puerto Rico, for approximately $69,600 in cash (the "Pegasus Acquisition").
Although there can be no assurance, the Company expects that the Pegasus
Acquisition will be consummated in the first quarter of 1999. In connection with
the LIN Merger, the Company may assign its rights under its agreement with
Pegasus to LIN.
On September 15, 1998, the Company entered into an agreement to acquire
KKFR-FM and KFYI-AM in Phoenix from The Broadcast Group, Inc. for $90,000 in
cash (the "Phoenix Acquisition"). The Company began operating KKFR-FM and
KFYI-AM under a time brokerage agreement effective November 5, 1998.
F-52
<PAGE> 293
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Although there can be no assurance, the Company expects that the Phoenix
Acquisition will be consummated in the second quarter of 1999.
The foregoing are collectively referred to herein as the "Pending
Transactions." Consummation of each of the Pending Transactions discussed above
is subject to various conditions, including, in certain cases, approval from the
FCC and the expiration or early termination of any waiting period required under
the HSR Act. Except as described above, 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 $6,025 related to the Kunz Option are classified as other
assets in the accompanying balance sheet at September 30, 1998. Escrow funds of
$4,650 paid by the Company in connection with the Bonneville Exchange and the
Capitol Broadcasting Acquisition were classified as other assets in the
accompanying balance sheet at December 31, 1997.
Other Transactions
On July 10, 1998, the Company entered into an agreement to acquire a 50%
economic interest in Grupo Radio Centro, S.A. de C.V. ("GRC"), an owner and
operator of radio stations in Mexico, for approximately $120.5 million in cash
and $116.5 million in Chancellor Media Common Stock. On October 15, 1998, the
Company announced that it had provided notice to GRC that it was terminating the
acquisition agreement in accordance with its terms.
Summary of Net Assets Acquired
The completed acquisitions discussed above were accounted for as purchases.
Accordingly, the accompanying consolidated financial statements include the
results of operations of the acquired entities from the dates of acquisition.
A summary of the net assets acquired follows:
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(RESTATED)
<S> <C> <C>
Working capital, including cash of $9,724 in 1997
and $6,505 in 1998................................ $ 66,805 $ 19,223
Property and equipment.............................. 118,371 137,060
Assets held for sale................................ 131,000 --
Intangible assets................................... 3,823,746 875,653
Other assets........................................ 26,742 6,025
Deferred tax liability.............................. (279,371) --
Other liabilities................................... (39,681) (697)
---------- ----------
$3,847,612 $1,037,264
========== ==========
</TABLE>
The pro forma consolidated condensed results of operations data for the
nine months ended September 30, 1997 and 1998, as if the 1997 Completed
Transactions and the 1998 Completed Transactions
F-53
<PAGE> 294
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
discussed above, the 8 1/8% Notes Offering, the amendment and restatement of the
Senior Credit Facility and the 1998 Financing Transactions (as defined herein)
occurred at January 1, 1997, follow:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1998
-------------- -------------
(RESTATED)
<S> <C> <C>
Net revenues...................................... $ 826,026 $963,063
Net loss.......................................... (143,303) (47,368)
Basic and diluted loss per common share........... $ (1.01) $ (0.33)
</TABLE>
The pro forma results are not necessarily indicative of what would have
occurred if the acquisitions had been in effect for the entire periods
presented.
3. FINANCING TRANSACTIONS
1998 Completed Financing Transactions
On March 13, 1998, the Company completed an offering of 21,850,000 shares
of its Common Stock (the "1998 Equity Offering"). The net proceeds from the 1998
Equity Offering of approximately $994,642 were used to reduce bank borrowings
under the revolving credit portion of the Senior Credit Facility (as defined)
and the excess proceeds were initially invested in short-term investment grade
securities. The Company subsequently used the excess proceeds for general
corporate purposes, including the financing of the Bonneville Exchange, the
Capstar Loan and a portion of the Houston Exchange.
On May 8, 1998, CMCLA completed a consent solicitation (the "12% Preferred
Stock Consent Solicitation") to modify certain timing restrictions on its
ability to exchange all shares of its 12% Exchangeable Preferred Stock (the "12%
Preferred Stock") for its 12% Subordinated Exchange Debentures due 2009 (the
"12% Debentures"). Consenting holders of 12% Preferred Stock received payments
of $0.05 per share of 12% Preferred Stock. On May 13, 1998, CMCLA exchanged the
shares of 12% Preferred Stock for 12% Debentures (the "12% Exchange"). In
connection with the 12% Preferred Stock Consent Solicitation and 12% Exchange,
CMCLA incurred approximately $270 in transaction costs which were recorded as
deferred debt issuance costs.
On June 10, 1998, CMCLA completed a cash tender offer (the "12% Debentures
Tender Offer") for all of its 12% Debentures for an aggregate repurchase cost of
$262,495 which included (i) the principal amount of the 12% Debentures of
$211,763, (ii) premiums on the repurchase of the 12% Debentures of $47,798,
(iii) accrued and unpaid interest on the 12% Debentures from May 14, 1998
through June 10, 1998 of $1,976 and (iv) estimated transaction costs of $958. In
connection with the 12% Debentures Tender Offer, the Company recorded an
extraordinary charge of $31,865 (net of a tax benefit of $17,158) consisting of
the premiums, estimated transaction costs and the write-off of the unamortized
balance of deferred debt issuance costs.
On July 20, 1998, CMCLA completed a consent solicitation (the "12 1/4%
Preferred Stock Consent Solicitation") to modify certain timing restrictions on
its ability to exchange all shares of its 12 1/4% Series A Senior Cumulative
Exchangeable Preferred Stock (the "12 1/4% Preferred Stock") for its 12 1/4%
Subordinated Exchange Debentures due 2008 (the "12 1/4% Debentures"). Consenting
holders of 12 1/4% Preferred Stock received payments of $0.05 per share of
12 1/4% Preferred Stock. On July 23, 1998, CMCLA exchanged the shares of 12 1/4%
Preferred Stock for 12 1/4% Debentures (the "12 1/4% Exchange"). In connection
with the 12 1/4% Preferred Stock Consent Solicitation and 12 1/4% Exchange,
CMCLA incurred approximately $170 in transaction costs which were recorded as
deferred debt issuance costs.
F-54
<PAGE> 295
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On August 19, 1998, CMCLA completed a cash tender offer (the "12 1/4%
Debentures Tender Offer") for all of its 12 1/4% Debentures for an aggregate
repurchase cost of $144,527 which included (i) the principal amount of the
12 1/4% Debentures of $119,445, (ii) premiums on the repurchase of the 12 1/4%
Debentures of $22,683, (iii) accrued and unpaid interest on the 12 1/4%
Debentures from August 16, 1998 through August 19, 1998 of $1,829 and (iv)
estimated transaction costs of $570. In connection with the 12 1/4% Debentures
Tender Offer, CMCLA recorded an extraordinary charge of $15,224 (net of a tax
benefit of $8,199) consisting of the premiums, estimated transaction costs and
the write-off of the unamortized balance of deferred debt issuance costs.
On September 30, 1998, CMCLA issued $750,000 aggregate principal amount of
9% Senior Subordinated Notes due 2008 (the "9% Notes") for net proceeds of
approximately $730,000 (the "9% Notes Offering"). The net proceeds from the 9%
Notes Offering will be used to finance a portion of the Company's Pending
Transactions. Prior to consummation of the Pending Transactions, the Company
used the net proceeds to temporarily reduce borrowings outstanding under the
revolving credit portion of the Senior Credit Facility.
1998 Pending Financing Transactions
On November 12, 1998, CMCLA signed a definitive purchase agreement that
provides for the issuance of $750,000 of 8% Senior Notes due 2008 (the "8%
Senior Notes Offering"). The net proceeds from the 8% Senior Notes Offering will
be used to reduce bank borrowings under the revolving credit portion of the
Senior Credit Facility and any excess proceeds will be invested in short-term
investment grade securities, pending use for general corporate purposes.
Although there can be no assurance CMCLA expects that the 8% Senior Notes
Offering will be consummated on November 17, 1998.
4. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1997 and September
30, 1998:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Senior Credit Facility(a)........................... $1,573,000 $ 1,268,000
9 3/8% Notes(b)..................................... 200,000 200,000
8 3/4% Notes(b)..................................... 200,000 200,000
10 1/2% Notes(b).................................... 100,000 100,000
8 1/8% Notes(b)..................................... 500,000 500,000
9% Notes(b)......................................... -- 750,000
---------- -------------
Total long-term debt...................... $2,573,000 $ 3,018,000
========== =============
</TABLE>
(a) Senior Credit Facility
On April 25, 1997, the Company entered into a loan agreement which amended
and restated its prior senior credit facility. Under the amended and restated
agreement, as amended on June 26, 1997, August 7, 1997, October 28, 1997,
February 10, 1998, May 1, 1998, July 31, 1998 and November 9, 1998 (as amended,
the "Senior Credit Facility"), the Company established a $1,250,000 revolving
facility (the "Revolving Loan Facility") and a $500,000 term loan facility (the
"Term Loan Facility"). Upon consummation of the Chancellor Merger, the aggregate
commitments under the Revolving Loan Facility and the Term Loan Facility were
increased to $1,600,000 and $900,000, respectively. In connection with the
amendment and
F-55
<PAGE> 296
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
restatement of the Senior Credit Facility, the Company wrote off the unamortized
balance of deferred debt issuance costs of $4,350 (net of a tax benefit of
$2,343) as an extraordinary charge.
Borrowings under the Senior Credit Facility bear interest at a rate based,
at the option of the Company, on the participating banks' prime rate or
Eurodollar rate, plus an incremental rate. Without giving effect to the interest
rate swap and cap agreements described below, the interest rate on the $900,000
outstanding under the Term Loan Facility at September 30, 1998 was 6.25% on a
blended basis, based on Eurodollar rates, and the interest rate on advances of
$355,000 and $13,000 outstanding under the Revolving Loan Facility were 6.25%
and 8.50%, respectively, at September 30, 1998, based on the Eurodollar and
prime rates, respectively. The Company pays fees ranging from 0.25% to 0.375%
per annum on the aggregate unused portion of the loan commitment based upon the
leverage ratio for the most recent quarter end, in addition to an annual agent's
fee. Pursuant to the Senior Credit Facility, the Company is required to enter
into interest hedging agreements that result in 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 Term Loan Facility is payable in quarterly installments commencing on
September 30, 2000 and ending June 20, 2005. The Revolving Loan Facility
requires scheduled annual reductions of the commitment amount, payable in
quarterly installments commencing on September 30, 2000 and ending on June 30,
2005. At October 31, 1998, the Company had drawn $900,000 of the Term Loan
Facility and $433,000 of the Revolving Loan Facility. The capital stock of the
Company's subsidiaries is pledged to secure the performance of the Company's
obligations under the Senior Credit Facility, and each of the Company's domestic
subsidiaries have guaranteed those obligations.
(b) Senior Subordinated Notes
Upon consummation of the Chancellor Merger, on September 5, 1997, the
Company assumed all of the obligations under CRBC's $200,000 aggregate principal
amount 9 3/8% Senior Subordinated Notes due 2004 (the "9 3/8% Notes") and the
indenture governing such securities, and assumed all of the obligations under
CRBC's $200,000 aggregate principal amount 8 3/4% Senior Subordinated Notes due
2007 (the "8 3/4% Notes") and the indenture governing such securities. Upon
consummation of the Katz Acquisition, on October 28, 1997, the Company assumed
all of the obligations under Katz Media Corporation's $100,000 aggregate
principal amount of 10 1/2% Senior Subordinated Notes due 2007 (the "10 1/2%
Notes") and the amended and restated indenture governing such securities. On
December 22, 1997, CMCLA issued $500,000 aggregate principal amount of 8 1/8
Senior Subordinated Notes due 2007 (the "8 1/8% Notes") for net proceeds of
approximately $485,000. On September 30, 1998, CMCLA issued $750,000 aggregate
principal amount of 9% Notes for net proceeds of approximately $730,000.
(c) Other
The 9 3/8% Notes, the 8 3/4% Notes, the 10 1/2% Notes, the 8 1/8% Notes and
the 9% Notes (collectively, the "Notes") are unsecured obligations of the
Company, subordinated in right of payment to all existing and any future senior
indebtedness of the Company. The Notes are fully and unconditionally guaranteed,
on a joint and several basis, by all of the Company's direct and indirect
subsidiaries other than certain inconsequential subsidiaries (the "Subsidiary
Guarantors"). The Subsidiary Guarantors are wholly-owned subsidiaries of the
Company.
The Senior Credit Facility and the indentures governing the Notes contain
customary restrictive covenants, which, among other things and with certain
exceptions, limit the ability of the Company and its subsidiaries to incur
additional indebtedness and liens in connection therewith, enter into certain
transactions with affiliates, pay dividends, consolidate, merge or effect
certain asset sales, issue additional stock, effect an
F-56
<PAGE> 297
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
asset swap and make acquisitions. The Company is required under the Senior
Credit Facility to maintain specified financial ratios, including leverage, cash
flow and debt service coverage ratios (as defined).
5. OTHER INCOME
Other income consists of the following for the nine months ended September
30, 1997 and 1998:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1998
------------- -------------
(RESTATED)
<S> <C> <C>
Gain on disposition of assets(a)................... $18,380 $123,845
WFLN Settlement(b)................................. -- 3,559
------- --------
$18,380 $127,404
======= ========
</TABLE>
- ---------------
(a) For the nine months ended September 30, 1997, the Company recorded a gain
on disposition of assets of $18,380 related to the dispositions of WNKS-FM
in Charlotte on May 15, 1997 ($3,536), WPNT-FM in Chicago on May 30, 1997
($529), WEJM-FM in Chicago on June 3, 1997 ($9,258), the FCC authorizations
and certain transmission equipment previously used in the operation of
KYLD-FM in San Francisco on July 2, 1997 ($1,726) and WEJM-AM in Chicago on
August 27, 1997 ($3,331). For the nine months ended September 30, 1998, the
Company recorded a gain on disposition of assets of $123,845 related to the
April 3, 1998 exchange of WTOP-AM and WGMS-FM in Washington and KZLA-FM in
Los Angeles plus $63,000 in cash for WBIX-FM in New York, KLDE-FM in
Houston and KBIG-FM in Los Angeles (see Note 2).
(b) For the nine months ended September 30, 1998, the Company recorded a gain
from the WFLN Settlement (defined above) of $3,559.
6. 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/A. The Company believes that the
ultimate resolution of the lawsuits will not have a material effect on its
financial position or results of operations.
F-57
<PAGE> 298
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Chancellor Broadcasting Company:
We have audited the accompanying consolidated balance sheets of Chancellor
Broadcasting Company and Subsidiaries (collectively the "Company") as of
December 31, 1995 and 1996 and the related consolidated statements of
operations, changes in common stockholders' equity, and cash flows for each of
the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 1995 and 1996 and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
February 13, 1997,
except for Note 15 as
to which the date is
February 19, 1997
F-58
<PAGE> 299
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash...................................................... $ 1,314,214 $ 3,788,546
Accounts receivable, net of allowance for doubtful
accounts of $263,528 and $1,023,660, respectively...... 13,243,292 46,584,705
Prepaid expenses and other................................ 546,405 2,753,731
------------ ------------
Total current assets.............................. 15,103,911 53,126,982
Restricted cash............................................. -- 20,363,329
Property and equipment, net................................. 17,925,845 49,122,932
Intangibles and other, net.................................. 203,808,395 551,406,094
Deferred financing costs, net............................... 4,284,413 16,723,346
------------ ------------
Total assets...................................... $241,122,564 $690,742,683
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,873,888 $ 4,409,389
Accrued liabilities....................................... 4,692,948 12,529,831
Accrued interest.......................................... 2,710,891 6,868,839
Current portion of long-term debt......................... 4,062,500 400,000
------------ ------------
Total current liabilities......................... 13,340,227 24,208,059
Long-term debt.............................................. 168,107,242 354,913,499
Deferred income taxes....................................... 4,952,361 2,606,314
Other....................................................... -- 801,572
------------ ------------
Total liabilities................................. 186,399,830 382,529,444
------------ ------------
Commitments (Note 11)
Redeemable senior cumulative exchangeable preferred stock of
subsidiary, par value $.01 per share; 1,000,000 shares
authorized, none and 1,000,000 shares issued and
outstanding, respectively; preference in liquidation of
$109,110,301.............................................. -- 107,222,416
Common stockholders' equity:
Class A common stock, par value $.01 per share; 40,000,000
shares authorized, 302,107 and 9,937,320 shares issued,
respectively, and 302,107 and 9,881,656 shares
outstanding, respectively.............................. 3,021 99,373
Class B common stock, par value $.01 per share; 10,000,000
shares authorized, 63,500 and 8,547,910 shares issued
and outstanding, respectively.......................... 635 85,479
Class C common stock, par value $.01 per share; 10,000,000
shares authorized, 8,484,410 and zero shares issued and
outstanding, respectively.............................. 84,844 --
Additional paid-in capital................................ 66,271,500 231,930,337
Accumulated deficit....................................... (11,637,266) (30,086,232)
Treasury stock............................................ -- (1,038,134)
------------ ------------
Total common stockholders' equity................. 54,722,734 200,990,823
------------ ------------
Total liabilities and stockholders' equity........ $241,122,564 $690,742,683
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-59
<PAGE> 300
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1994 1995 1996
----------- ------------ ------------
<S> <C> <C> <C>
Gross broadcasting revenues......................... $30,080,829 $ 73,278,860 $203,188,125
Less agency commissions............................. 3,763,734 8,956,717 24,786,594
----------- ------------ ------------
Net revenues.............................. 26,317,095 64,322,143 178,401,531
----------- ------------ ------------
Operating expenses:
Programming, technical and news................... 5,678,829 11,734,285 40,987,411
Sales and promotion............................... 7,137,039 17,556,256 47,026,490
General and administrative........................ 2,844,284 8,174,189 23,195,565
Depreciation and amortization..................... 2,954,159 8,256,268 20,877,374
Corporate expenses................................ 599,657 1,815,535 4,844,985
Stock option compensation......................... -- 6,360,000 3,800,000
----------- ------------ ------------
19,213,968 53,896,533 140,731,825
----------- ------------ ------------
Income from operations.................... 7,103,127 10,425,610 37,669,706
Other (income) expense:
Interest expense.................................. 5,246,827 18,114,549 35,703,862
Other, net........................................ (19,265) 42,402 68,419
----------- ------------ ------------
Income (loss) before provision for income
taxes and extraordinary loss............ 1,875,565 (7,731,341) 1,897,425
Provision for income taxes.......................... 1,163,716 3,799,955 4,612,551
Dividends and accretion on preferred stock of
subsidiary........................................ -- -- 11,556,943
----------- ------------ ------------
Net income (loss) before extraordinary
loss.................................... 711,849 (11,531,296) (14,272,069)
Extraordinary loss on early extinguishment of debt,
net of income tax benefit......................... 817,819 -- 4,176,897
----------- ------------ ------------
Net loss.................................. (105,970) (11,531,296) (18,448,966)
Loss on repurchase of preferred stock............... -- -- 16,570,065
----------- ------------ ------------
Net loss attributable to common stock..... $ (105,970) $(11,531,296) $(35,019,031)
=========== ============ ============
Loss applicable to common stock:
Income (loss) before extraordinary loss........... $ 0.14 $ (1.30) $ (1.85)
Extraordinary loss................................ (0.16) -- (0.25)
----------- ------------ ------------
Net loss.................................. $ (0.02) $ (1.30) $ (2.10)
=========== ============ ============
Weighted average number of shares outstanding....... 5,166,039 8,849,936 16,704,381
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-60
<PAGE> 301
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
COMMON STOCK COMMON STOCK COMMON STOCK ADDITIONAL
------------------- ------------------- --------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
--------- ------- --------- ------- ---------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1994................ -- -- 166 $ 2 -- -- $ 998 --
Issuance of common
stock on January 10,
1994................ 302,107 $ 3,021 63,334 633 3,884,211 $ 38,842 25,456,504 --
Issuance of common
stock on October 12,
1994................ -- -- -- -- 4,600,033 46,000 34,454,000 --
Net loss.............. -- -- -- -- -- -- -- $ (105,970)
--------- ------- --------- ------- ---------- -------- ------------ ------------
Balance, December 31,
1994................ 302,107 3,021 63,500 635 8,484,244 84,842 59,911,502 (105,970)
Stock option
compensation........ -- -- -- -- -- -- 6,360,000 --
Issuance of common
stock on June 29,
1995................ -- -- -- -- 166 2 (2) --
Net loss.............. -- -- -- -- -- -- -- (11,531,296)
--------- ------- --------- ------- ---------- -------- ------------ ------------
Balance, December 31,
1995................ 302,107 3,021 63,500 635 8,484,410 84,844 66,271,500 (11,637,266)
Stock option
compensation........ -- -- -- -- -- -- 3,800,000 --
Issuance of common
stock on February
14, 1996............ 8,447,192 84,472 -- -- -- -- 155,390,782 --
Loss on repurchase of
preferred stock of
subsidiary on
February 21, 1996... -- -- -- -- -- -- (16,570,065) --
Repurchase of common
stock on February
21, 1996............ (55,664) -- -- -- -- -- -- --
Issuance of common
stock on August 9,
1996................ 1,185,521 11,855 -- -- -- -- 22,988,145 --
Issuance of common
stock on August 20,
1996................ 2,500 25 -- -- -- -- 49,975 --
Conversion of common
stock on October 22,
1996................ -- -- 8,484,410 84,844 (8,484,410) (84,844) -- --
Net loss.............. -- -- -- -- -- -- -- (18,448,966)
--------- ------- --------- ------- ---------- -------- ------------ ------------
Balance, December 31,
1996................ 9,881,656 $99,373 8,547,910 $85,479 -- $ -- $231,930,337 $(30,086,232)
========= ======= ========= ======= ========== ======== ============ ============
<CAPTION>
TREASURY
STOCK TOTAL
----------- ------------
<S> <C> <C>
Balance, January 1,
1994................ -- $ 1,000
Issuance of common
stock on January 10,
1994................ -- 25,499,000
Issuance of common
stock on October 12,
1994................ -- 34,500,000
Net loss.............. -- (105,970)
----------- ------------
Balance, December 31,
1994................ -- 59,894,030
Stock option
compensation........ -- 6,360,000
Issuance of common
stock on June 29,
1995................ -- --
Net loss.............. -- (11,531,296)
----------- ------------
Balance, December 31,
1995................ -- 54,722,734
Stock option
compensation........ -- 3,800,000
Issuance of common
stock on February
14, 1996............ -- 155,475,254
Loss on repurchase of
preferred stock of
subsidiary on
February 21, 1996... -- (16,570,065)
Repurchase of common
stock on February
21, 1996............ $(1,038,134) (1,038,134)
Issuance of common
stock on August 9,
1996................ -- 23,000,000
Issuance of common
stock on August 20,
1996................ -- 50,000
Conversion of common
stock on October 22,
1996................ -- --
Net loss.............. -- (18,448,966)
----------- ------------
Balance, December 31,
1996................ $(1,038,134) $200,990,823
=========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-61
<PAGE> 302
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1994 1995 1996
------------- ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $ (105,970) $(11,531,296) $ (18,448,966)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............... 2,954,159 8,256,268 20,877,374
Amortization of deferred financing costs.... 226,000 791,000 2,633,583
Stock option compensation................... -- 6,360,000 3,800,000
Deferred income taxes....................... 1,490,716 3,788,877 4,548,481
Dividends and accretion on preferred stock
of subsidiary............................. -- -- 11,556,943
Extraordinary loss.......................... 490,819 -- 4,176,897
Changes in assets and liabilities, net of
the effects of acquired businesses:
Accounts receivable, net.................. (9,675,567) (2,343,520) (13,408,364)
Prepaids and other........................ 216,036 (214,868) (982,637)
Accounts payable.......................... 1,509,064 (541,914) 1,429,070
Accrued liabilities....................... 1,334,397 447,196 3,706,725
Accrued interest.......................... 2,251,654 459,237 4,157,948
------------- ------------ -------------
Net cash provided by operating
activities........................... 691,308 5,470,980 24,047,054
------------- ------------ -------------
Cash flows from investing activities:
Purchases of broadcasting properties........... (204,509,849) (24,351,529) (439,533,609)
Purchases of other property and equipment...... (238,648) (1,709,897) (3,208,553)
------------- ------------ -------------
Net cash used in investing
activities........................... (204,748,497) (26,061,426) (442,742,162)
------------- ------------ -------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt....... 168,910,299 -- 277,627,630
Proceeds from borrowings under revolving debt
facility.................................... 5,639,237 54,458,819 101,966,762
Repayment of long-term debt.................... (25,000,000) (2,437,500) (109,816,233)
Repayments of borrowings under revolving debt
facility.................................... (3,975,539) (31,633,467) (105,540,183)
Issuance of preferred stock of subsidiary...... -- -- 175,412,322
Repurchase of preferred stock.................. -- -- (95,462,423)
Issuance of common stock....................... 60,000,000 -- 178,525,254
Repurchase of common stock..................... -- -- (1,038,134)
Payment of preferred stock dividends........... -- -- (505,555)
------------- ------------ -------------
Net cash provided by financing
activities........................... 205,573,997 20,387,852 421,169,440
------------- ------------ -------------
Net increase (decrease) in cash........ 1,516,808 (202,594) 2,474,332
Cash, at beginning of year....................... -- 1,516,808 1,314,214
------------- ------------ -------------
Cash, at end of year............................. $ 1,516,808 $ 1,314,214 $ 3,788,546
============= ============ =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
(NOTE 5):
Cash paid during the period for:
Interest....................................... $ 2,769,173 $ 16,864,312 $ 28,912,331
Income taxes................................... $ -- $ -- $ 62,407
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-62
<PAGE> 303
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Chancellor Broadcasting Company, formerly Chancellor Corporation
("Chancellor") and its subsidiaries (collectively, the "Company") operate in a
single industry segment, which segment encompasses the ownership and management
of radio broadcast stations located in markets throughout the United States.
Chancellor conducts its business through Chancellor Radio Broadcasting Company
("Chancellor Broadcasting") and has no operations or cash flows of its own.
Chancellor and Chancellor Broadcasting were formed in June 1994 to acquire and
operate radio stations owned by American Media, Inc. and two corporations and
one partnership affiliated with American Media, Inc. (collectively, the
"American Media Station Group") and by Chancellor Communications Corporation
("Chancellor Communications"). That transaction was consummated on October 12,
1994. Chancellor Communications was formed in 1993 to acquire and operate radio
stations KGBY-FM and KFBK-AM. That transaction closed on January 10, 1994 and
the consolidated financial statements include the activity of all the stations
since their respective dates of acquisition.
In June 1995, the 1,000 shares of common stock of Chancellor Communications
held by an affiliate of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse")
were exchanged for additional shares of common stock of Chancellor, which
subsequently contributed these shares to Chancellor Broadcasting as an
additional capital contribution. As a result, Chancellor Communications became a
wholly owned subsidiary of Chancellor Broadcasting. Chancellor Communications
was then merged with the Company. The transactions had no effect on the
financial position or results of operations of the Company.
Chancellor Broadcasting Licensee Company is a wholly-owned non-operating
legal entity formed to hold title to the Company's broadcast licenses. Such
entity has no significant other assets and no material liabilities,
contingencies or commitments. Consistent with industry practice for financial
reporting purposes, no material value has been specifically allocated to the
licenses. Accordingly, no financial statement information has been provided
herein due to its immateriality to investors.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Chancellor
and its subsidiaries Chancellor Broadcasting and Chancellor Broadcasting
Licensee Company for all periods presented, and its subsidiaries Trefoil
Communications, Inc., Shamrock Broadcasting Inc., Shamrock Radio Licenses, Inc.,
Shamrock Broadcasting Licenses of Denver, Inc. and Shamrock Broadcasting of
Texas, Inc. from their date of acquisition. All significant intercompany
accounts and transactions have been eliminated.
Cash
The Company maintains cash in demand deposits with financial institutions.
The Company had no cash equivalents during the periods presented. All highly
liquid investments with an original maturity of less than three months are
considered cash equivalents.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation and
amortization. Depreciation is determined using the straight-line method over the
estimated useful lives of the various classes of assets, which range from three
to twenty-five years. Leasehold improvements are amortized over the shorter of
their
F-63
<PAGE> 304
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
useful lives or the terms of the related leases. Costs of repairs and
maintenance are charged to operations as incurred.
Intangibles
Goodwill represents the excess of cost over the fair values of the
identifiable tangible and other intangible net assets acquired and is being
amortized over the straight-line method over forty years. Other intangible
assets comprise amounts paid for pending acquisitions, agreements not to
compete, a tower lease advantage and organization costs incurred in the
incorporation of the Company. Other intangibles, excluding pending acquisition
costs, are being amortized by the straight-line method over their estimated
useful lives ranging from three to ten years. Pending acquisition costs are
deferred and capitalized as part of completed acquisitions or expensed in the
period in which the pending acquisition is terminated.
The Company evaluates intangible assets for potential impairment by
analyzing the operating results, future cash flows on an undiscounted basis,
trends and prospects of the Company's stations, as well as by comparing them to
their competitors. The Company also takes into consideration recent acquisition
patterns within the broadcast industry, the impact of recently enacted or
potential FCC rules and regulations and any other events or circumstances which
might indicate potential impairment.
Deferred Financing Costs
Costs associated with obtaining debt financing are capitalized and
amortized using the interest method over the term of the related debt. As a
result of refinancing the Company's original credit facility, during the year
ended December 31, 1994 unamortized deferred financing costs of approximately
$818,000 were expensed as an extraordinary item in the consolidated statements
of operations. As a result of refinancing the Company's second credit facility,
the early redemption of $20.0 million of its existing notes (defined) and the
prepayment of $18.7 million of it's a Term Loan Facility (defined) from its
third credit facility, during the year ended December 31, 1996 unamortized
deferred financing costs of $3.4 million, less $543,500 of tax benefit, were
expensed as an extraordinary item in the consolidated statements of operations.
Approximately $5.1 million, $118,000 and $18.6 million of new financing costs
were incurred for the years ended December 31, 1994, 1995 and 1996,
respectively. Accumulated amortization at December 31, 1995 and 1996, amounted
to approximately $959,000 and $2.8 million, respectively.
Revenue Recognition
Broadcasting operations derive revenue primarily from the sale of program
time and commercial announcements to local, regional and national advertisers.
Revenue is recognized when the programs and commercial announcements are
broadcast.
Barter Transactions
Barter transactions represent advertising time exchanged for promotional
items, advertising, supplies, equipment, and services. Barter revenue is
recorded at the fair value of the goods or services received and is recognized
in income when the advertisements are broadcast. Goods or services are charged
to expense when received or used. Advertising time owed and goods or services
due the Company are included in accounts payable and accounts receivable,
respectively.
F-64
<PAGE> 305
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Advertising Costs
The Company incurs various marketing and promotional costs to add and
maintain listenership. These costs are expensed as incurred and totaled
approximately $1.4 million, $4.2 million and $16.2 million for the years ended
December 31, 1994, 1995 and 1996, respectively.
Stock Option Compensation
Stock option compensation expense is recognized in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees".
Income Taxes
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable earnings. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount more likely than not to be
realized. Income tax expense is the tax payable for the period and the change
during the period in deferred tax assets and liabilities.
Chancellor, Chancellor Radio Broadcasting and Chancellor Broadcasting
Licensee Company have elected to file consolidated federal income tax returns
(the "Chancellor Group") and Trefoil Communications, Inc., Shamrock Broadcasting
Inc., Shamrock Radio Licenses, Inc., Shamrock Broadcasting Licenses of Denver,
Inc. and Shamrock Broadcasting of Texas, Inc. have elected to file consolidated
federal income tax returns (the "Shamrock Group"). Each of these groups have
entered into a tax sharing agreement governing the allocation of any
consolidated federal income tax liability among its members. In general, each
subsidiary allocates and pays income taxes computed as if each subsidiary filed
a separate federal income tax return. Similar principles apply to any
consolidated state and local income tax liabilities.
Concentration of Credit Risk
The Company's revenue and accounts receivable primarily relate to
advertising of products and services within the radio stations' broadcast areas.
The Company performs ongoing credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers. Credit
losses have been within management's expectations and adequate allowances for
any uncollectible trade receivables are maintained.
Income (Loss) Per Share
Net income (loss) per share is based on the weighted average number of
shares of common stock and dilutive common stock equivalents outstanding during
each respective period. Proceeds from the exercise of the dilutive stock options
are assumed to be used to repurchase outstanding shares of the Company's common
stock at the average fair market value during the period. The calculation of
income (loss) per common share is adjusted for the recapitalization as discussed
in Note 8 and dividends and accretion on preferred stock.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
F-65
<PAGE> 306
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
----------- -----------
<S> <C> <C>
Land....................................................... $ 1,572,229 $ 3,036,663
Building and building improvements......................... 3,159,848 9,202,378
Towers and antenna systems................................. 3,689,972 14,476,104
Studio, technical and transmitting equipment............... 7,830,375 23,026,564
Office equipment, furniture and fixtures................... 2,484,261 5,521,010
Record library............................................. 1,800,510 2,193,236
Vehicles................................................... 362,787 1,117,908
Construction in progress................................... 503,504 78,877
----------- -----------
21,403,486 58,652,740
Less accumulated depreciation.............................. (3,477,641) (9,529,808)
----------- -----------
$17,925,845 $49,122,932
=========== ===========
</TABLE>
Depreciation expense for the years ended December 31, 1994, 1995 and 1996
was $0.9 million, $2.6 million and $6.5 million, respectively.
4. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
------------ ------------
<S> <C> <C>
Goodwill................................................. $205,971,820 $567,377,120
Noncompete agreements.................................... 1,950,000 2,025,000
Tower lease advantage.................................... 305,000 305,000
Pending acquisition costs................................ 3,246,265 2,620,474
Other.................................................... 45,718 626,220
------------ ------------
211,518,803 572,953,814
Less accumulated amortization............................ (7,710,408) (21,547,720)
------------ ------------
$203,808,395 $551,406,094
============ ============
</TABLE>
Amortization expense for intangible assets for the years ended December 31,
1994, 1995 and 1996 was $2.0 million, $5.7 million and $14.3 million,
respectively.
5. ACQUISITIONS AND DISPOSITIONS OF BROADCASTING PROPERTIES
On January 9, 1994, Chancellor Communications purchased substantially all
the assets and assumed certain liabilities of KGBY-FM and KFBK-AM for
approximately $49.5 million, including acquisition costs. Liabilities assumed
were limited to certain ongoing contractual rights and obligations. The
acquisition has been accounted for as a purchase and, accordingly, the results
of operations associated with the acquired assets have been included in the
accompanying statements from the date of acquisition.
F-66
<PAGE> 307
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisition is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired and liabilities assumed:
Property and equipment.................................... $ 4,921
Goodwill and other intangibles............................ 44,401
Prepaid expenses and other assets......................... 413
Accrued liabilities....................................... (205)
-------
Total acquisition................................. $49,530
=======
</TABLE>
On October 12, 1994, Chancellor Radio Broadcasting purchased substantially
all the assets and assumed certain liabilities consisting solely of accrued
expenses and future payments under ongoing contracts of the American Media
Station Group (other than KHYL-FM in Sacramento, California) for approximately
$139.5 million in cash, including acquisition costs and payments in respect of
agreements not to compete. On the same date, Chancellor Communications purchased
all the assets and certain liabilities consisting solely of accrued expenses and
future payments under ongoing contracts of KHYL-FM for approximately $15.5
million in cash, including acquisition costs and payments in respect of an
agreement not to compete. These acquisitions have been accounted for as
purchases and, accordingly, the results of operations associated with the
acquired assets have been included in the accompanying statements from the date
of acquisition.
The acquisition is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired and liabilities assumed:
Property and equipment.................................... $ 12,671
Goodwill and other intangibles............................ 142,618
Prepaid expenses and other assets......................... 353
Accrued liabilities....................................... (662)
--------
Total acquisition................................. $154,980
========
</TABLE>
Simultaneously with the closing of these transactions, Chancellor acquired
all of Chancellor Communications' outstanding nonvoting stock in exchange for
newly issued shares of Chancellor's nonvoting stock. Chancellor contributed all
the acquired shares of Chancellor Communication's nonvoting stock to Chancellor
Radio Broadcasting, as a result of which Chancellor Communications became a
subsidiary of Chancellor Radio Broadcasting. Because these entities are under
common management and control, this exchange has been accounted for at
historical cost in a manner similar to a pooling of interests.
On July 31, 1995, the Company purchased substantially all the assets and
assumed certain liabilities of KDWB-FM for approximately $22.6 million,
including acquisition costs. Liabilities assumed were limited to certain ongoing
contractual rights and obligations. The acquisition has been accounted for as a
purchase and, accordingly, the results of operations associated with the
acquired assets have been included in the accompanying statements from the date
of acquisition.
F-67
<PAGE> 308
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisition is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired and liabilities assumed:
Property and equipment.................................... $ 1,866
Goodwill and other intangibles............................ 21,032
Prepaid expenses and other assets......................... 82
Other liabilities......................................... (383)
-------
Total acquisition................................. $22,597
=======
</TABLE>
On February 14, 1996, the Company acquired all of the outstanding capital
stock of Trefoil Communications, Inc. ("Trefoil") for approximately $408.0
million, including acquisition costs. Trefoil is a holding company, the sole
asset of which is the capital stock of Shamrock Broadcasting, Inc. ("Shamrock
Broadcasting"). The acquisition of Trefoil was financed through a new credit
agreement, new senior subordinated notes, Chancellor's initial public stock
offering, senior exchangeable preferred stock and the issuance of unregistered
common stock of Chancellor. The acquisition of Trefoil was accounted for as a
purchase for financial accounting purposes and a non-taxable business
combination for tax purposes and, accordingly, the results of operations
associated with the acquired assets have been included in the accompanying
statements from the date of acquisition.
The acquisition is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired and liabilities assumed:
Cash...................................................... $ 38
Accounts receivable, net.................................. 18,636
Prepaid expenses and other assets......................... 1,274
Property and equipment.................................... 36,429
Goodwill and other intangibles............................ 361,425
Deferred tax asset........................................ 5,464
Accrued liabilities....................................... (14,564)
Other noncurrent liabilities.............................. (702)
--------
Total acquisition................................. $408,000
========
</TABLE>
Simultaneously with the acquisition of Trefoil, the Company entered into a
time brokerage agreement with Evergreen Media Corporation for the outsourcing of
certain limited functions of WWWW-FM and WDFN-AM, both Detroit stations acquired
with Trefoil, and an option to purchase such stations for $30.0 million of cash.
These stations were operated pursuant to this agreement until January 30, 1997,
the date on which the disposition of these stations occurred. Subsequent to the
acquisition of Trefoil, KTBZ-FM, a Houston station acquired with Trefoil, was
operated by Secret Communications, L.P. ("Secret") under a Local Marketing
Agreement ("LMA")/Exchange Agreement with the Company. In March 1996, the
Company entered into an agreement to exchange KTBZ-FM and $5.6 million of cash
to Secret for KALC-FM and KIMN-FM, Denver, Colorado. The Company began managing
certain limited functions of these stations, pursuant to an LMA, effective April
1, 1996 and closed on the exchange of the stations effective July 31, 1996. The
exchange has been accounted for using the fair values of the assets exchanged
plus the $5.6 million of additional cash and $0.8 million of additional
acquisition costs, and was allocated to the net assets acquired based upon their
estimated fair market values. The excess of the purchase price over the
estimated fair value of net assets acquired amounted to approximately $28.7
million, which has been accounted for as goodwill and is being amortized over 40
years using the straight line method.
F-68
<PAGE> 309
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The exchange is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired and liabilities assumed:
Prepaid expenses and other assets......................... $ 163
Property and equipment.................................... 2,363
Goodwill and other intangibles............................ 28,657
Accrued liabilities....................................... (138)
-------
Total acquisition................................. $31,045
=======
</TABLE>
On May 15, 1996, the Company entered into an agreement to acquire
substantially all the assets and certain liabilities of OmniAmerica Group
("Omni") for an aggregate price of $178.0 million, including $163.0 million of
cash and $15.0 million of Chancellor's Class A Common Stock. On June 24, 1996,
the Company entered into an agreement with American Radio Systems Corporation
("American Radio") whereby it will exchange the West Palm Beach, Florida
stations acquired from Omni for American Radio's KSTE-AM and $33.0 million of
cash. KSTE-AM is located in Rancho Cordova, California and is part of the
Sacramento market. On July 1, 1996, Chancellor entered into an agreement with
SFX Broadcasting, Inc. ("SFX") whereby it will exchange the Jacksonville,
Florida stations being acquired pursuant to the Omni acquisition agreement and
$11.0 million of cash for SFX's WBAB-FM, WBLI-FM, WGBB-AM and WHFM-FM,
Nassau-Suffolk, New York. Pursuant to various agreements, the Company began
managing certain limited functions of the remaining Omni stations and the SFX
stations beginning July 1, 1996, and station KSTE-AM beginning August 1, 1996.
On November 22, 1996, the Company acquired substantially all the assets of
WKYN-AM, Florence, Kentucky, for approximately $1.4 million, including
transaction costs. WKYN-AM serves the Cincinnati, Ohio market.
On January 23, 1997, the Company acquired substantially all the assets and
certain liabilities of Colfax Communications ("Colfax") for an aggregate price
of $373.0 million. Liabilities assumed were limited to certain ongoing
contractual rights and obligations. The acquisition will be accounted for as a
purchase. Pursuant to the acquisition agreement, at December 31, 1996 the
Company had $20.4 million of cash in a restricted escrow account which was
remitted to Colfax at closing. On January 29, 1997, the Company entered into an
agreement to sell WMIL-FM and WOKY-AM, Milwaukee, Wisconsin stations acquired
from Colfax, to Clear Channel Radio, Inc. for $40.0 million in cash.
On February 13, 1997, the Company acquired substantially all the assets and
certain liabilities of Omni for $163.0 million of cash and $15.0 million of
Chancellor Class A Common Stock. Liabilities assumed were limited to certain
ongoing contractual rights and obligations. The acquisition will be accounted
for as a purchase.
F-69
<PAGE> 310
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes the unaudited consolidated pro forma data as
though the acquisitions of KDWB-FM, Shamrock Broadcasting Company and KIMN-FM
and KALC-FM had occurred as of the beginning of 1995 (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
1995 1996
------------------------ ------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- ----------- ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue............................... $64,322 $162,360 $178,402 $187,198
Net income (loss) before extraordinary
loss.................................... (11,531) (21,477) (14,272) (15,113)
Net loss.................................. (11,531) (21,477) (18,449) (15,113)
Net loss before extraordinary loss per
share................................... (1.30) (1.16) (1.85) (0.82)
Net loss per share........................ (1.30) (1.16) (2.10) (0.82)
</TABLE>
The following summarizes the unaudited consolidated pro forma balance sheet
as of December 31, 1996 as though the acquisition of Colfax, the issuance of the
Exchangeable Preferred Stock, the issuance of the Convertible Preferred Stock
(including the over-allotment), and the New Credit Agreement had occurred on
that date (in thousands):
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------- -----------
(UNAUDITED)
<S> <C> <C>
Total assets................................................ $690,743 $1,053,833
======== ==========
Current liabilities......................................... $ 24,208 $ 40,598
Long-term liabilities....................................... 358,322 410,359
Preferred stock............................................. 107,222 404,585
Common stockholders' equity................................. 200,991 198,291
-------- ----------
Total liabilities and stockholders' equity........ $690,743 $1,053,833
======== ==========
</TABLE>
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- -----------
<S> <C> <C>
Salaries.................................................... $ 534,297 $ 3,697,072
Sales commissions........................................... 889,010 2,149,167
Rep commissions............................................. 561,189 1,549,048
Other....................................................... 2,708,452 5,134,544
---------- -----------
$4,692,948 $12,529,831
========== ===========
</TABLE>
F-70
<PAGE> 311
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
------------ ------------
<S> <C> <C>
Term loan................................................ $ 67,562,500 $ 74,968,527
Revolving credit loan.................................... 24,607,242 20,344,972
Subordinated notes due 2004.............................. 80,000,000 260,000,000
------------ ------------
172,169,742 355,313,499
Less current portion..................................... 4,062,500 400,000
------------ ------------
$168,107,242 $354,913,499
============ ============
</TABLE>
The Company's term and revolving credit facilities were refinanced on
January 23, 1997, in conjunction with the acquisition of Colfax Communications
under a new bank credit agreement (the "New Credit Agreement") with Bankers
Trust Company, as administrative agent, and other institutions party thereto.
The New Credit Agreement includes a $225.0 million term loan facility (the "Term
Loan Facility") and a revolving loan facility (the "Revolving Loan Facility"
and, together with the Term Loan, the "New Bank Financing"). The Revolving Loan
Facility originally provides for borrowings up to $120.0 million, which is
subsequently reduced as and when the Company receives the net cash proceeds of
the pending station swaps and dispositions. In connection with the refinancing
of the term and revolving loan facilities in January 1997, the Company incurred
an extraordinary charge to write-off deferred finance costs of approximately
$4.5 million.
The New Bank Financing is collateralized by (i) a first priority perfected
pledge of all capital stock and notes owned by the Company and (ii) a first
priority perfected security interest in all other assets (including receivables,
contracts, contract rights, securities, patents, trademarks, other intellectual
property, inventory, equipment and real estate) owned by the Company, excluding
FCC licenses, leasehold interests in studio or office space and leasehold and
partnership interests in tower or transmitter sites in which necessary consents
to the granting of a security interest cannot be obtained without payments to
any other party or on a timely basis. The New Bank Financing also is guaranteed
by the subsidiaries of Chancellor and Chancellor Radio Broadcasting, whose
guarantees are collateralized by a first priority perfected pledge of the
capital stock Chancellor Radio Broadcasting. The Term Loan Facility is due in
increasing quarterly installments beginning in 1997 and matures in January 2003.
All outstanding borrowings under the Revolving Facility mature in January 2003.
The facilities bear interest at a rate equal to, at the Company's option, the
prime rate of Bankers Trust Company, as announced from time to time, or the
London Inter-Bank Offered Rate ("LIBOR") in effect from time to time, plus an
applicable margin rate. The Company pays quarterly commitment fees in arrears
equal to either .375% or .250% per annum on the unused portion of the Revolving
Facility, depending upon whether the Company's leverage ratio is equal to or
greater than 4.5:1 or less than 4.5:1, respectively. The bank financing
facilities which existed on December 31, 1996 accrued interest at the prime rate
plus 1.25% (9.5%) on $3.0 million and the LIBOR rate plus 2.50% (8.125%) on
$92.0 million of borrowings.
In connection with the IPO (defined), the Company redeemed 25% of its
Existing Notes (defined) for approximately $22.2 million. The redemption was
completed in March 1996 and resulted in an extraordinary charge of $2.8 million.
The remaining $60.0 million 12 1/2% Senior Subordinated Notes due 2004 (the
"Existing Notes") mature October 1, 2004, and bear interest at 12.5% per annum.
On February 14, 1996, in conjunction with the acquisition of Trefoil
Communications, Inc., the Company issued $200.0 million aggregate principal
amount of 9 3/8% Senior Subordinated Notes due 2004 (the "New Notes" and,
together with the Existing Notes, the "Notes"), which mature on October 1, 2004,
and bear interest at 9.375% per
F-71
<PAGE> 312
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
annum. Interest on the Notes is paid semi-annually. The Existing and New Notes
are redeemable, in whole or in part, at the option of the Company on or after
October 1, 1999 and February 1, 2000, respectively, at redemption prices
expressed as a percentage of the principal amount, ranging from 100.000% to
105.556%, plus accrued interest thereon to the date of acquisition. In addition,
prior to January 31, 1999, the Company may redeem up to 25% of the original
aggregate principal amount of the New Notes with the net proceeds of one or more
public equity offerings. The Notes are unsecured obligations of the Company,
ranking subordinate in right of payment to all senior debt of the Company. The
New Notes rank pari passu in right of payment to the Existing Notes. The Notes
are guaranteed on a senior subordinated basis by Chancellor Radio Broadcasting
Company's subsidiaries.
Scheduled debt maturities for the Company's outstanding long-term debt at
December 31, 1996 for each of the next five years and thereafter are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 400,000
1998........................................................ 400,000
1999........................................................ 9,874,886
2000........................................................ 11,296,119
2001........................................................ 17,469,864
Thereafter.................................................. 315,872,630
------------
$355,313,499
============
</TABLE>
See Note 5 for pro forma effects of the New Bank Financing subsequent to
year end. Both the New Bank Financing and Notes indentures contain certain
covenants, including, among others, limitations on the incurrence of additional
debt, in the case of the New Bank Financing; requirements to maintain certain
financial ratios; and restrictions on the payment of dividends to stockholders
and from the subsidiaries to Chancellor.
8. CAPITAL STRUCTURE
In February 1996, Chancellor sold 7.7 million shares of its Class A Common
Stock, par value $.01 per share (the "Class A Common Stock"), in an initial
public offering, (the "IPO"), which generated net proceeds of $142.4 million,
and in a private placement, issued $100.0 million of exchangeable redeemable
preferred stock (the "Acquisition Preferred Stock") of Chancellor Radio
Broadcasting and 742,192 shares of Class A common stock of Chancellor to an
affiliated entity and other investors.
Immediately prior to the IPO, Chancellor effected a recapitalization of its
current capital stock. Pursuant to the recapitalization, each six shares of
Chancellor's Nonvoting Stock were reclassified into one share of Class A Common
Stock. Each six shares of Chancellor's Voting Stock were reclassified into one
share of Class B Common Stock and each six shares of Convertible Nonvoting Stock
were reclassified into one share of Class C Common Stock. In connection with the
recapitalization, 63,334 shares of Class A Common Stock were exchanged for an
equal number of shares of Class B Common Stock, and an additional 8,484,410
shares of Class A Common Stock were exchanged for an equal number of shares of
Class C Common Stock. The recapitalization has been given retroactive effect in
the financial statements.
In February 1996, subsequent to the IPO, the Company completed a private
placement of $100.0 million of newly authorized Senior Cumulative Exchangeable
Preferred Stock (the "Old Preferred Stock"). Upon completion, the proceeds of
the Old Preferred Stock were used to redeem the Acquisition Preferred Stock and
55,664 shares of Class A Common Stock. The redemption resulted in a charge to
net loss attributable to
F-72
<PAGE> 313
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common stock of approximately $16.6 million and an additional reduction of
stockholders' equity of approximately $1.0 million.
In June 1996, the holders of Chancellor's Class C Common Stock filed an
application with the FCC to convert the stock into Chancellor's Class B Common
Stock. The holders of Class C Common Stock received approval of their
applications and subsequently converted their stock on October 22, 1996.
In August 1996 pursuant to an agreement entered into at the time of the
IPO, Chancellor sold 1.2 million shares of Class A Common Stock in a private
placement to an affiliated entity, which generated proceeds of $23.0 million
which were contributed to Chancellor Radio Broadcasting.
In September 1996, the Company completed an exchange offering whereby it
exchanged the Old Preferred Stock for 1,000,000 shares of 12 1/4% Series A
Senior Cumulative Exchangeable Preferred Stock (the "Senior Exchangeable
Preferred Stock") in a transaction registered under the Securities Act of 1933,
as amended. The terms of the Senior Exchangeable Preferred Stock are
substantially identical to those of the Old Preferred Stock. Dividends on the
Senior Exchangeable Preferred Stock accrue from its date of issuance and are
payable quarterly commencing November 15, 1996, at a rate per annum of 12 1/4%
of the then effective liquidation preference per share. Dividends may be paid,
at the Company's option, on any dividend payment date occurring on or prior to
February 15, 2001 either in cash or by adding such dividends to the then
effective liquidation preference of the Senior Exchangeable Preferred Stock. The
Senior Exchangeable Preferred Stock is redeemable at the Company's option, in
whole or in part at any time on or after February 15, 2001, at various
redemption prices, plus, accumulated and unpaid dividends to the date of
redemption. In addition, prior to February 15, 1999, the Company may, at its
option, redeem the Senior Exchangeable Preferred Stock with the net cash
proceeds from one or more Public Equity Offerings (as defined), at various
redemption prices, plus, accumulated and unpaid dividends to the redemption
date; provided, however, that after any such redemption there is outstanding at
least 75% of the number of shares of Senior Exchangeable Preferred Stock
originally issued.
The Company is required, subject to certain conditions, to redeem all of
the Senior Exchangeable Preferred Stock outstanding on February 15, 2008, at a
redemption price equal to 100% of the then effective liquidation preference
thereof, plus, accumulated and unpaid dividends to the date of redemption. Upon
the occurrence of a change of control (as defined), the Company must offer to
purchase all of the then outstanding shares of Senior Exchangeable Preferred
Stock at a price equal to 101% of the then effective liquidation preference
thereof, plus, accumulated and unpaid dividends to the date of purchase. Subject
to certain conditions, the Senior Exchangeable Preferred Stock is exchangeable
in whole, but not in part, at the option of the Company, on any dividend payment
date for the Company's 12 1/4% subordinated exchange debentures due 2008.
On January 23, 1997, Chancellor completed a private placement of $100.0
million of newly authorized 7% Convertible Preferred Stock (the "Convertible
Preferred Stock") and Chancellor Radio Broadcasting completed a private
placement of $200.0 million of newly authorized 12% Exchangeable Preferred Stock
(the "Exchangeable Preferred Stock").
Dividends on the Convertible Preferred Stock accrue from its date of
issuance and are payable quarterly commencing April 15, 1997, at a rate per
annum of 7% of the liquidation preference per share. The liquidation preference
of the Convertible Preferred Stock is $50.00 per share. The Convertible
Preferred Stock is convertible at the option of the holder at any time after
March 23, 1997, unless previously redeemed, into Class A Common Stock of
Chancellor at a conversion price of $32.90 per share of Class A Common Stock,
subject to adjustment in certain events. In addition, after January 19, 2000,
the Company may, at its option, redeem the Convertible Preferred Stock, in whole
or in part, at specified redemption prices plus accrued and unpaid dividends
through the redemption date. Upon the occurrence of a change of control (as
defined),
F-73
<PAGE> 314
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Chancellor must, subject to certain conditions, offer to purchase all of the
then outstanding shares of Convertible Preferred Stock at a price equal to 101%
of the liquidation preference thereof, plus accrued and unpaid dividends to the
date of purchase.
Dividends on the Exchangeable Preferred Stock will accrue from the date of
its issuance and will be payable semi-annually commencing July 15, 1997, at a
rate per annum of 12% of the liquidation preference per share. Dividends may be
paid, at the Company's option, on any dividend payment date occurring on or
prior to January 15, 2002 either in cash or in additional shares of Exchangeable
Preferred Stock. The liquidation preference of the Exchangeable Preferred Stock
will be $100.00 per share. The Exchangeable Preferred Stock is redeemable at the
Company's option, in whole or in part at any time on or after January 15, 2002,
at the redemption prices set forth herein, plus accrued and unpaid dividends to
the date of redemption. In addition, prior to January 15, 2000, the Company may,
at its option, redeem the Exchangeable Preferred Stock with the net cash
proceeds from one or more Public Equity Offerings (as defined), at various
redemption prices plus accrued and unpaid dividends to the redemption date;
provided, however, that after any such redemption there is outstanding at least
$150.0 million aggregate liquidation preference of Exchangeable Preferred Stock.
The Company is required, subject to certain conditions, to redeem all of the
Exchangeable Preferred Stock outstanding on January 15, 2009, at a redemption
price equal to 100% of the liquidation preference thereof, plus accrued and
unpaid dividends to the date of redemption. Upon the occurrence of a Change of
Control (as defined), the Company will, subject to certain conditions, offer to
purchase all of the then outstanding shares of Exchangeable Preferred Stock at a
price equal to 101% of the liquidation preference thereof, plus accrued and
unpaid dividends to the repurchase date. In addition, prior to January 15, 1999,
upon the occurrence of a Change of Control, the Company will have the option to
redeem the Exchangeable Preferred Stock in whole but not in part at a redemption
price equal to 112% of the liquidation preference thereof, plus accrued and
unpaid dividends to the date of redemption. The Exchangeable Preferred Stock
will, with respect to dividend rights and rights on liquidation, rank junior to
the Senior Exchangeable Preferred Stock. Subject to certain conditions, the
Exchangeable Preferred Stock is exchangeable in whole, but not in part, at the
option of the Company, on any dividend payment date for the Company's 12%
subordinated exchange debentures due 2009, including any such securities paid in
lieu of cash interest.
In addition to the accrued dividends discussed above, the recorded value of
the Senior Exchangeable Preferred Stock, the Convertible Preferred Stock and the
Exchangeable Preferred Stock includes or will include an amount for the
accretion of the difference between the stock's fair value at date of issuance
and its mandatory redemption amount, calculated using the effective interest
method.
9. INCOME TAXES
All of the Company's revenues were generated in the United States. The
provision for income taxes for continuing operations consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current:
State.......................................... $ -- $ 11,098 $ 64,070
Deferred:
Federal........................................ 1,267,109 3,220,528 3,866,209
State.......................................... 223,607 568,329 682,272
---------- ---------- ----------
Total provision........................ $1,490,716 $3,799,955 $4,612,551
========== ========== ==========
</TABLE>
F-74
<PAGE> 315
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense differs from the amount computed by applying the federal
statutory income tax rate of 34% to income before income taxes for the following
reasons:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
---------- ----------- ----------
<S> <C> <C> <C>
U.S. federal income tax at statutory rate....... $ 637,692 $(2,628,656) $ 645,125
State income taxes, net of federal benefit.... 112,533 (463,880) 113,846
Valuation allowance provided for loss
carryforward generated during the current
period..................................... 720,490 6,589,750 307,000
Reconciliation of return to estimate.......... -- 71,510 --
Permanent difference.......................... 20,001 231,231 3,546,580
---------- ----------- ----------
$1,490,716 $ 3,799,955 $4,612,551
========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
----------- -----------
<S> <C> <C>
The deferred tax assets (liabilities) consist of the
following:
Loss carryforwards expiring 2009 and 2010................ $ 4,766,240 $11,806,985
Deferred stock option compensation deduction............. 2,544,000 4,064,000
Tax credits.............................................. -- 2,951,555
Other.................................................... 105,411 680,819
----------- -----------
Gross deferred tax assets............................. 7,415,651 19,503,359
----------- -----------
Depreciation and amortization............................ (5,057,772) (21,488,463)
----------- -----------
Deferred tax assets valuation allowance.................. (7,310,240) (621,210)
----------- -----------
Net deferred tax liabilities.......................... $(4,952,361) $(2,606,314)
=========== ===========
</TABLE>
The deferred tax valuation allowance was originally established due to the
uncertainty surrounding the realizability of the Company's deferred tax assets
using the "more likely than not" criteria. During the fourth quarter of 1996,
the Company revised its estimate of the likelihood that it will realize the
majority of its deferred tax assets and adjusted its valuation allowance
accordingly. This revised estimate was the direct result of the acquisition of
Trefoil. Reversal of the valuation allowance related to deferred tax assets
which existed on the date of acquisition or which were acquired as a result of
the Trefoil acquisition were credited against the original purchase accounting
allocation to goodwill. The reversal of the valuation allowance related to
deferred tax assets generated subsequent to the acquisition were credited as a
reduction of income tax expense and extraordinary losses as appropriate.
The Company's tax credits and net operating loss carryforwards at December
31, 1996 begin expiring in 1997 and 2001, respectively. The Company has provided
a valuation allowance for those tax credits which do not meet a "more likely
than not" realizability test.
10. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) Savings Plan, whereby eligible employees can
contribute up to either 15% of their salary, per year, subject to certain
maximum contribution amounts. Prior to 1996, the Company had not made any
contributions to the plan, nor is it required to in future periods. However, the
Company did elect to make a discretionary match for 1996 of approximately
$250,000. Employees become eligible to participate in the plan after the
completion of one year of service and the attainment of age twenty-one.
F-75
<PAGE> 316
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMITMENTS
The Company leases real property, office space, broadcasting equipment and
office equipment under various noncancellable operating leases. Certain of the
Company's leases contain escalation clauses, renewal options and/or purchase
options. In addition, the Company assumed lease obligations in connection with
the acquisition of Trefoil on February 14, 1996. The Company also has employment
and rating survey agreements in excess of one year, and has entered into a
twelve-year financial monitoring and oversight agreement with Hicks Muse & Co.
Partners, L.P., which is an affiliate of Hicks, Muse, Tate & Furst Incorporated.
Future minimum payments under the noncancellable operating lease agreements
at December 31, 1996 are approximately as follows:
<TABLE>
<S> <C>
1997........................................................ $ 6,023,586
1998........................................................ 4,865,095
1999........................................................ 4,277,779
2000........................................................ 3,564,247
2001........................................................ 2,805,282
Thereafter.................................................. 13,080,261
-----------
$34,616,250
===========
</TABLE>
Rent expense was approximately $227,000, $1.3 million and $4.8 million for
the years ended December 31, 1994, 1995 and 1996, respectively.
12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
For cash, short-term debt, and other current amounts receivable and
payable, and the variable-rate term debt, the carrying amount approximates fair
value.
For the fixed-rate long-term debt, the fair value is estimated based on
quoted market prices. The carrying values at December 31, 1995 and 1996 were
$80.0 million and $260.0 million, respectively, and the estimated fair values at
each date were $85.4 million and $267.8 million, respectively.
For Chancellor Radio Broadcasting's Senior Exchangeable Preferred Stock,
the fair value of $113.75 per share at December 31, 1996 is estimated based on
quoted market prices.
13. STOCK-BASED COMPENSATION
During 1994, Chancellor's Board of Directors granted options to purchase
996,068 shares of its common stock to the senior management of the Company at
exercise prices of $6.00 and $7.50. The option agreements vest over a five year
period and originally contained certain performance criteria and indexed
exercise prices. On September 30, 1995, Chancellor entered into an agreement
with its senior management to substantially revise and amend these option
agreements to eliminate certain of the performance criteria provisions and to
adjust and fix the exercise prices at $7.50 and $8.40, respectively. Management
developed an estimate of the fair value of the stock options in the amount of
$19.0 million. Based upon this estimate and the applicable vesting periods, the
Company recognized stock option compensation expense and a corresponding credit
to equity of $6.4 million in 1995, with the remaining amount to be amortized
over an approximate four year period.
F-76
<PAGE> 317
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1994, Chancellor's Board of Directors adopted a stock option plan
for its non-employee directors providing for the grant of options and stock
awards for up to 480,000 shares of its common stock. Upon election to the Board
of Directors, each person shall be granted a stock option to purchase a number
of shares of common stock equal to the number of shares of common stock acquired
by purchase by such person upon their initial election to the Board of
Directors. Each option shall be immediately vested, will have a maximum term of
ten years and an exercise price, as determined by the plan committee, equal to
or greater than the fair market value of the common stock on the respective
dates of grant.
In February 1996, Chancellor's Board of Directors adopted a stock award
plan for the Company's management, employees and non-employee directors, elected
after the date of adoption of the plan, providing for the grant of options and
stock awards for up to 916,456 shares of Chancellor's Class A Common Stock. The
Company's compensation committee has the sole authority to grant stock options
and to establish option exercise prices and vesting schedules. However,
per-share exercise prices shall not be less than the fair market value of the
stock on the respective date of grant and if the compensation committee does not
determine a vesting schedule, such option shall vest 20% on the first
anniversary of the respective date of grant and the remaining 80% shall vest pro
rata on a monthly basis over the four-year period following the first
anniversary of the date of grant. Non-employee directors elected after the
effective date of this plan automatically are granted a fully-vested option to
purchase 5,000 shares of Chancellor's Class A Common Stock on the date he or she
first becomes a member of the Board of Directors. Terms of all options are
limited to ten years.
A summary of the Company's option activity follows. The Company has elected
to continue expense recognition under Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and accordingly, has included
certain required pro forma information. Estimates of weighted-average grant-
date fair values of options granted and pro forma option compensation amounts
were determined using the Black-Scholes Single Option approach assuming an
expected option term of 6 years, interest rates ranging from 5.5% to 7.2%, a
dividend yield of zero and a volatility factor of .4 (zero for options issued
prior to the Company's initial public offering in February 1996).
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------
1994 1995 1996
-------------------------- ---------------------------- ----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------- ---------------- --------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year....... -- $ -- 996,068 $ 7.27 1,022,734 $ 7.89
Granted:
Exercise price:
equals FMV....... 996,068 7.27 26,666 7.50 713,916 26.03
less than FMV.... -- -- 996,068 7.90 -- --
Exercised............. -- -- -- -- -- --
Canceled.............. -- -- (996,068) 7.27 (9,000) 24.51
------- ----- --------- ------ --------- ------
End of year............. 996,068 $7.27 1,022,734.. $ 7.89 1,727,650 $15.30
======= ===== ========= ====== ========= ======
Exercisable as of end of
year.................. -- $ -- 225,879.. $ 7.85 431,758 $ 8.06
======= ===== ========= ====== ========= ======
Weighted-average grant-
date fair value of
options granted:
Exercise price:
equals FMV......... -- 3.59 12.69
less than FMV...... -- 21.56 --
</TABLE>
F-77
<PAGE> 318
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------- OPTIONS EXERCISABLE
WEIGHTED AVERAGE ------------------------
--------------------------- WEIGHTED AVE-
RANGE OF REMAINING EXERCISE RAGE EXERCISE
EXERCISE PRICES SHARES CONTRACTUAL LIFE PRICE SHARES PRICE
--------------- --------- ---------------- -------- ------- --------------
<S> <C> <C> <C> <C> <C>
$ 7.50 -- $ 7.50........................ 577,971 7.06 $ 7.50 247,188 $ 7.50
8.40 -- 8.40........................ 444,763 7.83 8.40 177,904 8.40
20.00 -- 25.25........................ 431,916 9.14 20.51 6,666 20.00
31.00 -- 36.75........................ 273,000 9.75 34.81 -- --
--------- ---- ------ ------- ------
$ 7.50 -- $36.75........................ 1,727,650 8.20 $15.30 431,758 $ 8.06
========= ==== ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Historical net loss......................................... $(11,531,296) $(18,448,966)
Pro forma adjustment for stock option compensation.......... (781,465) (1,524,302)
Pro forma tax benefit....................................... 312,586 609,721
------------ ------------
Pro forma net loss.......................................... $(12,000,175) $(19,363,547)
============ ============
Pro forma loss per share.................................... $ (1.36) $ (1.16)
</TABLE>
14. RELATED PARTY TRANSACTIONS
The Company has entered into a twelve-year agreement (the "Financial
Monitoring and Oversight Agreement") with Hicks Muse & Co. Partners, L.P.
("Hicks Muse Partners") and HM2/Management Partners, L.P. ("HM2"), each of which
is an affiliate of Hicks Muse. Chancellor and the Company paid Hicks Muse
Partners an annual fee of $82,000, $200,000 and $408,000 for financial oversight
and monitoring services for the years ended December 31, 1994, 1995 and 1996,
respectively. The annual fee is adjustable each December 31, according to a
formula based on changes in the consumer price index. HM2 received fees of
approximately $0.3 million, $2.4 million and $6.2 million upon consummation of
the acquisitions of KDWB-FM, the American Media Station Group and Trefoil
Communications, Inc., respectively, and is entitled to receive a fee equal to
1.5% of the transaction value (as defined) upon the consummation of each add-on
transaction (as defined) involving Chancellor or any of its subsidiaries.
Effective April 1, 1996, the Company entered into a revised financial
monitoring and oversight agreement with Hicks & Muse & Co. Partners, L.P. and
HM2/Management Partners, L.P., each of which is an affiliate of Hicks, Muse,
Tate & Furst Incorporated. The annual fee for financial oversight and monitoring
services to the Company has been adjusted to $500,000. The annual fee is
adjustable each January 1, to an amount equal to the budgeted consolidated
annual net sales of the Company for the then-current fiscal year, multiplied by
0.25%, provided, however, that in no event shall the annual fee be less than
$500,000.
The Financial Monitoring and Oversight Agreement makes available the
resources of HM2 and Hicks Muse Partners concerning a variety of financial
matters. The services that have been and will continue to be provided by HM2 and
Hicks Muse Partners could not otherwise be obtained by Chancellor and the
Company without the addition of personnel or the engagement of outside
professional advisors.
In February of 1996, the Company lent $200,000 to an affiliate of the
Company. The loan is unsecured, does not bear interest and will be forgiven
during the next three years.
F-78
<PAGE> 319
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. SUBSEQUENT EVENTS
On February 14, 1997, Chancellor Radio Broadcasting completed a private
placement of an additional $10.0 million of Convertible Preferred Stock pursuant
to its over-allotment option. The net proceeds of this offering were used to
repay borrowings under the Revolving Credit Facility.
On February 19, 1997, Chancellor and Chancellor Radio Broadcasting entered
into an agreement to merge with Evergreen Media Corporation ("Evergreen") in a
stock-for-stock transaction (the "merger"), with Evergreen remaining as the
surviving corporation (the "Surviving Company"). Pursuant to the agreement,
shareholders of the Company's common stock will receive 0.9091 shares of
Evergreen's common stock. Consummation of the merger is subject to shareholder
approval and certain other closing conditions including regulatory approval.
On February 19, 1997, the Company and Evergreen entered into a joint
purchase agreement whereby in the event that consummation of the stock purchase
agreement between Evergreen and Viacom International, Inc. ("Viacom") occurs
prior to the consummation of the merger, the Company will be required to
purchase the Viacom subsidiaries which own four of the ten Viacom stations for
$480 million and Evergreen will be required to purchase the Viacom subsidiaries
which own six of the ten Viacom stations for $595 million. In the event that
consummation of the stock purchase agreement between Evergreen and Viacom occurs
after the consummation of the merger, the Surviving Company will acquire the
stock of certain Viacom subsidiaries which own and operate ten radio stations in
five major markets. Consummation of the transaction is dependent upon certain
closing conditions including regulatory approval.
16. UNCERTAINTIES AND THE USE OF ESTIMATES AND ASSUMPTIONS
On February 8, 1996, the President signed into law the Telecommunications
Act of 1996. Among other things, this legislation requires the Federal
Communications Commission (the "FCC"), to relax its numerical restrictions on
local ownership and affords renewal applicants significant new protections from
competing applications for their broadcast licenses. The new legislation will
enable the Company to retain all of its radio stations and to acquire more
properties; at the same time, this legislation will also allow other broadcast
entities to increase their ownership in markets where the Company currently
operates stations. The Company's management is unable to determine the ultimate
effect of this legislation on its competitive environment.
The pending acquisition, exchange and merger agreements are subject to
various governmental approvals, including the Department of Justice under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
Federal Communications Commission.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual amounts could differ from those estimates.
17. RECENT ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per
Share" in March 1997, which establishes standards for computing and presenting
earnings per share. The disclosure requirements of SFAS No. 128 will be
effective for the Company's financial statements beginning in 1997. Management
has not yet determined the impact that the adoption of SFAS No. 128 will have on
the financial statements of the Company.
F-79
<PAGE> 320
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1996 FISCAL QUARTERS
-----------------------------------------------------
FIRST SECOND THIRD FOURTH
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues............................. $25,642,239 $44,425,668 $52,770,414 $55,563,210
Income from operations................... 2,831,163 11,028,609 12,107,887 11,702,047
Income before extraordinary loss......... (7,585,314) (2,355,054) (1,061,804) (3,269,897)
Net loss................................. (12,231,235) (2,355,054) (2,025,071) (1,837,606)
Net loss attributable to common stock.... (28,801,300) (2,355,054) (2,025,071) (1,837,606)
Net loss per share before extraordinary
loss................................... (1.83) (0.14) (0.06) (0.18)
Net loss per share....................... (2.18) (0.14) (0.11) (0.10)
</TABLE>
The above results reflect the acquisition of Shamrock Broadcasting on
February 13, 1996, the exchange of KTBZ-FM for KIMN-FM and KALC-FM on July 31,
1996, and the various operating agreements with Omni, Secret, SFX and American
Radio which began during the third quarter. First and third quarter results
include extraordinary losses related to the early extinguishment of debt. Fourth
quarter results reflect an extraordinary tax benefit related to the previously
recognized extraordinary losses on early extinguishment of debt resulting from
management's change in estimate as to the likelihood of it utilizing its
deferred tax assets.
F-80
<PAGE> 321
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Whiteco Industries, Inc.
Merrillville, Indiana
We have audited the accompanying balance sheets of the Outdoor Advertising
Division of Whiteco Industries, Inc. as of December 31, 1996 and 1997, and the
related statements of income and cash flows for each of the three years in the
period ended December 31, 1997. These financial statements are the
responsibility of the Division's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Outdoor Advertising
Division of Whiteco Industries, Inc. as of December 31, 1996 and 1997, and the
results of its operations and cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
BDO Seidman, LLP
Chicago, Illinois
September 17, 1998
F-81
<PAGE> 322
OUTDOOR ADVERTISING DIVISION OF
WHITECO INDUSTRIES, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- SEPTEMBER 30,
1996 1997 1998
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets
Cash............................................. $ 155,781 $ 249,733 $ 7,109,413
Accounts receivable (net of $631,000, $1,111,000
and $1,941,000 allowance for uncollectible
accounts for December 31, 1996, 1997 and
September 30, 1998, respectively)............. 9,112,798 10,718,470 13,113,464
Prepaid expenses and other
receivables................................... 2,520,913 2,684,801 2,655,593
Prepaid sign costs............................... 4,880,789 5,064,178 4,951,369
------------ ------------ ------------
Total current assets..................... 16,670,281 18,717,182 27,829,839
------------ ------------ ------------
Property and equipment
Land, buildings and improvements................. 5,389,827 6,279,957 6,980,180
Advertising signs................................ 134,120,274 150,697,192 160,138,490
Equipment........................................ 4,226,984 4,925,336 6,210,613
------------ ------------ ------------
Total cost............................... 143,737,085 161,902,485 173,329,283
Accumulated depreciation......................... 84,300,457 91,601,392 98,914,094
------------ ------------ ------------
Net property and equipment......................... 59,436,628 70,301,093 74,415,189
------------ ------------ ------------
Other sign costs................................... 707,273 1,424,848 2,164,372
------------ ------------ ------------
$ 76,814,182 $ 90,443,123 $104,409,400
============ ============ ============
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities
Accounts payable................................. $ 505,561 $ 900,145 $ 462,790
Customers' advance payments and deposits......... 127,925 70,174 17,777
Accrued expenses................................. 1,577,194 2,210,355 3,965,815
------------ ------------ ------------
Total current liabilities................ 2,210,680 3,180,674 4,446,382
------------ ------------ ------------
Commitments
Divisional equity.................................. 74,603,502 87,262,449 99,963,018
------------ ------------ ------------
$ 76,814,182 $ 90,443,123 $104,409,400
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-82
<PAGE> 323
OUTDOOR ADVERTISING DIVISION OF
WHITECO INDUSTRIES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ --------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues....................... $108,447,476 $117,268,324 $126,800,754 $93,827,208 $103,693,938
Less: Agency discounts......... 6,616,011 8,400,821 8,702,563 6,372,877 7,190,622
------------ ------------ ------------ ----------- ------------
Net revenues................. 101,831,465 108,867,503 118,098,191 87,454,331 96,503,316
Cost of revenues............... 40,659,116 42,021,229 45,615,461 34,260,557 34,981,851
Selling and administrative
expenses..................... 14,878,784 16,288,955 18,369,034 13,127,709 14,642,469
Corporate overhead expenses.... 5,176,832 5,644,490 6,073,671 4,786,406 5,193,299
Depreciation and
amortization................. 8,675,204 10,501,844 11,525,410 8,232,183 8,760,265
Profit participation fee....... 2,101,620 2,248,329 2,321,884 1,701,068 1,756,342
------------ ------------ ------------ ----------- ------------
Income from operations before
other income and interest
expense...................... 30,339,909 32,162,656 34,192,731 25,346,408 31,169,090
Other income, less other
expenses..................... (1,060,355) (1,131,033) (1,833,411) (1,523,219) (852,526)
Interest expense............... 38,556 17,927 3,794 622 98,231
------------ ------------ ------------ ----------- ------------
Net income..................... $ 31,361,708 $ 33,275,762 $ 36,022,348 $26,869,005 $ 31,923,385
============ ============ ============ =========== ============
</TABLE>
See accompanying notes to financial statements.
F-83
<PAGE> 324
OUTDOOR ADVERTISING DIVISION OF
WHITECO INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------------------ ---------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income................................... $ 31,361,708 $ 33,275,762 $ 36,022,348 $ 26,869,005 $ 31,923,385
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for depreciation and
amortization........................... 8,675,204 10,501,844 11,525,410 8,232,183 8,760,266
Gain on disposals of assets.............. (795,498) (812,482) (1,488,665) (1,369,119) (792,637)
Increase in accounts receivable.......... (694,344) (1,853,160) (1,605,672) (1,332,818) (2,394,994)
Decrease (increase) in prepaid expenses
and other receivables.................. (220,881) (1,202,910) (163,888) (373,047) 29,208
Increase in prepaid sign costs and other
sign costs............................. (1,044,722) (815,916) (1,840,672) (963,958) (1,063,971)
(Decrease) increase in accounts payable
and accrued expenses................... (66,319) 869,627 1,027,745 570,828 1,318,105
Increase (decrease) in customers' advance
payments and deposits.................. 185,750 (57,825) (57,751) (41,035) (52,397)
------------ ------------ ------------ ------------ ------------
Total adjustments.................... 6,039,190 6,629,178 7,396,507 4,723,034 5,803,580
------------ ------------ ------------ ------------ ------------
Net cash provided by operating activities.... 37,400,898 39,904,940 43,418,855 31,592,039 37,726,965
------------ ------------ ------------ ------------ ------------
Cash flows from investing activities
Proceeds from sales of assets.............. 1,352,297 1,115,793 2,474,779 1,679,067 1,170,065
Expenditures for advertising signs......... (26,033,225) (14,713,166) (19,541,162) (16,815,288) (9,563,563)
Expenditures for property and equipment.... (1,986,847) (2,180,644) (2,895,119) (2,111,561) (3,250,971)
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities........ (26,667,775) (15,778,017) (19,961,502) (17,247,782) (11,644,469)
------------ ------------ ------------ ------------ ------------
Cash flows from financing activities
Interdivisional transactions............... (11,489,912) (24,124,287) (23,363,401) (7,445,015) (19,222,816)
------------ ------------ ------------ ------------ ------------
Net cash used in financing activities........ (11,489,912) (24,124,287) (23,363,401) (7,445,015) (19,222,816)
------------ ------------ ------------ ------------ ------------
Net (decrease) increase in cash.............. (756,789) 2,636 93,952 6,899,242 6,859,680
Cash, at beginning of year................... 909,934 153,145 155,781 155,781 249,733
------------ ------------ ------------ ------------ ------------
Cash, at end of year......................... $ 153,145 $ 155,781 $ 249,733 $ 7,055,023 $ 7,109,413
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-84
<PAGE> 325
OUTDOOR ADVERTISING DIVISION OF
WHITECO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Whiteco Industries, Inc. ("Whiteco") has entered into an agreement to sell
substantially all of the assets and certain liabilities of its Outdoor
Advertising Division (the "Division"). The Division owns and operates outdoor
advertising signs throughout the United States.
During the periods covered by the financial statements, the Division was
conducted as an integral part of Whiteco's overall operations and separate
financial statements were not prepared. These financial statements have been
prepared from Whiteco's historical accounting records. Corporate overhead
expenses are actual expenses incurred by the Division. The Division operated
independently from Whiteco Industries, Inc. However, the expenses incurred by
the Division for corporate overhead may not necessarily be indicative of
expenses that would have been incurred had the Division been operated as a
separate entity.
Interim Financial Statements
The financial information as of September 30, 1998 and with respect to the
nine months ended September 30, 1997 and 1998 is unaudited. In the opinion of
management, the financial statements contain all adjustments consisting of
normal recurring accruals, necessary for the fair presentation of the results
for such periods. The information is not necessarily indicative of the results
of operations to be expected for the fiscal year end.
Contracts and Revenue Recognition
Outdoor advertising signs are contracted to customers under individual
advertising contracts that primarily run from one month to five years. Revenue
is recognized ratably over the life of the contract. Costs associated with the
outdoor advertising operations, including contract costs and land rental, are
expensed over the related contract term.
Prepaid Sign Costs and Other Sign Costs
Prepaid sign costs and other sign costs are primarily land rental payments
relating to future periods. Amortization on these assets was $1,020,942,
$1,075,827 and $939,708 for the years ended December 31, 1995, 1996 and 1997,
and $223,975 and $437,256 for the nine months ended September 30, 1997 and 1998,
respectively.
Property and Equipment
LAND, BUILDINGS AND IMPROVEMENTS AND EQUIPMENT
Land, buildings and improvements and equipment are carried at cost,
including interest charges capitalized during construction. Depreciation on
these assets is computed over various lives under the straight-line method and
amounted to $767,872, $911,890 and $1,092,869 for the years ended December 31,
1995, 1996 and 1997 and $957,510 and $1,113,288 for the nine months ended
September 30, 1997 and 1998, respectively.
F-85
<PAGE> 326
OUTDOOR ADVERTISING DIVISION OF
WHITECO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ADVERTISING SIGNS
Advertising sign structures are depreciated by the straight-line method
over lives principally from eight to twelve years. Depreciation of advertising
signs was $6,886,390, $8,514,127 and $9,492,833 for the years ended December 31,
1995, 1996 and 1997, and $7,050,698 and $7,209,722 for the nine months ended
September 30, 1997 and 1998, respectively.
Income Taxes
The Division is part of Whiteco Industries, Inc. which is an "S"
corporation and, as such, federal and most state income taxes are the
responsibility of the stockholder and therefore not reflected on the Division's
financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. LEASES
The Division leases office facilities and property under various operating
leases. The Division's primary office premises are leased from a partnership in
which Whiteco Industries, Inc. is the general partner. Annual minimum rental
payments under leases that have an initial or remaining term in excess of one
year at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
RELATED
YEAR PARTY OTHER TOTAL
---- -------- -------- ----------
<S> <C> <C> <C>
1998................................................ $224,000 $270,000 $ 494,000
1999................................................ 224,000 131,000 355,000
2000................................................ 224,000 130,000 354,000
2001................................................ 224,000 131,000 355,000
2002................................................ 224,000 131,000 355,000
Thereafter.......................................... 56,000 962,000 1,018,000
</TABLE>
Total lease expense was approximately $675,000, $646,000 and $665,000 for
the years ended December 31, 1995, 1996 and 1997, and $494,000 and $509,000 for
the nine months ended September 30, 1997 and 1998, respectively. Related party
lease expense was $254,000, $230,000 and $117,000 for the years ended December
31, 1995, 1996 and 1997, and $172,000 and $176,000 for the nine months ended
September 30, 1997 and 1998, respectively.
3. RETIREMENT SAVINGS PLAN
The Division is a part of Whiteco Industries, Inc. ("Whiteco") who
maintains a qualified plan under Section 401(k) of the Internal Revenue Code.
This plan is available for all employees who have completed one year or more of
continuous service. The plan permits employees to contribute up to 15% of their
annual compensation. The plan allows for discretionary Whiteco contributions.
Currently, Whiteco matches 20% of
F-86
<PAGE> 327
OUTDOOR ADVERTISING DIVISION OF
WHITECO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the employees' contributions, to a maximum of 6% of earnings, and also makes a
1% quarterly matching contribution. Contributions were $154,160, $171,270 and
$177,100 for the years ended December 31, 1995, 1996 and 1997, and $135,000 and
$186,432 for the nine months ended September 30, 1997 and 1998, respectively.
4. MANAGEMENT AGREEMENT
In October 1984, the Division entered into an agreement with Metro
Management Associates (the "Partnership"), a partnership in which several
partners are employees of Whiteco, for the management and operation of
approximately 540 outdoor advertising signs located in Indiana, Texas, Rhode
Island, Missouri, Ohio, Florida, Illinois, Kentucky, Pennsylvania and Virginia.
All revenue and operating expenses related to the management and operation of
the Partnership's outdoor advertising signs are included in the Division's
results of operations. The Division is required to pay a profit participation
fee to the Partnership which approximates the operating profit of the managed
assets and is based upon a fixed monthly fee and a variable fee based upon
revenue. On August 31, 1998, the Partnership entered into an agreement to sell
substantially all of the assets and certain specified liabilities of the
Partnership to Chancellor Media Corporation. The management agreement between
the Division and the Partnership will be terminated upon consummation of the
acquisition by Chancellor Media Corporation.
5. SUBSEQUENT EVENT
On August 31, 1998, Whiteco Industries, Inc. entered into an agreement to
sell substantially all of the assets and certain specified liabilities of the
Division to Chancellor Media Corporation.
F-87
<PAGE> 328
RANGER EQUITY HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
ASSETS
<TABLE>
<CAPTION>
PREDECESSOR
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 38,029 $ 8,046
Accounts receivable, less allowance for doubtful accounts
(1998 -- $2,141, 1997 (predecessor) -- $2,197)......... 37,356 57,645
Program rights............................................ 10,862 9,916
Other current assets...................................... 11,640 1,865
---------- --------
Total current assets.............................. 97,887 77,472
Property and equipment, less accumulated depreciation and
amortization.............................................. 121,522 107,593
Deferred financing costs.................................... 48,138 5,421
Equity in joint venture..................................... 72,007 473
Intangible assets, less accumulated amortization............ 1,450,821 369,588
Program rights and other noncurrent assets.................. 7,392 8,779
---------- --------
Total assets...................................... $1,797,767 $569,326
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 7,102 $ 7,553
Program obligations....................................... 11,243 11,320
Accrued income taxes...................................... 2,478 3,444
Current portion of long-term debt......................... 7,742 --
Accrued interest expense.................................. 2,854 265
Other accruals............................................ 22,014 20,624
---------- --------
Total current liabilities......................... 53,433 43,206
Long-term debt, excluding current portion................... 672,893 260,000
Deferred income taxes....................................... 523,294 65,248
Other noncurrent liabilities................................ 11,051 8,307
---------- --------
Total Liabilities................................. 1,260,671 376,761
---------- --------
Stockholders' equity:
Preferred stock, $0.01 par value:
Authorized shares -- (1998 -- 5,000,000, 1997
(predecessor) -- 15,000,000) Issued and outstanding
shares -- none........................................ -- --
Common stock, $0.01 par value:
Authorized shares -- (1998 -- 1,000,000,000, 1997
(predecessor) -- 90,000,000) Issued and outstanding
shares -- (1998 -- 539,321,532) 1997 (predecessor) --
29,857,000)........................................... 5,393 299
Treasury stock (79 shares at cost)..................... -- (3)
Additional paid-in capital................................ 553,655 283,177
Accumulated deficit....................................... (21,952) (90,908)
---------- --------
Total stockholders' equity........................ 537,096 192,565
---------- --------
Total liabilities and stockholders' equity........ $1,797,767 $569,326
========== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
NOTE -- The December 31, 1997 information was derived from the audited financial
statements at that date.
F-88
<PAGE> 329
RANGER EQUITY HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PREDECESSOR PREDECESSOR PREDECESSOR
THREE MONTHS THREE MONTHS PERIOD FROM PERIOD FROM NINE MONTHS
ENDED ENDED MARCH 3 - JANUARY 1 - ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1998 MARCH 2, 1998 SEPTEMBER 30, 1997
------------------ ------------------ ------------------ ------------- ------------------
<S> <C> <C> <C> <C> <C>
Net revenues............. $ 55,778 $71,911 $133,770 $43,804 $216,878
Operating costs and
expenses
Direct operating......... 16,520 19,561 37,254 11,117 56,094
Selling, general and
administrative...... 12,484 15,142 30,848 11,701 49,385
Corporate.............. 2,216 1,751 4,970 1,170 5,301
KXTX management fee.... 3,055 -- 3,055 -- --
Amortization of program
rights.............. 3,187 4,025 7,243 2,743 11,684
Depreciation and
amortization of
intangible assets... 13,750 6,303 31,855 4,581 19,003
Tower write-offs....... -- -- -- -- 2,697
-------- ------- -------- ------- --------
Total operating
costs and
expenses..... 51,212 46,782 115,225 31,312 144,164
-------- ------- -------- ------- --------
Operating income......... 4,566 25,129 18,545 12,492 72,714
Other (income) expense:
Interest expense....... 15,690 5,429 37,381 2,764 16,652
Investment income...... (451) (284) (738) (98) (971)
Equity in joint
venture............. 2,560 267 4,722 244 1,132
Merger expenses........ -- 3,873 -- 8,616 3,873
-------- ------- -------- ------- --------
Total other
expense...... 17,799 9,285 41,365 11,526 20,686
-------- ------- -------- ------- --------
Income (loss) before
provision for (benefit
from) income taxes..... (13,233) 15,844 (22,820) 966 52,028
Provision for (benefit
from) income taxes..... (246) 5,909 (868) 3,710 19,406
-------- ------- -------- ------- --------
Net income (loss)........ $(12,987) $ 9,935 $(21,952) $(2,744) $ 32,622
======== ======= ======== ======= ========
</TABLE>
The accompany notes are an integral part of the condensed consolidated financial
statements.
F-89
<PAGE> 330
RANGER EQUITY HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS AND SHARES IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at February 11, 1998 (inception)......... -- $ -- $ -- $ -- $ --
Net loss....................................... (21,952) (21,952)
Issuance of common stock....................... 539,321 5,393 533,929 -- 539,322
Capital contributions.......................... 19,726 19,726
------- ------ -------- -------- --------
Balance at September 30, 1998.................... 539,321 $5,393 $553,655 $(21,952) $537,096
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-90
<PAGE> 331
RANGER EQUITY HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PREDECESSOR PREDECESSOR
PERIOD FROM PERIOD FROM NINE MONTHS
MARCH 3 - JANUARY 1 - ENDED
SEPTEMBER 30, 1998 MARCH 2, 1998 SEPTEMBER 30, 1997
------------------ ------------- ------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................................... $ (21,952) $ (2,744) $ 32,622
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization (includes amortization of
financing costs and discounts on notes)................. 46,634 4,714 19,678
Amortization of program rights............................ 7,243 2,743 11,684
KXTX management fee....................................... 3,055 -- --
Tax benefit from exercises of stock options............... -- 10,714 --
Deferred income taxes..................................... (255) 149 2,872
Net loss (gain) on disposition of assets.................. (54) 19 2,248
Program payments.......................................... (6,780) (4,157) (10,044)
Equity in joint venture................................... 4,722 244 1,132
Provision for doubtful accounts........................... 153 98 195
Changes in operating assets & liabilities: net of
acquisitions & disposals:
Accounts receivable....................................... (4,513) 7,695 (1,565)
Program rights net of program obligations................. (161) (45) 4
Other current assets...................................... 9,506 (19,102) (440)
Accounts payable.......................................... (264) 1,187 1,031
Accrued income taxes...................................... (891) 1,777 (561)
Accrued interest expense.................................. 2,854 74 (126)
Other accruals............................................ (3,541) 5,050 2,926
----------- -------- --------
Net cash provided by operating activities................... 35,756 8,416 61,656
----------- -------- --------
INVESTING ACTIVITIES:
Capital expenditures........................................ (6,133) (1,221) (12,970)
Proceeds from asset dispositions............................ 46 3 3,133
Investment in joint venture................................. (250) (250) (1,000)
Contribution of KXAS-TV to station joint venture............ 815,500 -- --
Acquisition of LIN Television Corporation................... (1,723,656) -- --
----------- -------- --------
Net cash used in investing activities....................... (914,493) (1,468) (10,837)
----------- -------- --------
FINANCING ACTIVITIES:
Proceeds from exercises of stock options and sale of
Employee Stock Purchase Plan shares....................... -- 1,071 2,687
Treasury stock purchases.................................... -- -- (816)
Principal payments on long-term debt........................ (260,000) -- (55,000)
Proceeds from long-term debt................................ 668,929 -- --
Loan fees incurred on long-term debt........................ (51,211) -- --
Proceeds from sale of Common Stock.......................... 539,322 -- --
Proceeds from capital contributions......................... 19,726 -- --
----------- -------- --------
Net cash provided by (used in) financing activities......... 916,766 1,071 (53,129)
----------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 38,029 8,019 (2,310)
----------- -------- --------
Cash and cash equivalents at the beginning of the period.... -- 8,046 27,952
----------- -------- --------
Cash and cash equivalents at the end of the period.......... $ 38,029 $ 16,065 $ 25,642
=========== ======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-91
<PAGE> 332
RANGER EQUITY HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION:
Ranger Equity Holdings Corporation ("LIN") was formed on February 11, 1998.
There was no LIN financial activity from the date of formation to the date of
the Merger (see Note 2). LIN Holdings Corp. ("Holdings"), an indirect wholly
owned subsidiary of LIN, and LIN Acquisition Company ("LIN Acquisition"), a
wholly-owned subsidiary of Holdings, were formed on July 18, 1997 as
organizational steps to the acquisition of LIN Television Corporation ("LIN
Television" or "Predecessor" prior to the Merger (as defined), and the "Company"
following the Merger), pursuant to the Merger Agreement (as defined) (see Note
2).
The condensed consolidated financial statements have been prepared without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations.
In the opinion of management, the accompanying unaudited interim financial
statements contain all adjustments (consisting of normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows of LIN and its subsidiaries for the periods presented. The interim
results of operations are not necessarily indicative of the results to be
expected for the full year.
The consolidated financial statements include the accounts of LIN and its
subsidiaries, all of which are wholly-owned. All significant intercompany
balances and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. Actual results could differ from those estimates.
All of the Company's direct and indirect consolidated subsidiaries fully
and unconditionally guarantee the Company's Senior Subordinated Notes (as
defined) on a joint and several basis. LIN conducts its business through its
subsidiaries, and has no operations or assets other than its investments in its
subsidiaries. Accordingly, no separate or additional financial information about
the subsidiaries is provided.
NOTE 2 -- MERGERS AND ACQUISITIONS:
Holdings and LIN Acquisition, two newly formed affiliates of Hicks, Muse,
Tate & Furst Incorporated ("Hicks Muse"), entered into an Agreement and Plan of
Merger with LIN Television on August 12, 1997 (as amended, the "Merger
Agreement").
Pursuant to, and upon the terms and conditions of, the Merger Agreement,
Holdings acquired LIN Television (the "Acquisition") on March 3, 1998 by merging
LIN Acquisition, its wholly-owned subsidiary, with and into LIN Television (the
"Merger"), with LIN Television surviving the merger and becoming a direct,
wholly-owned subsidiary of Holdings. The total purchase price for the common
equity of LIN Television was approximately $1.7 billion. In addition, the
Company refinanced $260.2 million of LIN Television's indebtedness and incurred
acquisition costs of approximately $32.2 million.
The Acquisition was funded by (i) $6.9 million of excess cash on the LIN
Television balance sheet; (ii) $50.0 million aggregate principal amount of
senior secured Tranche A term loans ("Tranche A Term Loans"); (iii) $120.0
million aggregate principal of senior secured Tranche B term loans ("Tranche B
Term
F-92
<PAGE> 333
RANGER EQUITY HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Loans"); (iv) $299.3 million of gross proceeds from the issuance of $300.0
million aggregate principal amount of unregistered 8 3/8% senior subordinated
notes due 2008 (the "Old Senior Subordinated Notes"); (v) $199.6 million of
gross proceeds from the issuance by Holdings of $325.0 million aggregate
principal amount at maturity of unregistered 10% senior discount notes due 2008
(the "Old Senior Discount Notes"), which proceeds were contributed by Holdings
to the common equity of the Company; (vi) $815.5 million of proceeds of the GECC
Note (as defined); and (vii) $558.1 million of common equity provided by
affiliates of Hicks Muse, management and other co-investors to the equity of LIN
which in turn, through Holdings, contributed such amount to the common equity of
the Company (collectively, the "Financings"). Such Senior Subordinated Notes and
the Senior Discount Notes were subsequently registered with the Securities and
Exchange Commission pursuant to a Registration Statement filed on August 12,
1998.
As part of the Acquisition, Hicks Muse and NBC formed a television station
joint venture (the "Joint Venture"). The assets contributed to the Joint Venture
consisted of KXAS-TV, formerly LIN Television's Dallas-Fort Worth NBC affiliate,
and KNSD-TV, formerly NBC's San Diego station. A wholly-owned subsidiary of NBC
is the general partner of the Joint Venture (the "NBC General Partner") and NBC
operates the stations owned by the Joint Venture. The Company is insulated from
the management and operation of the stations in the Joint Venture. The NBC
General Partner holds an approximate 80% equity interest and 50% voting interest
and the Company holds an approximate 20% equity interest and 50% voting interest
in the Joint Venture (see Note 7). General Electric Capital Corporation ("GECC")
provided debt financing for the Joint Venture in the form of an $815.5 million
25-year non-amortizing senior secured note bearing an initial interest rate of
8.0% per annum (the "GECC Note"). The Company expects that the interest payments
on the GECC Note will be serviced solely by the cash flows of the Joint Venture.
The GECC Note was issued by LIN Television of Texas, L.P., the Company's
indirect wholly-owned partnership ("LIN Texas"), which distributed the proceeds
to the Company to finance a portion of the cost of the Acquisition. The
obligations to GECC under the GECC Note were assumed by the Joint Venture and
LIN Texas was simultaneously released from all obligations under the GECC Note.
The GECC Note is not an obligation of LIN, Holdings, the Company or any of their
respective subsidiaries, and has recourse only to the Joint Venture, the
Company's equity interest therein and to Ranger Equity Holdings B Corp., a
wholly owned subsidiary of LIN and corporate parent of Holdings, pursuant to a
guarantee.
In connection with the formation of the Joint Venture, the Company received
an extension of its NBC network affiliation agreements to 2010 and the option
(exercisable through December 31, 1999) to purchase WVTM-TV, the NBC affiliate
in Birmingham, Alabama.
The Acquisition was accounted for as a purchase and accordingly, the
purchase price has been allocated to the assets and liabilities acquired based
upon their fair values at the date of acquisition. The excess of purchase price
over the fair value of net tangible assets acquired is allocated to intangible
assets, primarily to FCC licenses, network affiliations and goodwill. The
results of operations associated with the acquired assets and liabilities have
been included in the accompanying statements from the date of acquisition on
March 3, 1998 through September 30, 1998.
F-93
<PAGE> 334
RANGER EQUITY HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Acquisition is summarized as follows:
Assets acquired and liabilities assumed (dollars in thousands):
<TABLE>
<S> <C>
Working capital, including cash of $9,185................... $ 23,646
Property and equipment...................................... 124,752
Other noncurrent assets..................................... 81,114
Intangible assets........................................... 1,472,304
Deferred tax liability...................................... (523,549)
Other noncurrent liabilities................................ (1,908)
----------
Total acquisition........................................... $1,176,359
==========
</TABLE>
The following summarizes pro forma consolidated results of operations for
the three and nine month period ended September 30, 1998 and 1997 as if the
Acquisition and the Joint Venture had taken place on January 1, 1997 (dollars in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------- -------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenue........................................ $ 55,777 $ 49,587 $164,395 $146,376
Operating income................................... $ 4,565 $ 3,116 $ 18,582 $ 3,985
Net loss........................................... $(12,987) $(11,392) $(33,862) $(37,457)
</TABLE>
The pro forma results do not necessarily represent results that would have
occurred if the Acquisition and Joint Venture had taken place on the dates
indicated nor are they necessarily indicative of the results of future
operations.
The Company expects to acquire from AT&T Corporation ("AT&T") the assets of
WOOD-TV and the LMA rights related to WOTV-TV (collectively, the "Grand Rapids
Stations"), which are both located in the Grand Rapids-Kalamazoo-Battle Creek
market (the "Grand Rapids Acquisition"). The Company currently provides services
to the Grand Rapids Stations pursuant to a consulting agreement with AT&T. The
total purchase price for the Grand Rapids Acquisition will be approximately
$125.5 million, plus accretion of 8.0% which commenced on January 1, 1998. The
Grand Rapids Acquisition is expected to be funded by $125.0 million of
additional Tranche A Term Loans. For the fiscal year ended December 31, 1997,
the Grand Rapids Stations generated net revenues and operating income of $28.4
million and $8.2 million, respectively. The historical and pro forma financial
information provided above does not give effect to the Grand Rapids Acquisition.
NOTE 3 -- RECENT DEVELOPMENTS:
On July 7, 1998, LIN and Chancellor Media Corporation ("Chancellor Media"),
entered into an Agreement and Plan of Merger (the "Chancellor Media Merger
Agreement"). Pursuant to the Chancellor Media Merger Agreement, LIN will be
merged with and into Chancellor Media (the "Chancellor Media Merger"), with
Chancellor Media continuing as the surviving corporation. Following the
Chancellor Media Merger, Holdings will become a direct subsidiary of LIN and the
Company will become an indirect wholly owned subsidiary of Holdings. The
Chancellor Media Merger is subject to regulatory and shareholder approval.
F-94
<PAGE> 335
RANGER EQUITY HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On August 1, 1998, LIN Television of Texas, L.P. ("LIN Texas") and
Southwest Sports Group, Inc., a Delaware corporation ("SSG") and an entity in
which a partner of Hicks Muse has a substantial economic interest, entered into
an Asset Purchase Agreement (the "SSG Agreement") pursuant to which LIN Texas
will assign its purchase option and LMA rights on KXTX-TV and sell certain
assets and liabilities of KXTX-TV to SSG. In exchange, LIN Texas will receive
500,000 shares of SSG's Series A Convertible Preferred Stock, par value $100.00
per share ("SSG Preferred Stock"). Following the completion of the transactions
contemplated by the SSG Agreement (expected by the end of this year), LIN Texas
will be entitled to receive dividends at the per annum rate of 6% of par value
prior to the payment by SSG of any dividend in respect of its common stock ("SSG
Common Stock") or any other junior securities. At the option of SSG, dividends
will be payable either in kind or in cash. LIN Texas will have the right, upon
the earlier of (i) the third anniversary of the issuance of the SSG Preferred
Stock and (ii) an initial public offering of SSG Common Stock, to convert its
shares of SSG Preferred Stock into shares of SSG Common Stock at a conversion
rate equal to the par value per share of the SSG Preferred Stock (plus accrued
and unpaid dividends thereon) divided by the fair market value per share of the
SSG Common Stock. SSG will have the right, at its sole option, to redeem the SSG
Preferred Stock at a par value (plus accrued and unpaid dividends thereon) at
any time. The Company does not expect to realize a significant gain or loss as a
result of this transaction.
Subject to the terms of the SSG Agreement and the satisfaction of certain
conditions, including the receipt of National Hockey League and Major League
Baseball approvals and SSG's consummation of certain other business
acquisitions, it is expected that the purchase option and LMA rights assignment
and sale of certain KXTX-TV assets and liabilities will be consummated by March
31, 1999.
Also, on August 1, 1998, LIN Texas and Southwest Sports Television Inc.
("SST"), an affiliate of SSG entered into a Sub-Programming Agreement pursuant
to which SST renders certain services with respect to KXTX-TV in exchange for a
management fee equal to the cash receipts of the station less operating and
other expenses. For the quarter ending September 30, 1998, the management fee
due to SST was $3.1 million.
NOTE 4 -- RELATED PARTY TRANSACTIONS:
In connection with the Acquisition, LIN, Holdings, the Company and certain
of their respective affiliates (collectively, the "Clients") entered into a
ten-year agreement (the "Monitoring and Oversight Agreement") with Hicks, Muse &
Co. Partners, L.P., ("Hicks Muse Partners"), an affiliate of Hicks Muse,
pursuant to which the Clients have agreed to pay Hicks Muse Partners an annual
fee (payable quarterly) for oversight and monitoring services to the Clients.
The aggregate annual fee is adjustable on January 1 of each calendar year to an
amount equal to 1.0% of the budgeted consolidated annual EBITDA (as defined) of
LIN and its subsidiaries for the then-current fiscal year. Upon the acquisition
by LIN and its subsidiaries of another entity or business, the fee shall be
adjusted prospectively in the same manner using the pro forma consolidated
annual EBITDA (as defined) of LIN and its subsidiaries. In no event shall the
annual fee be less than $1,000,000. Hicks Muse Partners is also entitled to
reimbursement for any expenses incurred by it in connection with rendering
services allocable to the Company, Holdings and LIN. In connection with the
Chancellor Media Merger Agreement, Hicks Muse Partners has agreed to terminate
the Monitoring and Oversight Agreement for a one-time cash payment of $11.0
million due at closing of the Chancellor Media Merger.
In connection with the Acquisition, the Clients entered into a ten-year
agreement (the "Financial Advisory Agreement") with Hicks Muse Partners,
pursuant to which Hicks Muse Partners received a financial advisory fee at the
closing of the Acquisition as compensation for its services as financial advisor
to the Clients in connection with the Acquisition. Hicks Muse Partners will
receive a fee from LIN Television of $11.0 million in cash at the closing of the
Chancellor Media Merger as compensation for its services as
F-95
<PAGE> 336
RANGER EQUITY HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
financial advisor to the Clients in connection with the Chancellor Media Merger.
Following the Chancellor Media Merger, Hicks Muse Partners also will be entitled
to receive a "market fee" for the services it provides in each subsequent
transaction in which a Client is involved.
NOTE 5 -- INTANGIBLE ASSETS:
Intangible assets consisted of the following at (dollars in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
FCC licenses and network affiliations............... $ 807,029 $312,450
Goodwill............................................ 666,259 128,043
---------- --------
1,473,288 440,493
Less accumulated amortization....................... (22,467) (70,905)
---------- --------
$1,450,821 $369,588
========== ========
</TABLE>
Intangible assets represent the excess of the purchase price over the
estimated fair value of identifiable net tangible assets acquired in business
acquisitions, and are being amortized straight-line over 40 years. The Company
periodically evaluates intangible assets for potential impairment. At this time,
in the opinion of the management, no impairment has occurred.
NOTE 6 -- LONG-TERM DEBT:
Long-term debt consisted of the following at (dollars in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
Senior Credit Facilities.................................... $170,000 $260,000
8 3/8% Senior Subordinated Notes due 2008................... 299,324 --
10% Senior Discount Notes due 2008.......................... 211,311 --
-------- --------
Total debt........................................ $680,635 $260,000
Less current portion........................................ (7,742) --
-------- --------
Total long-term debt.............................. $672,893 $260,000
======== ========
</TABLE>
Senior Credit Facilities
On March 3, 1998, Holdings and the Company entered into a credit agreement
(the "Credit Agreement") with the Chase Manhattan Bank, as administrative agent
(the "Agent"), and the lenders named therein. Under the Credit Agreement, the
Company established a $295 million term loan facility, a $50 million revolving
facility, and a $225 million incremental term loan facility (collectively, the
"Senior Credit Facilities"). Borrowings under the Senior Credit Facilities and
part of the proceeds from the 8 3/8% Senior Subordinated Notes were used to
repay LIN Television's existing debt.
Borrowings under the Senior Credit Facilities bear interest at a rate
based, at the option of the Company, on an adjusted London interbank offered
rate ("Adjusted LIBOR"), or the highest of the Agent's prime rates, certificate
of deposits rate plus 1.00%, or the Federal Funds effective rate plus 1/2 of
1.00% (the "Alternate Base Rate"), plus an incremental rate based on the
Company's financial performance. At September 30, 1998, the interest rates on
the $50 million Tranche A term loan and the $120 million Tranche B term loan
were 6.88% and 7.38%, respectively, based on the Adjusted LIBOR. The Company is
required to pay quarterly
F-96
<PAGE> 337
RANGER EQUITY HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
commitment fees ranging from 0.25% to 0.50%, based upon the Company's leverage
ratio for that particular quarter on the unused portion of the loan commitment,
in addition to annual agency and other administration fees.
The obligations of the Company under the Senior Credit Facilities are
unconditionally and irrevocably guaranteed, jointly and severally, by Holdings
and by each existing and subsequently acquired or organized subsidiary of the
Company. In addition, substantially all of the assets of the Company and its
subsidiaries are pledged to secure the performance of these obligations.
Required principal repayments of amounts outstanding under the Senior Credit
Facilities commence on December 31, 1998. The Company's ability to make
additional borrowings under the Senior Credit Facilities is subject to
compliance with certain financial covenants and other conditions set forth in
the Credit Agreement. As of September 30, 1998, the Company was in compliance
with all covenants under the Credit Agreement.
SENIOR SUBORDINATED NOTES
On March 3, 1998, the Company issued $300 million aggregate principal
amount of 8 3/8% Senior Subordinated Notes due 2008 ("Senior Subordinated
Notes") in a private placement for net proceeds of $290.3 million. Such Senior
Subordinated Notes were subsequently registered with the Securities and Exchange
Commission (the "SEC") pursuant to a Registration Statement filed on August 12,
1998. The Senior Subordinated Notes are unsecured obligations of the Company,
subordinated in right of payment to all existing and any future senior
indebtedness of the Company. The Senior Subordinated Notes are fully and
unconditionally guaranteed, on a joint and several basis, by all wholly-owned
subsidiaries of the Company. Interest on the Senior Subordinated Notes accrues
at a rate of 8 3/8% per annum and is payable in cash, semi-annually in arrears,
commencing on September 1, 1998.
Senior Discount Notes
In connection with the Merger on March 3, 1998, Holdings issued $325
million aggregate principal amount at maturity of 10% Senior Discount Notes due
2008 ("Senior Discount Notes") in a private placement. Such Senior Discount
Notes were registered with the SEC pursuant to a Registration Statement filed on
August 12, 1998. The Senior Discount Notes were issued at a discount and
generated net proceeds of $192.6 million to Holdings. The Senior Discount Notes
are unsecured senior obligations of Holdings, and are not guaranteed. Cash
interest will not accrue or be payable on the Senior Discount Notes prior to
March 1, 2003. Thereafter, cash interest will accrue at a rate of 10% per annum
and will be payable semi-annually in arrears commencing on September 1, 2003.
NOTE 7 -- SUMMARIZED FINANCIAL INFORMATION OF THE JOINT VENTURE:
The Company owns 20% of the Joint Venture and accounts for its interest
using the equity method. The following presents the summarized financial
information of the Joint Venture (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS FOR THE PERIOD FROM
ENDED MARCH 3 THROUGH
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
------------------- -------------------
<S> <C> <C>
Net revenues...................................... $ 30,023 $ 79,840
Operating income.................................. 4,250 15,811
Net loss.......................................... $(12,081) $(21,740)
</TABLE>
F-97
<PAGE> 338
RANGER EQUITY HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- INCOME TAXES:
The provision for (benefit from) income taxes differs from the amount
computed by applying the federal statutory income tax rate of 35% to income
before income taxes due to the effects of state income taxes and certain
expenses not deductible for tax purposes, primarily the amortization of
goodwill.
NOTE 9 -- COMMITMENTS AND CONTINGENCIES:
On September 4, 1997, the Company announced that it had learned of four
lawsuits regarding the then proposed Merger. The Company and some or all of its
then present directors are defendants in all of the lawsuits. AT&T is a
defendant in three of the lawsuits, and an AT&T affiliate and Hicks Muse are
defendants in one of the lawsuits. Each of the lawsuits was filed by a purported
shareholder of the Company seeking to represent a putative class of all the
Company's public shareholders. Three of the four lawsuits were filed in Delaware
Chancery Court, while the fourth lawsuit was filed in New York Supreme Court.
While the allegations of the complaints are not identical, all of the
lawsuits basically assert that the terms of the original merger agreement were
not in the best interests of the Company's public shareholders. All of the
complaints allege breach of fiduciary duty in approving the merger agreement.
Two of the complaints also allege breach of fiduciary duty in connection with
the proposed sale of the television station WOOD-TV by AT&T to Hicks Muse and
the amendment to a Private Market Value Guarantee Agreement that was entered
into simultaneously with the first merger agreement. The complaints seek the
preliminary and permanent enjoinment of the merger or alternatively seek damages
in an unspecified amount. The complaints have not been amended to reflect the
terms of the merger itself.
The plaintiffs in each of the actions have agreed to an indefinite
extension of time for each of the defendants served to respond to the respective
complaints. No discovery has taken place.
In July 1998, a stockholder derivative action was commenced in the Delaware
Court of Chancery by a stockholder purporting to act on behalf of Chancellor
Media (the "Chancellor/LIN Stockholder Lawsuit"). The defendants in the case
include Hicks Muse, LIN Television and certain of Chancellor Media's directors.
The plaintiff alleges that, among other things, (i) Hicks Muse allegedly caused
Chancellor Media to pay too high of a price for LIN because Hicks Muse had
allegedly paid too high of a price in the Hicks Muse LIN Acquisition, and (2)
the transaction therefore allegedly constitutes a breach of fiduciary duty and a
waste of corporate assets by Hicks Muse (which is alleged to control Chancellor
Media) and the directors of Chancellor Media named as defendants. The plaintiff
seeks to enjoin consummation or rescission of the transaction, compensatory
damages, an order requiring that the directors named as defendants "carry out
their fiduciary duties," and attorneys' fees and other costs.
Plaintiff, defendants and Chancellor Media have agreed to settle the
Chancellor/LIN Stockholder Lawsuit. Such settlement is subject to a number of
conditions, including preparing and finalizing definitive documentation and
approved by the court. Pursuant to this settlement, (1) Hicks Muse and its
affiliates agreed to vote all shares of Chancellor Media common stock that they
control in favor of and opposed to the approval and adoption of the merger
agreement in the same percentage as the order stockholders called for that
purpose, and (2) Chancellor Media agreed to pay legal fees of $480,000 and
documented expenses of up to $20,000. In connection with settlement discussions,
Chancellor Media and LIN provided counsel for the plaintiff an opportunity to
review and comment on the disclosure in this joint proxy statement/prospectus.
In addition, the Company currently and from time to time is involved in
litigation incidental to the conduct of its business. In the opinion of the
Company's management, none of such litigation as of September 30, 1998 is likely
to have a material adverse effect on the Company's financial condition, results
of operations or cash flows.
F-98
<PAGE> 339
RANGER EQUITY HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS:
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" effective for years beginning after December 15, 1997.
SFAS 130 requires that a company report items of other comprehensive income
either below the total for net income in the income statement, or in a statement
of changes in equity, and to disclose the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in-capital in the equity section of the balance sheet. SFAS 130 was adopted
during the first quarter of 1998 and was applied to prior period financial
statements on a retroactive basis. The adoption of SFAS 130 had no impact on the
reported results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" effective for years beginning after
December 15, 1997. SFAS 131 requires that a company report financial and
descriptive information about its reportable operating segments pursuant to
criteria that differ from current accounting practice. Operating segments, as
defined, are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision-maker in deciding how to allocate resources and in assessing
performance. The financial information to be reported includes segment profit or
loss, certain revenue and expense items and segment assets and reconciliations
to corresponding amounts in the general-purpose financial statements. SFAS 131
also requires information about revenues from products or services, countries
where the company has operations or assets and major customers. Management does
not believe the implementation of SFAS 131 will have a material impact on its
consolidated financial statements.
In April 1998, Accounting Standards Executive Committee ("AcSEC") issued
Statement of Position ("SOP") No. 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5") effective for fiscal years beginning after December 15,
1998. This SOP provides guidance on the financial reporting of start-up costs
and organization costs. It requires that costs of start-up activities and
organization costs be expensed as incurred. Initial application of SOP 98-5
should be reported as the cumulative effect of a change in accounting principle,
as described in Accounting Principles Board (APB) Opinion No. 20, "Accounting
Changes". When adopting this SOP, entities are not required to report the pro
forma effects of retroactive application. Management does not believe the
implementation of SOP 98-5 will have a material impact on its consolidated
financial statements.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" effective for years beginning after June 15,
1999. SFAS 133 requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet at fair value. If certain conditions
are met, a derivative may be specifically designated as a fair value hedge, a
cash flow hedge, or a foreign currency hedge. A specific accounting treatment
applies to each type of hedge. Management does not believe the implementation of
SFAS 133 will have a material impact on its consolidated financial results.
F-99
<PAGE> 340
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
LIN Television Corporation
We have audited the accompanying consolidated balance sheets of LIN
Television Corporation as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
LIN Television Corporation at December 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Fort Worth, Texas
January 19, 1998, except for
Note 2, as to which the
date is March 3, 1998
F-100
<PAGE> 341
LIN TELEVISION CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
-------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 8,046 $ 27,952
Accounts receivable, less allowance for doubtful accounts
(1997 -- $2,197; 1996 -- $1,960)....................... 57,645 52,666
Program rights............................................ 9,916 10,133
Other current assets...................................... 1,865 6,675
-------- ---------
Total current assets.............................. 77,472 97,426
Property and equipment, less accumulated depreciation....... 107,593 106,441
Program rights and other non current assets................. 14,199 10,427
Equity in joint venture..................................... 473 505
Intangible assets, less accumulated amortization
(1997 -- $70,905;
1996 -- $59,348).......................................... 369,588 381,145
-------- ---------
Total assets...................................... $569,325 $ 595,944
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 7,553 $ 7,593
Program obligations....................................... 11,320 10,724
Accrued income taxes...................................... 3,444 2,518
Other accruals............................................ 26,891 20,023
-------- ---------
Total current liabilities......................... 49,208 40,858
Long-term debt.............................................. 260,000 350,000
Deferred income taxes....................................... 65,248 64,211
Other non current liabilities............................... 2,304 2,427
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares -- 15,000,000
Issued and outstanding shares -- none.................. -- --
Common stock, $0.01 par value:
Authorized shares -- 90,000,000
Issued and outstanding shares(1997 -- 29,857,000;
29,717,000 -- 1996)................................... 299 297
Treasury stock............................................ (3) --
Additional paid-in capital................................ 283,177 276,997
Accumulated deficit....................................... (90,908) (138,846)
-------- ---------
Total stockholders' equity........................ 192,565 138,448
-------- ---------
Total liabilities and stockholders' equity........ $569,325 $ 595,944
======== =========
</TABLE>
See accompanying notes.
F-101
<PAGE> 342
LIN TELEVISION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net revenues............................................... $291,519 $273,367 $217,247
Operating costs and expenses:
Direct operating......................................... 70,746 68,954 49,342
Selling, general & administrative........................ 63,473 59,974 47,646
Corporate expense........................................ 6,763 6,998 5,747
Amortization of program rights........................... 15,596 14,464 12,357
Depreciation and amortization of intangible assets....... 24,789 23,817 17,127
Tower write-offs......................................... 2,697 -- --
-------- -------- --------
Total operating costs and expenses............... 184,064 174,207 132,219
-------- -------- --------
Operating income........................................... 107,455 99,160 85,028
Other (income) expense:
Interest expense......................................... 21,340 26,582 26,262
Investment income........................................ (1,332) (1,354) (1,258)
Other expense............................................ -- -- 320
Equity in loss of joint venture.......................... 1,532 995 --
Merger expense........................................... 7,206 -- --
-------- -------- --------
Total other expense.............................. 28,746 26,223 25,324
-------- -------- --------
Income before provision for income taxes................... 78,709 72,937 59,704
Provision for income taxes................................. 30,602 26,476 21,674
-------- -------- --------
Net income................................................. $ 48,107 $ 46,461 $ 38,030
======== ======== ========
Net income per share:
Net income............................................... $ 1.62 $ 1.57 $ 1.29
======== ======== ========
Net income-assuming dilution............................. $ 1.58 $ 1.54 $ 1.28
======== ======== ========
Weighted average shares outstanding........................ 29,781 29,631 29,367
======== ======== ========
Weighted average shares outstanding-assuming dilution...... 30,534 30,120 29,757
======== ======== ========
</TABLE>
See accompanying notes.
F-102
<PAGE> 343
LIN TELEVISION CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- TREASURY PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT STOCK CAPITAL DEFICIT EQUITY
------ ------ -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995............ 29,183 $292 $ -- $263,205 $(223,337) $ 40,160
Net income.......................... -- -- -- -- 38,030 38,030
Proceeds from exercises of stock
options and issuance of Employee
Stock Purchase Plan shares....... 306 3 -- 5,144 -- 5,147
Adjustment of prior year LIN
Broadcasting corporate service
charges.......................... -- -- -- (365) -- (365)
Tax benefit from exercises of stock
options.......................... -- -- -- 3,462 -- 3,462
------ ---- ----- -------- --------- --------
Balance at December 31, 1995.......... 29,489 295 -- 271,446 (185,307) 86,434
Net income.......................... -- -- -- -- 46,461 46,461
Proceeds from exercises of stock
options and issuance of Employee
Stock Purchase Plan shares....... 228 2 -- 4,800 -- 4,802
Tax benefit from exercises of stock
options.......................... -- -- -- 751 -- 751
------ ---- ----- -------- --------- --------
Balance at December 31, 1996.......... 29,717 297 -- 276,997 (138,846) 138,448
Net income.......................... -- -- -- -- 48,107 48,107
Proceeds from exercises of stock
options and issuance of Employee
Stock Purchase Plan shares....... 140 2 -- 3,633 -- 3,635
Treasury stock purchases............ -- -- (816) -- -- (816)
Treasury stock reissuances.......... -- -- 813 -- (169) 644
Tax benefit from exercises of stock
options.......................... -- -- -- 2,547 -- 2,547
------ ---- ----- -------- --------- --------
Balance at December 31, 1997.......... 29,857 $299 $ (3) $283,177 $ (90,908) $192,565
====== ==== ===== ======== ========= ========
</TABLE>
See accompanying notes.
F-103
<PAGE> 344
LIN TELEVISION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................. $ 48,107 $ 46,461 $ 38,030
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization (includes amortization of
financing costs)...................................... 25,688 24,818 18,242
LIN Broadcasting corporate service charges forgiven...... -- -- (365)
Tax benefit from exercises of stock options.............. 2,547 751 3,462
Deferred income taxes.................................... 54 3,127 2,719
Net loss (gain) on disposition of assets................. 3,067 (158) 422
Amortization of program rights........................... 15,596 14,464 12,357
Program payments......................................... (13,179) (15,536) (14,311)
Equity in joint venture.................................. 1,532 995 --
Changes in operating assets and liabilities:
Accounts receivable................................... (4,979) (1,934) (4,954)
Other assets.......................................... (3,976) 3,514 (3,148)
Liabilities........................................... 7,234 (5,703) 3,586
-------- -------- ---------
Total adjustments................................ 33,584 24,338 18,010
-------- -------- ---------
Net cash provided by operating activities.................. 81,691 70,799 56,040
INVESTING ACTIVITIES
Capital expenditures....................................... (20,605) (27,557) (27,715)
Asset dispositions......................................... 7,045 693 56
Investment in joint venture................................ (1,500) (1,000) (500)
Acquisitions............................................... -- -- (97,563)
Local Marketing Agreement expenditures..................... -- -- (2,001)
-------- -------- ---------
Net cash used in investing activities...................... (15,060) (27,864) (127,723)
FINANCING ACTIVITIES
Proceeds from exercise of stock options and sale of
Employee Stock Purchase Plan shares...................... 4,279 4,802 5,147
Treasury stock purchases................................... (816) -- --
Principal payments on long-term debt....................... (90,000) (37,000) (25,000)
Proceeds from long-term debt............................... -- -- 92,000
Purchase of interest rate caps............................. -- -- (346)
Loan fees incurred on long-term debt....................... -- (810) --
-------- -------- ---------
Net cash provided by (used in) financing activities........ (86,537) (33,008) 71,801
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents....... (19,906) 9,927 118
Cash and cash equivalents at beginning of the year......... 27,952 18,025 17,907
-------- -------- ---------
Cash and cash equivalents at end of the year............... $ 8,046 $ 27,952 $ 18,025
======== ======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest................................................. $ 20,608 $ 28,866 $ 21,733
Income taxes............................................. $ 26,092 $ 25,285 $ 14,175
</TABLE>
See accompanying notes.
F-104
<PAGE> 345
LIN TELEVISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
On December 28, 1994, the Company became an independent public company when
its common stock was distributed to LIN Broadcasting Corp. ("LIN Broadcasting")
shareholders on a tax-free basis (the "Spin-Off"). The Company's common stock
was distributed to the LIN Broadcasting shareholders on the basis of one share
of the Company's common stock for every two shares of LIN Broadcasting common
stock held of record as of December 9, 1994.
The Company operates twelve television stations (including KXAS-TV) and
provides consulting services to two additional television stations. (See Note
8). Thirteen of these stations are network affiliates and ten are in the forty
largest domestic television markets. The twelve television stations operated by
the Company include four stations to which the Company provides programming and
marketing services pursuant to local marketing agreements. See Note 14. The
Company serves additional programming outlets through operation of low-power
television stations and satellite broadcasting facilities. The Company, with its
predecessors, has been engaged in commercial television broadcasting since 1966.
Stations in larger markets traditionally command higher revenues than
stations in smaller markets due to a larger audience. Station KXAS-TV, in the
Dallas-Fort Worth market, has generated a substantial portion of the Company's
net revenues. Approximately 33%, 34% and 36% of the Company's 1997, 1996 and
1995 net revenues, respectively, were attributable to KXAS-TV. A significant
downturn in the economy of that station's market could substantially affect the
operating results of the Company. The Company is also dependent on
automotive-related advertising. Approximately 24% of the Company's gross
advertising revenues for the years ended December 31, 1997, 1996 and 1995
consisted of automotive advertising. A significant decrease in such advertising
could materially effect the Company's operating results.
The Company currently owns the following network-affiliated television
broadcasting stations:
<TABLE>
<CAPTION>
STATION AND LOCATION CHANNEL NETWORK AFFILIATION
-------------------- ------- -------------------
<S> <C> <C>
KXAS-TV, Fort Worth-Dallas, TX.......................... 5(VHF) NBC
WISH-TV, Indianapolis, IN............................... 8(VHF) CBS
WTNH-TV, New Haven-Hartford, CT......................... 8(VHF) ABC
WIVB-TV, Buffalo, NY.................................... 4(VHF) CBS
WAVY-TV, Portsmouth-Norfolk, VA......................... 10(VHF) NBC
KXAN-TV, Austin, TX..................................... 36(UHF) NBC
WAND-TV, Decatur, IL.................................... 17(UHF) ABC
WANE-TV, Fort Wayne, IN................................. 15(UHF) CBS
</TABLE>
The Company also provides programming and marketing services to the
following stations pursuant to local marketing agreements ("LMAs"):
<TABLE>
<CAPTION>
STATION AND LOCATION CHANNEL NETWORK AFFILIATION
-------------------- ------- -------------------
<S> <C> <C>
KXTX-TV, Fort Worth-Dallas, TX.......................... 39(UHF) Ind.
WBNE-TV, New Haven-Hartford, CT......................... 59(UHF) WB
WVBT-TV, Portsmouth-Norfolk, VA......................... 43(UHF) WB/Fox
KNVA-TV, Austin, TX..................................... 54(UHF) WB
</TABLE>
2. SUBSEQUENT EVENT
The Company and two newly formed affiliates of Hicks, Muse, Tate & Furst
Incorporated ("Hicks Muse"), the predecessors-in-interest of LIN Holdings Corp.
("Holdings") and LIN Acquisition Company ("LIN Acquisition"), entered into an
Agreement and Plan of Merger on August 12, 1997 (as amended, the
F-105
<PAGE> 346
LIN TELEVISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
"Merger Agreement"). On January 7, 1998, the stockholders of the Company adopted
and approved the Merger Agreement.
Pursuant to, and upon the terms and conditions of, the Merger Agreement,
Holdings acquired the Company (the "Acquisition") on March 3, 1998 by merging
LIN Acquisition, its wholly owned subsidiary, with and into the Company (the
"Merger"), with the Company surviving the merger and becoming a direct, wholly
owned subsidiary of Holdings. The total purchase price for the common equity of
the Company was approximately $1.7 billion (subject to the payment of 8.0% per
annum thereon from and including February 15, 1998 up to but excluding March 3,
1998, the date on which the Merger became effective). The Company incurred
additional financing and legal fees in connection with the closing of the
Merger.
The Acquisition was funded by (i) $6.9 million of excess cash on the
Company's balance sheet; (ii) $50.0 million aggregate principal amount of senior
secured Tranche A term loans ("Tranche A Term Loans"); (iii) $120.0 million
aggregate principal amount of senior secured Tranche B term loans ("Tranche B
Term Loans"); (iv) $299.3 million of gross proceeds from the issuance by LIN
Television of $300.0 million aggregate principal amount of unregistered 8 3/8%
senior subordinated notes due 2008 (the "Old Senior Subordinated Notes"); (v)
$199.6 million of gross proceeds from the issuance by Holdings of $325.0 million
aggregate principal amount at maturity of unregistered 10% senior discount notes
due 2008 (the "Old Senior Discount Notes"), which proceeds were contributed by
Holdings to the common equity of the Company; (vi) $815.5 million of proceeds of
the GECC Note (as defined below) and (vii) $558.1 million of common equity
provided by affiliates of Hicks Muse, management and other co-investors to the
equity of the corporate parents of Holdings, which in turn, through Holdings,
contributed such amount to the common equity of the Company (collectively, the
"Financings").
In connection with the Acquisition, Hicks Muse and NBC formed a television
station joint venture (the "Joint Venture"). The Joint Venture consists of
KXAS-TV, formerly the Company's Dallas-Fort Worth NBC affiliate, and KNSD-TV,
formerly NBC's San Diego station. A wholly owned subsidiary of NBC is the
general partner of the Joint Venture (the "NBC General Partner") and NBC
operates the stations owned by the Joint Venture. The NBC General Partner holds
an approximate 80% equity interest and the Company holds an approximate 20%
equity interest in the Joint Venture. General Electric Capital Corporation
("GECC") provided debt financing for the Joint Venture in the form of an $815.5
million 25-year non-amortizing senior secured note bearing an interest rate of
8% per annum for the first fifteen years of its term, and at a rate of 9.0% per
annum thereafter (the "GECC Note") The Company expects that the interest
payments on the GECC Note will be serviced solely by the cash flow of the Joint
Venture.
The GECC Note was issued by LIN Television of Texas, L.P., the Company's
indirect wholly owned partnership ("LIN-Texas"), which distributed the proceeds
to the Company. The obligations to GECC under the GECC Note were assumed by a
limited liability company to finance a portion of the cost of the Acquisition.
The obligations to GECC under the GECC note were assumed by the Joint Venture
and LIN Texas was simultaneously released from all obligations under the GECC
Note. The GECC Note is not an obligation of Holdings, the Company, or any of
their respective subsidiaries and is recourse only to the Joint Venture, the
Company's interest therein and to one of Holdings two corporate parents pursuant
to a guarantee.
In connection with the formation of the Joint Venture, the Company received
an extension of its NBC network affiliation agreements to 2010 and the option
(exercisable through December 31, 1999) to purchase WVTM-TV, the NBC affiliate
in Birmingham, Alabama.
Additionally, on August 12, 1997, the Company entered into an asset
purchase agreement with AT&T Corp. ("AT&T") pursuant to which it will acquire
WOOD-TV, a television station in Grand Rapids, and the LMA rights relating to
station WOTV-TV, for approximately $125.5 million (the "Grand Rapids
Acquisition"). The funding for this acquisition is expected to be provided under
the new credit facility arranged in
F-106
<PAGE> 347
LIN TELEVISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
connection with the Acquisition funding. The Company expects to acquire the
Grand Rapids stations from AT&T in 1998. Management has been providing
consulting services to the Grand Rapids stations under a consulting agreement
with AT&T since 1994.
The summarized unaudited pro forma consolidated results of operations set
forth below for the year ended December 31, 1997, assume the Acquisition and the
Joint Venture had taken place on January 1, 1997. Such results do not give
effect to the Grand Rapids acquisition.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
(IN THOUSANDS)
<S> <C>
Net revenues.......................................... $196,115
Net loss.............................................. $(43,415)
</TABLE>
The pro forma results do not necessarily represent results that would have
occurred if the Acquisition and Joint Venture had taken place on the dates
indicated nor are they necessarily indicative of the results of future
operations.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. All significant
intercompany accounts and transactions have been eliminated.
Use of Estimates
The management of the Company is required, in certain instances, to use
estimates and assumptions that affect the amounts reported in the financial
statements, and the notes thereto, in order to conform with generally accepted
accounting principles. The Company's actual results could differ from these
estimates.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid, short-term investments which
have a maturity of three months or less when purchased. The Company's excess
cash is invested primarily in commercial paper.
Property and Equipment
Property and equipment is recorded at cost and is depreciated by the
straight-line method over the estimated useful lives of the assets. The Company
recorded depreciation expense of $13.2, $12.3 million, and $8.2 million during
1997, 1996, and 1995, respectively.
In 1997, the Company completed the upgrade of several of its analog
transmitter towers and transmitter buildings to digital equipment. In accordance
with Financial Accounting Standards Board (the "FASB") Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, the Company disposed of towers and other broadcast equipment
that could no longer be used with digital technology. The net book loss on this
equipment of approximately $2.7 million is reflected on the Company's
Consolidated Statements of Income as "tower write-off."
F-107
<PAGE> 348
LIN TELEVISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
Broadcast revenue is recognized during the period in which the advertising
is aired. Barter revenue is recognized based on the estimated fair value of the
product or service received.
Advertising Expense
The cost of advertising is expensed as incurred. The Company incurred $5.6
million, $4.8 million, and $4.1 million in advertising costs during 1997, 1996,
and 1995, respectively.
Intangible Assets
Intangible assets represent the excess of the purchase price over the
estimated fair value of identifiable assets acquired in business acquisitions,
and is attributable to FCC licenses, network affiliations, and goodwill.
Intangible assets acquired subsequent to October 31, 1970, the effective date of
Accounting Principles Board Opinion No. 17, are being amortized over 40 years.
Intangible assets of $5.8 million acquired prior to October 31, 1970 are not
being amortized. The carrying value of intangible assets will be evaluated, in
terms of undiscounted cash flows, if the facts and circumstances suggest that
they may be impaired. If this review indicates that intangible assets will not
be recoverable, the Company's carrying value of the intangible assets will be
reduced to their fair value.
Program Rights
Program rights are recorded as assets when the license period begins and
the programs are available for broadcasting. Costs incurred in connection with
the purchase of programs to be broadcast within one year are classified as
current assets, while costs of those programs to be broadcast subsequently are
considered non-current. The program costs are charged to expense over their
estimated broadcast periods using the straight-line method. Program obligations
are classified as current or non-current in accordance with the payment terms of
the license agreement.
Net Income Per Share
Net income per share is based on the average number of shares of common
stock outstanding during each year presented. Net income per share assuming
dilution is based on the average number of shares of common stock outstanding
during each year presented and the dilutive effect of common stock equivalents
of 753,000, 489,000 and 390,000 for the years ended December 31, 1997, 1996 and
1995, respectively.
Reclassification
Certain reclassifications have been made to the prior period financial
statements to conform to the current period financial statement presentation.
Impact of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share (Statement 128), which is required to be adopted on
December 31, 1997. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effect of options, warrants and convertible securities. Dilutive earnings per
share is calculated similarly to the previously recorded fully diluted earnings
per share using the average market price of the weighted-average shares
outstanding. All
F-108
<PAGE> 349
LIN TELEVISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
earnings per share amounts for all periods have been presented and, where
appropriate, restated to conform to the Statement 128 requirements.
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income(Statement 130) effective for years beginning after December 15, 1997.
Statement 130 requires that a public company report items of other comprehensive
income either below the total for net income in the income statement, or in a
statement of changes in equity, and to disclose the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in-capital in the equity section of the balance sheet. The Company does not
expect the adoption of Statement 130 to have a material impact on financial
statement disclosures.
In June 1997, the FASB issued Statement No. 131, Disclosures about Segments
of an Enterprise and Related Information (Statement 131) effective for years
beginning after December 15, 1997. Statement 131 requires that a public company
report financial and descriptive information about its reportable operating
segments pursuant to criteria that differ from current accounting practice.
Operating segments, as defined, are components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision-maker in deciding how to allocate resources and in
assessing performance. The financial information to be reported includes segment
profit or loss, certain revenue and expense items and segment assets and
reconciliations to corresponding amounts in the general-purpose financial
statements. SFAS 131 also requires information about revenues from products or
services, countries where the company has operations or assets and major
customers. The Company does not expect the adoption of Statement 131 to have a
material impact on financial statement disclosures.
4. PROPERTY AND EQUIPMENT
The major classifications of property and equipment for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 10,550 $ 11,533
Buildings................................................... 39,977 34,677
Broadcasting equipment...................................... 129,238 122,807
-------- --------
179,765 169,017
Less accumulated depreciation............................... 72,172 62,576
-------- --------
$107,593 $106,441
======== ========
</TABLE>
5. LONG-TERM DEBT
In August 1996, the Company renegotiated the terms of its existing $305
million bank credit facility (the "Credit Facility") primarily to reduce the
interest attributable to outstanding debt. The Credit Facility, as amended,
permits the Company to borrow up to $600 million of an eight-year, reducing
revolving credit facility. In August 1997, the Company decided to reduce the
available borrowing under the Credit Facility to $305 million. The Company has
indebtedness outstanding of $260 million and funds of $45 million available
under the Credit Facility as of December 31, 1997 (see Note 2 -- "Subsequent
Events" for a discussion of the financing related to the Merger).
The Company incurred financing and legal fees totaling approximately $7.1
million in connection with the Credit Facility in 1994 and an additional $0.8
million in financing and legal fees associated with the amendment to the Credit
Facility in 1996 which are being amortized over the contractual term of the
Credit Facility.
F-109
<PAGE> 350
LIN TELEVISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the renegotiated terms of the Credit Facility, interest is payable at
the higher of the prevailing prime rate or an adjusted Federal Funds Rate, or
LIBOR, plus an applicable margin that varies from 0.4% to 1.0% based upon the
ratio of the Company's consolidated total debt to consolidated operating cash
flow.
The commitment of the Credit Facility will begin to reduce in semi-annual
installments commencing June 30, 1999 such that the annual commitment reduction
will be $15.25 million in 1999, $61.0 million per year in years 2000-2003, and
the remaining $45.75 million in 2004. As of December 31, 1997, the Company would
be required, in 2000, to begin making payments to the extent that the balance
outstanding under the Credit Facility exceeded the reduced commitment available
and continue making semi-annual installments under the revolving facility
through December 31, 2004, at which time the debt will be fully repaid. The
Company is required to apply cash proceeds from certain sales of assets which
are not reinvested in similar assets to the prepayment of loans. The Credit
Facility, as amended, also permits the Company to solicit commitments for an
incremental $300 million, eight-year, reducing revolving credit facility (the
"Incremental Facility"). Aggregate commitments to the Incremental Facility, if
any, will reduce in eight equal semi-annual amounts beginning 2001 and ending
2004. The weighted average interest rate on outstanding borrowings was 6.4%,
6.16% and 6.64% at December 31, 1997, 1996 and 1995, respectively. The Company
is also required to pay quarterly commitment fees ranging from 0.1875% to
0.2500%, based upon the Company's leverage ratio for that particular quarter, on
any unused portion of the Credit Facility. The Company incurred commitment fees
of approximately $343,724, $449,000 and $811,000 for the three years ended
December 31, 1997, 1996, and 1995, respectively. In order to comply with
covenants under the Credit Facility, prior to the renegotiated terms, and to
provide interest rate protection, the Company purchased interest rate caps at a
cost of $346,000 during the year ended December 31, 1995. The interest rate caps
cover notional amounts totaling $190.0 million, are based on three-month LIBOR,
and have strike rates of 9%. Each of these interest rate cap agreements
terminated on December 31, 1997. The costs of the interest rate caps were
capitalized and charged to interest expense over the lives of the caps. During
the past three years, the prevailing market rates have been below the rate caps
in effect. Therefore, the only effect on the Company's interest expense from
such transactions has been the amortization of the cost of these caps of
$124,588, $124,588 and $187,073 during the years ended December 31, 1997, 1996
and 1995, respectively. Under the renegotiated terms of the Credit Facility the
Company is no longer required to purchase interest rate caps.
The Credit Facility contains covenants restricting or limiting certain
activities, including (i) acquisitions and investments, including treasury
stock, (ii) incurrence of debt, (iii) distributions and dividends to
stockholders, (iv) mergers and sales of assets, (v) prepayments and subordinated
indebtedness, and (vi) creations of liens. The Company is required to apply cash
proceeds from certain sales of assets which are not reinvested in similar assets
and excess cash flow to the prepayment of loans. As security under the Credit
Facility, the Company has given a negative pledge on the assets and capital
stock of each of its subsidiaries, which own all of the Company's television
properties. Such subsidiaries are restricted from making certain distributions
or payments to the Company. Under the Credit Facility, the Company must remain
in compliance with a series of financial covenants, which compare the levels of
the Company's indebtedness to its cash flows as of the end of each quarter. As
of December 31, 1997, the Company was in compliance with all covenants.
F-110
<PAGE> 351
LIN TELEVISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate amounts of principal maturities under the Credit Facility
subsequent to December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------------
(IN THOUSANDS)
<S> <C>
1998-1999.............................................. $ --
2000................................................... 31,250
2001................................................... 61,000
2002................................................... 61,000
Thereafter............................................. 106,750
--------
$260,000
========
</TABLE>
6. PRIVATE MARKET VALUE GUARANTEE
AT&T through its wholly-owned subsidiary, AT&T Wireless Services Inc.
("AT&T Wireless"), currently owns approximately 45% of the outstanding common
stock of the Company. AT&T Wireless has agreed, pursuant to a Private Market
Value Guarantee ("PMVG"), to either offer to purchase the remaining shares of
the Company in 1998 for the private market value (as defined) or put the Company
up for sale. If AT&T Wireless does not agree to acquire such remaining shares,
the Company will be sold in its entirety in a manner intended to maximize
shareholder value. There is no assurance that AT&T Wireless will agree to
acquire shares of the Company's Common Stock for private market value. If AT&T
Wireless does not offer to acquire such shares, there is no assurance that the
Company will be sold in its entirety, or, if sold, that the consideration
obtained will be considered favorable to holders of shares of the Company's
Common Stock. The PMVG also provides for the selection of three independent
directors who serve on the Company's Board of Directors.
As previously mentioned, on August 12, 1997, the Company entered into the
Merger Agreement pursuant to which newly formed affiliates of Hicks Muse will
acquire the Company (See Note 2 -- "Subsequent Events"). The total purchase
price for the Company's Common Stock, par value $0.01 per share, will be
approximately $1.7 billion (subject to the payment of 8% per annum thereon from
and including February 15, 1998 up to but excluding the date on which the Merger
becomes effective). In addition the Company will refinance the $260 million of
LIN Television indebtedness outstanding as of December 31, 1997.
7. STOCKHOLDERS' EQUITY
Pursuant to the Company's 1994 Adjustment Stock Incentive Plan,
nonqualified options have been granted to officers and key employees of the
Company and LIN Broadcasting who held options to purchase LIN Broadcasting stock
at the date of the Spin-Off. On December 28, 1994, one option to purchase stock
of the Company was granted for every two LIN Broadcasting options held,
resulting in 701,175 options to purchase common stock of the Company being
granted at exercise prices ranging from $2.74 to $20.02.
The Company and LIN Broadcasting have agreed to divide the income tax
benefits of such stock option exercises between the two companies with such
benefits accruing to the company whose employee exercises an option. A total of
4,701,175 options to purchase common stock are authorized to be granted under
the Company's 1994 Adjustment Stock Incentive Plan, 1994 Amended and Restated
Stock Incentive Plan and the 1994 Non-employee Director Stock Incentive Plan.
Options are generally not exercisable until one year after grant, have vesting
terms of four years or less, and expire ten years from date of grant.
F-111
<PAGE> 352
LIN TELEVISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pursuant to the Company's stock option plans, in the event of a "change in
control" (as defined in the plans) of the Company, vested options at the time of
the change in control may be surrendered by officers of the Company, subject to
Section 16 of the Securities Exchange Act of 1934, as amended, in exchange for a
cash payment per share by the Company equal to the difference between the
exercise price for the option and the greater of the highest amount paid to any
holder of common stock by the acquirer in connection with the resulting change
in control or the highest selling price of the common stock during the 90-day
period prior to the date of surrender of the option. Notwithstanding the
foregoing, if a change in control results in the consolidation or merger of the
Company with AT&T or a successor to AT&T under the PMVG and AT&T or any
successor is the surviving company, or if AT&T becomes the beneficial owner of
80% or more of the Company's stock (other than pursuant to a private market
sale, as defined in the Company's PMVG with AT&T), each outstanding option shall
be converted into an option to purchase AT&T's Class A Common Stock. If a change
in control results from a private market sale, upon a vote by a majority of the
Company's Independent Directors (as defined in the plans), each outstanding
option will be converted into an option to purchase the common stock of the
acquirer. If the Independent Directors do not approve the conversion, the
Company may (but is not required to) cancel each such option in exchange for a
payment per share in cash equal to the excess of the purchase price per share in
the private market sale over the exercise price of such option.
The Company's Employee Stock Purchase Plan (the "ESPP") allows eligible
employees to purchase shares of the Company's common stock, through regular
payroll deductions, at 85% of the closing market price of the stock as of the
last trading day of each month. The ESPP restricts a participant to purchase no
more than $25,000 of stock in any calendar year. A total of 300,000 shares have
been authorized under the ESPP. Common shares of 38,156, 48,280 and 48,823 were
purchased and distributed to employees participating in the plan during 1997,
1996 and 1995, respectively, at prices ranging from $30.65 to $46.22 per share
in 1997, $26.56 to $35.38 per share in 1996 and $21.89 to $31.98 per share in
1995.
The Company has elected to follow Opinion 25 and the related
Interpretations in accounting for these plans. There has been no compensation
expense associated with these fixed-option plans recognized under Opinion 25
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions for grants in 1997, 1996 and 1995: risk-free interest rates of
5.92%, 5.48% and 7.63% for 1997, 1996 and 1995, respectively; volatility factors
of the expected market price of the Company's Common Stock of 0.30; and a
weighted-average expected life of the option of seven years. For purposes of pro
forma disclosures, the estimated fair value of the options is amortized to
expense over the options' vesting period.
Because the rules for pro forma disclosure under Statement 123 expressly
prohibit retroactive recognition of compensation expense, the following
disclosures will not be indicative of future compensation expense until the new
rules are applied to all outstanding non-vested awards. The Company's pro forma
information follows (in thousands except for earnings per share information):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Pro forma net income.......................... $45,532 $43,611 $36,447
Pro forma per share amounts:
Net income.................................. 1.53 1.47 1.24
Net income-assuming dilution................ 1.49 1.45 1.22
</TABLE>
F-112
<PAGE> 353
LIN TELEVISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Company's stock option activity, and related information
for the years ended December 31 follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- -------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
--------- -------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding -- beginning of
year........................... 1,859,798 $26.75 1,621,305 $24.43 1,282,169 $20.23
Granted.......................... 662,400 41.08 581,311 30.44 714,600 28.05
Exercised........................ (120,995) 23.32 (179,604) 18.61 (257,257) 16.37
Canceled or Expired.............. (28,770) 22.28 (163,214) 25.93 (118,207) 21.68
--------- --------- ---------
Outstanding -- end of year....... 2,372,433 31.02 1,859,798 26.75 1,621,305 24.43
========= ========= =========
Exercisable at end of year....... 1,013,187 25.96 722,833 23.44 552,195 19.95
Weighted-average fair value of
options granted during the
year........................... 18.61 13.49 13.85
</TABLE>
Exercise prices for options outstanding as of December 31, 1997 range from
$7.88 to $44.125 with approximately 92% of those options ranging in exercise
price from $26.63 to $44.125. The weighted-average remaining contractual life of
those options is eight years. Exercise prices for options exercised during 1997
ranged from $4.05 to $34.25. As of December 31, 1997, there were 1,681,867
options available for future grants.
8. INCOME TAXES
Deferred taxes are determined based on the estimated future tax effects of
differences between the financial statement and the tax basis of assets and
liabilities given the provisions of enacted tax laws.
The components of the deferred tax liability are as follows at December 31:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Intangible assets........................................... $52,957 $50,353
Property and equipment...................................... 14,389 12,164
Other....................................................... (2,098) 1,694
------- -------
$65,248 $64,211
======= =======
</TABLE>
F-113
<PAGE> 354
LIN TELEVISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense included in the accompanying consolidated statements of
income consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal........................................... $29,325 $22,439 $18,816
State............................................. 1,223 910 139
------- ------- -------
30,548 23,349 18,955
Deferred:
Federal........................................... 210 3,258 2,220
State............................................. (156) (131) 499
------- ------- -------
54 3,127 2,719
------- ------- -------
$30,602 $26,476 $21,674
======= ======= =======
</TABLE>
The following table reconciles the amount that would be provided by
applying the 35% federal statutory rate to income before income tax expense to
the actual income tax expense:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Expense assuming federal statutory rate............. $27,548 $25,528 $20,896
State taxes, net of federal tax benefit............. 846 962 793
Amortization........................................ 1,077 1,077 740
Other............................................... 1,131 (1,091) (755)
------- ------- -------
$30,602 $26,476 $21,674
======= ======= =======
</TABLE>
9. RELATED-PARTY TRANSACTIONS
On December 28, 1994, the Company entered into an agreement with LCH
Communications, Inc. ("LCH") and LIN Michigan Broadcasting Corporation
(collectively the "Companies") to provide certain management and operations
consulting for WOOD-TV and WOTV-TV. The agreement had an initial eighteen month
term and granted the Companies the right to renew the agreement for an
additional twelve months. In accordance with that provision, the Companies
renewed the consulting agreement for an additional twelve months, until June 28,
1997. At that date the Company and the Companies entered into a new consulting
agreement for a period equal to the shorter of (i) from the date of June 28,
1997 until a date which is ninety days after the transfer of control of WOOD-TV
from LCH to an unrelated third party; or (ii) an additional twenty four month
term, from June 28, 1997 to June 28, 1999 at a revised consulting fee of
$360,000 per year. The Company received $304,500 for these services in 1997 and
$250,000 during each of the years ended December 31, 1996 and 1995. In addition,
WOOD-TV participates in the Company's programming joint ventures. Costs are
allocated to WOOD-TV based on relative market size. Programming and service
purchases are directly charged to WOOD-TV and WOTV-TV based on the actual
contract or a relative-market-size allocation.
In addition, on August 12, 1997, the Company entered into an asset purchase
agreement with AT&T pursuant to which it will acquire WOOD-TV, a television
station in Grand Rapids, and its LMA station WOTV-TV, for approximately $125.5
million. The funding for this acquisition is expected to be provided under the
new credit facility arranged in connection with the Acquisition funding. The
Company expects to acquire the Grand Rapids stations from AT&T in 1998.
F-114
<PAGE> 355
LIN TELEVISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. RETIREMENT PLANS
The Retirement Plan is a defined benefit retirement plan covering employees
of the Company who meet eligibility requirements, including length of service
and age. Pension benefits vest on completion of five years of service and are
computed, subject to certain adjustments, by multiplying 1.25% of the employee's
last three years' average annual compensation by the number of years of credited
service. The assets of the pension plan are invested primarily in long-term
fixed income securities, large and small cap U.S. equities, and international
equities. The Company's policy is to fund at least the minimum requirement and
is further based on legal requirements and tax considerations. No funding was
required for the Retirement Plan during 1997 and 1996.
As a result of the WIVB-TV Acquisition, LIN Television Corporation assumed
sponsorship of the Buffalo Broadcasting Company Retirement Plan. On January 1,
1996, the Buffalo Broadcasting Company Retirement Plan was merged into the LIN
Television Retirement Plan.
The Company's net pension expense is based on actuarial valuations of the
Company's employees participating in the Retirement Plan. The components of net
pension expense were as follows for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost of current period........................ $ 963 $ 891 $ 573
Interest cost on projected benefit obligation......... 3,511 3,312 2,887
Actual return on plan assets.......................... (5,883) (5,960) (9,609)
Net amortization of unrecognized net transition assets
and deferral of variance from actual return on
assets.............................................. 2,758 3,253 7,017
------- ------- -------
Net pension expense................................... 1,349 1,496 868
Net pension expense allocated to LIN Broadcasting..... -- -- 16
------- ------- -------
Net pension expense allocated to the Company.......... $ 1,349 $ 1,496 $ 852
======= ======= =======
</TABLE>
F-115
<PAGE> 356
LIN TELEVISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the Retirement Plans' funded status and
amounts recognized in the Company's balance sheet at December 31:
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
FUNDED UNFUNDED FUNDED UNFUNDED
------- -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of accumulated plan
benefits, including vested benefits of
$49,636 and $44,948 in 1997 and 1996,
respectively.............................. $49,843 $ 823 $45,222 $ 651
======= ======= ======= =======
Plan assets at fair value, primarily
publicly traded stocks and bonds.......... $58,015 $ -- $50,631 $ --
Less projected benefit obligation for
service rendered to date.................. 52,440 1,801 47,338 1,167
------- ------- ------- -------
Plan assets in excess of (less than)
projected benefit obligation.............. 5,575 (1,801) 3,293 (1,167)
Unrecognized prior service cost............. 1,123 12 2,435 14
Unrecognized net (gain) loss................ (8,912) 665 (6,641) 330
Unrecognized net transition asset being
recognized over 15 years.................. (1,253) (65) (1,567) (81)
------- ------- ------- -------
Accrued pension cost included in balance
sheet..................................... $(3,467) $(1,189) $(2,480) $ (904)
======= ======= ======= =======
</TABLE>
The assumptions used in accounting for the Retirement Plan are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Weighted average assumed discount rate...................... 7.0% 7.25% 7.0%
Assumed rate of increases in future compensation levels..... 5.0% 5.0% 5.0%
Expected long-term rate of return on plan assets............ 8.0% 8.0% 8.0%
</TABLE>
11. COMMITMENTS
The Company leases land, buildings, vehicles, and equipment under operating
lease agreements that expire at various dates through the year 2007. Commitments
for these non-cancelable operating lease payments subsequent to December 31,
1997 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------------
(IN THOUSANDS)
<S> <C>
1998.................................................... $ 957
1999.................................................... 612
2000.................................................... 353
2001.................................................... 290
2002.................................................... 153
Thereafter.............................................. 294
------
$2,659
======
</TABLE>
Rent expense included in the consolidated statements of income was $1.2
million, $1.2 million and $1.0 million for the years ended December 31, 1997,
1996 and 1995, respectively.
F-116
<PAGE> 357
LIN TELEVISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has also entered into commitments for future syndicated news,
entertainment, and sports programming. Future payments associated with these
commitments subsequent to December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------------
(IN THOUSANDS)
<S> <C>
1998................................................. $13,317
1999................................................. 19,128
2000................................................. 17,070
2001................................................. 3,655
2002................................................. 2,328
Thereafter........................................... --
-------
$55,498
=======
</TABLE>
12. CONTINGENCIES
On September 4, 1997, the Company announced that it had learned of four
lawsuits regarding the Merger. The Company and its directors are defendants in
all of the lawsuits. AT&T is a defendant in three of the lawsuits, and Hicks
Muse is a defendant in one of the lawsuits. Each of the lawsuits was filed by a
shareholder seeking to represent a putative class of all the Company's public
shareholders. Three of the four lawsuits were filed in Delaware Chancery Court,
New Castle County, while the fourth lawsuit was filed in New York Supreme Court,
New York County.
While the allegations of each complaint are not identical, all of the
lawsuits basically assert that the Merger is not in the interests of the
Company's public shareholders. All of the complaints allege breach of fiduciary
duty in approving the Merger. Two of the complaints also allege breach of
fiduciary duty in connection with the proposed sale of the television station
WOOD-TV by AT&T to Hicks Muse and the amendment to a Private Market Value
Guarantee Agreement that was entered into simultaneously with the Merger
Agreement. The complaints seek the preliminary and permanent enjoinment of the
Merger or alternatively seek damages in an undetermined amount.
While the Company intends to vigorously defend against the allegations in
each complaint and believes each lawsuit is without merit, these lawsuits are in
their early stages and the Company is unable to determine the likelihood and
possible impact on the Company's financial condition or results of operations of
unfavorable outcomes.
In addition, the Company currently and from time to time is involved in
litigation incidental to the conduct of its business. In the opinion of the
Company's management, none of such litigation is likely to have a material
adverse effect on the Company's financial condition, results of operations or
cash flows.
13. FINANCIAL INSTRUMENTS
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
unsecured trade accounts receivable.
The Company maintains cash and cash equivalents at various financial
institutions. These financial institutions are located throughout the country.
The Company's cash equivalents consist of investments in the commercial paper of
various companies. The Company performs periodic evaluations of the relative
credit standing of these entities.
F-117
<PAGE> 358
LIN TELEVISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of agencies comprising the Company's accounts
receivable. Trade receivables are generally not collateralized. The Company
performs credit evaluations of its customers' financial condition.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents
The carrying amount of cash and cash equivalents reported in the Company's
Balance Sheet approximates fair value.
Accounts receivable and accounts payable
The carrying amounts reported in the Company's Balance Sheet for accounts
receivable and accounts payable approximates their fair value.
Long-term debt
Interest rates associated with the Company's long-term debt are based on
the prevailing prime rate or LIBOR rates plus an applicable margin. Interest is
fixed for a period ranging from one month to 12 months, depending on
availability of the interest basis selected, except if the Company selects a
prime-based loan, in which case the interest rate will fluctuate during the
period as the prime rate fluctuates. Due to the frequent re-pricing of the
borrowings, the book values of the liabilities at December 31, 1997 approximate
market values.
15. LOCAL MARKETING AGREEMENTS
The Company entered into Local Marketing Agreements ("LMAs") with the
owners of KXTX-TV in Dallas-Fort Worth, Texas in June 1994, KNVA-TV in Austin,
Texas in August 1994, WBNE-TV in New Haven-Hartford, Connecticut in December
1994 and WVBT-TV in Norfolk-Portsmouth, Virginia in December 1994. Under the
LMAs, the Company is required to pay fixed periodic fees and incur programming
and operating costs relating to the LMA stations, but retains all advertising
revenues.
In connection with the KXTX-TV and KNVA-TV LMAs, the Company purchased
4.49% ownership interests in the licensees of the stations and entered into
option and put agreements that would enable or require the Company to purchase
the stations for a fixed amount under certain conditions, including a change by
the FCC in its "duopoly" rules to permit such acquisitions. The aggregate
purchase price for these interests and the purchase options was approximately
$1.6 million. The "duopoly" rules currently prevent the Company from acquiring
its LMA stations, thereby preventing the Company from directly fulfilling its
obligations under put options that such LMAs have with the Company. Should
future legislation amend the current single-market ownership limits, the
Company, at the option of the parties involved in the LMA contracts, could be
required to purchase certain of the LMA stations. Potential commitments for
fulfilling these put options totaled a maximum of $9.1 million at December 31,
1997.
LMA rent expense included in the consolidated statements of income was $1.4
million, $1.5 million and $1.4 million for the years ended December 31, 1997,
1996 and 1995, respectively.
F-118
<PAGE> 359
LIN TELEVISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum rental payments required under all four of these LMAs
(assuming that the put options relating to these LMAs are not exercised) for the
years ending December 31 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------------
(IN THOUSANDS)
<S> <C>
1998................................................. $ 2,096
1999................................................. 2,054
2000................................................. 2,079
2001................................................. 1,533
2002................................................. 1,404
Thereafter........................................... 2,381
-------
$11,547
=======
</TABLE>
16. UNAUDITED QUARTERLY DATA
The first three quarters of 1997, 1996 and 1995 per share amounts have been
restated to comply with Statement 128.
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1997
Net revenues............................ $61,662 $83,305 $71,911 $74,641
Operating income........................ 17,117 30,468 25,129 34,741
Net income.............................. 7,137 15,550 9,935 15,485
Per share amounts:
Net income........................... $ 0.24 $ 0.52 $ 0.34 $ 0.52
Net income-assuming dilution......... $ 0.23 $ 0.51 $ 0.34 $ 0.50
1996
Net revenues............................ $57,539 $75,576 $68,780 $71,472
Operating income........................ 15,990 28,274 22,378 32,518
Net income.............................. 5,952 13,841 9,745 16,923
Per share amounts:
Net income........................... $ 0.20 $ 0.47 $ 0.33 $ 0.57
Net income-assuming dilution......... $ 0.20 $ 0.46 $ 0.32 $ 0.56
1995
Net revenues............................ $48,417 $55,861 $49,066 $63,903
Operating income........................ 14,912 24,601 18,502 27,013
Net income.............................. 5,312 11,157 7,913 13,648
Per share amounts:
Net income........................... $ 0.18 $ 0.38 $ 0.27 $ 0.46
Net income-assuming dilution......... $ 0.18 $ 0.37 $ 0.27 $ 0.46
</TABLE>
F-119
<PAGE> 360
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Capstar Broadcasting Corporation
We have audited the accompanying consolidated balance sheets of Capstar
Broadcasting Corporation and Subsidiaries as of December 31, 1996 and 1997, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Capstar Broadcasting Corporation and Subsidiaries as of December 31, 1996 and
1997, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Austin, Texas
March 26, 1998
F-120
<PAGE> 361
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 9,821 $ 70,059 $ 216,374
Accounts receivable, net of allowance for doubtful
accounts of $1,167, $2,889 and $3,688, respectively..... 17,249 40,350 53,806
Refundable income taxes................................... 1,112 -- --
Prepaid expenses and other current assets................. 600 4,285 5,797
-------- ---------- ----------
Total current assets................................ 28,782 114,694 275,977
Property and equipment, net............................... 29,326 106,717 134,622
Intangibles and other, net................................ 341,076 881,545 1,183,148
Other non-current assets.................................. 3,448 18,500 18,854
-------- ---------- ----------
Total assets........................................ $402,632 $1,121,456 $1,612,601
======== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 3,936 $ 1,388 $ 82,598
Accounts payable.......................................... 5,474 13,641 5,780
Accrued liabilities....................................... 5,546 16,826 31,323
Income taxes payable...................................... -- 2,417 1,033
-------- ---------- ----------
Total current liabilities........................... 14,956 34,272 120,734
Long-term debt, net of current portion.................... 187,234 593,184 377,127
Deferred income taxes..................................... 83,608 160,422 234,413
-------- ---------- ----------
Total liabilities................................... 285,798 787,878 732,274
-------- ---------- ----------
Commitments and contingencies (Note 13)
Redeemable preferred stock of subsidiaries:
Capstar Broadcasting Partners, Inc., $.01 par value,
10,000,000 shares authorized, 1,000,000 and 1,064,667
shares issued and outstanding, respectively, aggregate
liquidation preference of $106,560 and $109,000,
respectively............................................ -- 101,493 104,545
GulfStar Communications, Inc., $.01 par value, 507,500
shares authorized, issued and outstanding, aggregate
liquidation preference of $27,053....................... 23,098 -- --
Stockholders' equity:
CAPSTAR BROADCASTING CORPORATION:
Preferred stock, $.01 par value, 100,000,000 shares
authorized, none issued............................... -- -- --
Common stock, Class A, voting, $.01 par value,
750,000,000 shares authorized, 2,578,839 and 2,542,976
shares issued and outstanding, respectively........... -- 26 25
Common stock, Class B, nonvoting, $.01 par value,
150,000,000 shares authorized, 4,817,990 and 5,376,486
shares issued and outstanding, respectively........... -- 48 54
Common stock, Class C, voting, $.01 par value,
150,000,000 shares authorized, 22,812,347 and
63,037,411 shares issued and outstanding,
respectively.......................................... -- 228 630
Additional paid-in capital.............................. -- 291,324 862,887
Stock subscriptions receivable.......................... -- (4,374) (2,842)
CAPSTAR BROADCASTING PARTNERS, INC.:
Common stock, Class A, voting $.01 par value,
200,000,000 shares authorized; 9,415,500 shares issued
and outstanding in 1996............................... 94 -- --
Common stock, Class B, nonvoting, $.01 par value,
50,000,000 shares authorized, none issued............. -- -- --
Additional paid-in capital.............................. 94,805 -- --
GULFSTAR COMMUNICATIONS, INC.:
Common stock, voting, $.01 par value, 100,000 and
2,000,000 shares authorized, 1,098 shares issued and
outstanding in 1996................................... 1 -- --
Common stock, Class A, nonvoting, $.01 par value, 60,000
and 600,000 shares authorized, 4,903 shares issued and
outstanding in 1996................................... 1 -- --
Common stock, Class B, nonvoting, $.01 par value, 10,000
shares authorized, no shares issued and outstanding... -- -- --
Common stock, Class C, voting, $.01 par value, 100,000
shares authorized, 317 shares issued and outstanding
in 1996............................................... 1 -- --
Additional paid-in capital.............................. 11,869 -- --
Stock subscriptions receivable.......................... (2,090) -- --
Unearned compensation................................... (1,518) -- --
ACCUMULATED DEFICIT....................................... (9,427) (55,167) (84,972)
-------- ---------- ----------
Total stockholders' equity.......................... 93,736 232,085 775,782
-------- ---------- ----------
Total liabilities and stockholders' equity.......... $402,632 $1,121,456 $1,612,601
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-121
<PAGE> 362
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- -----------------------
1995 1996 1997 1997 1998
--------- --------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross broadcast revenue..................... $ 17,322 $ 47,200 $ 189,820 $ 27,180 $ 70,086
Less: agency commissions.................... (1,525) (4,334) (14,375) (2,078) (6,011)
--------- --------- ---------- ---------- ----------
Net broadcast revenue..................... 15,797 42,866 175,445 25,102 64,075
--------- --------- ---------- ---------- ----------
Operating expenses:
Programming, technical and news........... 2,874 9,313 43,073 6,357 15,780
Sales and promotion....................... 4,638 12,808 48,156 6,737 18,009
General and administrative................ 4,225 8,360 30,906 5,210 13,971
Corporate expenses.......................... 513 2,523 14,221 1,942 3,757
LMA fees paid............................... 341 834 2,519 683 1,871
Corporate expenses -- noncash
compensation.............................. -- 6,176 10,575 2,469 15,793
Depreciation and amortization............... 1,134 4,141 26,415 3,725 11,032
--------- --------- ---------- ---------- ----------
Operating income (loss)..................... 2,072 (1,289) (420) (2,021) (16,138)
Other income (expense):
Interest expense.......................... (3,737) (8,907) (47,012) (7,955) (15,897)
Interest income........................... 1,932 34 4,572 128 454
Gain (loss) on sale of broadcasting
property............................... 2,389 -- (908) -- --
Other..................................... (54) (929) (4,729) (65) (134)
--------- --------- ---------- ---------- ----------
Income (loss) before provision (benefit) for
income taxes and extraordinary item....... 2,602 (11,091) (48,497) (9,913) (31,715)
Provision (benefit) for income taxes........ 1,032 (322) (11,720) (2,308) (4,962)
Dividends and accretion on preferred stock
of subsidiary............................. -- -- (6,560) -- (3,052)
--------- --------- ---------- ---------- ----------
Income (loss) before extraordinary item..... 1,570 (10,769) (43,337) (7,605) (29,805)
Extraordinary loss on early extinguishment
of debt, net of tax benefit of $707 and
$1,473, respectively...................... -- (1,188) (2,403) (598) --
--------- --------- ---------- ---------- ----------
Net income (loss)........................... 1,570 (11,957) (45,740) (8,203) (29,805)
Dividends, accretion and redemption of
preferred stocks.......................... (8) (1,350) (7,071) (794) --
--------- --------- ---------- ---------- ----------
Net income (loss) attributable to common
stock..................................... $ 1,562 $ (13,307) $ (52,811) $ (8,997) $ (29,805)
========= ========= ========== ========== ==========
Basic and diluted income (loss) per common
share
Before extraordinary loss................. $ 0.25 $ (1.37) $ (1.98) $ (0.44) $ (0.65)
Extraordinary loss........................ -- (0.13) (0.09) (0.03) --
--------- --------- ---------- ---------- ----------
Net income (loss)................. $ 0.25 $ (1.50) $ (2.07) $ (0.47) $ (0.65)
========= ========= ========== ========== ==========
Weighted average common shares
outstanding............................... 6,286,248 8,880,488 25,455,211 19,288,014 46,130,912
========= ========= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-122
<PAGE> 363
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
GULFSTAR COMMUNICATIONS, INC.
---------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK
------------------ ------------------ ------------------ ------------------
NUMBER OF PAR NUMBER OF PAR NUMBER OF PAR NUMBER OF PAR
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE
--------- ------ --------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GULFSTAR COMMUNICATIONS, INC.:
Balance at January 1, 1995......... 1,000 $ 1 4,000 $ 1 -- $ -- -- $ --
Shares of Class A Common stock
contributed to the company by a
stockholder.................... -- -- (250) -- -- -- -- --
Issuance of voting Common
stock.......................... 15 -- -- -- -- -- -- --
Issuance of Class B Common
stock.......................... -- -- -- -- 608 -- -- --
Accrued interest on Stock
subscriptions receivable....... -- -- -- -- -- -- -- --
Dividends on Redeemable preferred
stock.......................... -- -- -- -- -- -- -- --
Net income....................... -- -- -- -- -- -- -- --
------- ------ ------- ------ ------ ------ ------- ------
Balance at December 31, 1995....... 1,015 1 3,750 1 608 -- -- --
Issuance of Common stock......... 450 -- -- -- -- -- -- --
Issuance of Class A Common
stock.......................... -- -- 162 -- -- -- -- --
Issuance of Class B Common
stock.......................... -- -- -- -- 16 -- -- --
Issuance of Class C Common
stock.......................... -- -- -- -- -- -- 317 1
Conversion of Common stock to
Class A Common stock........... (1,015) -- 1,015 -- -- -- -- --
Conversion of Class A and B
Common stock to Common stock... 648 -- (24) -- (624) -- -- --
Issuance of warrants............. -- -- -- -- -- -- -- --
Accrued interest on Stock
subscriptions receivable....... -- -- -- -- -- -- -- --
Dividends and accretion on
Redeemable preferred stock..... -- -- -- -- -- -- -- --
Unearned compensation-stock
issued for nonrecourse notes... -- -- -- -- -- -- -- --
CAPSTAR BROADCASTING CORPORATION*:
Issuance of common stock......... -- -- -- -- -- -- -- --
Issuance of warrants............. -- -- -- -- -- -- -- --
Net loss......................... -- -- -- -- -- -- -- --
------- ------ ------- ------ ------ ------ ------- ------
Balance at December 31, 1996....... 1,098 1 4,903 1 -- -- 317 1
GULFSTAR COMMUNICATIONS, INC.:
Issuance of Common stock......... 36 -- -- -- -- -- -- --
Conversion of Class A Common
stock to Class C Common
stock.......................... -- -- (3,903) -- -- -- 3,903 --
Conversion of Class C Common
stock to Class A Common
stock.......................... -- -- 1,010 -- -- -- (1,010) --
Dividends and accretion on
Redeemable preferred stock..... -- -- -- -- -- -- -- --
Accrued interest on Stock
subscriptions receivable....... -- -- -- -- -- -- -- --
Payments received on Stock
subscriptions receivable....... -- -- -- -- -- -- -- --
Compensation expense............. -- -- -- -- -- -- -- --
CAPSTAR BROADCASTING CORPORATION*:
Issuances of Common stock........ -- -- -- -- -- -- -- --
Repurchase of common stock....... -- -- -- -- -- -- -- --
Conversion of Class B Common
stock to Class A Common
stock.......................... -- -- -- -- -- -- -- --
Compensation expense............. -- -- -- -- -- -- -- --
Elimination of Capstar
Broadcasting Partners, Inc.
common stock................... -- -- -- -- -- -- -- --
Issuance of Common stock......... -- -- -- -- -- -- -- --
Repurchase of Common stock....... -- -- -- -- -- -- -- --
Issuance of shares in connection
with merger.................... (1,134) (1) (2,010) (1) -- -- (3,210) (1)
Redemption of Redeemable
preferred stock................ -- -- -- -- -- -- -- --
Accrued interest on Stock
subscriptions receivable....... -- -- -- -- -- -- -- --
Payments received on Stock
subscriptions receivable....... -- -- -- -- -- -- -- --
Net loss......................... -- -- -- -- -- -- -- --
------- ------ ------- ------ ------ ------ ------- ------
Balance at December 31, 1997....... -- -- -- -- -- -- -- --
Issuances of Common stock
(unaudited).................... -- -- -- -- -- -- -- --
Conversion of Class C Common
stock to Class A Common stock
(unaudited).................... -- -- -- -- -- -- -- --
Repurchase of Common stock
(unaudited).................... -- -- -- -- -- -- -- --
Compensation expense
(unaudited).................... -- -- -- -- -- -- -- --
Accrued interest on stock
subscriptions receivable
(unaudited).................... -- -- -- -- -- -- -- --
Payments received in stock
subscriptions receivable
(unaudited).................... -- -- -- -- -- -- -- --
Net loss (unaudited)............. -- -- -- -- -- -- -- --
------- ------ ------- ------ ------ ------ ------- ------
Balance at March 31, 1998
(unaudited)...................... -- $ -- -- $ -- -- $ -- -- $ --
======= ====== ======= ====== ====== ====== ======= ======
<CAPTION>
GULFSTAR COMMUNICATIONS, INC.
-----------------------------------------
ADDITIONAL STOCK
PAID-IN SUBSCRIPTIONS UNEARNED
CAPITAL RECEIVABLE COMPENSATION
---------- ------------- ------------
<S> <C> <C> <C>
GULFSTAR COMMUNICATIONS, INC.:
Balance at January 1, 1995......... $ -- $ -- $ --
Shares of Class A Common stock
contributed to the company by a
stockholder.................... -- -- --
Issuance of voting Common
stock.......................... 9 (4) --
Issuance of Class B Common
stock.......................... 331 (304) --
Accrued interest on Stock
subscriptions receivable....... 25 (25) --
Dividends on Redeemable preferred
stock.......................... -- -- --
Net income....................... -- -- --
-------- ------- -------
Balance at December 31, 1995....... 365 (333) --
Issuance of Common stock......... 1,378 (1,390) --
Issuance of Class A Common
stock.......................... 184 -- --
Issuance of Class B Common
stock.......................... 31 -- --
Issuance of Class C Common
stock.......................... 358 (298) --
Conversion of Common stock to
Class A Common stock........... -- -- --
Conversion of Class A and B
Common stock to Common stock... -- -- --
Issuance of warrants............. 3,884 -- --
Accrued interest on Stock
subscriptions receivable....... 69 (69) --
Dividends and accretion on
Redeemable preferred stock..... (1,350) -- --
Unearned compensation-stock
issued for nonrecourse notes... 6,950 -- (1,518)
CAPSTAR BROADCASTING CORPORATION*:
Issuance of common stock......... -- -- --
Issuance of warrants............. -- -- --
Net loss......................... -- -- --
-------- ------- -------
Balance at December 31, 1996....... 11,869 (2,090) (1,518)
GULFSTAR COMMUNICATIONS, INC.:
Issuance of Common stock......... 300 (300) --
Conversion of Class A Common
stock to Class C Common
stock.......................... -- -- --
Conversion of Class C Common
stock to Class A Common
stock.......................... -- -- --
Dividends and accretion on
Redeemable preferred stock..... (1,693) -- --
Accrued interest on Stock
subscriptions receivable....... 131 (131) --
Payments received on Stock
subscriptions receivable....... -- 36 --
Compensation expense............. 7,232 -- 1,518
CAPSTAR BROADCASTING CORPORATION*:
Issuances of Common stock........ -- -- --
Repurchase of common stock....... -- -- --
Conversion of Class B Common
stock to Class A Common
stock.......................... -- -- --
Compensation expense............. -- -- --
Elimination of Capstar
Broadcasting Partners, Inc.
common stock................... -- -- --
Issuance of Common stock......... -- -- --
Repurchase of Common stock....... -- -- --
Issuance of shares in connection
with merger.................... (12,461) 2,485 --
Redemption of Redeemable
preferred stock................ (5,378) -- --
Accrued interest on Stock
subscriptions receivable....... -- -- --
Payments received on Stock
subscriptions receivable....... -- -- --
Net loss......................... -- -- --
-------- ------- -------
Balance at December 31, 1997....... -- -- --
Issuances of Common stock
(unaudited).................... -- -- --
Conversion of Class C Common
stock to Class A Common stock
(unaudited).................... -- -- --
Repurchase of Common stock
(unaudited).................... -- -- --
Compensation expense
(unaudited).................... -- -- --
Accrued interest on stock
subscriptions receivable
(unaudited).................... -- -- --
Payments received in stock
subscriptions receivable
(unaudited).................... -- -- --
Net loss (unaudited)............. -- -- --
-------- ------- -------
Balance at March 31, 1998
(unaudited)...................... $ -- $ -- $ --
======== ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-123
<PAGE> 364
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CAPSTAR BROADCASTING CORPORATION
*(CAPSTAR BROADCASTING PARTNERS, INC. THROUGH JUNE 20, 1997)
---------------------------------------------------------------
CLASS A CLASS B
COMMON STOCK COMMON STOCK
--------------------------- -------------------------
NUMBER OF PAR NUMBER OF PAR
SHARES VALUE SHARES VALUE
------------ ------- ----------- ------
<S> <C> <C> <C> <C>
GULFSTAR COMMUNICATIONS, INC.:
Balance at January 1, 1995.............. -- $ -- -- $ --
Shares of Class A Common stock
contributed to the company by a
stockholder......................... -- -- -- --
Issuance of voting Common stock....... -- -- -- --
Issuance of Class B Common stock...... -- -- -- --
Accrued interest on Stock
subscriptions receivable............ -- -- -- --
Dividends on Redeemable preferred
stock............................... -- -- -- --
Net income............................ -- -- -- --
------------ ------- ----------- ------
Balance at December 31, 1995............ -- -- -- --
Issuance of Common stock.............. -- -- -- --
Issuance of Class A Common stock...... -- -- -- --
Issuance of Class B Common stock...... -- -- -- --
Issuance of Class C Common stock...... -- -- -- --
Conversion of Common stock to Class A
Common stock........................ -- -- -- --
Conversion of Class A and B Common
stock to Common stock............... -- -- -- --
Issuance of warrants.................. -- -- -- --
Accrued interest on Stock
subscriptions receivable............ -- -- -- --
Dividends and accretion on Redeemable
preferred stock..................... -- -- -- --
Unearned compensation-stock issued for
nonrecourse notes................... -- -- -- --
CAPSTAR BROADCASTING CORPORATION*:
Issuance of common stock.............. 9,415,500 94 -- --
Issuance of warrants.................. -- -- -- --
Net loss.............................. -- -- -- --
------------ ------- ----------- ------
Balance at December 31, 1996............ 9,415,500 94 -- --
GULFSTAR COMMUNICATIONS, INC.:
Issuance of Common stock.............. -- -- -- --
Conversion of Class A Common stock to
Class C Common stock................ -- -- -- --
Conversion of Class C Common stock to
Class A Common stock................ -- -- -- --
Dividends and accretion on Redeemable
preferred stock..................... -- -- -- --
Accrued interest on Stock
subscriptions receivable............ -- -- -- --
Payments received on Stock
subscriptions receivable............ -- -- -- --
Compensation expense.................. -- -- -- --
CAPSTAR BROADCASTING CORPORATION*:
Issuances of Common stock............. 3,823,450 38 1,818,181 18
Repurchase of common stock............ (17,500) -- -- --
Conversion of Class B Common stock to
Class A Common stock................ 1,818,182 18 (1,818,181) (18)
Compensation expense.................. -- -- -- --
Elimination of Capstar Broadcasting
Partners, Inc. common stock......... (15,039,632) (150) -- --
Issuance of Common stock.............. 960,148 10 2,655,926 27
Repurchase of Common stock............ (118,795) (1) -- --
Issuance of shares in connection with
merger.............................. 1,737,486 17 2,162,064 21
Redemption of Redeemable preferred
stock............................... -- -- -- --
Accrued interest on Stock
subscriptions receivable............ -- -- -- --
Payments received on Stock
subscriptions receivable............ -- -- -- --
Net loss.............................. -- -- -- --
------------ ------- ----------- ------
Balance at December 31, 1997............ 2,578,839 26 4,817,990 48
Issuances of Common stock
(unaudited)......................... -- -- 558,496 6
Conversion of Class C Common stock to
Class A Common stock (unaudited).... 500 -- -- --
Repurchase of Common stock
(unaudited)......................... (36,363) (1) -- --
Compensation expense (unaudited)...... -- -- -- --
Accrued interest on stock
subscriptions receivable
(unaudited)......................... -- -- -- --
Payments received in stock
subscriptions receivable
(unaudited)......................... -- -- -- --
Net loss (unaudited).................. -- -- -- --
------------ ------- ----------- ------
Balance at March 31, 1998 (unaudited)... 2,542,976 $ 25 5,376,486 $ 54
============ ======= =========== ======
<CAPTION>
CAPSTAR BROADCASTING CORPORATION
*(CAPSTAR BROADCASTING PARTNERS, INC. THROUGH JUNE 20, 1997)
-------------------------------------------------------------------
CLASS C
COMMON STOCK RETAINED
------------------------ ADDITIONAL STOCK EARNINGS
NUMBER OF PAR PAID-IN SUBSCRIPTIONS (ACCUMULATED
SHARES VALUE CAPITAL RECEIVABLE DEFICIT)
----------- ----- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
GULFSTAR COMMUNICATIONS, INC.:
Balance at January 1, 1995.............. -- $ -- $ -- $ -- $ 968
Shares of Class A Common stock
contributed to the company by a
stockholder......................... -- -- -- -- --
Issuance of voting Common stock....... -- -- -- -- --
Issuance of Class B Common stock...... -- -- -- -- --
Accrued interest on Stock
subscriptions receivable............ -- -- -- -- --
Dividends on Redeemable preferred
stock............................... -- -- -- -- (8)
Net income............................ -- -- -- -- 1,570
----------- ----- -------- ------- --------
Balance at December 31, 1995............ -- -- -- -- 2,530
Issuance of Common stock.............. -- -- -- -- --
Issuance of Class A Common stock...... -- -- -- -- --
Issuance of Class B Common stock...... -- -- -- -- --
Issuance of Class C Common stock...... -- -- -- -- --
Conversion of Common stock to Class A
Common stock........................ -- -- -- --
Conversion of Class A and B Common
stock to Common stock............... -- -- -- -- --
Issuance of warrants.................. -- -- -- --
Accrued interest on Stock
subscriptions receivable............ -- -- -- -- --
Dividends and accretion on Redeemable
preferred stock..................... -- -- -- -- --
Unearned compensation-stock issued for
nonrecourse notes................... -- -- -- -- --
CAPSTAR BROADCASTING CORPORATION*:
Issuance of common stock.............. -- -- 94,061 -- --
Issuance of warrants.................. -- -- 744 -- --
Net loss.............................. -- -- -- -- (11,957)
----------- ----- -------- ------- --------
Balance at December 31, 1996............ -- -- 94,805 -- (9,427)
GULFSTAR COMMUNICATIONS, INC.:
Issuance of Common stock.............. -- -- -- -- --
Conversion of Class A Common stock to
Class C Common stock................ -- -- -- -- --
Conversion of Class C Common stock to
Class A Common stock................ -- -- -- -- --
Dividends and accretion on Redeemable
preferred stock..................... -- -- -- -- --
Accrued interest on Stock
subscriptions receivable............ -- -- -- -- --
Payments received on Stock
subscriptions receivable............ -- -- -- -- --
Compensation expense.................. -- -- -- -- --
CAPSTAR BROADCASTING CORPORATION*:
Issuances of Common stock............. -- -- 61,942 (1,596) --
Repurchase of common stock............ -- -- (175) -- --
Conversion of Class B Common stock to
Class A Common stock................ -- -- --
Compensation expense.................. -- -- 1,825 -- --
Elimination of Capstar Broadcasting
Partners, Inc. common stock......... -- -- 150 -- --
Issuance of Common stock.............. 18,187,550 182 89,570 (550) --
Repurchase of Common stock............ -- -- (764) -- --
Issuance of shares in connection with
merger.............................. 4,624,797 46 43,823 (2,485) --
Redemption of Redeemable preferred
stock............................... -- -- -- -- --
Accrued interest on Stock
subscriptions receivable............ -- -- 148 (148) --
Payments received on Stock
subscriptions receivable............ -- -- -- 405 --
Net loss.............................. -- -- -- -- (45,740)
----------- ----- -------- ------- --------
Balance at December 31, 1997............ 22,812,347 228 291,324 (4,374) (55,167)
Issuances of Common stock
(unaudited)......................... 40,225,564 402 556,223 -- --
Conversion of Class C Common stock to
Class A Common stock (unaudited).... (500) -- -- -- --
Repurchase of Common stock
(unaudited)......................... -- -- (483) -- --
Compensation expense (unaudited)...... -- -- 15,793 -- --
Accrued interest on stock
subscriptions receivable
(unaudited)......................... -- -- 30 (30) --
Payments received in stock
subscriptions receivable
(unaudited)......................... -- -- -- 1,562 --
Net loss (unaudited).................. -- -- -- -- (29,805)
----------- ----- -------- ------- --------
Balance at March 31, 1998 (unaudited)... 63,037,411 $ 630 $862,887 $(2,842) $(84,972)
=========== ===== ======== ======= ========
<CAPTION>
TOTAL
STOCKHOLDER'S
EQUITY
-------------
<S> <C>
GULFSTAR COMMUNICATIONS, INC.:
Balance at January 1, 1995.............. $ 970
Shares of Class A Common stock
contributed to the company by a
stockholder......................... --
Issuance of voting Common stock....... 5
Issuance of Class B Common stock...... 27
Accrued interest on Stock
subscriptions receivable............ --
Dividends on Redeemable preferred
stock............................... (8)
Net income............................ 1,570
--------
Balance at December 31, 1995............ 2,564
Issuance of Common stock.............. (12)
Issuance of Class A Common stock...... 184
Issuance of Class B Common stock...... 31
Issuance of Class C Common stock...... 61
Conversion of Common stock to Class A
Common stock........................ --
Conversion of Class A and B Common
stock to Common stock............... --
Issuance of warrants.................. 3,884
Accrued interest on Stock
subscriptions receivable............ --
Dividends and accretion on Redeemable
preferred stock..................... (1,350)
Unearned compensation-stock issued for
nonrecourse notes................... 5,432
CAPSTAR BROADCASTING CORPORATION*:
Issuance of common stock.............. 94,155
Issuance of warrants.................. 744
Net loss.............................. (11,957)
--------
Balance at December 31, 1996............ 93,736
GULFSTAR COMMUNICATIONS, INC.:
Issuance of Common stock.............. --
Conversion of Class A Common stock to
Class C Common stock................ --
Conversion of Class C Common stock to
Class A Common stock................ --
Dividends and accretion on Redeemable
preferred stock..................... (1,693)
Accrued interest on Stock
subscriptions receivable............ --
Payments received on Stock
subscriptions receivable............ 36
Compensation expense.................. 8,750
CAPSTAR BROADCASTING CORPORATION*:
Issuances of Common stock............. 60,402
Repurchase of common stock............ (175)
Conversion of Class B Common stock to
Class A Common stock................ --
Compensation expense.................. 1,825
Elimination of Capstar Broadcasting
Partners, Inc. common stock......... --
Issuance of Common stock.............. 89,239
Repurchase of Common stock............ (765)
Issuance of shares in connection with
merger.............................. 31,443
Redemption of Redeemable preferred
stock............................... (5,378)
Accrued interest on Stock
subscriptions receivable............ --
Payments received on Stock
subscriptions receivable............ 405
Net loss.............................. (45,740)
--------
Balance at December 31, 1997............ 232,085
Issuances of Common stock
(unaudited)......................... 556,631
Conversion of Class C Common stock to
Class A Common stock (unaudited).... --
Repurchase of Common stock
(unaudited)......................... (484)
Compensation expense (unaudited)...... 15,793
Accrued interest on stock
subscriptions receivable
(unaudited)......................... --
Payments received in stock
subscriptions receivable
(unaudited)......................... 1,562
Net loss (unaudited).................. (29,805)
--------
Balance at March 31, 1998 (unaudited)... $775,782
========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-124
<PAGE> 365
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- ---------------------
1995 1996 1997 1997 1998
-------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $ 1,570 $ (11,957) $ (45,740) $ (8,203) $ (29,805)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Loss on early extinguishment of debt........... -- 1,188 2,403 598 --
Depreciation and amortization.................. 1,134 4,141 26,415 3,725 11,032
Noncash interest............................... 323 2,626 24,047 2,866 6,737
Deferred income taxes.......................... -- 547 (12,198) (2,357) (4,961)
Noncash compensation expense................... -- 6,176 10,575 2,469 15,793
Write-off of pending acquisition costs......... -- 105 -- -- --
Provision for uncollectible accounts
receivable................................... 195 661 2,044 223 632
Dividends and accretion on preferred stock of
subsidiary................................... -- -- 6,560 -- 3,052
Non cash interest income....................... -- -- (755) -- --
(Gain) loss on sale of broadcasting property... (2,389) -- 908 -- --
Changes in assets and liabilities, net of
effects of acquisitions:
Accounts receivable.......................... (1,690) (5,331) (12,029) 753 (892)
Prepaid expenses and other current assets.... 159 (1,002) 252 (1,007) (1,124)
Accounts payable and accrued expenses........ 2,021 507 1,800 1,440 (108)
Income taxes payable......................... (64) -- 2,417 -- (1,385)
-------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities.............................. 1,259 (2,339) 6,699 507 (1,029)
-------- --------- --------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of broadcasting property....... 3,650 -- 35,932 -- 52,335
Purchase of property and equipment................ (495) (2,478) (10,020) (1,679) (4,162)
Payments for acquisitions, net of cash acquired... (20,227) (149,612) (505,375) (129,644) (307,391)
Payments for pending acquisitions................. (1,968) (3,342) (6,895) (16,193) (8,138)
Other investing activities, net................... (608) (147) (644) (161) (353)
-------- --------- --------- --------- ---------
Net cash used in investing activities..... (19,648) (155,579) (487,002) (147,677) (267,709)
-------- --------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.......... -- -- 349,496 150,284 --
Proceeds from Credit Facilities................... 36,146 64,647 207,406 22,300 105,600
Repayment of long-term debt and Credit
Facilities..................................... (17,584) (13,210) (200,249) (59,842) (248,256)
Payments of financing related costs............... (897) (2,936) (25,169) (11,022) --
Net proceeds from issuance of common stock........ 31 94,155 145,149 55,618 556,631
Net proceeds from issuance of preferred stock..... -- 20,979 95,071 -- --
Net proceeds from issuance of warrants............ -- 3,884 -- -- --
Payments on subscribed stock...................... -- -- -- -- 1,562
Redemption of preferred stock..................... -- -- (30,223) (811) --
Purchase of common stock.......................... -- -- (940) (175) (484)
-------- --------- --------- --------- ---------
Net cash provided by financing
activities.............................. 17,696 167,519 540,541 156,352 415,053
-------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents....................................... (693) 9,601 60,238 9,182 146,315
Cash and cash equivalents at beginning of period.... 913 220 9,821 9,821 70,059
-------- --------- --------- --------- ---------
Cash and cash equivalents at end of period.......... $ 220 $ 9,821 $ 70,059 $ 19,003 $ 216,374
======== ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-125
<PAGE> 366
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The Company intends to make a public offering of up to 31,000,000 shares of
its Class A Common Stock. In connection with the public offering, it is
contemplated that the stockholders will authorize a one for ten reverse stock
split to be effective prior to the closing of the public offering. Also in
connection with this offering the Company intends to amend its Articles of
Incorporation to be effective prior to the closing of the offering and change
the aggregate number of shares authorized to be issued to 1,150,000,000 shares
consisting of: (i) 750,000,000 shares of Class A Common Stock; (ii) 150,000,000
shares of Class B Common Stock; (iii) 150,000,000 shares of Class C Common
Stock; and (iv) 100,000,000 shares of Preferred Stock. All share information
included in the accompanying consolidated financial statements and notes thereto
has been retroactively adjusted to reflect the reverse stock split and the
change in the number of shares authorized to be issued.
1. ORGANIZATION AND BUSINESS:
Capstar Broadcasting Corporation ("Capstar Broadcasting"), a holding
company controlled by Hicks, Muse, Tate & Furst Equity Fund III, L.P. ("HM Fund
III"), and its direct and indirect wholly owned subsidiaries, (collectively, the
"Company") operate in a single industry segment, which segment encompasses the
ownership and management of radio broadcast stations located primarily in
mid-sized markets throughout the United States. At December 31, 1997, the
Company owned and operated, provided programming to or sold advertising on
behalf of 124 FM stations and 59 AM stations.
In June 1997, Capstar Broadcasting was formed and exchanged all of its
shares of common stock for all of the outstanding common stock of Capstar
Broadcasting Partners, Inc. ("Capstar Partners"). The transaction resulted in
the formation of a new holding company and resulted in no change in ownership
and was accounted for as a reorganization at historical cost. After this
transaction was completed Capstar Broadcasting owned 100% of Capstar Partners
and its subsidiary Capstar Radio Broadcasting Partners, Inc. ("Capstar Radio").
On October 16, 1996, Capstar Partners acquired Capstar Radio and its wholly
owned subsidiaries pursuant to a merger agreement dated June 21, 1996. The
acquisition of Capstar Radio has been accounted for under the purchase method of
accounting and has been included in the consolidated financial statements since
the date of its acquisition on October 16, 1996.
In July 1997, the Company acquired GulfStar Communications, Inc. ("Former
GulfStar"), a company controlled by the general partner of HM Fund III. Pursuant
to the Merger Agreement, each share of Former GulfStar's common stock was
converted into shares of the Company subject to a conversion ratio calculated
based upon the relative value of the Company and Former GulfStar, principally
determined by utilizing projected broadcast which flows for the year ended
December 31, 1998. As a result of the merger, GulfStar became a wholly owned
subsidiary. Due to the fact that the Company and Former GulfStar were under
common control at the time of the merger, the transfer of the assets and
liabilities of Former GulfStar has been accounted for at historical cost in a
manner similar to a pooling-of-interests except that the acquisition by the
Company of the minority interest of Former GulfStar has been accounted for by
the purchase method. For financial accounting purposes the merger with Former
GulfStar resulted in a change in reporting entity and the restatement of the
financial statements for all periods prior to July 1997, to give retroactive
effect to the merger and present the combined consolidated results of operations
of the Company and its direct and indirect wholly owned subsidiaries and Former
GulfStar for the periods the entities were under common control.
F-126
<PAGE> 367
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Separate results of operations of the combined entities to the date of the
merger are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
----------------------- ENDED JUNE 30,
1995 1996 1997
--------- ---------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Net broadcast revenue:
Capstar Broadcasting........................... $ -- $ 10,303 $ 41,862
GulfStar....................................... 15,797 32,563 23,294
------- -------- --------
$15,797 $ 42,866 $ 65,156
======= ======== ========
Extraordinary item:
Capstar Broadcasting........................... $ -- $ -- $ 851
GulfStar....................................... -- 1,188 --
------- -------- --------
$ -- $ 1,188 $ 851
======= ======== ========
Net income (loss):
Capstar Broadcasting........................... $ -- $ (3,757) $(12,503)
GulfStar....................................... 1,570 (8,200) (8,842)
------- -------- --------
$ 1,570 $(11,957) $(21,345)
======= ======== ========
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its direct and indirect wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The Capstar Radio Notes are guaranteed by every direct and indirect
subsidiary of Capstar Radio. There are no non-guarantor subsidiaries. The
guarantees by the guarantor subsidiaries are full, unconditional, and joint and
several. All of the guarantor subsidiaries are wholly-owned. The Company is a
holding company with no assets, liabilities or operations other than its
investment in its subsidiaries. Separate financial statements of each guarantor
have not been included as management has determined that they are not material
to investors.
Interim Financial Information
The consolidated financial statements and following notes, insofar as they
are applicable to the three-month periods ended March 31, 1998 and 1997 and
transactions subsequent to March 26, 1998, the date of the Report of Independent
Accountants, are not covered by the Report of Independent Accountants. In the
opinion of management, all adjustments necessary for a fair presentation of the
unaudited consolidated financial position as of March 31, 1998, and the results
of operations and cash flows for the three-month periods ended March 31, 1998
and 1997, have been included.
The results of operations for the three months ended March 31, 1998 are not
necessarily indicative of the results to be expected for the entire year.
Cash Equivalents
For purposes of the accompanying consolidated statement of cash flows, the
Company considers highly liquid investments with original maturities of three
months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Equipment under capital lease obligations is recorded at the
lower of cost or fair market value at the inception of the lease. The costs of
assets retired or otherwise disposed of and the related accumulated depreciation
and amortization
F-127
<PAGE> 368
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
balances are removed from the accounts and any resulting gain or loss is
included in income. Leasehold improvements are amortized over the shorter of
their useful lives or the terms of the related leases. Amortization of assets
recorded under capital leases is included in depreciation expense.
Intangible Assets
FCC licenses and goodwill represent the excess of cost over the fair values
of the identifiable tangible and other intangible net assets acquired. Other
intangible assets comprise costs incurred for pending acquisitions, noncompete
agreements, organization costs incurred in the incorporation of the Company,
deferred financing costs and costs related to favorable tower and facility
leases. Pending acquisition costs are deferred and capitalized as part of
completed acquisitions or expensed in the period in which the pending
acquisition is terminated. Approximately $897, $2,936 and $25,169 of new
financing costs were incurred for the years ended December 31, 1995, 1996 and
1997, respectively. Deferred financing costs are amortized under the interest
method over the life of the related debt. Accumulated amortization related to
deferred financing costs at December 31, 1996 and 1997 was approximately $13 and
$1,209, respectively.
The Company periodically evaluates intangible and other long-lived assets
for potential impairment in accordance with the provisions of APB Opinion 17
"Intangible Assets" and SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" by analyzing the
operating results, future cash flows on an undiscounted basis, trends and
prospects of the Company's stations, as well as by comparing them to their
competitors. The Company also takes into consideration recent acquisition
patterns within the broadcast industry, the impact of recently enacted or
potential FCC rules and regulations and any other events or circumstances which
might indicate potential impact. At this time, in the opinion of management, no
impairment has occurred.
Income Taxes
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each period-end based on enacted tax laws and
statutory tax rates applicable to the period in which the differences are
expected to affect taxable earnings. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount more likely than not to be
realized. Income tax expense is the tax payable for the period and the change
during the period in deferred tax assets and liabilities.
Stock Subscriptions Receivable
Stock subscriptions receivable represent promissory notes issued in
connection with the purchase of capital stock. Capital stock issued in
connection with such promissory notes is reported as issued and outstanding and
included in capital stock and additional paid-in capital in the accompanying
consolidated financial statements in the amount of the related promissory note
plus accrued interest. The promissory notes and related accrued interest
receivable are classified as stock subscriptions receivable and included as a
reduction of consolidated stockholder's equity.
Revenue Recognition
Broadcasting operations derive revenue primarily from the sale of program
time and commercial announcements to local, regional and national advertisers.
Revenue is recognized when the programs and commercial announcements are
broadcast.
F-128
<PAGE> 369
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Income (Loss) Per Share
In March 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings Per
Share". SFAS No. 128 supersedes Accounting Principles Board ("APB") Opinion No.
15, "Earnings Per Share", and changes the computation of earnings per share
("EPS") by replacing the "primary" EPS requirements of APB No. 15 with a "basic"
EPS computation based upon weighted average shares outstanding. It also requires
dual representation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997. The
Company has adopted SFAS No. 128 for the year ended December 31, 1997 and is
computing EPS under the provisions of SFAS No. 128 for all periods presented.
Advertising Costs
The Company incurs various marketing and promotional costs to add and
maintain listenership. These are expensed as incurred and totaled approximately
$575, $2,668 and $5,731 for the years ended December 31, 1995, 1996 and 1997,
respectively.
Local Marketing Agreements ("LMA")/Joint Sales Agreements ("JSA")
From time to time, the Company enters into LMAs and JSAs, with respect to
radio stations owned by third parties including radio stations that it intends
to acquire. Terms of the agreements generally require the Company to pay a
monthly fee in exchange for the right to provide station programming and sell
related advertising time in the case of an LMA or sell advertising in the case
of a JSA. The agreements terminate upon the acquisition of the property. It is
the Company's policy to expense the fees as incurred as a component of operating
income (loss). The Company accounts for payments received pursuant to LMAs of
owned stations as net revenue to the extent that the payment received represents
a reimbursement of the Company's ownership costs.
Barter Transactions
The Company barters unsold advertising time for products and services. Such
transactions are recorded at the estimated fair value of the products or
services received. Barter revenue is recorded when commercials are broadcast and
related expenses are recorded when the bartered product or service is used.
Concentration of Credit Risk
It is the Company's policy to place its cash with high credit quality
financial institutions, which, at times, may exceed federally insured limits.
Management believes that credit risk in these deposits is minimal and has not
experienced any losses in such accounts.
The Company's revenue and accounts receivable primarily relates to
advertising of products and services within the radio stations' broadcast areas.
The Company performs ongoing credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers. Credit
losses have been within management's expectations and adequate allowances for
any uncollectible accounts receivables are maintained.
Uncertainties and Use of Estimates and Assumptions
The radio broadcasting industry is subject to federal regulation by the
Federal Communications Commission. These governmental regulations and policies
could change over time and there can be no assurance that such changes would not
have a material impact upon the Company.
F-129
<PAGE> 370
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The Company's pending acquisition, exchange and merger agreements are
subject to various governmental approvals, including the Department of Justice
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the Federal Communications Commission under the Communications Act of 1934, as
amended.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
New Accounting Pronouncements
The Company adopted SFAS No. 130 "Reporting Comprehensive Income" during
the first quarter of 1998. The Company has no items of other comprehensive
income as described in SFAS No. 130. Therefore, net income is equal to
comprehensive income for all periods presented.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which significantly changes
current financial statement disclosure requirements from those that were
required under SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." SFAS No. 132 does
not change the existing measurement or recognition provision of SFAS Nos. 87, 88
or 106.
These pronouncements are effective for financial statements issued for
periods beginning after December 15, 1997. Management does not believe the
implementation of these accounting pronouncements will have a material effect on
its consolidated financial statements.
Reclassifications
Certain amounts in 1995 and 1996 have been reclassified to conform to the
1997 presentation.
3. ACQUISITIONS AND DISPOSITIONS OF BROADCASTING PROPERTIES:
During the years ended December 31, 1995, 1996 and 1997 and the three
months ended March 31, 1998, the Company acquired numerous radio stations and
related broadcasting property and equipment, all of which have been accounted
for under the purchase method of accounting. Accordingly, the purchase price has
been allocated to the assets and liabilities acquired based upon their fair
values at the date of acquisition. The excess of purchase price over the fair
value of net tangible assets acquired is allocated to intangible assets,
primarily FCC licenses. The results of operations associated with the acquired
radio stations have been included in the accompanying consolidated financial
statements from the dates of acquisition. The acquisition activity was funded
primarily through equity infusions by HM Fund III and long-term borrowings.
All consideration paid for the acquisitions scheduled below consisted
solely of cash, notes and the exchange of certain assets except where common
stock or preferred stock was issued as listed. Preferred stock
F-130
<PAGE> 371
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
and common stock were valued at the estimated liquidation value and the
estimated fair value at the date of acquisition, respectively.
<TABLE>
<CAPTION>
STATIONS
ACQUIRED AMOUNT
--------- DATE OF NUMBER OF ASSIGNED
TRANSACTION AM FM ACQUISITION PURCHASE OF COST SHARES ISSUED PER SHARE
----------- --- --- ----------- ----------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1995:
Baton Rouge Broadcasting(c)... 1 1 November Stock $ 8,025 1,500(b) $ 500
Narra-Gansett(c).............. 1 1 November Assets 11,908 -- --
Uno Broadcasting(c)........... -- 1 November Assets 1,586 -- --
--------
$ 21,519
========
1996:
Sonance Communications(c)..... 2 6 April Stock $ 1,065 217(a) $1,130
SBG Communications(c)......... 1 1 July Assets 4,038 -- --
Ranger(c)..................... 1 2 July Assets 6,305 -- --
Tshirhart(c).................. -- 1 July Assets 315 -- --
Eagle of Texas(c)............. -- 1 August Assets 728 -- --
Stansell(c)................... -- 1 August Assets 2,061 16(a) $2,000
Steller(c).................... -- 1 September Assets 1,551 -- --
Steller(c).................... -- 1 September Assets 1,812 -- --
Commodore Media............... 12 18 October Stock 122,016 -- --
Adventure Communications...... 3 4 October Assets 12,600 -- --
KWTX Broadcasting(c).......... 1 1 November Assets 4,172 -- --
Comcorp(c).................... -- 1 December Assets 6,385 -- --
--------
$163,048
========
1997:
Tippie Communications(c)...... -- 1 January Assets $ 2,490 -- --
South Plains
Broadcasting(c)............. 1 1 February Assets 3,166 -- --
J. Thomas Development(c)...... 1 3 February Assets 6,292 -- --
Osborn Communications......... 6 12 February Stock 102,923 163,636(a) $ 11
Noalmark(c)................... -- 2 March Assets 11,471 -- --
Space Coast: EZY/Roper/City... 2 3 April Assets 12,038 -- --
Taylor Communications......... 1 1 April Assets 1,308 -- --
Ft. Smith(c).................. 1 1 May Assets 3,456 -- --
Miller Broadcasting(c)........ -- 2 May Stock 4,967 -- --
Dixie Broadcasting............ 2 1 May Stock 23,442 -- --
Cavalier Communications....... 1 4 July Assets 8,267 -- --
Community Pacific............. 5 6 July Assets 35,907 -- --
Stephens Radio(c)............. -- 1 July Stock 2,647 -- --
McForhun/Livingston........... 1 1 August Assets 7,968 -- --
Benchmark Communications...... 10 20 August Assets 192,128 157,895(a) $13.30
Emerald City Radio Partners... -- 1 August Assets 10,024 -- --
Madison Radio Group........... 2 4 August Assets 41,662 -- --
Booneville Broadcasting....... -- 1 September Assets 1,648 -- --
WRIS, Inc. ................... -- 1 September Assets 3,374 -- --
American General Media........ -- 1 October Assets 3,409 -- --
Griffith Communications....... -- 3 October Assets 5,789 -- --
KLAW Broadcasting............. -- 2 October Assets 2,539 -- --
Ameron Broadcasting........... 1 2 October Assets 32,606 -- --
KJEM-FM....................... -- 1 October Assets 1,986 -- --
COMCO Broadcasting............ 2 4 November Assets 7,160 -- --
--------
528,667
</TABLE>
F-131
<PAGE> 372
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
STATIONS
ACQUIRED AMOUNT
--------- DATE OF NUMBER OF ASSIGNED
TRANSACTION AM FM ACQUISITION PURCHASE OF COST SHARES ISSUED PER SHARE
----------- --- --- ----------- ----------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Acquisition of GulfStar
minority interest........... July Stock 31,695 2,383,093(a) $13.30
--------
$560,362
========
1998 (Unaudited):
Patterson Broadcasting........ 14 25 January Stock $227,186 -- --
Quass Broadcasting............ 1 2 January Stock 16,281 -- --
Knight Radio.................. 3 5 January Assets 66,180 -- --
East Penn Broadcasting........ 1 -- January Assets 2,010 -- --
Commonwealth Broadcasting..... 1 2 February Assets 5,514 -- --
Brantly Broadcast
Associates.................. -- 1 February Assets 1,735 -- --
--------
$318,906
========
</TABLE>
- ---------------
(a) Common Stock
(b) Preferred Stock
(c) Acquired by GulfStar prior to the GulfStar acquisition by the Company
The acquisitions are summarized in the aggregate by period as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- ------------
1995 1996 1997 1998
------- -------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Consideration:
Cash and notes................................ $19,629 $153,050 $493,353 $305,384
Common stock (233 Former GulfStar shares and
2,704,624 shares in 1996 and 1997,
respectively respectively).................. -- 276 35,595 --
Preferred stock (1,500 Former GulfStar
shares)..................................... 750 -- -- --
Acquisition costs............................. 1,140 9,251 31,414 13,522
Exchange of assets............................ -- 471 -- --
------- -------- -------- --------
Total.................................. $21,519 $163,048 $560,362 $318,906
======= ======== ======== ========
Assets acquired and liabilities assumed:
Cash.......................................... $ -- $ 6,120 $ 12,297 $ 631
Accounts receivable........................... 29 9,020 14,657 14,079
Prepaid expenses and other.................... 152 590 2,853 388
Property and equipment........................ 3,353 23,471 76,050 31,082
Intangible assets............................. 21,087 290,243 578,137 354,150
Other assets.................................. -- 704 1,051 --
Accounts payable.............................. -- (5,811) (7,843) (117)
Accrued liabilities........................... (250) (882) (5,242) (2,355)
Long-term debt................................ -- (82,706) (20,711) --
Capital lease obligations..................... (44) (127) (465) --
Deferred income taxes......................... (2,808) (77,574) (90,422) (78,952)
------- -------- -------- --------
Total.................................. $21,519 $163,048 $560,362 $318,906
======= ======== ======== ========
</TABLE>
F-132
<PAGE> 373
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
During the years ended December 31, 1995 and 1997 and the three months
ended March 31, 1998, the Company sold or otherwise disposed of radio stations
and related broadcasting property and equipment as follows:
<TABLE>
<CAPTION>
STATIONS DISPOSED
TRANSACTION AM FM DATE OF DISPOSITION SALE OF SALES PRICE
----------- -------- -------- ------------------- ------- -----------
<S> <C> <C> <C> <C> <C>
1995:
KLTN-FM................. -- 1 June Assets $ 3,650
1997:
Osborn Ft. Myers........ 1 2 April Assets 11,000
Bryan................... 1 1 September Stock 600
Wilmington.............. -- 1 September Assets 40,000
KASH-AM................. 1 -- November Assets 135
1998 (Unaudited):
Allentown............... 1 1 January Assets 29,000
Jackson................. 2 2 February Assets 20,000
Dayton.................. -- 1 February Assets 3,335
</TABLE>
The following unaudited pro forma summary presents the consolidated results
of operations for the years ended December 31, 1996 and 1997 and the three
months ended March 31, 1997 and 1998 as if the acquisitions and dispositions
completed as of December 31, 1997 and March 31, 1998, respectively, had occurred
on January 1, 1996 and 1997. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what would have
occurred had the acquisitions and dispositions been made as of that date or of
results which may occur in the future.
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31,
----------------------- -------------------
1996 1997 1997 1998
---------- ---------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net broadcast revenue....................... $210,809 $221,189 $ 58,038 $ 65,836
Loss before extraordinary loss.............. (55,837) (49,608) (9,117) (30,080)
Net loss.................................... (57,025) (52,011) (9,715) (30,080)
Net loss attributable to common stock....... (58,375) (59,082) (10,509) (30,080)
</TABLE>
Subsequent to March 31, 1998, the Company acquired 2 AM and 5 FM radio
stations and related broadcast equipment through several acquisitions for
aggregate consideration of approximately $32,390. The acquisitions were funded
primarily through equity infusions. The Company previously operated 5 of these
stations under either LMA's or JSA's. Also subsequent to March 31, 1998, the
Company acquired Prophet Systems, Inc., a manufacturer, seller and distributor
of combination hardware-software devices which permit the remote programming of
radio station broadcasts, for aggregate consideration of approximately $15.0
million in cash and 285,714 shares of Class A Common Stock with a deemed value
of $10.0 million, or $35.00 per share. The Class A Common Stock will be issued
by the Company after the Offering upon the satisfaction of certain conditions
contained in the asset purchase agreement.
In addition to the matter discussed in Note 17, the Company has entered
into numerous agreements to acquire additional radio stations (8 AM and 22 FM)
and related broadcast equipment for aggregate consideration of approximately
$136,205. The Company currently operates 19 of the stations under either LMA's
or JSA's.
F-133
<PAGE> 374
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Subsequent to March 31, 1998, the Company disposed of 2 AM and 4 FM radio
stations and related broadcast equipment through several dispositions for
aggregate consideration of approximately $39,500. The carrying value of net
assets to be sold related to these stations approximated the contract sales
price.
The Company has also entered into agreements for the disposition of 3 AM
and 7 FM stations for aggregate consideration of approximately $57,466. The
carrying value of net assets to be sold related to these stations approximated
the contract sales price.
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DEPRECIABLE DECEMBER 31,
DEPRECIATION LIFE ------------------ MARCH 31,
METHOD (YEARS) 1996 1997 1998
------------- ----------- ------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Buildings and improvements....... Straight-line 5-20 $ 4,991 $ 17,006 $ 29,433
Broadcasting and other
equipment...................... Straight-line 3-20 23,723 85,481 101,929
Equipment under capital lease
obligations.................... Straight-line 3-5 463 1,356 1,349
------- -------- --------
29,177 103,843 132,711
Accumulated depreciation and
amortization................... (3,426) (10,336) (13,623)
------- -------- --------
25,751 93,507 119,088
Land............................. 3,575 13,210 15,534
------- -------- --------
$29,326 $106,717 $134,622
======= ======== ========
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1995, 1996 and 1997 and for the three months ended March 31, 1998 was
approximately $580, $1,535, $8,137 and 3,480, respectively.
5. INTANGIBLES:
Intangibles consists of the following:
<TABLE>
<CAPTION>
AMORTIZABLE DECEMBER 31,
AMORTIZATION LIFE ------------------- MARCH 31,
METHOD (YEARS) 1996 1997 1998
--------------- ----------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
FCC licenses................. Straight-line 40 $336,407 $861,502 $1,163,932
Goodwill..................... Straight-line 40 1,072 2,784 3,855
Noncompete agreements........ Straight-line 1-3 1,422 6,115 11,115
Organization costs........... Straight-line 5 361 3,040 3,040
Deferred financing costs..... Interest Method -- 2,030 21,358 19,832
Other........................ Straight-line 3-5 1,081 6,700 6,700
-------- -------- ----------
342,373 901,499 1,208,474
Less accumulated
amortization............... (3,961) (25,888) (33,464)
-------- -------- ----------
338,412 875,611 1,175,010
Pending acquisition costs.... 2,664 5,934 8,138
-------- -------- ----------
$341,076 $881,545 $1,183,148
======== ======== ==========
</TABLE>
F-134
<PAGE> 375
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Amortization expense of intangible assets for the years ended December 31,
1995, 1996 and 1997 and for the three months ended March 31, 1998 was
approximately $554, $2,606, $18,278 and 7,552, respectively.
6. ACCRUED LIABILITIES:
Accrued liabilities consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1996 1997 1998
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued compensation................................. $ 642 $ 4,252 $ 2,634
Accrued acquisition costs............................ 954 5,284 9,826
Accrued interest..................................... 1,847 960 7,045
Accrued commissions.................................. 873 2,403 2,974
Other................................................ 1,230 3,927 8,844
------ ------- -------
$5,546 $16,826 $31,323
====== ======= =======
</TABLE>
7. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Credit Facility................................... $ -- $141,700 $ --
1997 Capstar Partners Notes, $277,000 principal,
including unamortized discount of $110,009, due
2009............................................ -- 166,991 172,251
1997 Capstar Radio Notes, $200,000 principal,
including unamortized discount of $762, due
2007............................................ -- 199,238 199,250
1995 Capstar Radio Notes, $76,808 principal,
including unamortized discount of $3,008 at
December 31, 1997, due 2003..................... 76,672 79,816 80,964
Former Credit Facility, bearing interest at 3.5%
over LIBOR...................................... 24,700 -- --
Reducing revolver loans, bearing variable interest
(8.7% at December 31, 1996)..................... 53,794 -- --
Former Term Loan Facility......................... 35,000 -- --
Capital lease obligations and other notes payable
at various interest rates....................... 1,004 6,827 7,260
-------- -------- --------
191,170 594,572 459,725
Less current portion.............................. (3,936) (1,388) (82,598)
-------- -------- --------
$187,234 $593,184 $377,127
======== ======== ========
</TABLE>
Credit Facility
Capstar Radio entered into an amended and restated credit agreement with
various banks in August 1997 (the "Credit Facility"). The Credit Facility
consists of a $200 million revolving loan facility (the "Revolving Loans") and
an additional $150 million of multiple advancing term loans (the "Term Loans").
The Credit Facility matures seven years from the initial borrowing date with the
Revolving Loans then outstanding to be repaid in full on such date. Up to $75
million of the Revolving Loan commitment is available to Capstar Radio for the
issuance of letters of credit. Amounts available under the Credit Facility
amounted to $26,065 at December 31, 1997 due to an outstanding balance of $141.7
million and outstanding letters of credit.
F-135
<PAGE> 376
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
At any time on or after August 12, 1998 (the "Effective Date") and prior to
December 31, 1998, Capstar Radio may request one or more of the banks to make
Term Loans under the Credit Facility, up to an aggregate amount equal to $150
million in up to two advances with a minimum of $50 million for each such
advance. The Term Loans are subject to scheduled annual principal repayments,
payable in equal quarterly installments. The Term Loans mature on the seventh
anniversary of the Effective Date of the Credit Facility. Term loans may not be
reborrowed after payment.
The Revolving Loans and the Term Loans bear interest at a rate based, at
the option of Capstar Radio, on (i) a base rate defined as the higher of 1/2 of
1% in excess of the federal reserve reported certificate of deposit rate or the
administrative agent bank's prime lending rate, plus an incremental rate or (ii)
the Eurodollar rate, plus an incremental rate. The weighted-average interest
rates on Revolving Loans outstanding at December 31, 1996 (Former Credit
Facility) and December 31, 1997 were 10.2% and 9.7%, based on prime rates,
respectively. Capstar Radio pays fees ranging from 0.375% to 0.50% per annum on
the aggregate unused portion of the loan commitment based on the leverage ratio
for the most recent quarter end. In addition, Capstar Radio is required to pay
letter of credit fees.
The Credit Facility contains customary restrictive covenants, which, among
other things and with certain exceptions, limit the ability of Capstar Radio to
incur additional indebtedness and liens in connection therewith, enter into
certain transactions with affiliates, pay dividends, consolidate, merge or
effect certain asset sales, issue additional stock, make capital expenditures
and enter new lines of business. The Credit Facility limits Capstar Radio and
its subsidiaries ability to make additional acquisitions in excess of $100
million on an individual basis without the prior consent of a majority of the
banks. Substantially all the assets of Capstar Radio and its subsidiaries are
restricted. Under the Credit Facility, Capstar Radio is also required to satisfy
certain financial covenants, which require Capstar Radio and its subsidiaries to
maintain specified financial ratios and to comply with certain financial tests,
such as maximum leverage ratio, minimum consolidated EBITDA and minimum
consolidated EBITDA to consolidated net cash interest expense.
Capstar Radio has collateralized the Credit Facility by granting a first
priority perfected pledge of Capstar Radio's assets, including, without
limitation, the capital stock of its subsidiaries. Capstar Partners, Capstar
Broadcasting and all of the direct and indirect subsidiaries of Capstar Partners
(other than the Capstar Radio) have guaranteed the Credit Facility and have
collateralized their guarantees by granting a first priority perfected pledge of
substantially all of their assets.
Through March 31, 1998, the Company's principal shareholder contributed
additional equity totaling $550,000. These funds were used, in part, to pay down
the credit facility in full. Amounts available under the credit facility
amounted to $180,955 at March 31, 1998 due to outstanding letters of credit.
Furthermore, the Company is negotiating a new credit facility which is
anticipated to consist of a $550,000 revolving loan, a $600,000 A term loan, a
$250,000 B term loan and an additional $500,000 multiple advancing term loans
subject to future commitment availability from the lenders.
1997 Capstar Partners Notes
On February 20, 1997, Capstar Partners issued $277.0 million in aggregate
principal amount at maturity of its 12 3/4% Senior Discount Notes due 2009. The
1997 Capstar Partners Notes were issued at a substantial discount from their
aggregate principal amount at maturity, generating gross proceeds to Capstar
Partners of approximately $150.3 million. On September 12, 1997, Capstar
Partners exchanged its 12 3/4% Senior Discount Notes due 2009 (the "1997 Capstar
Partners Notes"), which were registered under the Securities Act of 1933, for
all of the outstanding 12 3/4% Senior Discount Notes due 2009 previously issued
on February 20, 1997. The terms of the 1997 Capstar Partners Notes are identical
in all material respects to the discount notes issued on February 20, 1997. The
1997 Capstar Partners Notes are unsecured, senior obligations of Capstar
Partners
F-136
<PAGE> 377
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
and are limited to $277.0 million aggregate principal amount at maturity and
will mature on February 1, 2009. No interest will accrue on the 1997 Capstar
Partners Notes prior to February 1, 2002. Thereafter, interest on the 1997
Capstar Partners Notes will accrue at the rate of 12 3/4% and will be payable in
cash semiannually on February 1 and August 1 commencing on August 1, 2002. The
yield to maturity of the 1997 Capstar Partners Notes is 12 3/4% (computed on a
semi-annual bond equivalent basis), calculated from February 20, 1997.
The 1997 Capstar Partners Notes may be redeemed at any time on or after
February 1, 2002, in whole or in part, at the option of Capstar Partners at
prices ranging from 106.375% at February 1, 2002 and declining to 100% on
February 1, 2007 (expressed as a percentage of the accreted value in the
redemption date), plus in each case accrued and unpaid interest. In addition,
prior to February 1, 2001, Capstar Partners may, at its option, redeem up to 25%
of the principal amount at maturity of the 1997 Capstar Partners Notes at a
redemption price of 112.75% of the accreted value, out of the proceeds of one or
more public equity offering or major asset sales. Upon the occurrence of a
change in control (as defined in the 1997 Capstar Partners Note Indenture), the
holders of the Capstar Partners Notes have the right to require Capstar Partners
to purchase all or a portion of the 1997 Capstar Partners Notes at a purchase
price equal to (i) 101% of the accreted value if the change in control occurs
before February 1, 2002 or (ii) 101% of the principal amount at maturity, plus
accrued and unpaid interest, if the change in control occurs after February 1,
2002. The 1997 Capstar Partners indenture contains limitations on incurrence of
additional indebtedness, issuance of preferred stock of subsidiaries and
restricted payments, as well as other restrictive covenants.
1997 Capstar Radio Notes
On June 17, 1997, Capstar Radio issued $200.0 million in aggregate
principal amount of its 9 1/4% Senior Subordinated Notes due July 1, 2007. On
September 16, 1997, Capstar Radio exchanged its 9 1/4% Senior Subordinated Notes
due 2007 (the "1997 Capstar Radio Notes"), which were registered under the
Securities Act of 1933, for all of the outstanding notes issued on June 17,
1997. The 1997 Capstar Radio Notes are general unsecured obligations of Capstar
Radio and are subordinated to all senior indebtedness of the Capstar Radio. The
1997 Capstar Radio Notes may be redeemed at anytime on or after July 1, 2002, in
whole or in part, at the option of Capstar Radio at prices ranging from 104.625%
at July 1, 2002 and declining to 100% on or after July 1, 2005, plus in each
case accrued and unpaid interest. In addition, prior to July 1, 2001, Capstar
Radio may redeem up to 25% of the original aggregate principal amount of the
1997 Capstar Radio Notes at a redemption price of 109.25% plus accrued and
unpaid interest with net proceeds of one or more public equity offerings or
major asset sales. Upon the occurrence of a change of control (as defined in the
1997 Capstar Radio Notes indenture), the holders of the 1997 Capstar Radio Notes
have the right to require Capstar Radio to purchase all or a portion of the 1997
Capstar Radio Notes at a price equal to 101% plus accrued and unpaid interest.
The 1997 Capstar Radio Notes indenture contains limitations on incurrence of
additional indebtedness, issuance of preferred stock of subsidiaries and
restricted payments, as well as other restrictive covenants.
1995 Capstar Radio Notes
The 1995 Capstar Radio Notes in the aggregate principal amount of $76,808
bear interest at a rate of 7 1/2% per annum through May 1, 1998 and 13 1/4% per
annum through maturity on May 1, 2003, resulting in an effective interest rate
of approximately 12.1% per annum. The 1995 Capstar Radio Notes are general
unsecured obligations of Capstar Radio, subordinated to all senior indebtedness
of Capstar Radio, and are guaranteed on a senior subordinated basis, jointly and
severally, by all of Capstar Radio's subsidiaries. The subsidiary guarantors are
wholly owned subsidiaries of Capstar Radio. Capstar Radio may redeem the 1995
Capstar Radio Notes, in whole or in part, at any time on or after May 1, 1999 at
prices ranging from 107.5% at May 1, 1999 and declining to 100% after May 1,
2002, plus in each case accrued and unpaid interest. In addition, prior to May
1, 1998, the Company may redeem in the aggregate up to one third of the original
principal amount of the 1995 Capstar Radio Notes at a price equal to 108% of the
accreted value, plus accrued
F-137
<PAGE> 378
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
and unpaid interest, out of the proceeds of one or more public equity offerings.
Upon the occurrence of a change in control (as defined in the 1995 Capstar Radio
Notes indenture), the Company will be required to make an offer to purchase the
outstanding 1995 Capstar Radio Notes at a price equal to 101% of their accreted
value, plus accrued and unpaid interest. The 1995 Capstar Radio Notes indenture
contains limitations of additional indebtedness and restricted payments, as well
as other restrictive covenants.
During 1996, Capstar Radio significantly modified the terms of its existing
reducing revolver loans and accelerated the maturity date from March 31, 2003 to
December 31, 1996. In connection with this modification, Capstar Radio
recognized an extraordinary charge in the accompanying consolidated statement of
operations for 1996 relating to the write off of approximately $1,895 ($1,188,
net of income tax benefit) of unamortized deferred financing costs.
On March 26, 1998, Capstar Radio announced an offer to purchase for cash
any and all of its $76,808,000 aggregate principal amount of 13 1/4% Senior
Subordinated Notes due 2003 (the "13 1/4% Notes"). On April 28, 1998, Capstar
Radio purchased all of the outstanding 13 1/4% Notes for an aggregate purchase
price of $90.2 million including a $10.7 million purchase premium and $2.7
million of accrued interest, resulting in an extraordinary loss of approximately
$4.7 million, net of tax, which will be recognized in the second quarter of
1998.
The scheduled maturities of the Company's outstanding long-term debt at
December 31, 1997 for each of the next five years and thereafter are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998.............................................. $ 1,388
1999.............................................. 2,658
2000.............................................. 819
2001.............................................. 400
2002.............................................. 1,215
Thereafter........................................ 588,092
--------
$594,572
========
</TABLE>
8. CAPITAL STOCK:
The rights of holders of the Common Stock are identical in all respects,
except for voting rights. The Class A Common Stock and the Class C Common Stock
vote together as a single class on all matters submitted to a vote of
stockholders, with each share of Class A Common Stock entitled to one vote and
each share of Class C Common Stock entitled to ten votes, except (i) the holders
of Class A Common Stock, voting as a separate class, will be entitled to elect
two Class A Directors, (ii) with respect to any proposed "going private"
transaction with Hicks Muse or any of its affiliates, each share of Class A
Common Stock and Class C Common Stock shall be entitled to one vote, but the
holders of Class A Common Stock and Class C Common Stock shall vote together as
a single class in such "going private" transactions, and (iii) as otherwise
required by law. The Class B Common Stock has no voting rights except as
otherwise required by law. Except as otherwise required by law and except in
connection with the election of the directors of the Company, the vote of the
holders of at least a majority in voting power of the outstanding shares then
entitled to vote shall decide any question brought before a meeting of the
stockholders of the Company. The directors of the Company shall be elected at a
meeting of the stockholders at which a quorum is present by a plurality of the
votes of the shares entitled to vote on the election of directors or a class of
directors.
Dividends. Subject to right of the holders of any class of Preferred Stock,
holders of shares of Common Stock are entitled to receive such dividends as may
be declared by the Board of Directors out of funds legally available for such
purpose. No dividend may be declared or paid in cash or property on any share of
any class
F-138
<PAGE> 379
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
of Common Stock unless simultaneously the same dividend is declared or paid on
each share of the other class of Common Stock; provided that, in the event of
stock dividends, holders of a specific class of Common Stock shall be entitled
to receive only additional share of such class.
Conversion of Class B Common Stock and Class C Common Stock. The shares of
Class B Common Stock and Class C Common Stock are convertible, in whole or in
part, at the option of the holder or holders thereof at any time into a like
number of shares of Class A Common Stock, subject to certain conditions. Upon
the sale or other transfer of any share or shares of Class B Common Stock or
Class C Common Stock to any person (subject to certain exceptions) other than
Hicks Muse and its affiliates, each share so sold or transferred shall
automatically be converted into one share of Class A Common Stock, subject to
certain conditions.
9. REDEEMABLE PREFERRED STOCK:
On June 17, 1997, Capstar Partners issued 1,000,000 shares of its
cumulative (after July 1, 2002) par value $.01 per share 12% Senior Exchangeable
Preferred Stock (the "Preferred Stock Offering"). All of the proceeds from the
Preferred Stock Offering were used to finance the GulfStar Merger. On September
12, 1997, Capstar Partners exchanged its 12% Senior Exchangeable Preferred Stock
(the "Senior Exchangeable Preferred Stock"), which was registered under the
Securities Act, for all of the outstanding 12% Senior Exchangeable Preferred
Stock previously issued on June 17, 1997. Capstar Partners has authorized
10,000,000 shares of the Senior Exchangeable Preferred Stock. Dividends on the
Senior Exchangeable Preferred Stock accumulate from the date of issuance and are
payable semi-annually, commencing January 1, 1998, at a rate per annum of 12% of
the liquidation preference per share. Dividends may be paid, at Capstar
Partners' option, on any dividend payment date occurring on or prior to July 1,
2002 either in cash or in additional shares of the Senior Exchangeable Preferred
Stock. The liquidation preference of the Senior Exchangeable Preferred Stock is
$100.00 per share. The Senior Exchangeable Preferred Stock is redeemable at
Capstar Partners' option, in whole or in part at any time on or after July 1,
2002, at prices ranging from 106% at July 1, 2002 and declining to 100% after
July 1, 2007, plus, without duplication, accumulated and unpaid dividends to the
date of redemption. In addition, subject to certain exceptions, prior to July 1,
2001, Capstar Partners may, at its option, redeem up to 25% of the Senior
Exchangeable Preferred Stock with the net cash proceeds from one or more Public
Equity or Major Asset Sales (both as defined in the Certificate of Designation
governing the Senior Exchangeable Preferred Stock), at the redemption prices set
forth in the Certificate of Designation, plus, without duplication, accumulated
and unpaid dividends to the redemption date. The Senior Exchangeable Preferred
Stock is subject to mandatory redemption in whole on July 1, 2009 at a price
equal to 100% of the liquidation preference thereof, plus all accrued and unpaid
dividends.
The Senior Exchangeable Preferred Stock was recorded at the amount of the
net proceeds of approximately $95 million. The carrying amount is being
accreted, using the interest method, to equal the mandatory redemption amount at
the mandatory redemption date. The dividend due January 1, 1998 was declared and
paid in the form of issuance of 64,667 additional shares of the Senior
Exchangeable Preferred Stock.
Capstar Partners may, at its option, subject to certain conditions, on any
scheduled dividend payment date, exchange the Senior Exchangeable Preferred
Stock, in whole but not in part, for 12% Capstar Exchange Debentures. Holders of
the Senior Exchangeable Preferred Stock will be entitled to receive $1.00
principal amount of 12% Capstar Exchange Debentures for each $1.00 in
liquidation preference of Senior Exchangeable Preferred Stock.
F-139
<PAGE> 380
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The Certificate of Designation provides that, upon the occurrence of a
change of control (as defined in the Capstar Certificate of Designation), each
holder has the right to require Capstar Partners to repurchase all or a portion
of such holder's Senior Exchangeable Preferred Stock in cash at a purchase price
equal to 101% of the liquidation preference thereof, plus, without duplication,
an amount in cash equal to all accumulated and unpaid dividends per share to the
date of repurchase.
In addition, the Certificate of Designation provides that, prior to July 1,
2002, upon the occurrence of a change of control, Capstar Partners has the
option to redeem the Senior Exchangeable Preferred Stock in whole but not in
part (a "Change of Control Redemption") at a redemption price equal to 100% of
the liquidation preference thereof, plus the applicable premium (as defined in
the Certificate of Designation).
The Certificate of Designation contains restrictive provisions that, among
other things, limit the ability of Capstar Partners and its subsidiaries to
incur additional indebtedness, pay dividends or make certain other restricted
payments, or merge or consolidate with or sell all or substantially all of their
assets to any other person.
The Senior Exchangeable Preferred Stock, with respect to dividend rights
and rights on liquidation, winding-up and dissolution, ranks (a) senior to all
classes of common stock of Capstar Partners and to each other series of
preferred stock established after June 17, 1997 (the "Preferred Stock Issuance
Date") by the Board of Directors of Capstar Partners the terms of which
expressly provide that such class or series will rank junior to the Senior
Exchangeable Preferred Stock (the "Junior Stock"), subject to certain
conditions, (b) on a parity with each other class of preferred stock established
after the Preferred Stock Issuance Date by the Board of Directors of Capstar
Partners the terms of which expressly provide that such class or series will
rank on a parity with the Senior Exchangeable Preferred Stock and (c) subject to
certain conditions, junior to each class of Preferred Stock established after
the Preferred Stock Issuance Date by the Board of Directors of Capstar Partners
the terms of which expressly provide that such class will rank senior to the
Senior Exchangeable Preferred Stock.
GulfStar Preferred
In connection with issuance of its 12% redeemable preferred shares, Former
GulfStar granted, to the holders of the preferred shares, warrants for the
purchase of 8,098 shares of Former GulfStar's common stock at a rate of $.01 per
share.
Of the proceeds received from issuance of the preferred shares, $3,884 was
assigned to the warrants and credited to additional paid-in capital in the
accompanying consolidated financial statements. Such value is being accreted to
redeemable preferred stock using the interest method over the period from
issuance to mandatory redemption. These warrants were exercised in 1997 in
connection with the GulfStar merger.
In conjunction with the merger of GulfStar into a direct subsidiary of
Capstar Broadcasting in July 1997, Capstar Radio redeemed all of the outstanding
shares of redeemable preferred stock of GulfStar. The liquidation value as of
the date of redemption was approximately $29 million, which included $2,817 in
accumulated dividends. The redemption resulted in a charge to additional paid-in
capital of $5,378, for the amount that the liquidation value exceeded the
carrying value.
F-140
<PAGE> 381
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
10. NONCASH COMPENSATION EXPENSE:
Warrants
During 1996 and 1997, the Company issued warrants to the Company's Chief
Executive Officer pursuant to the terms of a stockholder's agreement executed on
October 16, 1996 between the Company, the Company's Chief Executive Officer and
Capstar Broadcasting's principal stockholder. Under the terms of the agreement,
upon the sale of additional shares of Capstar Broadcasting common stock to its
principal stockholder, the Company's Chief Executive Officer is entitled to
receive, for no additional consideration, warrants entitling him to purchase
additional shares of Capstar Broadcasting common stock (Class C). The warrants
were issued at an exercise price equal to the fair market value of the
underlying stock at the date of issue, increased at an annual rate of 8% per
year. The warrants expire ten years from the date of issue. Certain of the
warrants can be exercised at any time prior to the expiration date. The
remaining warrants cannot be exercised prior to the date upon which
distributions (cash or marketable securities) have been made to the Company's
principal stockholder equal to an internal rate of return of at least 30% on
each investment (the "Triggering Event"). Following is a summary of the warrants
issued in connection with this agreement.
<TABLE>
<CAPTION>
NUMBER OF SHARES (IN 000'S)
------------------------------
EXERCISE PRICE EXERCISABLE PRINCIPAL
PER SHARE UPON TRIGGERING STOCKHOLDER
DATE ISSUED (EXCLUDING INTEREST) EXERCISABLE EVENT INVESTMENT
----------- -------------------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
October 16, 1996............ $10.00 744,000 186,000 $90,000
February 20, 1997........... 11.00 204,256 51,063 34,800
July 8, 1997................ 13.30 98,797 224,323 75,000
--------- -------
1,047,051 461,386
========= =======
</TABLE>
The Company has accounted for these warrants as variable in accordance with
Accounting Principles Board ("APB") Opinion No. 25 and recognized noncash
compensation expense of approximately $744 and $1,825 in 1996 and 1997,
respectively.
In April 1998, the warrants were amended and restated, such that (i) the
exercise price of the warrants is $14.40, $15.40 and $18.10 for the warrants
issued on October 16, 1996, February 20, 1997 and July 8, 1997, respectively,
and (ii) the warrants which were exercisable upon the triggering event are
exercisable on the earlier to occur of June 30, 2001 or a sale of the Company as
defined in the Amended and Restated Warrant Agreement.
Through March 31, 1998, Capstar Broadcasting's principal stockholders
contributed additional equity totaling approximately $557,000 for which
approximately 560,000 shares of Class B Common Stock and 40.2 million shares of
Class C Common Stock were issued. At this time, Capstar Broadcasting has not
issued additional warrants for this contribution.
Subsequent to March 31, 1998, Capstar Broadcasting's principal stockholders
contributed additional equity totaling $76,702 for which approximately 1.9
million and 3.6 million shares of Class B and Class C Common Stock,
respectively, were issued. In addition, the Company issued 187,969 and 500,000
warrants to the Company's principal stockholder at a fixed exercise price of
$17.10 and $14.00, respectively. The Company also issued 300,000 warrants at
fixed exercise prices of $14.00 to other individuals. The terms of the 187,969
warrants are identical to the portion of the amended and restated warrants
discussed above which are exercisable on the earlier to occur of June 30, 2001
or a sale of the Company. The remaining warrants are only exercisable upon the
occurrence of a certain triggering event. Certain of these warrants have
variable terms and therefore the Company expects to record additional noncash
compensation expense in future periods
F-141
<PAGE> 382
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
based upon the difference between the fair value or the Company's Common Stock
and the exercise price of the Warrants.
Stock Subscriptions
Former GulfStar issued 623 and 713 shares of common stock in 1995 and 1996,
respectively, for prices ranging from approximately $280 to $3,090 per share. In
each case, Former GulfStar received recourse and non-recourse notes for 25% and
75% of the purchase price, respectively.
Former GulfStar applied APB Opinion No. 25 in accounting for the stock
issued for non-recourse notes. The compensation cost charged against income was
approximately $5,432 and $8,750 in 1996 and 1997, respectively. For certain of
the sales to employees during 1996, compensation expense is considered unearned
until Former GulfStar's rights to repurchase the shares expire in accordance
with the terms of underlying securities purchase agreement. Such rights expired
during 1997 upon the merger of Former GulfStar and the Company.
In conjunction with the acquisition of Former GulfStar by the Company in
July 1997, all of Former GulfStar's then outstanding common stock and stock
subscriptions were exchanged for the Company's common stock and stock
subscriptions.
11. STOCK OPTIONS:
In June 1997, the Company adopted the 1997 Stock Option Plan (the "Plan")
providing for the granting of options to purchase shares of the Company's common
stock to the Company's key employees and eligible non-employees, as defined by
the Plan and determined by the Company's Board Directors. The Plan replaced the
prior stock option plan. The Company applies APB Opinion No. 25 and related
interpretations in accounting for the Plan. In 1995, the FASB issued SFAS No.
123 "Accounting for Stock-Based Compensation," which, if adopted by the Company,
would change the methods the Company applies in recognizing the cost of the
Plan. Adoption of the cost recognition provisions of SFAS No. 123 is optional
and the Company has decided not to elect these provisions of SFAS No. 123.
However, pro forma disclosures as if the Company adopted the cost recognition
provisions of SFAS No. 123 in 1995 are required by SFAS No. 123 and are
presented below.
As of December 31, 1997, an aggregate of 2,200,000 shares was approved for
issuance under the Plan. The Company intends to increase the number of shares
approved for issuance under the Plan to 4,700,000 in connection with the public
offering of its Class A Common Stock. The Plan provides for the issuance of both
Incentive Stock Options ("ISOs") as well as options not qualifying as ISOs
within the meaning of the Internal Revenue Code of 1986, as amended. At the time
of the grant, the Company's Board of Directors determines the exercise price and
vesting schedules. Under the terms of the Plan, the option price per share of
ISOs to a person who, at the time such ISO is granted, owns shares of the
Company or any Related Entity, which possess more than 10% of the total combined
voting power of all classes of shares of the Company or of any related entity,
the option exercise price shall not be less than 110% of the fair market value
per share of common stock at the date the option is granted. Options may not be
granted with a term beyond June 2007. Generally, 20% of each option is
exercisable one year after the grant and an additional 1/60th becomes
exercisable each month thereafter.
F-142
<PAGE> 383
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
A summary of the status of option activity under the Plan and related
information follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1996 1997
-------------------- ----------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
-------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year........... -- $ -- 373,743 $10.00
Granted.................................... 373,743 10.00 1,407,384 12.40
Exercised.................................. -- -- -- --
Expired.................................... -- -- 107,225 10.30
-------- ------ ---------- ------
Outstanding at end of year................. 373,743 $10.00 1,673,902 $12.00
======== ==========
Options exercisable at end of year......... -- 92,204
======== ==========
Weighted-average grant-date fair value of
options granted.......................... $ 1.61 $ 3.37
======== ==========
</TABLE>
As required by SFAS No. 123, pro forma information regarding net loss has
been determined as if the Company had accounted for its stock options under the
fair value method. The fair value for these options was estimated as of the date
of grant using a minimum value option pricing model with the following weighted-
average assumptions for 1996 and 1997, respectively; risk free interest rates of
5.84% and 6.16%; no dividend; and weighted-average expected lives of the options
of three and five years.
The minimum value option valuation model with a near zero volatility
results in an option value similar to the option value that would result from
using the Black-Scholes option valuation model with a near zero volatility. The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and which are
fully transferable. In addition, option valuation models, in general, require
the input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different than those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The impact on
the pro forma results which follow may not be representative of compensation
expense in future years when the effect of the amortization of multiple awards
may be reflected in the amounts. Had the Company adopted the cost provision of
SFAS No. 123, net loss for 1996 and 1997 would approximate the pro forma amounts
below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
Net loss:
As reported.................................. $ 11,957 $ 45,740
Pro forma.................................... 12,158 46,972
</TABLE>
F-143
<PAGE> 384
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table summarizes information about options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS
- ----------------------------------------------------------------------------------- EXERCISABLE
WEIGHTED- NUMBER -----------
NUMBER AVERAGE WEIGHTED EXERCISABLE WEIGHTED
RANGE OF OUTSTANDING AT REMAINING AVERAGE AT AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
PRICES 1997 LIFE PRICE 1997 PRICE
-------- -------------- ----------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$ 7.10-$ 7.10........... 46,567(1) 4.2 $ 7.10 -- $ --
10.00- 10.00........... 279,350 8.9 10.00 92,204 10.00
11.00- 11.00........... 443,536 5.1 11.00 -- --
13.30- 13.30........... 904,449 5.7 13.30 -- --
--------- --- ------ ------ ------
1,673,902 6.0 $12.00 92,204 $10.00
========= ======
</TABLE>
- ---------------
(1) These options were assumed by the Company as part of the merger with Former
GulfStar and were accounted for as a portion of the acquisition of minority
interest.
In April 1998, the Company granted 585,340 options at an exercise price of
$17.50. Accordingly, the Company will record compensation expense for the
difference between $17.50 and the initial public offering price.
12. INCOME TAXES:
All of the Company's revenues were generated in the United States. The
components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------ ------- --------
<S> <C> <C> <C>
Current:
Federal............................................. $ 999 $(1,112) $ 162
State............................................... 98 243 316
Deferred:
Federal............................................. (59) 503 (11,168)
State............................................... (6) 44 (1,030)
------ ------- --------
Total provision (benefit)............................. $1,032 $ (322) $(11,720)
====== ======= ========
</TABLE>
Approximately $707 and $1,473 of benefit for income taxes was allocated to
an extraordinary loss on early extinguishment of debt in the accompanying
consolidated statements of operations for the years ended December 31, 1996 and
1997, respectively. For purposes of the foregoing components of provision
(benefit) for income taxes, such intra-period allocation is treated to have
affected the deferred components.
F-144
<PAGE> 385
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Income tax expense (benefit) differs from the amount computed by applying
the federal statutory income tax rate of 35% to income (loss) before income
taxes and extraordinary items for the following reasons:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------ ------- --------
<S> <C> <C> <C>
U.S. federal income tax at statutory rate............. $ 911 $(3,882) $(16,965)
State income taxes, net of federal benefit............ 61 189 (1,478)
Nondeductible compensation expense.................... -- 1,847 3,325
Other items, primarily nondeductible expenses and
deferred tax adjustments............................ 60 1,524 3,398
------ ------- --------
$1,032 $ (322) $(11,720)
====== ======= ========
</TABLE>
The net deferred tax liability consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Property and equipment and intangible asset basis
differences and related depreciation and
amortization........................................... $106,132 $198,025
Deferred tax assets:
Miscellaneous............................................. 1,055 4,307
Unamortized discount on long-term debt.................... 54 8,150
Net operating loss carryforwards.......................... 22,974 32,351
-------- --------
Total deferred tax assets......................... 24,083 44,808
Valuation allowance for deferred tax assets............... (1,559) (7,205)
-------- --------
Net deferred tax asset............................ 22,524 37,603
-------- --------
Net deferred tax liability........................ $ 83,608 $160,422
======== ========
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities and projected future taxable
income in making this assessment. The Company expects the majority of deferred
tax assets at December 31, 1997 to be realized as a result of the reversal
during the carryforward period of existing taxable temporary differences giving
rise to deferred tax liabilities and the generation of taxable income in the
carryforward period.
At December 31, 1997, the Company had net operating loss carryforwards of
approximately $81,500, including approximately $69,500 acquired in connection
with the acquisition of certain subsidiaries. The acquired net operating losses
are SRLY to the acquired subsidiaries that generated the losses. If not
previously utilized, net operating loss carryforwards expire at various dates
from 1999 through 2012. Management considers that it is more likely than not
that a portion of these loss carryforwards will not ultimately be realized, and
has recorded a related valuation allowance as of December 31, 1997.
F-145
<PAGE> 386
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
13. COMMITMENTS AND CONTINGENCIES:
Guarantees of Indebtedness
As of December 31, 1997, the Company had guaranteed the indebtedness of a
limited liability company in the amount of $28,600 and, subsequent to March 31,
1998, the Company guaranteed the indebtedness of another limited liability
company in the amount of $26,000. The Company holds a 30% non voting equity
interest in each of these entities, and may in the future be required to repay
such indebtedness.
Employee Benefit Plan
During 1997, the Company established a 401(k) Plan for the benefit of all
eligible employees. Eligible participants under this plan are defined as all
full-time employees with three months of service. All eligible participants may
elect to contribute a portion of their compensation to the plan subject to
Internal Revenue Service limitations. The Company makes matching contributions
to the plan at a rate of 25%, to an annual maximum of 6% of each participant's
annual salary. Contribution expense under the plan was $300 for the year ended
December 31, 1997.
Leases
The Company leases real property, office space, broadcasting and office
equipment under various noncancelable operating leases. Certain of the Company's
operating leases contain escalation clauses, renewal options and/or purchase
options. Rent expense was approximately $290, $913 and $2,490 for the years
ended December 31, 1995, 1996 and 1997, respectively.
Future minimum payments under noncancelable operating lease are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
1998............................................. $ 3,186
1999............................................. 2,745
2000............................................. 2,276
2001............................................. 1,819
2002............................................. 1,520
Thereafter....................................... 4,544
---------
Total minimum lease payments........... $ 16,090
=========
</TABLE>
Employment Agreements
The Company has employment agreements with its executive officers and
certain members of management, the terms of which expire at various times
through December 2002. Such agreements provide for minimum salary levels, which
may be adjusted from time to time, as well as for incentive bonuses which are
payable if specified management goals are attained. The aggregate commitment for
future salaries at December 31, 1997, excluding bonuses, was approximately
$11,731.
Legal
The Company is subject to various legal proceedings and claims that arise
in the ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to these actions will not have a material
impact on the consolidated financial position or results of operations or cash
flows of the Company.
F-146
<PAGE> 387
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Impact of the Year 2000 Issue
The Year 2000 Issue is whether the Company's computer systems will properly
recognize date sensitive information when the year changes to 2000, or "00."
Systems that do not properly recognize such information could generate erroneous
data or cause a system to fail. The Company uses purchased software programs for
a variety of function, including general ledger, accounts payable and accounts
receivable accounting packages. Responsibility for Year 2000 compliance has been
analyzed and testing is currently ongoing for many of the financial
applications, individual work stations, and broadcasting systems. Preliminary
tests on applications have proven them to be compliant, but further testing is
warranted. The Company believes that the Year 2000 Issue will not pose
significant operational problems for the Company's computer systems and,
therefore, will not have a material impact on the financial position or the
operations of the Company.
Other
The Company is partially self-insured for employee medical insurance risks,
subject to specific retention levels. Self-insurance costs are accrued based
upon the aggregate of the estimated liability for reported claims and estimated
liabilities for claims incurred but not reported. The Company has recorded
approximately $183, $516 and $2,658 for self-insurance costs for the years ended
December 31, 1995, 1996 and 1997, respectively.
14. RELATED PARTY TRANSACTIONS:
Monitoring and Oversight Agreement
The Company has entered into a monitoring and oversight agreement (the
"Monitoring and Oversight Agreement") with Hicks, Muse & Co. Partners, L.P.
("Hicks Muse Partners"). Pursuant thereto, the Company has agreed to pay to
Hicks Muse Partners an annual fee for ongoing financial oversight and monitoring
services. The annual fee is adjustable upward or downward at the end of each
fiscal year to an amount equal to 0.2% of the budgeted consolidated annual net
sales of the Company for the then-current fiscal year; provided, that such fee
shall at no time be less that $100 per year.
The Monitoring and Oversight Agreement makes available on an ongoing basis
the resources of Hicks Muse Partners concerning a variety of financial matters.
The services that have been and will continue to be provided by Hicks Muse
Partners could not otherwise be obtained by the Company without the addition of
personnel or the engagement of outside professional advisors.
Financial Advisory Agreement
The Company is a party to a financial advisory agreement (the "Financial
Advisory Agreement") with Hicks Muse Partners. Pursuant to the Financial
Advisory Agreement, Hicks Muse Partners is entitled to receive a fee equal to
1.5% of the transaction value (as defined in the Financial Advisory Agreement)
for each add-on transaction (as defined) in which the Company or any of its
subsidiaries is involved.
Pursuant to the Financial Advisory Agreement, Hicks Muse Partners provides
investment banking, financial advisory and other similar services with respect
to the add-on transactions in which the Company is involved. Such transactions
require additional attention beyond that required to monitor and advise the
Company on an ongoing basis and accordingly the Company pays separate financial
advisory fees with respect to such matters in addition to those paid in
connection with the Monitoring and Oversight Agreement. The services that have
been and will continue to be provided by Hicks Muse Partners could not have
otherwise been obtained by the Company without the addition of personnel or the
engagement of outside professional advisors. The Company paid or accrued a
financial advisory fee to Hicks Muse Partners in the amount of approximately
$3,475 and $10,947 for the years ended December 31, 1996 and 1997, respectively.
F-147
<PAGE> 388
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Former GulfStar
On April 16, 1996, Former GulfStar acquired all of the outstanding capital
stock of Sonance Communications, Inc. ("Sonance") in exchange for 542 shares of
Former GulfStar's Class C common stock, 1,626 shares of Former GulfStar's Class
A common stock and approximately $619 of cash. Total consideration for the
acquisition, including acquisition costs, was approximately $1,065. The primary
assets of Sonance were broadcasting properties. Liabilities of Sonance assumed
by Former GulfStar in connection with the acquisition were approximately $7,627.
The controlling stockholder of Former GulfStar is a family member of the
controlling stockholder of Sonance. The majority stockholder of Former GulfStar,
who is a family member of both the controlling stockholder of Former GulfStar
and the controlling stockholder of Sonance, was also the majority stockholder of
Sonance.
Former GulfStar recorded a charge of approximately $771 during 1996 in
connection with the write-off of a receivable from an entity owned by a family
member of the controlling stockholder of Former GulfStar. The charge is included
in other expense in the accompanying consolidated statement of operations.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments for which the estimated fair value of the
instrument differs significantly from its carrying amount at December 31, 1996
and 1997. The fair value of a financial instrument is defined as the amount at
which the instrument could be exchanged in a current transaction between willing
parties.
<TABLE>
<CAPTION>
1996 1997
-------------------- ----------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Long-term debt -- 1997 Capstar Partners, and
1997 and 1995 Capstar Radio Notes........... $(76,672) $(76,672) $(446,044) $(494,596)
Interest rate swap............................ -- -- -- (320)
Redeemable preferred stock.................... -- -- (101,493) (116,000)
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
Cash and short-term debt, and accounts receivable and payable: the
carrying amount approximates fair value because of the short maturity of
these instruments.
Long-term debt: The fair value of the Company's 1997 Capstar Partners
and 1997 and 1995 Capstar Radio Notes are based on quoted market prices. As
amounts outstanding under the Company's Credit Facility agreements bear
interest at current market rates, their carrying amounts approximate fair
market value.
Interest rate swaps: The fair value of the interest rate swap is
estimated by obtaining quotations from brokers. The fair value is an
estimate of the amounts that the Company would receive (pay) at the
reporting date if the contracts were transferred to other parties or
canceled by the broker.
Redeemable preferred stock of Former GulfStar: The fair value is
estimated based on quoted market prices.
F-148
<PAGE> 389
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
16. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
------ ------ -------
<S> <C> <C> <C>
Cash paid during the period for:
Interest.................................................. $1,053 $7,558 $22,869
Income taxes.............................................. 200 999 230
Noncash investing and financing activities:
Financed property and equipment purchases................. -- 89 2,537
Book value of assets exchanged in connection with
broadcast property acquisition......................... -- 471 --
Dividends and accretion on preferred stock................ 8 1,350 7,071
Notes receivable and accrued interest taken in connection
with subscribed stock.................................. 333 1,757 2,725
Financed or accrued acquisition costs..................... 542 6,569 7,095
</TABLE>
17. SUBSEQUENT EVENTS:
Pursuant to a merger agreement, dated August 24, 1997, between certain
affiliates of Hicks Muse Partners and SFX Broadcasting, Inc. ("SFX"), Hicks Muse
Partners may acquire SFX for a total cash cost of the merger, related repayment
of SFX's existing indebtedness and redemption of SFX's preferred stock of
approximately $2.1 billion, if completed by May 31, 1998. In January 1998, Hicks
Muse Partners decided that the acquisition would be made through the Company. To
collateralize the obligation under the merger agreement, the Company has placed
into escrow a $100.0 million Letter of Credit. This letter of credit, which was
not issued under the Credit Facility agreement, is in addition to those
discussed in Note 7. Upon consummation of the merger, such letter of credit will
be released to the Company. Upon consummation of the merger, SFX and its
subsidiaries will own and operate or provide services to or have the right to
acquire 85 radio stations (65 FM and 20 AM) in 28 markets. Pursuant to the
Financial Advisory Agreement, the Company will pay Hicks Muse Partners
approximately $32.2 million upon the consummation of the merger.
Concurrently with the SFX merger, the Company will exchange one radio
station in the Houston, Texas market having a deemed value of $143.2 million
with Chancellor Media for three radio stations in the Austin, Texas market and
two radio stations in the Jacksonville, Florida market. In addition, the Company
has committed to sell 10 other radio stations in the Dallas and Houston, Texas;
San Diego, California and Pittsburgh, Pennsylvania markets having an aggregate
deemed market value of $494.3 million, which will be acquired in the merger with
SFX, to Chancellor Media Corporation ("Chancellor Media") during the three-year
period ending February 20, 2001, in exchange for radio stations identified by
the Company and acquired for exchange by Chancellor Media during such period. It
is anticipated that the sales price of the stations will approximate the
carrying value of the radio stations exchanged. After consummation of the
acquisition of SFX, Chancellor Media will provide services to such 10 radio
stations under separate LMAs. Pursuant to the Financial Advisory Agreement, the
Company will pay Hicks Muse Partners approximately $10.4 million in connection
with the sale of the 11 stations to Chancellor Media and the sale of KKPN-FM.
Additionally, as part of the merger with SFX, Chancellor Media will loan up to
$250 million to the Company to be part of the financing used in the consummation
of the merger.
F-149
<PAGE> 390
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 70,059 $ 14,235
Accounts receivable, net of allowance for doubtful
accounts of $2,889 and $8,142 at December 31, 1997 and
September 30, 1998, respectively........................ 40,350 114,313
Prepaid expenses and other current assets................. 4,285 52,107
---------- ----------
Total current assets............................... 114,694 180,655
Property and equipment, net................................. 106,717 227,892
Intangibles and other, net.................................. 881,545 4,229,507
Other non-current assets.................................... 18,500 27,880
---------- ----------
Total assets....................................... $1,121,456 $4,665,934
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 1,388 $ 17,020
Accounts payable.......................................... 13,641 11,517
Accrued liabilities....................................... 16,826 64,346
Income taxes payable...................................... 2,417 63,530
---------- ----------
Total current liabilities.......................... 34,272 156,413
Long-term debt, net of current portion (includes $150,000
due to an affiliate at September 30, 1998)................ 593,184 1,738,065
Deferred income taxes....................................... 160,422 1,154,294
---------- ----------
Total liabilities.................................. 787,878 3,048,772
---------- ----------
Commitments and contingencies
Redeemable preferred stock, aggregate liquidation preference
of $106,560 and $115,460 at December 31, 1997 and
September 30, 1998, respectively.......................... 101,493 110,646
Series E Cumulative Exchangeable Preferred Stock, aggregate
liquidation preference of $129,948........................ -- 144,973
Stockholders' equity:
Preferred stock, $.01 par value, 100,000,000 shares
authorized, none issued................................. -- --
Common stock, Class A, voting, $.01 par value, 750,000,000
shares authorized, 2,578,839 and 33,920,754 shares
issued and outstanding at December 31, 1997 and
September 30, 1998, respectively........................ 26 339
Common stock, Class B, nonvoting, $.01 par value,
150,000,000 shares authorized, 4,817,990 and 6,081,723
shares issued and outstanding at December 31, 1997 and
September 30, 1998, respectively........................ 48 61
Common stock, Class C, voting, $.01 par value, 150,000,000
shares authorized, 22,812,347 and 67,589,121 shares
issued and outstanding at December 31, 1997 and
September 30, 1998, respectively........................ 228 676
Additional paid-in capital................................ 291,324 1,490,589
Stock subscriptions receivable............................ (4,374) (2,720)
Unearned compensation..................................... -- (790)
Accumulated deficit....................................... (55,167) (126,612)
---------- ----------
Total stockholders' equity......................... 232,085 1,361,543
---------- ----------
Total liabilities and stockholders' equity......... $1,121,456 $4,665,934
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-150
<PAGE> 391
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED SEPTEMBER 30,
--------------------------
1997 1998
----------- ------------
<S> <C> <C>
Gross broadcast revenue..................................... $ 54,101 $ 181,220
Less: agency commissions.................................... (2,854) (19,314)
----------- ------------
Net broadcast revenue............................. 51,247 161,906
----------- ------------
Operating expenses:
Programming, technical and news........................... 12,292 27,703
Sales and promotion....................................... 14,723 40,221
General and administrative................................ 7,931 20,715
Corporate expenses.......................................... 4,294 6,181
LMA fees paid............................................... 306 51
Corporate expenses-- noncash compensation................... -- (8,796)
Depreciation and amortization............................... 7,956 31,050
----------- ------------
Operating income............................................ 3,745 44,781
Other (income) expense:
Interest expense (including $4,500 on affiliate debt)..... 12,154 40,720
Interest income........................................... (143) (436)
Loss on investments in limited liability companies........ -- 28,565
Other, net................................................ 7,606 (22)
----------- ------------
Loss before benefit for income taxes and extraordinary
item...................................................... (15,872) (24,046)
Benefit for income taxes.................................... (4,920) (10,002)
Dividends and accretion of preferred stock of
subsidiaries.............................................. 3,438 6,701
----------- ------------
Loss before extraordinary item.............................. (14,390) (20,745)
Extraordinary item, loss on early extinguishment of debt.... 1,442 --
----------- ------------
Net loss.................................................... (15,832) (20,745)
Dividends and accretion on preferred stocks................. 5,379 --
----------- ------------
Net loss attributable to common stock....................... $ (21,211) $ (20,745)
=========== ============
Basic and diluted loss per common share
Before extraordinary loss................................. $ (0.67) $ (0.19)
Extraordinary loss........................................ (0.05) --
----------- ------------
Net loss.......................................... $ (0.72) $ (0.19)
=========== ============
Weighted average common shares outstanding.................. 29,581,072 107,590,949
=========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-151
<PAGE> 392
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Gross broadcast revenue..................................... $ 125,949 $ 375,569
Less: agency commissions.................................... (9,545) (37,666)
---------- ----------
Net broadcast revenue............................. 116,404 337,903
---------- ----------
Operating expenses:
Programming, technical and news........................... 27,889 63,413
Sales and promotion....................................... 32,038 89,206
General and administrative................................ 18,968 51,516
Corporate expenses.......................................... 9,399 13,996
LMA fees paid............................................... 2,437 3,372
Corporate expenses-- noncash compensation................... 10,818 13,673
Depreciation and amortization............................... 17,294 61,451
---------- ----------
Operating income (loss)..................................... (2,439) 41,276
Other (income) expense:
Interest expense (including $6,100 on affiliate debt)..... 29,393 79,164
Interest income........................................... (143) (1,846)
Loss on investments in limited liability companies........ -- 28,565
Other, net................................................ 4,155 (90)
---------- ----------
Loss before benefit for income taxes and extraordinary
item...................................................... (35,844) (64,517)
Benefit for income taxes.................................... (7,758) (15,583)
Dividends and accretion of preferred stock of
subsidiaries.............................................. 3,438 15,206
---------- ----------
Loss before extraordinary item.............................. (31,524) (64,140)
Extraordinary item, loss on early extinguishment of debt.... 2,293 7,305
---------- ----------
Net loss.................................................... (33,817) (71,445)
Dividends and accretion on preferred stocks................. 7,071 --
---------- ----------
Net loss attributable to common stock....................... $ (40,888) $ (71,445)
========== ==========
Basic and diluted loss per common share
Before extraordinary loss................................. $ (1.62) $ (0.79)
Extraordinary loss........................................ (0.10) (0.09)
---------- ----------
Net loss.......................................... $ (1.72) $ (0.88)
========== ==========
Weighted average common shares outstanding.................. 23,825,103 80,965,457
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-152
<PAGE> 393
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-----------------------
1997 1998
--------- -----------
<S> <C> <C>
Net cash (used in) provided by operating activities......... $ (3,928) $ 59,739
--------- -----------
Cash flows from investing activities:
Proceeds on sale of broadcasting property................. 35,932 229,180
Purchase of property and equipment........................ (8,208) (28,005)
Payments for acquisitions, net of cash acquired........... (429,565) (1,642,602)
Payments for pending acquisitions......................... (8,132) (20,442)
Other investing activities, net........................... 151 (5,329)
--------- -----------
Net cash used in investing activities............. (409,822) (1,467,198)
--------- -----------
Cash flows from financing activities:
Proceeds from long-term debt and credit facility.......... 431,316 1,145,200
Repayment of long-term debt and credit facility........... (199,975) (827,952)
Payments of financing related costs....................... (24,992) (8,887)
Proceeds from issuance of common stock.................... 115,737 1,186,671
Payments received on subscribed stock..................... -- 1,801
Proceeds from issuance of preferred stock................. 95,071 --
Redemption of preferred stock............................. (811) (135,207)
Purchase of common stock.................................. (175) (484)
Dividends paid on common stock............................ (765) --
Dividends paid on preferred stock......................... -- (9,507)
--------- -----------
Net cash provided by financing activities......... 415,406 1,351,635
--------- -----------
Net increase (decrease) in cash and cash equivalents........ 1,656 (55,824)
Cash and cash equivalents at beginning of period............ 9,821 70,059
--------- -----------
Cash and cash equivalents at end of period.................. $ 11,477 $ 14,235
========= ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-153
<PAGE> 394
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
COMMON STOCK COMMON STOCK COMMON STOCK
------------------ ------------------ ------------------ ADDITIONAL STOCK
NUMBER PAR NUMBER PAR NUMBER PAR PAID-IN SUBSCRIPTIONS
OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE CAPITAL RECEIVABLE
---------- ----- ---------- ----- ---------- ----- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998......... 2,578,839 $ 26 4,817,990 $ 48 22,812,347 $228 $ 291,324 $(4,374)
Initial public offering, net of
expenses....................... 31,000,000 310 -- -- -- -- 550,998 --
Other issuances of common
stock.......................... 157,997 2 2,463,797 25 43,796,991 438 634,959 --
Repurchase of common stock....... (36,363) (1) -- -- -- -- (483) --
Conversion of Class C common
stock to Class A common
stock.......................... 220,281 2 -- -- (220,281) (2) -- --
Conversion of Class B common
stock to Class C common
stock.......................... -- -- (1,200,064) (12) 1,200,064 12 -- --
Unearned compensation related to
granting of employee stock
options........................ -- -- -- -- -- -- 878 --
Compensation expense............. -- -- -- -- -- -- 12,776 --
Accrued interest on stock
subscriptions receivable....... -- -- -- -- -- -- 137 (137)
Payments received on stock
subscriptions receivable....... -- -- -- -- -- -- -- 1,791
Net loss......................... -- -- -- -- -- -- -- --
---------- ---- ---------- ---- ---------- ---- ---------- -------
Balance at September 30, 1998...... 33,920,754 $339 6,081,723 $ 61 67,589,121 $676 $1,490,589 $(2,720)
========== ==== ========== ==== ========== ==== ========== =======
<CAPTION>
TOTAL
UNEARNED ACCUMULATED STOCKHOLDERS'
COMPENSATION DEFICIT EQUITY
------------ ----------- -------------
<S> <C> <C> <C>
Balance at January 1, 1998......... $ -- $ (55,167) $ 232,085
Initial public offering, net of
expenses....................... -- -- 551,308
Other issuances of common
stock.......................... -- -- 635,424
Repurchase of common stock....... -- -- (484)
Conversion of Class C common
stock to Class A common
stock.......................... -- -- --
Conversion of Class B common
stock to Class C common
stock.......................... -- -- --
Unearned compensation related to
granting of employee stock
options........................ (878) -- --
Compensation expense............. 88 -- 12,864
Accrued interest on stock
subscriptions receivable....... -- -- --
Payments received on stock
subscriptions receivable....... -- -- 1,791
Net loss......................... -- (71,445) (71,445)
----- --------- ----------
Balance at September 30, 1998...... $(790) $(126,612) $1,361,543
===== ========= ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-154
<PAGE> 395
CAPSTAR BROADCASTING CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
Information with respect to the three and nine month periods ended
September 30, 1997 and 1998 is unaudited. The accompanying unaudited
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the unaudited interim consolidated financial
statements contain all adjustments considered necessary for a fair presentation.
Operating results for the three and nine month periods ended September 30, 1998
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1998, or for any other interim period. For further
information, refer to the consolidated financial statements and footnotes
thereto for the year ended December 31, 1997 for the Company included in the
Registration Statement on Form S-1 of Capstar Broadcasting, as amended
(Commission File No. 333-48819).
The consolidated financial statements include the accounts of Capstar
Broadcasting, and its direct and indirect subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Capstar Broadcasting is a holding company with no operations other than its
investment in its subsidiaries.
NOTE 2 -- CHANCELLOR MERGER AGREEMENT
Capstar Broadcasting has entered into an Agreement and Plan of Merger dated
August 26, 1998 (the "Chancellor Merger Agreement"), with Chancellor Media and
CBC Acquisition Company, Inc., a wholly-owned subsidiary of Capstar
Broadcasting, pursuant to which Chancellor Media will be merged (the "Chancellor
Merger") with and into CBC Acquisition Company, Inc. and will become a
wholly-owned subsidiary of Capstar Broadcasting. The Chancellor Merger Agreement
provides, among other things, that upon the consummation of the Chancellor
Merger, Capstar Broadcasting will be renamed "Chancellor Media Corporation" (as
such, the "Parent") and (i) each share of Class A Common Stock and Class C
Common Stock issued and outstanding immediately prior to the effective time of
the Chancellor Merger (the "Effective Time") (other than shares of Class A
Common Stock and Class C Common Stock held as treasury shares) will be
reclassified, changed and converted into 0.4800 of a validly issued, fully paid
and nonassessable share of the common stock, par value $.01 per share ("Parent
Voting Common Stock"), of the Parent, such exchange ratio being subject to
adjustment as described in the Chancellor Merger Agreement, (ii) each share of
Class B Common Stock issued and outstanding immediately prior to the Effective
Time (other than shares of Class B Common Stock held as treasury shares) will be
reclassified, changed and converted into 0.4800 of a validly issued, fully paid
and nonassessable share of nonvoting common stock, par value $.01 per share
("Parent Nonvoting Common Stock"), of the Parent, such exchange ratio being
subject to adjustment as described in the Chancellor Merger Agreement, (iii)
each share of common stock, par value $.01 per share ("Chancellor Common
Stock"), of Chancellor Media issued and outstanding immediately prior to the
Effective Time (other than shares of Chancellor Common Stock held as treasury
shares) will be converted into the right to receive one share of Parent Voting
Common Stock, and (iv) each share of 7% Convertible Preferred Stock, par value
$.01 per share, and $3.00 Convertible Exchangeable Preferred Stock, par value
$.01 per share, in each case of Chancellor Media, will be converted into the
right to receive one share of 7% Convertible Preferred Stock, par value $.01 per
share ("Parent 7% Convertible Preferred Stock"), and $3.00 Convertible
F-155
<PAGE> 396
CAPSTAR BROADCASTING CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Exchangeable Preferred Stock, par value $.01 per share (collectively with the
Parent 7% Convertible Preferred Stock, the "Parent Convertible Preferred
Stock"), in each case of the Parent.
Affiliates of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse") own
approximately 65% of the equity of Capstar Broadcasting on a fully-diluted basis
and, after the Chancellor Merger, will own approximately 26% of the equity of
the Parent on a fully-diluted basis after giving effect to the consummation of
Chancellor Media's pending acquisition of Ranger Equity Holdings Corporation,
the parent company of LIN Television Corporation.
Consummation of the Chancellor Merger is subject to various conditions
fully set forth in the Chancellor Merger Agreement, including, without
limitation, the approval of the Chancellor Merger by a majority of the shares of
Class A Common Stock that are present and entitled to vote on the Chancellor
Merger at a stockholders meeting to be called by Capstar Broadcasting and which
are beneficially owned by a holder other than Thomas O. Hicks, Capstar
Broadcasting's Chairman of the Board, R. Steven Hicks, Capstar Broadcasting's
Chief Executive Officer, or any of their respective affiliates, the expiration
or termination of any applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the receipt of regulatory
approval from the Federal Communications Commission.
Thomas O. Hicks, R. Steven Hicks and Capstar Broadcasting Partners, L.P.,
an affiliate of Hicks Muse (collectively, the "Stockholders"), entered into a
Voting Agreement dated August 26, 1998 (the "Voting Agreement"), with Chancellor
Media, pursuant to which each of the Stockholders has agreed, among other
things, to vote in favor of the Chancellor Merger, the Chancellor Merger
Agreement and any other transactions contemplated by the Chancellor Merger
Agreement.
The foregoing description of the Chancellor Merger Agreement and the Voting
Agreement does not purport to be complete and is qualified in its entirety by
the copies of the Chancellor Merger Agreement and Voting Agreement incorporated
herein by reference as exhibits to this Quarterly Report on Form 10-Q.
On September 9, 1998, Capstar Broadcasting was notified of an action filed
on behalf of all owners of securities of Chancellor Media against Chancellor
Media, Hicks, Muse, Tate & Furst, Inc. ("Hicks, Muse") and the individual
directors of Hicks, Muse in the Court of Chancery of the State of Delaware in
and for New Castle County, Delaware. While the complaint does not name Capstar
Broadcasting as a defendant, the complaint alleges that Chancellor Media and its
directors breached their duties to the alleged class by entering into an "overly
generous offer for Capstar assets." The action is relevant to Capstar
Broadcasting because inter alia, the plaintiff seeks an injunction prohibiting
the proposed Chancellor Merger with Capstar Broadcasting. As Capstar
Broadcasting is not a defendant in this action, Capstar Broadcasting has no
obligation to appear or participate.
NOTE 3 -- RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Restated Information," which establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
This pronouncement is effective for financial statements beginning after
December 15, 1997.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which significantly changes
current financial statement disclosure requirements from those that were
required under SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88,
F-156
<PAGE> 397
CAPSTAR BROADCASTING CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." SFAS No. 132 does
not change the existing measurement or recognition provision of SFAS Nos. 87, 88
or 106. This pronouncement is effective for financial statements beginning after
December 15, 1997.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This pronouncement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999.
Management does not believe the implementation of these accounting
pronouncements will have a material effect on its consolidated financial
statements.
NOTE 4 -- INITIAL PUBLIC OFFERING BY CAPSTAR BROADCASTING
On May 29, 1998 Capstar Broadcasting completed an initial public offering
(the "Offering") in which Capstar Broadcasting sold 31,000,000 shares of its
Class A Common Stock at $19.00 per share for net proceeds to Capstar
Broadcasting of $551,308 after deducting underwriting discounts and commissions
and offering expenses of $37,692. The shares sold by Capstar Broadcasting
represented approximately 28.8% of the outstanding shares of Capstar
Broadcasting on May 29, 1998. Capstar Broadcasting contributed the net proceeds
from the Offering to Capstar Partners which then contributed the net proceeds
from the Offering to Capstar Radio. Capstar Radio used this contribution to fund
a portion of the acquisition of SFX Broadcasting, Inc., a Delaware corporation
("SFX"), as discussed in Note 5 below.
NOTE 5 -- ACQUISITIONS AND DISPOSITIONS OF BROADCASTING PROPERTIES
SFX Acquisition and Related Transactions
On May 29, 1998, SBI Holding Corporation, a Delaware corporation ("SFX
Parent"), acquired SFX, which has been renamed Capstar Communications, Inc.
("CCI"). The acquisition was effected through the merger (the "SFX Merger") of
SBI Radio Acquisition Corporation, a Delaware corporation and a wholly-owned
subsidiary of SFX Parent ("Sub"), with and into SFX, with SFX as the surviving
corporation. The acquisition of SFX by SFX Parent resulted in a change of
control of SFX. As a result of the SFX Merger, SFX became a direct wholly-owned
subsidiary of Capstar Radio. The total consideration paid by the Company in the
SFX Merger was approximately $1,500,000 (the "SFX Merger Consideration"),
including the repayment of the outstanding balance under the existing credit
facility of SFX (the "SFX Credit Facility") of approximately $313,000.
Consummation of the SFX Merger and related transactions increased the Company's
portfolio of stations by 67 owned and operated radio stations (50 FM and 17 AM)
and two radio stations on which the Company sells commercial time.
The SFX Merger and other related transactions, including (i) certain
station acquisitions and dispositions completed contemporaneously with the SFX
Merger (as discussed below), (ii) the repayment of outstanding indebtedness of
SFX under the SFX Credit Facility, (iii) the redemption of approximately
$154,000 aggregate principal amount of CCI's 10 3/4% Senior Subordinated Notes
Due 2006 (the "10 3/4% CCI Notes") (as discussed in Note 9), and (iv) the
redemption of approximately $119,600 aggregate liquidation preference of CCI's
12 5/8% Series E Cumulative Exchangeable Preferred Stock, par value $.01 per
share ("CCI Series E Preferred Stock") (as discussed in Note 9), were financed
with (A) the net proceeds from the Offering, (B) borrowings of $590,600 (the
"Capstar Loan") under the Capstar Credit Facility (as defined in Note 9),
F-157
<PAGE> 398
CAPSTAR BROADCASTING CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(C) borrowings of $150,000 from Chancellor Media Corporation of Los Angeles
("Chancellor Media"), an affiliate, and (D) net proceeds of approximately
$221,429 from sales of certain assets.
On February 20, 1998, Capstar Broadcasting and Chancellor Media entered
into a Letter Agreement (the "Chancellor Exchange Agreement") pursuant to which
Capstar Broadcasting agreed to exchange 11 SFX stations in the Dallas, Houston,
San Diego and Pittsburgh markets ("Chancellor Exchange Stations") having an
aggregate deemed market value of $637,500 for certain stations to be acquired by
Chancellor Media during the three-year period ending February 20, 2001 (the
"Exchange Period"). SFX station KODA-FM, which is a Chancellor Exchange Station,
was exchanged for certain radio stations in the Austin, Texas and the
Jacksonville, Florida markets concurrently with the consummation of the SFX
Merger. The remaining Chancellor Exchange Stations will be exchanged for
mid-sized market radio stations to be identified by Capstar Broadcasting and
paid for by Chancellor Media. Capstar Broadcasting and Chancellor Media intend
for the exchange transactions to qualify as like-kind exchanges under Section
1031 of the Internal Revenue Code of 1986, as amended (the "Code"). Capstar
Broadcasting, however, bears all risks related to the tax treatment of the
exchanges. Capstar Broadcasting has agreed not to solicit, initiate or encourage
the submission of proposals for the acquisition of the Chancellor Exchange
Stations or to participate in any discussions for such purpose during the
Exchange Period, other than as contemplated under the Chancellor Exchange
Agreement. Concurrently with the consummation of the SFX Merger, Chancellor
Media began providing services to the Chancellor Exchange Stations (other than
KODA-FM, which was acquired, via a like-kind exchange by Chancellor Media)
pursuant to separate local marketing agreements ("LMAs") until such stations are
exchanged. Chancellor Media retains the advertising revenues it generates while
it provides services to the Chancellor Exchange Stations under such LMAs. As of
September 30, 1998, the Company earned LMA fees of approximately $16,500 from
the Chancellor Exchange Stations. The LMA fees earned by the Company will
decrease as Chancellor Exchange Stations are exchanged. During the pendency of
the Chancellor Merger (as defined), the Company does not anticipate effecting
any exchanges with Chancellor Media.
On May 21, 1998, SFX completed the acquisition of three radio stations (two
FM and one AM) in the Nashville, Tennessee market from Sinclair Broadcasting
Group for an aggregate purchase price of approximately $35,000 in cash (the
"Nashville Purchase Price"). SFX funded the Nashville Purchase Price with excess
cash on hand.
On May 29, 1998, CCI exchanged station KODA-FM in Houston, Texas for
Chancellor Media radio stations WAPE-FM and WFYV-FM in Jacksonville, Florida and
approximately $90,250 in cash (the "KODA Exchange"). In an exchange under
Section 1031 of the Code, the indirect, wholly-owned subsidiaries of CCI,
through a qualified intermediary, used the $90,250 in cash received from
Chancellor Media to acquire radio stations KASE-FM, KVET-AM and KVET-FM in
Austin, Texas. The deemed value of the KODA Exchange was $143,250.
On May 29, 1998, due to governmental restrictions on multiple station
ownership, the Company completed the sale of the assets of four radio stations
(three FM and one AM) in the Greenville, South Carolina market for approximately
$35,000 in cash to Clear Channel Radio, Inc.
On May 29, 1998, due to governmental restrictions on multiple station
ownership, the Company assigned the assets of four radio stations (two FM and
two AM) in the Fairfield, Connecticut market, subject to a right of repurchase,
with an aggregate fair market value at such date of approximately $15,000 to a
trust, whose trustee is Henry M. Rivera (the "Trustee") and whose beneficiary is
Capstar Broadcasting. Concurrently with such assignment, the Company contributed
its right to repurchase such assets to Upper Fairfield Radio, L.L.C. ("Upper
Fairfield") in exchange for all of the outstanding ownership interests in Upper
Fairfield. Subject to approval by the Federal Communications Commission ("FCC"),
it is expected that the Trustee will sell the assets to Upper Fairfield for
approximately $14,900 and the Company will sell its voting interest in
F-158
<PAGE> 399
CAPSTAR BROADCASTING CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Upper Fairfield to BBR II, L.L.C. for $150. After the sale of the assets to
Upper Fairfield, the Trustee will distribute the proceeds to the Company. The
Company will retain a non-voting interest in Upper Fairfield.
On May 29, 1998, due to governmental restrictions on multiple station
ownership, CCI completed the sale of the assets of one FM radio station in the
Daytona Beach, Florida market for consideration of approximately $11,500 in cash
to Clear Channel Metroplex, Inc. and Clear Channel Metroplex Licensee, Inc.
On May 29, 1998, due to governmental restrictions on multiple station
ownership, CCI completed the sale of the assets of four radio stations (three FM
and one AM) in the Long Island, New York market for an aggregate sale price of
$46,000 in cash to Cox Radio, Inc.
On May 29, 1998, due to governmental restrictions on multiple station
ownership, CCI completed the sale of the assets of one FM radio station in the
Houston, Texas market for $54,000 in cash to HBC Houston, Inc. and HBC Houston
License Corporation. Pursuant to an agreement with Chancellor Media, CCI paid
50% of the sale proceeds in excess of $50,000, approximately $1,700, to
Chancellor Media.
Other Acquisitions and Dispositions
In addition to the SFX Merger and the other related transactions described
above, during the nine months ended September 30, 1998, the Company acquired 27
AM and 50 FM radio stations and related broadcast equipment through several
acquisitions, all of which have been accounted for under the purchase method of
accounting. Accordingly, the purchase price has been allocated to the assets and
liabilities acquired based upon their fair values at the date of acquisition.
The excess purchase price over the fair value of net tangible assets acquired is
allocated to intangible assets, primarily FCC licenses. The results of
operations associated with the acquired radio stations have been included in the
accompanying consolidated financial statements from the dates of acquisition.
Acquisition activity during the nine months ended September 30, 1998 was as
follows. All consideration paid for the acquisitions scheduled below consisted
solely of cash and promissory notes, except for one of the stations acquired
from Americom, the Jacor acquisition and the Boswell acquisition which were
exchanges of like-kind assets.
<TABLE>
<CAPTION>
STATIONS
ACQUIRED
--------- DATE OF
TRANSACTION AM FM ACQUISITION PURCHASE OF COST
- ----------- --- --- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Patterson Broadcasting................... 14 25 January Common Stock $ 227,186
Quass Broadcasting....................... 1 2 January Common Stock 16,281
Knight Radio............................. 3 5 January Assets 66,180
East Penn Broadcasting................... 1 -- January Assets 2,010
Commonwealth Broadcasting................ 1 2 February Assets 5,514
Brantly Broadcast Associates............. -- 1 February Assets 1,735
KOSO..................................... -- 1 April Assets 8,472
Americom................................. 1 3 April Assets 26,662
KDOS LP.................................. 1 1 April Assets 3,532
Grant.................................... 1 -- May Assets 3,440
SFX...................................... 17 50 May Common Stock 1,274,656
Class Act................................ -- 1 June Assets 1,068
KRNA..................................... -- 1 June Assets 6,398
University of Alaska..................... -- 1 June Assets 221
ARS...................................... 2 2 July Assets 6,505
</TABLE>
F-159
<PAGE> 400
CAPSTAR BROADCASTING CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
STATIONS
ACQUIRED
--------- DATE OF
TRANSACTION AM FM ACQUISITION PURCHASE OF COST
- ----------- --- --- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Dynacom.................................. -- 2 July Assets 5,923
Jacor.................................... 1 -- August Assets 5,000
Ogallala Broadcasting.................... 1 2 September Assets 3,850
Boswell.................................. -- 1 September Assets 11,750
----------
$1,676,383
==========
</TABLE>
Additionally, in April 1998, the Company acquired Prophet Systems, Inc., a
manufacturer, seller and distributor of combination hardware-software devices
which permit the remote programming of radio station broadcasts, for aggregate
consideration of approximately $15,000 in cash. Pursuant to the asset purchase
agreement, Capstar Broadcasting will issue 285,714 shares of Class A Common
Stock, upon the satisfaction of certain conditions contained in the asset
purchase agreement.
The acquisitions during the nine months ended September 30, 1998 are
summarized in the aggregate as follows:
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS
ENDED
SEPTEMBER 30,
1998
-------------
<S> <C>
Consideration:
Cash and notes............................................ $1,583,053
Acquisition costs......................................... 72,149
Assets exchanged.......................................... 21,181
----------
Total............................................. $1,676,383
==========
Assets acquired and liabilities assumed:
Cash...................................................... $ 16,488
Accounts receivable....................................... 89,642
Prepaid expenses and other................................ 111,938
Property and equipment.................................... 125,360
Intangible assets......................................... 3,614,399
Accounts payable.......................................... (11,960)
Accrued liabilities....................................... (135,257)
Deferred income taxes..................................... (1,038,369)
Long-term debt............................................ (812,253)
Preferred stock........................................... (283,605)
----------
Total............................................. $1,676,383
==========
</TABLE>
In addition to the SFX Merger and other related transactions described
above, during the nine months ended September 30, 1998, the Company disposed of
6 AM and 11 FM radio stations and related broadcast equipment through several
dispositions for aggregate consideration of approximately $116,369, including
$85,038 in cash, $10,150 in notes and $21,181 in broadcast properties. The
carrying value of net assets sold related to these stations approximated the
consideration received.
The following unaudited proforma summary presents the consolidated results
of operations for the nine months ended September 30, 1997 and 1998 as if the
acquisitions and dispositions completed through
F-160
<PAGE> 401
CAPSTAR BROADCASTING CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
September 30, 1998 had occurred at the beginning of 1997. These pro forma
results have been prepared for comparative purposes only and do not purport to
be indicative of what would have occurred had the acquisitions and dispositions
been made as of that date or of results which may occur in the future.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
---------------------
1997 1998
--------- ---------
<S> <C> <C>
Net revenue................................................. $ 415,415 $ 459,001
========= =========
Loss before extraordinary item.............................. (104,555) (117,364)
========= =========
Net loss.................................................... (106,848) (124,669)
========= =========
Basic and diluted loss per common share before extraordinary
loss...................................................... (1.29) (1.45)
========= =========
Net loss attributable to common stock....................... (112,227) (124,669)
========= =========
Basic and diluted loss per common share..................... (1.39) (1.54)
========= =========
</TABLE>
Subsequent to September 30, 1998, the Company acquired 1 AM and 3 FM radio
stations and related broadcast equipment through several acquisitions for
aggregate consideration in cash of approximately $24,935. The acquisitions were
funded with borrowings under the Capstar Credit Facility (as defined) and
available cash on hand.
On July 23, 1998, Capstar Radio agreed to acquire Triathlon Broadcasting
Corporation ("Triathlon"; Nasdaq: TBCOA, TBCOL) in a transaction valued at
approximately $190,000. Capstar Radio will pay approximately $130,000 in cash to
acquire all of the outstanding shares of common and preferred stock of Triathlon
and will assume approximately $60,000 of debt. Triathlon owns and operates or
programs 32 stations in six markets: Wichita, Kansas (4 FM and 2 AM); Colorado
Springs, Colorado (2 FM/2 AM); Lincoln, Nebraska (4 FM); Omaha, Nebraska (3 FM/1
AM); Spokane, Washington (5 FM/3 AM); and Tri-Cities, Washington (4 FM/2 AM).
Triathlon also owns Pinnacle Sports Productions, L.L.C., a regional sports
network that controls the rights to University of Nebraska football and other
sports events.
Additionally, the Company has entered into five agreements to acquire 17
additional radio stations (4 AM and 13 FM) and related broadcast equipment for
aggregate consideration in cash of approximately $29,200. The Company currently
operates 13 of these stations under either LMA's or joint sales agreements.
F-161
<PAGE> 402
CAPSTAR BROADCASTING CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DEPRECIABLE
DEPRECIATION LIFE DECEMBER 31, SEPTEMBER 30,
METHOD (YEARS) 1997 1998
------------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Buildings and improvements......... Straight-line 5-20 $ 17,006 $ 39,813
Broadcasting and other Equipment... Straight-line 3-20 85,481 192,270
Equipment under capital lease
Obligations...................... Straight-line 3-5 1,356 1,012
-------- --------
103,843 233,095
Accumulated depreciation and
Amortization..................... (10,336) (22,189)
-------- --------
93,507 210,906
Land............................... 13,210 16,986
-------- --------
$106,717 $227,892
======== ========
</TABLE>
Depreciation and amortization expense of property and equipment for the
nine months ended September 30, 1997 and 1998 was approximately $6,398 and
$12,165, respectively.
NOTE 7 -- INTANGIBLES
Intangibles consist of the following:
<TABLE>
<CAPTION>
AMORTIZABLE
AMORTIZATION LIFE DECEMBER 31, SEPTEMBER 30,
METHOD (YEARS) 1997 1998
--------------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
FCC licenses.................... Straight-line 40 $861,502 $4,163,666
Goodwill........................ Straight-line 40 2,784 65,844
Noncompete agreements........... Straight-line 1-3 6,115 14,282
Organization costs.............. Straight-line 5 3,040 453
Deferred financing costs........ Interest Method -- 21,358 26,364
Other........................... Straight-line 3-5 6,700 8,608
-------- ----------
901,499 4,279,217
Accumulated amortization........ (25,888) (70,152)
-------- ----------
875,611 4,209,065
Pending acquisition costs....... 5,934 20,442
-------- ----------
$881,545 $4,229,507
======== ==========
</TABLE>
Amortization expense of intangible assets for the nine months ended
September 30, 1997 and 1998 was approximately $10,896 and $49,286 respectively.
F-162
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CAPSTAR BROADCASTING CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- ACCRUED LIABILITIES
Accrued liabilities consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Accrued compensation........................................ $ 4,252 $ 3,595
Accrued acquisition costs................................... 5,284 5,118
Accrued interest............................................ 960 20,533
Accrued commissions......................................... 2,403 9,340
Barter payable.............................................. 1,082 4,531
Deferred revenues........................................... 537 2,476
Accrued music license fees.................................. 425 1,719
Accrued loss in limited liability companies................. -- 3,541
Other....................................................... 1,883 13,493
------- -------
$16,826 $64,346
======= =======
</TABLE>
NOTE 9 -- LONG-TERM DEBT AND REDEEMABLE PREFERRED STOCK
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Capstar Credit Facility..................................... $141,700 $ 886,000
12 3/4% Capstar Partners Notes, $277,000 principal,
including unamortized discount of $93,728, due 2009....... 166,991 183,272
9 1/4% Capstar Radio Notes, $200,000 principal, including
unamortized discount of $724, due 2007.................... 199,238 199,276
13 1/4% Capstar Radio Notes................................. 79,816 --
Chancellor Note (due to an affiliate)....................... -- 150,000
10 3/4% CCI Notes, $450,000 principal, including unamortized
premium of $30,100, due 2006.............................. -- 324,234
Capital lease obligation and other notes payable at various
interest rates............................................ 6,827 12,303
-------- ----------
594,572 1,755,085
Less current portion........................................ (1,388) (17,020)
-------- ----------
$593,184 $1,738,065
======== ==========
</TABLE>
In connection with the SFX Merger, Capstar Radio, as the borrower, entered
into a new credit agreement, dated as of May 29, 1998 (the "Capstar Credit
Facility"), with Capstar Broadcasting, Capstar Partners, and the financial
institutions party thereto. The Capstar Credit Facility consists of a $500,000
revolving loan, a $450,000 term loan facility (the "A Term Loan") and a $400,000
term loan (the "B Term Loan"). The Capstar Credit Facility also contains
mechanisms that permit Capstar Radio to request additional term loans and
revolving credit loans in an aggregate amount up to $550,000; provided, however,
that all such additional loans are subject to future commitment availability and
approval from the banks and are not currently available under the Capstar Credit
Facility. The revolving loan matures on November 30, 2004. The A Term Loan
provides for scheduled loan repayments from August 31, 1999 to November 30,
2004. The B Term Loan provides for scheduled loan repayments from August 31,
1998 to May 31, 2005. Up to $150,000 of the revolving loan commitment is
available to Capstar Radio for the issuance of letters of credit. As of
September 30, 1998, $451,590 was available for borrowing under the Capstar
Credit Facility. Due to the
F-163
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CAPSTAR BROADCASTING CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company replacing its previous credit facility with the Capstar Credit Facility,
an extraordinary loss, net of tax, of approximately $2,605 was recognized in the
second quarter of 1998.
The revolving loans and the term loans bear interest at a rate based, at
the option of Capstar Radio, on (i) a base rate defined as the higher of 1/2 of
1% in excess of the federal reserve reported certificate of deposit rate or the
administrative agent bank's prime lending rate, plus an incremental rate or (ii)
the Eurodollar rate, plus an incremental rate. The weighted-average interest
rates on revolving loans outstanding at September 30, 1998 was 7.9%. Capstar
Radio pays fees ranging from 0.25% to 0.50% per annum on the aggregate unused
portion of the loan commitment based on the leverage ratio for the most recent
quarter end. In addition, Capstar Radio is required to pay letter of credit
fees.
The Capstar Credit Facility contains customary restrictive covenants,
which, among other things and with certain exceptions, limit the ability of
Capstar Radio to incur additional indebtedness and liens in connection
therewith, enter into certain transactions with affiliates, pay dividends,
consolidate, merge or effect certain asset sales, issue additional stock, make
capital expenditures and enter new lines of business. The Capstar Credit
Facility limits the ability of Capstar Radio and its subsidiaries to make
additional acquisitions in excess of $200,000 on an individual basis without the
prior consent of a majority of the banks. Substantially all the assets of
Capstar Radio and its subsidiaries are restricted. Under the Capstar Credit
Facility, Capstar Radio is also required to satisfy certain financial covenants,
which require Capstar Radio and its subsidiaries to maintain specified financial
ratios and to comply with certain financial tests, such as maximum leverage
ratio and minimum consolidated EBITDA to consolidated net cash interest expense.
Capstar Radio has collateralized the Capstar Credit Facility by granting a
first priority perfected pledge of Capstar Radio's assets, including the capital
stock of its subsidiaries, excluding the assets of CCI. Capstar Partners,
Capstar Broadcasting and all of the direct and indirect subsidiaries of Capstar
Partners (other than CCI) have guaranteed the Capstar Credit Facility and have
collateralized their guarantees by granting a first priority perfected pledge of
substantially all of their assets.
In connection with the SFX Merger, Capstar Broadcasting, borrowed $150,000
(the "Chancellor Loan") from Chancellor Media evidenced by a note (the
"Chancellor Note"). The Chancellor Note bears interest at a rate of 12% per
annum (subject to increase in certain circumstances), payable quarterly, of
which 5/6 is payable in cash and 1/6 is, at Capstar Broadcasting's option,
either payable in cash or added to the principal amount of the Chancellor Note.
In addition, Capstar Broadcasting may elect to defer the 5/6 portion payable in
cash, in which case the Chancellor Note would bear interest at a rate of 14% per
annum. If Capstar Broadcasting elects to pay interest when due, quarterly
interest payments will equal $4,500, payable until maturity. As of September 30,
1998, the Company has incurred and paid $6,100 in interest expense. The
Chancellor Note will mature on the twentieth anniversary of the date of
issuance, provided that Capstar Broadcasting may prepay all or part of the
outstanding principal balance and, in certain circumstances, Chancellor Media
has the right to require Capstar Broadcasting to prepay part of the outstanding
principal balance. The common stock of Capstar Partners was pledged by Capstar
Broadcasting on a first priority basis to Chancellor Media as collateral for the
Chancellor Note.
After the consummation of the SFX Merger, CCI remained liable for the
$450,000 in aggregate principal amount of the 10 3/4% CCI Notes. Interest is
payable semi-annually on May 15 and November 15 of each year until maturity on
May 15, 2006. The notes are unsecured obligations of CCI and are subordinate to
all senior debt of CCI.
All 2,392,022 shares of CCI Series E Preferred Stock remained outstanding
after the consummation of the SFX Merger. Dividends on the CCI Series E
Preferred Stock accumulate from the date of issuance at the rate per share of
$12.625 per annum, and are payable semi-annually on January 15 and July 15 of
each year. Dividends may be paid, at CCI's option, on any dividend payment date
occurring on or before January 15,
F-164
<PAGE> 405
CAPSTAR BROADCASTING CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2002, either in cash or in additional shares of CCI Series E Preferred Stock
having a liquidation preference equal to the amount of such dividend. Subject to
certain conditions, the shares of the CCI Series E Preferred Stock are
exchangeable in whole or in part, on a pro rata basis, at the option of CCI, on
any dividend payment date, for CCI's 12 5/8% Senior Subordinated Exchangeable
Debentures due 2006 ("CCI Exchange Notes"), provided that immediately after
giving effect to any partial exchange, there shall be outstanding CCI Series E
Preferred Stock with an aggregate liquidation preference of not less than
$50,000 and not less than $50,000 in aggregate principal amount of CCI Exchange
Notes. CCI is required, subject to certain conditions, to redeem all of the CCI
Series E Preferred Stock outstanding on October 31, 2006.
On March 30, 1998, Capstar Radio announced an offer to purchase for cash
any and all of its $76,808 in aggregate principal amount of its 13 1/4% Senior
Subordinated Notes due 2003 (the "13 1/4% Capstar Radio Notes"). On April 28,
1998, Capstar Radio purchased all of the outstanding 13 1/4% Capstar Radio Notes
for an aggregate purchase price of $90,200, including a $10,700 purchase premium
and $2,700 of accrued interest, resulting in an extraordinary loss, net of tax,
of approximately $4,700, which was recognized in the second quarter of 1998.
On July 3, 1998, (i) pursuant to the terms of the indenture governing the
10 3/4% CCI Notes, CCI redeemed $154,000 aggregate principal amount of the
10 3/4% CCI Notes for an aggregate purchase price of $172,800 including a
$16,600 redemption premium and $2,200 of accrued interest (The carrying value of
the 10 3/4% CCI Notes approximated their fair value at the date of the SFX
Merger.) and (ii) pursuant to the terms of the Certificate of Designation that
governs the CCI Series E Preferred Stock (the "CCI Certificate of Designation"),
CCI redeemed $119,600 aggregate liquidation preference, or 1,196,011 shares, of
the CCI Series E Preferred Stock for an aggregate purchase price of $141,800,
including a $15,100 redemption premium and $7,000 of accrued dividends (The
carrying value of the CCI Series E Preferred Stock approximated its fair value
on the date of the SFX Merger.).
The SFX Merger resulted in a change of control under the indentures
governing the 10 3/4% CCI Notes and CCI's 11 3/8% Senior Subordinated Notes due
2000 (the "CCI 11 3/8% Notes") and under the CCI Certificate of Designation.
Pursuant to change of control offers to acquire all of the outstanding 10 3/4%
CCI Notes, CCI 11 3/8% Notes and CCI Series E Preferred Stock, each of which
commenced on June 8, 1998, CCI purchased on July 10, 1998 (i) $1,866 aggregate
principal amount of the 10 3/4% CCI Notes for an aggregate purchase price of
$1,915, including an $18 purchase premium and $31 of accrued interest (The
carrying value of the 10 3/4% CCI Notes approximated their fair value at the
date of the SFX Merger.) and (ii) $500 aggregate liquidation preference, or
5,004 shares, of the CCI Series E Preferred Stock for an aggregate purchase
price of $536, including a $5 purchase premium and $31 of accrued dividends (The
carrying value of the CCI Series E Preferred Stock approximated its fair value
on the date of the SFX Merger.). No 11 3/8% CCI Notes were tendered for
repurchase.
NOTE 10 -- STOCKHOLDER'S EQUITY
On January 26, 1998, Capstar Broadcasting issued 558,496 shares of its
Class B Common Stock for cash, and 7,518,797 shares of its Class C Common Stock
for cash, each at a per share price of $13.30. On February 4, 1998, Capstar
Broadcasting issued 11,278,195 shares of Class C Common Stock for cash at a per
share price of $13.30. On March 18, 1998, Capstar Broadcasting issued 21,428,571
shares of Class C Common Stock for cash at a per share price of $14.00. On April
3, 1998, Capstar Broadcasting issued 3,571,428 shares of Class C Common Stock
for cash at a per share price of $14.00. On April 10, 1998, Capstar Broadcasting
issued 1,905,301 shares of Class B Common Stock for cash at a per share price of
$14.00. During the second quarter of 1998, Capstar Broadcasting issued 120,000
shares of Class A Common Stock for $1,596 in connection with the exercise of
employee stock options. On May 29, 1998, Capstar Broadcasting issued 35,699
shares of Class A Common Stock for cash at a per share price of $14.00. On July
27, 1998, Capstar
F-165
<PAGE> 406
CAPSTAR BROADCASTING CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Broadcasting issued 2,298 shares of Class A Common Stock for $23,450 in
connection with the exercise of employee stock options.
On May 18, 1998, 1,200,064 shares of Class B Common Stock were exchanged
for the same number of shares of Class C Common Stock. Capstar Broadcasting
received no cash consideration for such exchange.
On May 22, 1998, Capstar Broadcasting effected a one-for-ten reverse stock
split whereby each share of common stock of Capstar Broadcasting outstanding
immediately prior to the reverse stock split thereafter represented 0.10 shares
of the same class of common stock of Capstar Broadcasting. Fractional shares, if
any, resulting from the reverse stock split represent the right of the holder
thereof to receive a cash payment equal to the product of such fraction
multiplied by $19.00 per whole share. All share and per share data (other than
authorized share data) contained in the financial statements have been
retroactively adjusted to give effect to the reverse stock split.
In April 1998, Capstar Broadcasting (i) amended and restated three warrants
(the "Original Warrants") to purchase up to 1,508,437 shares of Class C Common
Stock that were previously granted to R. Steven Hicks, Capstar Broadcasting's
President and Chief Executive Officer, (ii) granted two additional warrants to
Mr. Hicks to purchase up to 187,969 shares and 500,000 shares of Class C Common
Stock, respectively, and (iii) granted warrants to two other executive officers
of Capstar Broadcasting to purchase up to an aggregate of 300,000 shares of
Class A Common Stock.
The terms of these warrants give rise to variable treatment for accounting
purposes. As a result, compensation expense is measured at each reporting period
and recognized based on the specific terms of the warrants.
On April 1, 1998, Capstar Broadcasting granted stock options under its
stock option plan to certain key employees and eligible non-employees, which
stock options are exercisable for the purchase of up to 585,340 shares of Class
A Common Stock at a per share exercise price of $17.50. A total non-cash
compensation charge of $878 will be charged ratably over the five-year vesting
period of such stock options.
On June 15, 1998, Capstar Broadcasting granted stock options under its
stock option plan to certain key employees and eligible non-employees, which
stock options are exercisable for the purchase of up to 1,922,240 shares of
Class A Common Stock at a per share exercise price of $19.00.
On July 5, 1998, a director of Capstar Broadcasting was granted a warrant
to purchase 200,000 shares of Class A Common Stock at an exercise price of
$14.00 per share. The terms of this warrant are the same as the terms of the
warrants granted in April, 1998 to the two executive officers of Capstar
Broadcasting.
During the three and nine month periods ended September 30, 1997 and 1998,
the Company had common stock options and warrants outstanding which were not
included in the diluted earnings per share calculation because the options and
warrants would have been anti-dilutive.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
In October 1996, Cardinal Communications Partners, L.P. ("Cardinal") filed
a complaint in the United States District Court, Northern District of Texas,
Dallas Division, against SFX, its Executive Chairman and other defendants. The
complaint concerns Cardinal's sale of radio station KTCK-AM to SFX in 1995. The
claims asserted in the complaint include breach of contract, fraud, negligent
misrepresentation, quantum meruit and unjust enrichment. The complaint seeks
declaratory relief, actual and punitive damages and attorneys' fees all in
unspecified amount. SFX reached an agreement with Cardinal effective August 1,
1997, that settled and resolved the claims asserted in the lawsuit. As a result
of the settlement agreement, all of the claims have been dismissed against all
of the defendants, with prejudice, except for one claim. This one claim,
F-166
<PAGE> 407
CAPSTAR BROADCASTING CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
alleging breach of contract related to deferred payments which SFX may be
required to pay to Cardinal in 1998, was dismissed without prejudice, subject to
renewal by Cardinal through an agreed arbitration procedure. In October 1998,
the parties completed an arbitration regarding the 1998 deferred payment. In
November 1998, the parties settled the claim for approximately $3.1 million,
excluding legal fees of approximately $0.2 million.
The Company is subject to various legal proceedings and claims that arise
in the ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to these actions will not have a material
impact on the consolidated financial position or results of operations or cash
flows of the Company.
NOTE 12 -- LOSS ON INVESTMENTS IN LIMITED LIABILITY COMPANIES
Other (income) expense includes a loss on investments in Limited Liability
Companies (LLCs) comprised of (i) write downs of notes receivable from the LLCs
and (ii) certain performance obligations under the LLCs' borrowing arrangements
for which the Company acts as guarantor.
NOTE 13 -- IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue concerns the inability of computer programs and
embedded computer chips to properly recognize and process date sensitive
information when the year changes to 2000, or "00." Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail causing a disruption in the operations of a company.
A Company-wide assessment of systems and operations is underway to identify
any computer systems, including equipment with embedded chips, which do not
properly recognize dates after December 31, 1999. The Company uses purchased
software programs for a variety of financial applications, including general
ledger, accounts payable and accounts receivable accounting packages. The
companies providing these software programs are Year 2000 compliant, and the
Company has received Year 2000 compliance certificates from these software
vendors. Substantially all of the Company's advertising scheduling and billing
systems are Year 2000 compliant. Unrelated to the Year 2000 Issue, the Company
expects to begin implementation of a new integrated software package called
"Galaxy" in November 1998, which will bring the remainder of the advertising
scheduling and billing systems into Year 2000 compliance by the end of 1999. The
Company believes that its other financial applications are Year 2000 compliant.
The Company's Year 2000 implementation plan also includes the actual
remediation and replacement of computer systems and other equipment with
embedded chips or processors (i.e. individual work stations, phone systems,
etc.) that are not Year 2000 compliant.
In addition, the Company is assessing its exposure from external sources to
Year 2000 failures. These efforts are partially complete. The Company does rely
on third-party providers for key services such as telecommunications and
utilities. Interruption of these services could, in management's view, have a
material impact on the operations of the Company. The Company is in the process
of developing contingency plans intended to mitigate the possible disruption in
business operations that may result from certain of the Company's or
third-parties' critical or necessary systems that are not Year 2000 compliant,
and is developing cost estimates for such plans. Through September 30, 1998, the
Company has incurred minimal costs specifically related to the Year 2000 Issue
and estimates spending an aggregate cost of less than $1.0 million. Funding of
these costs is anticipated to come from cash generated in business operations.
Based on the nature of the Company's business and dispersed geographical
locations, the Company believes that it may experience some disruption in its
business due to the impact of Year 2000 Issue. However,
F-167
<PAGE> 408
CAPSTAR BROADCASTING CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company's management presently believes the Company is taking appropriate
steps to assess and control its Year 2000 issues. Due to the general uncertainty
inherent in the Year 2000 Issue, due in part from the uncertainty of the Year
2000 readiness of third parties, the Company is unable to determine at this time
whether Year 2000 issues will have a material adverse effect on the Company's
results of operations or financial condition.
A Company-wide assessment of systems and operations is underway to identify
any information technology and non-technology systems, including equipment with
embedded chips, which do not properly recognize dates after December 31, 1999.
The Company uses purchased software programs for a variety of functions,
including general ledger, accounts payable and accounts receivable accounting
packages. The companies providing these software programs are Year 2000
compliant, and the Company has received Year 2000 compliance certificates from
these software vendors. Substantially all of the Company's advertising
scheduling and billing systems are Year 2000 compliant. The Company expects to
begin implementation of a new integrated software package called "Galaxy" in
November 1998, which will bring the remainder of the advertising scheduling and
billing systems into Year 2000 compliance by the end of 1999 at an estimated
cost of $17.7 million. The Company believes that its other financial
applications are Year 2000 compliant. The Company's Year 2000 implementation
plan also includes ensuring that all individual work stations are Year 2000
compliant. The Company is identifying and replacing technical items, including
phone systems, which are not Year 2000 compliant at an estimated aggregate cost
of less than $1.0 million.
The Company does not expect the costs of rendering its accounting systems
and the systems at its radio Year 2000 compliant to be material and expects to
complete these upgrades on a timely basis. However, there can be no assurance
that this will be the case. Further, the ability of third parties with whom the
Company transacts business to adequately address their Year 2000 issues is
outside of the Company's control. Therefore, there can be no assurance that the
failure of such third parties to adequately address their Year 2000 issues will
not have a material adverse effect on the Company's business, financial
condition, cash flows and results of operations.
F-168
<PAGE> 409
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Commodore Media, Inc.
We have audited the accompanying consolidated statements of operations and
cash flows of Commodore Media, Inc. and Subsidiaries for the period from January
1, 1996 to October 16, 1996 and for the year ended December 31, 1995. These
consolidated statements of operations and cash flows are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated statements of operations and cash flows based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated statements of operations and
cash flows are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
statement of operations and cash flows. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated statement of operations and cash flows
presentation. We believe that our audits of the consolidated statements of
operations and cash flows provide a reasonable basis for our opinion.
In our opinion, the consolidated statements of operations and cash flows
referred to above present fairly, in all material respects the consolidated
statements of operations and cash flows of Commodore Media, Inc. and
Subsidiaries for the period from January 1, 1996 to October 16, 1996 and for the
year ended December 31, 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
New York, New York
February 10, 1997
F-169
<PAGE> 410
COMMODORE MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1996
TO OCTOBER 16, YEAR ENDED
1996 DECEMBER 31, 1995
--------------- -----------------
<S> <C> <C>
Total revenue............................................... $ 34,826,060 $33,652,677
Less agency commissions..................................... (2,869,014) (2,857,912)
------------ -----------
Net revenue................................................. 31,957,046 30,794,765
Operating expenses:
Programming, technical and news........................... 5,906,967 5,365,686
Sales and promotion....................................... 9,303,914 8,796,481
General and administrative................................ 6,081,262 4,870,463
Corporate expenses.......................................... 1,756,797 2,051,181
Depreciation and amortization............................... 2,157,750 1,926,250
Other expense............................................... 13,833,728 2,006,550
------------ -----------
Operating (loss) income..................................... (7,083,372) 5,778,154
Interest expense............................................ 8,860,958 7,805,525
Interest income............................................. 221,806 420,659
Other expenses, net......................................... 1,980,908 48,796
------------ -----------
Loss before provision for income taxes and extraordinary
loss...................................................... (17,703,432) (1,655,508)
Provision for income taxes.................................. 133,000 140,634
------------ -----------
Loss before extraordinary loss.............................. (17,836,432) (1,796,142)
Extraordinary loss on extinguishment of debt................ -- (443,521)
------------ -----------
Net loss.................................................... $(17,836,432) $(2,239,663)
============ ===========
</TABLE>
See accompanying notes.
F-170
<PAGE> 411
COMMODORE MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED
JANUARY 1, 1996 TO DECEMBER 31,
OCTOBER 16, 1996 1995
------------------ -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................... $(17,836,432) $ (2,239,663)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Loss on extinguishment of debt............................ -- 443,521
Depreciation and amortization............................. 2,157,750 1,926,250
Noncash interest.......................................... 3,315,669 2,673,829
Long-term incentive compensation.......................... 1,066,893 79,000
Non-cash compensation..................................... 12,731,587 --
Provision for uncollectible accounts and notes
receivable.............................................. 488,320 556,137
Loss on disposition of assets............................. -- 9,819
Net barter income......................................... (222,645) (184,300)
Initial public offering and pending merger expenses....... 1,909,648 --
Changes in assets and liabilities, net of amounts
acquired:
Increase in accounts receivable......................... (2,351,753) (1,847,015)
Increase in prepaid expenses and other current assets... (208,462) (88,787)
Decrease in accounts payable and accrued expenses....... (337,896) (158,855)
Decrease in accrued compensation........................ (496,177) (230,645)
Increase in accrued interest............................ 1,752,172 582,525
Increase (decrease) in accrued income taxes............. 20,952 (277,135)
------------ ------------
Total adjustments.................................. 19,826,058 3,484,344
------------ ------------
Net cash provided by operating activities................... 1,989,626 1,244,681
CASH FLOWS FROM INVESTING ACTIVITIES
Repayment of loan by stockholder............................ 250,375 182,988
Purchase of property, plant and equipment................... (448,677) (320,980)
Payments for acquisitions................................... (31,900,000) (3,100,000)
Deferred acquisition costs incurred......................... (1,326,673) (417,020)
Deposits on pending acquisitions............................ (745,000) (525,000)
Loans to employees.......................................... -- (315,863)
Other investing activities, net............................. (187,528) 87,528
------------ ------------
Net cash used in investing activities....................... (34,357,503) (4,408,347)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of Senior Notes and warrants......... -- 64,956,422
Proceeds from Existing Credit Facility...................... 18,700,000 --
Net proceeds from issuance of preferred stock............... 9,822,520 --
Proceeds from issuance of common stock...................... -- 100
Payment of initial public offering and merger expenses...... (1,007,297) --
Repayment of amounts borrowed............................... -- (39,014,833)
Payment of financing related costs.......................... (781,170) (4,226,762)
Redemption of preferred stock............................... -- (8,665,835)
Purchase of redeemable warrant.............................. -- (1,000,000)
Repurchase of common stock.................................. -- (25,000)
Principal payments on capital leases........................ (9,812) (11,186)
------------ ------------
Net cash provided by financing activities................... 26,724,241 12,012,906
------------ ------------
Net (decrease) increase in cash and short-term cash
investments............................................... (5,643,636) 8,849,240
Cash and short-term cash investments at beginning of
period.................................................... 10,891,489 2,042,249
------------ ------------
Cash and short-term cash investments at end of period....... $ 5,247,853 $ 10,891,489
============ ============
SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for interest...................................... $ 3,793,117 $ 4,474,789
Cash paid for income taxes.................................. $ 112,049 $ 417,769
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Asset acquisitions recorded in connection with barter
transactions.............................................. $ 189,982 $ 112,636
</TABLE>
See accompanying notes.
F-171
<PAGE> 412
COMMODORE MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND MERGER AGREEMENT
Organization and Nature of Business
Commodore Media, Inc. and Subsidiaries (the "Company") is comprised of
radio stations that derive their revenue from local, regional and national
advertisers. The radio stations are located in the following markets:
Wilmington, Delaware; Hartsdale, Brewster, Patterson, Mt. Kisco, New York;
Huntington, West Virginia -- Ashland, Kentucky; Allentown -- Bethlehem,
Pennsylvania; Fort Pierce -- Stuart -- Vero Beach, Florida; and Fairfield
County, Connecticut. The Company extends credit to its customers in the normal
course of business.
MERGER AGREEMENT
On October 16, 1996, the Company was acquired pursuant to a merger
agreement dated June 21, 1996 with Capstar Broadcasting Partners, Inc.
("Capstar") (the "Merger"), which is an indirect subsidiary of Hicks, Muse, Tate
& Furst Equity Fund III, L.P. The holders of Class A Common Stock and Class B
Common Stock, the holders of employee stock options and the holders of warrants
received $140 per share as consideration for the merger less, in the case of
option and warrant holders, the exercise price per share. In addition, the
Senior Exchangeable Redeemable Preferred Stock, Series A, $.01 par value per
share was redeemed, including all accrued and unpaid dividends.
The Company recognized as other expense approximately $12.7 million in
stock option compensation expense, and approximately $1.4 million of merger
related fees and expenses during the period ended October 16, 1996 in connection
with the Merger.
As a result of the Merger and the change of control effected thereby, the
Company was obligated to satisfy the existing deferred compensation and
employment agreements with its then President and Chief Executive Officer and
its deferred compensation agreement with its then Chief Operating Officer
resulting in a charge to other expense of approximately $1.1 million during the
period ended October 16, 1996. Furthermore, the Company was required to make an
offer to purchase the outstanding 13 1/4% Senior Subordinated Notes due 2003 at
a purchase price equal to 101% of their accreted value, plus any accrued and
unpaid interest. No requests for repurchase were made by the note holders.
As a result of the Merger, the Company did not proceed with its previously
announced intention to undertake an initial public equity offering and has,
therefore, withdrawn its registration statement filed on Form S-1 on May 17,
1996 with the Securities and Exchange Commission. Included in other expenses
during the period ended October 16, 1996 are approximately $525,000 in various
fees and expenses incurred in connection with this filing.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and all subsidiaries, after elimination of intercompany accounts and
transactions.
Short-Term Cash Investments
The Company considers investments which have a remaining maturity of three
months or less at the time of purchase to be short-term cash investments.
F-172
<PAGE> 413
COMMODORE MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND
CASH FLOWS -- (CONTINUED)
Income Taxes
The Company accounts for income taxes in accordance with FASB Statement No.
109, "Accounting for Income Taxes." Under this method, deferred income taxes are
provided for differences between the book and tax bases of assets and
liabilities.
Risks and Uncertainties
The preparation of consolidated statements of operations and cash flows in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
The Company's revenue is principally derived from local broadcast
advertisers who are impacted by the local economy. The Company routinely
assesses the financial strength of its customers. Credit losses are provided for
in the consolidated statements of operations and cash flows in the form of an
allowance for doubtful accounts.
Accounting Periods
The Company maintains its interim consolidated statements of operations and
cash flows based upon the broadcast month end which always ends on the last
Sunday of the calendar month or quarter. The Company's fiscal year end and
fourth quarter ends on December 31.
Property, Plant and Equipment
Depreciation is provided for property, plant and equipment on the
straight-line method based on the following estimated useful lives:
<TABLE>
<CAPTION>
ESTIMATED LIFE
CLASSIFICATION (YEARS)
-------------- --------------
<S> <C>
Land improvements........................................... 20
Buildings................................................... 20
Furniture, fixtures and equipment........................... 7-10
Broadcasting and technical equipment........................ 7-10
Towers and antennas......................................... 20
Music library............................................... 7
Leasehold improvements...................................... 10-20
Vehicles.................................................... 3
</TABLE>
Expenditures for maintenance and repairs are charged to operations as
incurred. Depreciation as a charge to income amounted to approximately $730,000
for the period ended October 16, 1996, and approximately $832,000 for the year
ended December 31, 1995.
Property Held Under Capital Leases
The Company is the lessee of office equipment under capital leases expiring
in various years through 2004. The capital leases are depreciated over their
estimated productive lives of seven to ten years. Total rent
F-173
<PAGE> 414
COMMODORE MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND
CASH FLOWS -- (CONTINUED)
expense was approximately $383,000 for the period ended October 16, 1996 and
approximately $332,000 for the year ended December 31, 1995.
Revenue Recognition
The Company recognizes revenue upon the airing of advertisements.
Intangible Assets
Intangible assets are being amortized by the straight-line method over the
following estimated useful lives:
<TABLE>
<CAPTION>
ESTIMATED LIFE
CLASSIFICATION (YEARS)
-------------- --------------
<S> <C>
FCC licenses and goodwill................................... 40
Organization expenses....................................... 5
Network affiliation agreement............................... 5
Covenant not to compete..................................... 5
Tower site lease............................................ 3
Contract rights............................................. 3
Software.................................................... 3
Pre-sold advertising contracts.............................. 1
</TABLE>
Amortization of the aforementioned intangible assets included as a charge
to income amounted to approximately $592,000 for the period ended October 16,
1996, and approximately $506,000 for the year ended December 31, 1995.
Amortization of FCC licenses and goodwill amounted to approximately $501,000 for
the period ended October 16, 1996, and approximately $588,000 for the year ended
December 31, 1995.
Deferred Charges
Legal fees, bank loan closing costs and other expenses associated with debt
financing are being amortized using the effective interest rate method.
Amortization of debt expense charged to operations and included in interest
expense amounted to approximately $450,000 for the period ended October 16, 1996
and approximately $385,000) for the year ended December 31, 1995.
Advertising Costs
The Company expenses advertising costs related to its radio station
operations as incurred. Advertising expense amounted to approximately $557,000
for the period ended October 16, 1996 and approximately $754,000 for the year
ended December 31, 1995.
F-174
<PAGE> 415
COMMODORE MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND
CASH FLOWS -- (CONTINUED)
Barter Transactions
The fair value of barter and trade-out transactions is included in
broadcast revenue and sales and promotion expense. Barter revenue is recorded
when advertisements are broadcast and barter expense is recorded when
merchandise or services are received. Barter transactions charged to operations
were as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1996 TO YEAR ENDED
OCTOBER 16, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Trade sales................................................. $ 3,204,468 $ 3,238,111
Trade expense............................................... (2,981,823) (3,053,811)
----------- -----------
Net barter transactions..................................... $ 222,645 $ 184,300
=========== ===========
</TABLE>
2. LONG-TERM DEBT
AT&T Senior Credit Facility
On March 13, 1996, the Company entered into a Senior Credit Facility with
AT&T Commercial Finance Corporation ("AT&T") pursuant to which AT&T will make
available to the Company senior secured (i) revolving loans in an amount up to
$30.0 million and (ii) accounts receivable loans in an amount which shall be the
lesser of (a) $5.0 million or (b) 85% of the net book value of the accounts
receivable of the Company (the "AT&T Senior Credit Facility"). The indebtedness
to AT&T is collateralized by the tangible and intangible assets and the capital
stock of all the Company's subsidiaries. Interest is payable monthly at a rate
of 3.5% over LIBOR (8.94% at October 16, 1996) and principal amortization of the
revolving loans and accounts receivable loans begins June 1, 1998 and November
30, 1997, respectively. The Company pays a commitment fee of .25% every six
months on the unused commitment.
Senior Subordinated Notes
The Senior Subordinated Notes bear cash interest at a rate of 7 1/2% per
annum on the principal amount until May 1, 1998 then at a rate of 13 1/4% per
annum until maturity, with interest payment dates on May 1 and November 1.
In 1995, the Company wrote off the balance of the unamortized deferred
financing costs on its retired debt of $443,521. Inasmuch as the Company had no
current federal taxable income and had fully reserved for its net deferred tax
assets, there was no tax effect attributable to this extraordinary item.
3. PREFERRED STOCK
SENIOR EXCHANGEABLE REDEEMABLE PREFERRED STOCK
On May 1, 1996, the Company entered into a Securities Purchase Agreement
with CIBC WG Argosy Merchant Fund 2, LLC ("CIBC Merchant Fund"), pursuant to
which the CIBC Merchant Fund agreed to purchase from the Company, if and when
requested by the Company, up to an aggregate liquidation value of $12,500,000 of
Senior Exchangeable Redeemable Preferred Stock, Series A, $.01 par value per
share, of the Company in such amounts as the Company requested (the "Preferred
Stock Facility"). In connection with the Stamford Acquisition on May 30, 1996
and the Florida Acquisition on May 31, 1996 (see Note 4), the Company issued
5,700 shares and 4,300 shares, respectively, of Preferred Stock for an aggregate
purchase price of $10,000,000. The Preferred Stock accrued cash dividends at the
rate of 8% per annum and was
F-175
<PAGE> 416
COMMODORE MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND
CASH FLOWS -- (CONTINUED)
redeemed, including accrued dividends, in connection with the Merger on October
16, 1996. In connection with the Preferred Stock Facility, the Company issued to
the CIBC Merchant Fund a warrant to purchase 7,550 shares of the Company's Class
A Common Stock, at an exercise price of $.01 per warrant, which were valued in
the aggregate at the date of issue at $981,500. This warrant was redeemed in
connection with the Merger for $140 per share less the exercise price.
4. CONSUMMATED ACQUISITIONS
On October 16, 1996, the Company purchased certain defined assets of radio
stations WKEE-FM and WKEE-AM in Huntington, West Virginia, WZZW-AM in Milton,
West Virginia, WBVB-FM in Coal Grove, Ohio and WIRO-AM in Ironton, Ohio from
Adventure Communications, Inc. for approximately $7.7 million and certain
defined assets of WFXN-FM in Milton, West Virginia and WMLV-FM in Ironton, Ohio
for approximately $4.3 million. The transactions were funded with borrowings
from the AT&T Senior Credit Facility and with funds provided from Capstar. The
Company provided programming to these stations under Local Marketing Agreement
("LMA") effective April 1996 until the purchase date. In addition, the Company
has an option to purchase WHRD-AM in Huntington, West Virginia and provides
programming services to the station under an LMA arrangement.
On May 31, 1996, the Company purchased certain defined assets of radio
stations WBBE-FM (formerly WKQS-FM), WAVW-FM and WAXE-AM in the Fort
Pierce-Stuart-Vero Beach, Florida market from Media VI for $8.0 million (the
"Florida Acquisition"). The transaction was funded with borrowings from the AT&T
Senior Credit Facility and funds from the Preferred Stock Facility. The Company
sold advertising time on these stations under a Joint Service Agreement from
February 1996 until the purchase date.
On May 30, 1996, the Company purchased certain defined assets of radio
stations WKHL-FM and WSTC-AM in Stamford, Connecticut from Q Broadcasting, Inc.
for $9.5 million (the "Stamford Acquisition"). The transaction was financed with
borrowings from the AT&T Senior Credit Facility and funds from the Preferred
Stock Facility.
On March 27, 1996, the Company purchased (i) certain defined assets of
radio stations WZZN-FM in Mount Kisco, New York, WAXB-FM in Patterson, New York
and WPUT-AM in Brewster, New York from Hudson Valley Growth, L.P. for $5.0
million and (ii) all of the issued and outstanding common stock of Danbury
Broadcasting, Inc., owner of WRKI-FM, and WINE-AM in Brookfield, Connecticut,
plus certain real property for $10.0 million. The transaction was financed with
the Company's existing cash and borrowings under the AT&T Senior Credit
Facility. The Company provided programming to these stations under LMAs from
October 1995 until the purchase date.
On June 27, 1995, the Company purchased the assets (excluding cash and
accounts receivable) and broadcasting license of radio broadcast station WQOL-FM
in Vero Beach, Florida for a total purchase price of approximately $3.0 million.
F-176
<PAGE> 417
COMMODORE MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND
CASH FLOWS -- (CONTINUED)
Unaudited pro forma results of operations for the Company as if the
aforementioned acquisitions had been consummated on January 1, 1995 are as
follows (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1996 TO YEAR ENDED
OCTOBER 16, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Net revenue................................................. $ 31,505 $ 38,483
Net loss before extraordinary loss.......................... (4,037) (3,673)
Net loss.................................................... (4,037) (4,117)
</TABLE>
5. INCOME TAXES
The Company has recorded a provision for income taxes as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1996 TO YEAR ENDED
OCTOBER 16, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Current:
Federal................................................... $ -- $ --
State and local........................................... 133,000 140,634
Deferred:
Federal................................................... -- --
State and local........................................... -- --
-------- --------
Total............................................. $$133,000 $140,634
======== ========
</TABLE>
The Company did not record a federal tax benefit on the taxable loss for
the period ended October 16, 1996 or for the year ended December 31, 1995 since
it was not assured that they could realize a benefit for such losses in the
future.
The Company received Internal Revenue Service approval and changed its tax
method of accounting for Federal Communications Commission ("the FCC") licenses
for the tax year ended December 31, 1995. The aggregate amount of cumulative
amortization that will be deductible ratably over six taxable years for the
Company and for tax purposes is approximately $12.1 million.
The reconciliation of income tax computed at the U.S. federal statutory
rates to effective income tax expense is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1996 TO YEAR ENDED
OCTOBER 16, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Provision at statutory rate............................... $(1,184,000) $(734,695)
State and local taxes..................................... 133,000 140,634
Nondeductible expense..................................... 33,800 8,286
Increase in valuation allowance, net of rate changes...... 1,150,200 726,409
Alternative minimum tax................................... -- --
----------- ---------
Total..................................................... $ 133,000 $ 140,634
=========== =========
</TABLE>
F-177
<PAGE> 418
COMMODORE MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND
CASH FLOWS -- (CONTINUED)
6. EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with several executives
of the Company including its President and Chief Executive Officer, its
Executive Vice President and Chief Financial Officer and its Executive Vice
President and General Counsel. The agreements generally provide for terms of
employment, annual salaries, bonuses, eligibility for option awards and
severance benefits.
Effective January 1, 1994, the Company entered into an agreement with its
then President and Chief Executive Officer under which he would be employed in
that capacity through 1996 and provided for annual salary requirements and
bonuses, and a Long-Term Incentive Payment ("LTIP"). In lieu of the LTIP, the
Company paid the then President $1.5 million in cash, issued $1.3 million
principal ($1.1 million net of discount) of Senior Subordinated Notes to a trust
for his benefit and agreed to provide $1.5 million in deferred compensation
which accrues interest at a rate of 7% and is payable in 2003. The Company
recorded the deferred compensation on April 21, 1995 at its calculated net
present value of $921,000. The aggregate effect of the employment agreement
restructuring was to charge $1.8 million to long-term incentive compensation
expense during 1995. In addition, the then President's amended employment
agreement extended his date of employment through April 30, 1998, granted stock
options to him to acquire 28,313 shares of Class A Common Stock at an exercise
price of $45 per share and provided for annual bonuses based upon specific
operating results of Capstar Radio.
The Company also amended its then existing employment agreement with its
then Chief Operating Officer on April 21, 1995. The prior employment agreement
provided for a long-term incentive based upon the increase in certain station
values. The amended employment agreement provided for a cash payment of $400,000
on April 21, 1995 and deferred compensation of $346,000 which accrues interest
at a rate of 7% and is payable in 2003. The Company recorded the deferred
compensation on April 21, 1995 at its calculated net present value of $213,000.
The aggregate effect of the employment agreement restructuring was to charge
$188,800 to long-term incentive compensation expense during 1995. In addition,
the amended employment agreement extended his date of employment through April
30, 1999, granted stock options to acquire 28,313 shares of Class A Common Stock
at an exercise price of $45 per share and provides for annual bonuses based upon
specific operating results of the Company.
As a result of the Merger and the change of control effected thereby, the
Company was obligated to satisfy the existing deferred compensation and
employment agreements with its then President and Chief Executive Officer and
its deferred compensation agreement with its then Chief Operating Officer,
resulting in an additional charge to operations of approximately $1.1 million
which was recorded in the period ended October 16, 1996. Furthermore, all stock
options for the aforementioned officers, as well as for all holders, were
redeemed at $140 per share, less the exercise price of $45 per share at the time
of the Merger. The Company's then President and Chief Executive Officer resigned
his position effective October 16, 1996 as required by the Merger Agreement.
7. RELATED PARTY TRANSACTIONS
During the period ended October 16, 1996 and the year ended December 31,
1995, the Company paid the majority stockholder a salary of approximately
$185,000 and $175,000, respectively.
F-178
<PAGE> 419
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Martin Media:
We have audited the accompanying balance sheets of Martin Media (a
California limited partnership) as of December 31, 1997 and 1996 and the related
statements of operations, partners' capital (deficit), and cash flows for each
of the three years in the period ended December 31, 1997 (included at F-180
through F-193). These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Martin Media, as of December
31, 1997 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Bakersfield, California
February 13, 1998
F-179
<PAGE> 420
MARTIN MEDIA
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Current Assets
Cash and equivalents...................................... $ 23,254 $ 2,661,610
Trade accounts receivable, net of allowance for doubtful
accounts of $142,515 and $100,000 as of December 31,
1997 and 1996, respectively............................ 5,658,379 4,726,301
Current maturities of long-term notes receivable, limited
partners............................................... 136,030 132,956
Other receivables......................................... 113,514 100,892
Inventories, raw materials................................ 520,725 209,323
Prepaid expenses.......................................... 1,566,582 1,085,324
------------ -----------
Total current assets.............................. 8,018,484 8,916,406
------------ -----------
Long-Term Notes Receivable, limited partners, less current
maturities................................................ 281,279 317,309
Property and Equipment, net of accumulated depreciation..... 74,863,597 52,367,653
Intangible Assets, net of accumulated amortization.......... 58,446,919 15,872,530
Deposit on purchase option.................................. 463,800 --
------------ -----------
$142,074,079 $77,473,898
============ ===========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current Liabilities
Current maturities of long-term debt...................... $ 3,690,436 $ 5,339,365
Current maturities of capital lease obligations........... 214,380 135,586
Accounts payable.......................................... 627,590 928,712
Accrued expenses.......................................... 8,112,132 1,569,048
Unearned income........................................... 219,022 112,961
------------ -----------
Total current liabilities......................... 12,863,560 8,085,672
------------ -----------
Long-Term Liabilities
Long-term debt, less current maturities................... 109,232,810 66,752,424
Capital lease obligations, less current maturities........ 447,865 662,245
------------ -----------
Total long-term liabilities....................... 109,680,675 67,414,669
------------ -----------
Commitments (Note 10)
Mandatorily Redeemable
Preferred partnership units............................... 25,000,000 --
------------ -----------
Partners' Capital (Deficit)................................. (5,470,156) 1,973,557
------------ -----------
$142,074,079 $77,473,898
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-180
<PAGE> 421
MARTIN MEDIA
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Income................................................ $48,106,851 $42,359,472 $33,732,821
Cost of sales......................................... 6,091,333 5,745,308 4,459,240
----------- ----------- -----------
Gross profit................................ 42,015,518 36,614,164 29,273,581
Managers' controlled operating expenses............... 21,201,914 20,929,536 16,861,406
----------- ----------- -----------
Income from managers' operations............ 20,813,604 15,684,628 12,412,175
----------- ----------- -----------
Other operating expenses:
Depreciation and amortization....................... 9,282,574 5,364,835 3,339,377
Management fees..................................... 1,937,326 1,277,431 1,111,350
Refinance and acquisition........................... 9,644,819 3,822,894 --
----------- ----------- -----------
20,864,719 10,465,160 4,450,727
----------- ----------- -----------
Operating income (loss)..................... (51,115) 5,219,468 7,961,448
----------- ----------- -----------
Nonoperating income (expenses):
Interest income..................................... 66,260 96,103 116,154
Interest expense.................................... (8,023,704) (6,022,001) (5,030,100)
Miscellaneous income................................ 1,077,184 252,653 283,597
Miscellaneous expense............................... -- (11,437) (92,682)
Loss on disposal of assets.......................... (512,338) (458,464) (378,358)
----------- ----------- -----------
(7,392,598) (6,143,146) (5,101,389)
----------- ----------- -----------
Net income (loss)........................... $(7,443,713) $ (923,678) $ 2,860,059
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-181
<PAGE> 422
MARTIN MEDIA
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year............................ $ 1,973,557 $ 3,184,665 $ 822,406
Issuance of partnership units....................... -- 5,300,000 --
Redemption of partnership units..................... -- (5,260,230) --
Distributions....................................... -- (327,200) (497,800)
Net income (loss)................................... (7,443,713) (923,678) 2,860,059
----------- ----------- -----------
Balance, end of year.................................. $(5,470,156) $ 1,973,557 $ 3,184,665
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-182
<PAGE> 423
MARTIN MEDIA
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $ (7,443,713) $ (923,678) $ 2,860,059
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization................ 9,282,574 5,364,835 3,339,377
Loss on disposal of assets................... 512,338 458,464 378,358
Changes in operating assets and liabilities
(exclusive of acquisitions):
Increase in accounts receivable........... (932,078) (1,047,834) 223,315
Increase in other receivables............. (12,622) (72,759) 24,091
(Increase) decrease in inventories, raw
materials............................... (311,402) 105,466 35,645
Increase in prepaid expenses.............. (481,258) (136,610) 53,372
Decrease in accounts payable.............. (301,122) (7,055) (195,463)
Increase in accrued expenses.............. 6,543,084 793,490 24,624
Increase in unearned income............... 106,061 84,915 (14,020)
------------ ------------ -----------
Net cash provided by operating
activities.............................. 6,961,862 4,619,234 6,729,358
------------ ------------ -----------
Cash flows from investing activities:
Principal payments on notes receivable............ 32,956 374,740 20,692
Issuance of notes receivable...................... -- (400,000) --
Proceeds from sale of property and equipment...... 49,460 63,801 79,236
Cash paid for acquisitions........................ (67,164,295) (17,200,000) (1,575,000)
Capital expenditures.............................. (7,750,411) (7,114,708) (1,762,978)
Proceeds from sale of investment.................. -- -- 970,482
Purchase option deposit........................... (463,800) -- --
------------ ------------ -----------
Net cash used in investing activities..... (75,296,090) (24,276,167) (2,267,568)
------------ ------------ -----------
Cash flows from financing activities:
Net (payments)/borrowings on line-of-credit....... -- (1,395,052) 601,324
Proceeds from issuance of long-term debt.......... 41,014,131 75,915,869 1,006,400
Principal payments on long-term debt.............. (318,259) (57,059,619) (3,522,394)
Distributions to partners......................... -- (327,200) (497,800)
Redemption of partnership units................... -- (5,260,230) --
Issuance of mandatorily redeemable preferred
partnership units.............................. 25,000,000 -- --
Issuance of partnership units..................... -- 5,000,000 --
------------ ------------ -----------
Net cash provided (used) by financing
activities.............................. 65,695,872 16,873,768 (2,412,470)
------------ ------------ -----------
Net increase (decrease) in cash and cash
equivalents....................................... (2,638,356) (2,783,165) 2,049,320
Cash and cash equivalents at beginning of year...... 2,661,610 5,444,775 3,395,455
------------ ------------ -----------
Cash and cash equivalents at end of year............ $ 23,254 $ 2,661,610 $ 5,444,775
============ ============ ===========
Supplemental disclosures of cash flow
information:
Interest paid................................ $ 8,085,486 $ 6,357,207 $ 5,036,375
============ ============ ===========
Income taxes paid............................ $ -- $ 7,349 $ 800
============ ============ ===========
</TABLE>
Supplemental disclosures of noncash investing and financing activities:
During the year ended December 31, 1997 long-term debt in the amount
of $84,845,560 was refinanced.
During the year ended December 31, 1996 long-term debt in the amount
of $1,684,215 was incurred to purchase fixed assets and intangible assets.
During the year ended December 31, 1996 notes receivables to
shareholders in the amount of $300,000 were issued for partnership units.
During the year ended December 31, 1995 long-term debt in the amount
of $318,900 was incurred to purchase sign structures.
The accompanying notes are an integral part of these statements.
F-183
<PAGE> 424
MARTIN MEDIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business
Martin Media, a California limited partnership (the Company), was formed in
December, 1984 and operated under the name of Colorado River Markets until
August, 1991. The Company has operating divisions located in Pennsylvania, Ohio,
Connecticut, Washington, D.C., Arizona and Nevada.
The Company owns and leases billboards on a contractual basis nationwide
for the purpose of providing outdoor advertising services. The Company extends
credit in the form of accounts receivable on a short-term basis to businesses
and advertisers doing business in the above noted areas.
Significant accounting policies
Basis of accounting
The financial statements are prepared on an accrual basis, which recognizes
income when earned and expenses when incurred.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers cash and cash equivalents to be all highly liquid
investments purchased with a maturity of three months or less.
Inventories, raw materials
Inventories are stated at the lower of cost or market using the first in,
first out (FIFO) cost method.
Property and equipment
Property and equipment are stated at cost and depreciated over estimated
useful lives primarily using the straight-line method. Repairs and maintenance
and small equipment purchases are expensed as incurred. Expenditures which
significantly increase asset values or extend useful lives are capitalized.
Estimated useful lives are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements.................................. 15-31
Posters..................................................... 25
Bulletins................................................... 25
Shop equipment.............................................. 3-10
Office furniture and equipment.............................. 5-10
Auto and trucks............................................. 5-7
</TABLE>
F-184
<PAGE> 425
MARTIN MEDIA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes
Under provision of the Internal Revenue Code and the respective state
Taxation Codes, partnerships are not subject to income taxes; any income or loss
realized is taxed to the individual partners. Certain states do impose a minimum
tax (franchise fee).
Intangible assets
Covenants not to compete are recorded at cost and are amortized using the
straight-line method over the contractual period specified.
Organization costs, advertising rights, permits and licenses, acquisition
fees, lease rights and goodwill are recorded at cost and are amortized using the
straight-line method over five years.
Loan fees are amortized over the life of the loan to which they are
associated.
Profit sharing plan
The Company adopted a profit sharing plan which is a qualified pension
trust under Section 401(k) of the Internal Revenue Code. All full-time employees
with twelve months of service who are 18 years old or older are eligible to
participate. Each employee may voluntarily contribute up to the lesser of 15% of
their pay or $9,500. The Company has made no contributions to the plan.
Fair value of financial instruments
The carrying amount of the long-term debt approximates fair value.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
2. LONG-TERM NOTES RECEIVABLE, LIMITED PARTNERS
Notes receivable, limited partners at December 31, 1997 and 1996 consisted
of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Barry Heffner, Manager of Pittsburgh Division, prime plus
2%, collateralized by subscription of one unit of Martin
Media, payable $717 per month including interest, due
September 27, 2001........................................ $ 18,758 $ 25,036
Mary Ellen Coleman, Manager of Scranton Division, prime plus
2%, collateralized by subscription of one unit of Martin
Media, payable $717 per month including interest, due
September 27, 2001........................................ 18,975 25,229
Brent Baer, Manager of Washington D.C. Division, 8%,
collateralized by 1/4 of one partnership unit, payable
$838 per month including interest, due December 28,
2001...................................................... 69,894 75,000
Thomas Jones, Manager of Las Vegas Division, 8%,
collateralized by 1/4 of one partnership unit, payable
$838 per month including interest, due December 28,
2001...................................................... 69,894 75,000
</TABLE>
F-185
<PAGE> 426
MARTIN MEDIA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
David Lamberger, National Sales Manager, 8%, collateralized
by 1/4 of one partnership unit, payable $838 per month
including interest, due December 28, 2001................. $ 69,894 $ 75,000
Lynn Terlaga, Manager of Hartford Division, 8%,
collateralized by 1/4 of one partnership unit, payable
$838 per month including interest, due December 28,
2001...................................................... 69,894 75,000
David Weyrich, 10%, unsecured, payable $833 per month
interest only, due November 27, 1997, paid in full
subsequent to December 31, 1997........................... 100,000 100,000
-------- --------
417,309 450,265
Less current maturities..................................... 136,030 132,956
-------- --------
$281,279 $317,309
======== ========
</TABLE>
Prime rate was 8.5% and 8.25% at December 31, 1997 and 1996, respectively.
NOTE 3. ACQUISITIONS
During 1997, the Company purchased substantially all the assets and assumed
certain liabilities of three outdoor advertising companies; during 1996, the
Company purchased substantially all of the assets and assumed certain
liabilities of one outdoor advertising company and exchanged partnership
interests and other consideration for substantially all of the assets, and
assumed certain liabilities, for another outdoor advertising company (the
"Exchange"). Funds used to make the acquisitions and facilitate the Exchange
were provided through the Company's credit facility. The majority of the
intangible assets acquired through the acquisitions and Exchange are being
amortized over a five year period. See Note 10 for acquisitions included above
which were acquired from a related party. Acquisitions during 1995 were not
significant.
The acquisitions were accounted for using the purchase method of accounting
and the purchase price was allocated to the various tangible and intangible
assets acquired. For the Exchange, the Company recorded the assets acquired and
liabilities assumed based on the fair value of the partnership interests
granted. Accordingly, the results of operations for the acquisitions, and the
Exchange, have been included in the results of the Company from the respective
effective dates.
A summary of the cash consideration and allocation of the purchase price as
of the acquisition dates are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Fair value of tangible assets acquired..................... $20,293,392 $ 8,420,000
Fair value of intangible assets acquired................... 46,870,903 11,870,455
Liabilities assumed........................................ -- (2,790,455)
Book value of partnership interests granted................ -- (300,000)
----------- -----------
Cash paid.................................................. $67,164,295 $17,200,000
=========== ===========
</TABLE>
Of the cash paid in 1996, approximately $5 million was utilized to redeem
existing partnership units in connection with the Exchange.
F-186
<PAGE> 427
MARTIN MEDIA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PREPAID EXPENSES
Prepaid expenses at December 31, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Leases...................................................... $1,279,243 $ 903,154
Insurance................................................... 41,541 32,545
Other....................................................... 196,064 124,726
Deposits.................................................... 49,734 24,899
---------- ----------
$1,566,582 $1,085,324
========== ==========
</TABLE>
5. PROPERTY AND EQUIPMENT
Major classes of property and equipment and accumulated depreciation at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Land....................................................... $10,578,202 $ 936,954
Buildings and improvements................................. 5,349,404 218,947
Posters.................................................... 26,855,790 25,114,090
Bulletins.................................................. 44,189,355 36,314,244
Shop equipment............................................. 722,278 519,319
Office furniture and equipment............................. 649,696 449,391
Autos and trucks........................................... 1,951,625 1,662,820
Construction in process.................................... 402,892 215,744
----------- -----------
90,699,242 65,431,509
Less accumulated depreciation.............................. 15,835,645 13,063,856
----------- -----------
$74,863,597 $52,367,653
=========== ===========
</TABLE>
See Note 7 for collateralization of property and equipment.
Depreciation expense for the years ended December 31, 1997, 1996 and 1995
was $2,943,826, $2,624,212 and $2,392,186.
During the years ended December 31, 1997, 1996 and 1995, the Company took
down a number of boards located in the Pittsburgh, Scranton, Hartford, Las Vegas
and Cincinnati divisions. These disposals were initiated by management due to
high operating costs and/or high site lease costs, which resulted in marginal
operating results. Losses on board disposals amounted to $515,056, $440,746 and
$418,957 in the years ended December 31, 1997, 1996 and 1995.
F-187
<PAGE> 428
MARTIN MEDIA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INTANGIBLE ASSETS
Intangible assets and accumulated amortization at December 31, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Organization costs......................................... $ 1,238,376 $ 1,238,376
Covenants not to compete................................... 2,452,096 2,452,096
Advertising rights......................................... 2,925,800 1,291,338
Permits and licenses....................................... 10,705,122 2,547,274
Lease rights............................................... 14,307,733 11,970,722
Goodwill................................................... 33,979,535 220,453
Acquisition fees........................................... 3,718,759 1,053,423
Loan fees.................................................. 359,398 1,577,500
----------- -----------
69,686,819 22,351,182
Less accumulated amortization.............................. 11,239,900 6,478,652
----------- -----------
$58,446,919 $15,872,530
=========== ===========
</TABLE>
See Note 7 for collateralization of intangible assets.
Amortization expense for the years ended December 31, 1997, 1996 and 1995
was $6,338,748, $2,740,623 and $947,191.
7. LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Canadian Imperial Bank of Commerce, As administrative
agent for lenders, under the Credit Agreement dated July
31, 1997, Term A loan, interest at LIBOR plus 2%,
collateralized by accounts receivable, inventory, sign
structures, and intangible assets, payable quarterly,
due June 2004**......................................... $ 60,000,000 $ --
Canadian Imperial Bank of Commerce, As administrative
agent for lenders, under the Credit Agreement dated July
31, 1997, Term B loan, interest at LIBOR plus 2.25%,
collateralized by accounts receivable, inventory, sign
structures, and intangible assets, payable quarterly,
due December 2005**..................................... 35,000,000 --
Canadian Imperial Bank of Commerce, As administrative
agent for lenders, under the Credit Agreement dated July
31, 1997, Revolving Line of Credit, interest ranging
from prime plus 2% LIBOR plus 2.75%, collateralized by
accounts receivable, inventory, sign structures, and
intangible assets, payable quarterly, due June 2004**... 17,300,000 --
Jackson Poster Advertising, 8%, collateralized by sign
structures, payable $912 per month including interest,
due December 2000....................................... 29,124 37,381
Dominion Signs, 8%, collateralized by sign structures and
personally guaranteed by E. Thomas Martin, payable
$68,475 plus interest annually, due August 1999......... 136,950 205,425
</TABLE>
F-188
<PAGE> 429
MARTIN MEDIA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Elaine Perlroth, 7%, collateralized by mortgage, payable
$989 monthly including interest, due November 2008...... $ 90,381 $ 95,715
Ronco Media, non-interest bearing, uncollateralized,
payable $3,000 monthly, due April 2001.................. 120,000 156,000
Ronald Rieger, non-interest bearing, uncollateralized,
payable $167 monthly, due July 2001..................... 6,667 8,667
Rose Marie Rieger, non-interest bearing, uncollateralized,
payable $167 monthly, due April 2001.................... 6,667 8,667
Daniel H. Bradley, non-interest bearing, uncollateralized,
payable $1,667 monthly, due April 2001.................. 66,667 86,667
Pamela Lynn Rieger, non-interest bearing,
uncollateralized, payable $1,667 monthly, due April
2001.................................................... 66,667 86,667
Kory William Rieger, non-interest bearing,
uncollateralized, payable $1,667 monthly, due April
2001.................................................... 66,667 86,667
Rembrandt Outdoor Services, non-interest bearing,
uncollateralized, payable $608 monthly, due July 2001... 33,456 34,065
Canadian Imperial Bank of Commerce, as administrative
agent for Lenders under the Credit Agreement dated July
15, 1996, Term A Loan, interest at LIBOR plus 2.5%,
collateralized by accounts receivable, inventory, sign
structures, and intangible assets, payable quarterly,
due March 2003**........................................ -- 40,000,000
Canadian Imperial Bank of Commerce, as administrative
agent for Lenders under the Credit Agreement dated July
15, 1996, Term B Loan, interest at LIBOR plus 3%,
collateralized by accounts receivable, inventory, sign
structures, and intangible assets, payable quarterly,
due December 2004**..................................... -- 15,000,000
Canadian Imperial Bank of Commerce, as administrative
agent for Lenders under the Credit Agreement dated July
15, 1996, Revolving Line of Credit, interest ranging
from prime plus 1.25% to LIBOR plus 2.50%,
collateralized by accounts receivable, inventory, sign
structures, and intangible assets, payable annually, due
March 2003**............................................ -- 16,285,868
------------ -----------
112,923,246 72,091,789
Less current maturities................................... 3,690,436 5,339,365
------------ -----------
$109,232,810 $66,752,424
============ ===========
</TABLE>
F-189
<PAGE> 430
MARTIN MEDIA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate maturities of long-term debt at December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1998........................................................ $ 3,690,436
1999........................................................ 7,691,592
2000........................................................ 13,124,365
2001........................................................ 14,545,258
2002........................................................ 15,007,561
Thereafter.................................................. 58,864,034
------------
$112,923,246
============
</TABLE>
- ---------------
** Loan has varying interest rates based on Company performance and indexes
found in Credit Agreement dated July 31, 1997. At December 31, 1997 effective
interest rates ranged from 7.1875% to 8.5%.
The Company has entered into interest rate caps primarily to protect
against rising interest exposure of its floating rate long-term debt. The
difference to be paid or received on the cap is included in interest expense as
payments are made or received. At December 31, 1997, the Company had outstanding
interest rate cap agreements with two commercial bank, having a total notional
principal amount of $135,000,000. This agreement effectively changes the
Company's interest exposure on up to $135,000,000 of floating rate debt to a
fixed 6.5% with a floor of 5.5%. The interest rate cap agreements mature
September 1998 ($35,000,000) and September 2000 ($100,000,000).
During 1997, the Company sold an interest rate floor for a gain of
$440,000. This gain is included in other income.
The counterparties to the Company's derivative financial instrument
contract are substantial and creditworthy commercial banks which are recognized
market makers. Neither the risks of counterparty nonperformance nor the economic
consequence of counterparty nonperformance associated with these contracts were
considered by the Company to be material.
Interest expense consists of interest on notes payable and the cost
associated with the purchased of the interest rate cap instrument.
Prime rate was 8.5% and 8.25% at December 31, 1997 and 1996, respectively.
LIBOR rate was 5.9% and 6.5% at December 31, 1997 and 1996, respectively.
8. LONG-TERM CAPITAL LEASE OBLIGATIONS
The Company leases certain sign structures with lease terms through July
2000. Obligations under capital leases have been recorded in the accompanying
financial statements at the discounted present value of future minimum lease
payments. The cost and accumulated amortization for such equipment as of
December 31, 1997 was $1,029,200 and $58,321, respectively. Amortization
included in depreciation expense for the year ended December 31, 1997 was
$41,168. Interest paid on these leases was $130,118 for the year ended December
31, 1997.
F-190
<PAGE> 431
MARTIN MEDIA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The future minimum lease payments under these capital leases and the net
present value of the future minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31:
- ------------
<S> <C>
1998........................................................ $316,628
1999........................................................ 399,627
2000........................................................ 113,280
--------
Total future minimum lease payments......................... 829,535
Less amount representing interest........................... 167,290
--------
Present value of future minimum lease payment............... 662,245
Less current portion........................................ 214,380
--------
Long-term portion........................................... $447,865
========
</TABLE>
9. RELATED PARTY TRANSACTIONS
Transactions occurring between the Company and a related party, which are
not presented elsewhere in these financial statements, are as follows:
Martin and MacFarlane, Inc., a California Corporation (M&M, Inc.), which
has stockholders who are also partners in the Company, performed substantially
all administrative functions for the partnership during the year ended December
31, 1995 and January 1996. Beginning February 1, 1996, administrative functions
were performed by MW Sign Co., the general partner. The partnership pays
management fees approximating 3% of gross revenue, refinancing fees of 4% of all
debt refinanced and acquisition fees of 4% of the purchased price of acquired
companies. On January 1, 1997, management fees increased to 4% of gross revenue.
Total fees paid to M&M, Inc. for the years ended December 31, 1997 and 1996
amounted to $-0- and $78,263, respectively. Total fees paid/accrued to MW Sign
Co. for the years ended December 31, 1997 and 1996 amounted to $11,231,815 and
$5,050,039. Total fees paid to M&M, Inc. and MW Sign Co. for the year ended
December 31, 1995 amounted to $1,111,350.
10. COMMITMENTS
Leases
The Company leases land, buildings, and equipment in connection with its
outdoor advertising business under operating leases. The leasing of land relates
to the posters and bulletins. The Company also leases property, equipment and
buildings to house and support division administrative and field offices.
Future minimum lease payments under cancelable and noncancelable leases at
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING POSTERS,
DECEMBER 31, BULLETINS BUILDINGS TOTAL
- ------------ ---------- ---------- ----------
<S> <C> <C> <C>
1998............................................. $1,199,353 $ 229,539 $1,428,892
1999............................................. 1,219,818 205,164 1,424,982
2000............................................. 1,244,566 193,264 1,437,830
2001............................................. 1,270,536 183,836 1,454,372
2002............................................. 1,295,506 173,628 1,469,134
Thereafter....................................... 1,670,042 289,380 1,959,422
---------- ---------- ----------
$7,899,821 $1,274,811 $9,174,632
========== ========== ==========
</TABLE>
F-191
<PAGE> 432
MARTIN MEDIA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Certain of the Company's noncancelable lease payments are based on a
percentage of revenue generated from the poster or bulletin rather than having a
minimum rental. The percentage of rent ranges from 15% to 20% of revenue. An
estimate of the future payments under these leases has been included in the
above table under posters, bulletins. Historically, rental payments under these
leases have approximated $1,180,000 annually.
Lease expense for the years ended December 31, 1997, 1996 and 1995 was as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Land for posters and bulletins................... $8,042,746 $6,817,196 $5,226,956
Buildings........................................ 518,306 549,069 406,277
Equipment, other................................. 27,041 28,198 31,881
---------- ---------- ----------
$8,588,093 $7,394,463 $5,665,114
========== ========== ==========
</TABLE>
Acquisition, purchase and purchase option
On July 31, 1997 the Company entered into an agreement with Martin &
MacFarlane, Inc. (related party), relative to an agreement Martin & MacFarlane,
Inc. had with another company to purchase certain assets, to acquire certain
assets including sign structures, equipment, and related intangibles located in
the Las Vegas and Colorado River markets for a total purchase price of
$14,350,400. This purchase agreement has two segments, the first of which
provided for the purchase of assets during the year ending December 31, 1997 for
$11,273,400. The second segment of the agreement provides an option to the
Company to purchase additional assets for $3,077,000. Upon execution of the
option agreement, the Company deposited $463,800 in good faith with Martin &
MacFarlane, Inc. The option agreement can only be exercised upon Martin &
MacFarlane, Inc. exercising its option to purchase those assets and other assets
it has under option with the seller; the option agreement expires October 1,
1998.
Preferred partnership units
On December 23, 1997, the Company entered into an agreement to sell
preferred limited partnership units (PPU's), warrants and warrant units to a
select group of purchasers. The Company issued 25,000 PPU's at $1,000 each
($25,000,000), calling for the holders of the PPU's to receive an initial 14%
preferred rate of return, which escalates on certain dates to a maximum of 20%.
The Company can redeem PPU's for 102% of the PPU's capital account amount until
September 23, 1998 and thereafter for 100% of the PPU's capital account amount.
The Company is obligated under the agreement to redeem all outstanding PPU's on
December 23, 2006. Warrants to purchase additional PPU's, based upon terms of
the agreement, shall be issuable upon the 270th day following the purchase date
(December 23, 1997) and quarterly thereafter, if any PPU's shall then be
outstanding.
Credit facilities
On December 23, 1997, the Company entered into an agreement with Canadian
Imperial Bank of Commerce in which their Term B loan maximum borrowing limit was
increased to $40,000,000. As of December 31, 1997, the Company had $5,000,000
available under the term of the loan.
On July 31, 1997, the Company entered into an agreement with Canadian
Imperial Bank of Commerce, as administrative agent for Lenders under the credit
agreement dated July 31, 1997. Under the terms of this agreement, Swing Loan is
available in the amount of $5,000,000. As of December 31, 1997, the Company's
outstanding obligation was $-0-.
F-192
<PAGE> 433
11. SUBSEQUENT EVENTS
Subsequent to December 31, 1997, the Company acquired substantially all of
the assets and assumed certain liabilities of three outdoor advertising
companies at an aggregate purchase price of $18,350,000. Funds used to make the
purchase were provided through the Company's credit facility.
F-193
<PAGE> 434
MARTIN MEDIA
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Income...................................................... $29,335,986 $22,639,673
Cost of sales............................................... 3,554,778 2,860,922
----------- -----------
Gross profit...................................... 25,781,208 19,778,751
Managers' controlled operating expenses..................... 11,498,736 10,024,800
----------- -----------
Income from managers' operations.................. 14,282,472 9,753,951
----------- -----------
Other operating expenses:
Depreciation and amortization............................. 4,935,039 3,192,484
Management fees........................................... 1,465,200 1,332,688
Refinance and acquisition................................. 324,477 59,665
----------- -----------
6,724,716 4,584,837
----------- -----------
Operating income.................................. 7,557,756 5,169,114
----------- -----------
Nonoperating income (expenses):
Interest income........................................... 17,234 36,266
Interest expense.......................................... (7,056,690) (2,952,027)
----------- -----------
(7,039,456) (2,915,761)
----------- -----------
Net income........................................ $ 518,300 $ 2,253,353
=========== ===========
</TABLE>
The accompanying note is an integral part of these statements.
F-194
<PAGE> 435
MARTIN MEDIA
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 518,300 $ 2,253,353
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 4,935,039 3,192,484
Changes in operating assets and liabilities (exclusive
of acquisitions):
Increase in accounts receivable...................... (1,467,442) (579,923)
Decrease (increase) in other receivables............. 28,509 (339,238)
Increase in inventories, raw materials............... (755,168) (775,387)
Increase in prepaid expenses......................... (355,358) (241,092)
Decrease in accounts payable......................... (196,683) (13,949)
Decrease in accrued expenses......................... (4,717,062) (693,027)
------------ -----------
Net cash provided (used) by operating
activities..................................... (2,009,865) 2,803,221
------------ -----------
Cash flows from investing activities:
Decrease in notes receivable.............................. 17,492 450,569
Cash paid for acquisitions................................ (15,453,324) (1,863,034)
Capital expenditures...................................... (9,522,314) (4,521,138)
------------ -----------
Net cash used in investing activities............. (24,958,146) (5,933,603)
------------ -----------
Cash flows from financing activities:
Proceeds from long-term debt.............................. 25,450,460 956,013
Distributions to partners................................. 1,387,288 (37,565)
------------ -----------
Net cash provided by investing activities......... 26,837,748 918,448
------------ -----------
Net decrease in cash........................................ (130,263) (2,211,934)
Cash at beginning of year................................... 23,254 2,361,610
------------ -----------
Cash at end of period....................................... $ (107,009) $ 149,676
============ ===========
Supplemental disclosures of cash flow information:
Interest paid........................................ $ 5,313,150 $ 2,952,027
============ ===========
</TABLE>
The accompanying note is an integral part of these statements.
F-195
<PAGE> 436
MARTIN MEDIA
NOTE TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial information with respect to the six months ended June 30,
1998 and 1997 is unaudited. In the opinion of management, the financial
statements contain all adjustments consisting of normal recurring accruals,
necessary for the fair presentation of the results for such periods. The
information is not necessarily indicative of the results of operations to be
expected for the fiscal year end.
F-196
<PAGE> 437
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Martin & MacFarlane, Inc.:
We have audited the accompanying balance sheets of Martin & MacFarlane,
Inc. (a California corporation) as of December 31, 1997 and 1996, and the
related statements of income, retained earnings and cash flows for each of the
two years in the period ended December 31, 1997 and six months in the period
ended December 31, 1995 (included at F-198 through F-212). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Martin & MacFarlane, Inc. as
of December 31, 1997 and 1996 and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1997 and six
months in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Bakersfield, California
February 13, 1998
F-197
<PAGE> 438
MARTIN & MACFARLANE, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Current Assets
Cash and equivalents...................................... $ 138,294 $ 10,519
Trade accounts receivable, less allowance for doubtful
accounts of $96,051 and $100,000 at December 31, 1997
and 1996............................................... 2,973,646 1,836,944
Current maturity of note receivable....................... 6,856 6,206
Other receivables......................................... 78,723 331,419
Inventories............................................... 1,764,872 1,104,190
Prepaid expenses.......................................... 928,416 565,971
Current deferred income taxes............................. 1,441 1,500
----------- -----------
5,892,248 3,856,749
----------- -----------
Note Receivable............................................. 24,381 31,083
Property and Equipment, net of accumulated depreciation..... 23,527,457 20,187,460
Intangible Assets, net of accumulated amortization.......... 11,053,092 3,007,566
Other Assets
Deposits.................................................. 24,197 22,047
Deposit on Purchase Option................................ 5,536,200 --
----------- -----------
5,560,397 22,047
----------- -----------
$46,057,575 $27,104,905
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank overdraft............................................ $ 166,083 $ 523,360
Current maturities of long-term debt...................... 690,718 7,460,727
Note payable, bank........................................ -- 800,000
Accounts payable.......................................... 543,648 465,372
Accrued expenses.......................................... 391,069 444,798
Distributions payable..................................... 61,832 61,658
Unearned income........................................... 506,348 84,530
Income taxes payable...................................... 6,408 33,205
----------- -----------
2,366,106 9,873,650
----------- -----------
Long-Term Debt, less current maturities..................... 36,041,494 6,835,699
----------- -----------
Deferred Income Taxes....................................... 102,375 111,008
----------- -----------
Commitments (Note 13)
Stockholders' Equity
Common stock, no par or stated value, authorized 150,000
shares, issued and outstanding 82,443 shares, stated
at..................................................... 1,113,070 1,113,070
Retained earnings......................................... 6,434,530 9,171,478
----------- -----------
7,547,600 10,284,548
----------- -----------
$46,057,575 $27,104,905
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-198
<PAGE> 439
MARTIN & MACFARLANE, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SIX MONTH PERIOD ENDED DECEMBER 31,
1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Revenues............................................... $22,535,117 $16,994,368 $8,311,295
Cost of sales.......................................... 2,476,991 2,155,013 1,065,709
----------- ----------- ----------
Gross profit................................. 20,058,126 14,839,355 7,245,586
Managers' controlled operating expenses................ 11,318,791 9,534,848 4,982,152
----------- ----------- ----------
Income from managers' operations............. 8,739,335 5,304,507 2,263,434
----------- ----------- ----------
Other operating expenses
Depreciation and amortization expense................ 2,902,472 1,316,520 575,291
Management fees...................................... 2,210,351 472,931 --
Refinance and acquisitions........................... 884,083 85,175 --
----------- ----------- ----------
5,996,906 1,874,626 575,291
----------- ----------- ----------
Operating income............................. 2,742,429 3,429,881 1,688,143
----------- ----------- ----------
Other income (expense)
Interest income...................................... 15,302 9,773 --
Interest expense..................................... (2,537,908) (1,115,772) (552,412)
Other income......................................... 414,138 117,025 125,286
Loss on disposition of assets........................ (207,372) (136,875) (1,744)
----------- ----------- ----------
(2,315,840) (1,125,849) (428,870)
----------- ----------- ----------
Income before income taxes............................. 426,589 2,304,032 1,259,273
Income tax (expense) benefit........................... (23,458) (57,653) 2,972,317
----------- ----------- ----------
Net income................................... $ 403,131 $ 2,246,379 $4,231,590
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-199
<PAGE> 440
MARTIN & MACFARLANE, INC.
STATEMENTS OF RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SIX MONTH PERIOD ENDED DECEMBER 31,
1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Balance, beginning of period........................... $ 9,171,478 $ 8,526,046 $4,418,120
Net income........................................... 403,131 2,246,379 4,231,590
Dividends............................................ (3,140,079) (1,600,947) (123,664)
----------- ----------- ----------
Balance, end of period................................. $ 6,434,530 $ 9,171,478 $8,526,046
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-200
<PAGE> 441
MARTIN & MACFARLANE, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SIX MONTH PERIOD ENDED DECEMBER 31,
1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 403,131 $ 2,246,379 $ 4,231,590
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 2,902,472 1,316,520 575,291
Loss on disposition of assets................... 207,372 136,875 1,744
Changes in operating assets and liabilities
(exclusive of acquisitions):
Increase in accounts receivable................. (1,136,702) (410,142) 119,579
(Increase) decrease in other receivables........ 252,697 (312,755) 59,985
Increase in inventory........................... (660,682) (220,401) (115,754)
Increase in prepaid expenses.................... (362,445) (135,739) 200,316
Decrease in deferred income tax asset........... 59 -- --
(Increase) decrease in other
assets -- deposits............................ (2,150) (5,000) 3,124
Increase (decrease) in bank overdraft........... (357,277) 523,360 --
Increase (decrease) in accounts payable......... 78,276 (60,260) (126,935)
Increase (decrease) in accrued expenses......... (53,555) 169,057 (8,073)
Increase (decrease) in unearned income.......... 421,818 1,185 (73,536)
Increase (decrease) in income taxes payable..... (26,797) 9,835 (868,116)
Increase (decrease) in deferred income taxes.... (8,633) 7,826 (2,961,731)
------------ ----------- -----------
Net cash provided by operating
activities............................... 1,657,584 3,266,740 1,037,484
------------ ----------- -----------
Cash flows from investing activities:
Increase in purchase option deposit................ (5,536,200) -- --
Proceeds from certificates of deposit.............. -- -- 200,000
Proceeds from sale of investments.................. -- 11,859 --
Proceeds from sale of property and equipment....... 107,400 217,320 14,082
Cash paid for acquisitions......................... (10,723,930) (5,849,000) (240,000)
Capital expenditures............................... (2,646,168) (748,741) (201,925)
Issuance of notes receivable....................... -- (38,901) (50,000)
Principal payments on notes receivable............. 6,052 1,612 --
Principal payments on notes receivable,
shareholder..................................... -- 50,000 --
------------ ----------- -----------
Net cash used in investing activities...... (18,792,846) (6,355,851) (277,843)
------------ ----------- -----------
Cash flows from financing activities:
Proceeds from notes payable........................ 21,459,216 5,500,000 809,400
Net (payments) borrowings on line of credit........ (950,000) 800,000 (50,000)
Principal payments on notes payable................ (106,100) (1,975,159) (1,677,500)
Distributions to shareholders...................... (3,140,079) (1,600,947) (123,664)
------------ ----------- -----------
Net cash provided by (used in) financing
activities............................... 17,263,037 2,723,894 (1,041,764)
------------ ----------- -----------
Net increase (decrease) in cash and cash
equivalents........................................ 127,775 (365,217) (282,123)
Cash and cash equivalents at beginning of year....... 10,519 375,736 657,859
------------ ----------- -----------
Cash and cash equivalents at end of year............. $ 138,294 $ 10,519 $ 375,736
============ =========== ===========
Supplemental disclosures of cash flow information:
Interest paid...................................... $ 2,634,036 $ 1,093,501 $ 563,494
============ =========== ===========
Payment of income taxes............................ $ 50,255 $ 47,818 $ 857,530
============ =========== ===========
</TABLE>
Supplemental disclosures of non cash financing activities:
During the year ended December 31, 1997 long term debt in the amount
of $18,245,035 was refinanced.
The accompanying notes are an integral part of these statements.
F-201
<PAGE> 442
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business
Martin & MacFarlane, Inc. (the Company) was incorporated December 2, 1971.
The Company owns, leases, and manages billboards on a contractual basis
nationwide for the purpose of providing outdoor advertising services. The
Company also owns and operates a small winery located in Paso Robles,
California. The Company extends short-term credit in the form of accounts
receivable to businesses and advertisers doing business in the above noted
areas.
Significant accounting policies
BASIS OF ACCOUNTING
The financial statements are prepared on an accrual basis, which recognizes
income when earned and expenses when incurred.
CHANGE IN ACCOUNTING PERIOD
Pursuant to the adoption by the Company of S Corporation status for income
tax purposes, the Company changed from a fiscal year end to a calendar year end
for the period ending December 31, 1995, as required by the Internal Revenue
Service, to coincide with shareholders' tax year end. Therefore, the reporting
periods for the financial statements cover the years ended December 31, 1997 and
1996 and six month period ended December 31, 1995.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers cash and cash equivalents to be all highly liquid
investments purchased with a maturity of three months or less. Throughout the
year, the Company may have amounts in banks in excess of federally insured
limits and as of December 31, 1997, the Company held funds in one financial
institution in excess of federally insured limits in the amount of $115,360.
INVENTORY
Inventory is valued at the lower of cost or market. Valuation is determined
using the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated over estimated
useful lives on a straight-line or accelerated basis. Repairs and maintenance
and small equipment purchases are expensed as incurred.
F-202
<PAGE> 443
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Expenditures which significantly increase asset values or extend useful lives
are capitalized. Estimated useful lives in years are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements.................................. 15-31
Posters..................................................... 7-25
Bulletins................................................... 7-25
Shop equipment.............................................. 3-10
Office furniture and equipment.............................. 5-10
Autos and trucks............................................ 3-7
Irrigation equipment........................................ 7-30
Vineyards................................................... 10-25
</TABLE>
INTANGIBLE ASSETS
Goodwill is amortized using the straight-line method over primarily five
year periods.
Covenants not to compete are amortized using the straight-line method over
the contractual period specified, which ranges from five to ten years.
Advertising rights, permits and licenses, and lease rights are amortized
using the straight-line method over five years.
INCOME TAXES
Effective July 1, 1995, the Company's shareholders elected to be taxed
under the provisions of Subchapter S of the Internal Revenue Code. Under such
election, the shareholders of an "S" Corporation are taxed individually on their
proportionate share of the Company's taxable income. Therefore, no provision or
liability for federal income tax has been included in these financial
statements. State income taxes are provided based on statutory rates. State
income taxes currently payable and deferred relate primarily to temporary
differences from the use of accelerated methods of depreciation and the direct
write-off method of accounting for bad debts.
PROFIT SHARING PLAN
The Company adopted a profit sharing plan which is a qualified pension
trust under Section 401(k) of the Internal Revenue Code. All full time employees
with twelve months of service who are 19 year old or older are eligible to
participate. Each employee may voluntarily contribute up to the lesser of 15% of
their pay or $9,500. The Company has made no matching contributions to the plan.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the long-term debt approximates fair value.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year presentation.
F-203
<PAGE> 444
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS
During 1997, the Company purchased substantially all of the assets and
assumed certain liabilities of three outdoor advertising companies; during 1996,
the Company purchased substantially all of the assets and assumed certain
liabilities of four outdoor advertising companies. Concurrently with one of the
1996 acquisitions, the Company exchanged the assets acquired and liabilities
assumed for similar assets and liabilities of another outdoor advertising
company to enable the Company to expand its existing market share in that
locality. The exchange was recorded at the fair market value of the assets
acquired. Funds used to make the acquisitions were provided through the
Company's credit facility. The majority of the intangible assets acquired are
being amortized over a five year period. See Note 13 for acquisitions included
above, which also includes a related party.
The acquisitions were accounted for using the purchase method of accounting
and the purchase price was allocated to the various tangible and intangible
assets acquired. Accordingly, the results of operations for the various
acquisitions have been included in the results of the Company from the
respective effective dates.
A summary of the cash consideration and allocation of the purchase price as
of the acquisition dates are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Fair value of tangible assets acquired...................... $ 2,756,703 $3,302,000
Fair value of intangible assets acquired.................... 9,199,897 2,597,000
Liabilities assumed......................................... (1,232,670) (50,000)
----------- ----------
Cash paid................................................... $10,723,930 $5,849,000
=========== ==========
</TABLE>
3. NOTE RECEIVABLE
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Ferguson Henderson Investments, 10%, secured by real
property, payable $806 monthly, due November 10, 2001..... $31,237 $37,289
Less current maturity....................................... 6,856 6,206
------- -------
$24,381 $31,083
======= =======
</TABLE>
4. INVENTORIES
Inventories are as follows at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Raw material................................................ $ 244,328 $ 139,309
Winery:
Materials and grape production costs...................... 198,033 138,266
In process................................................ 746,996 494,817
Finished goods............................................ 529,953 299,240
Tasting room, miscellaneous and resale.................... 45,562 32,558
---------- ----------
$1,764,872 $1,104,190
========== ==========
</TABLE>
F-204
<PAGE> 445
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. PREPAID EXPENSES
Prepaid expenses consist of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Leases...................................................... $798,887 $505,539
Insurance................................................... 15,256 13,258
Miscellaneous............................................... 114,273 47,174
-------- --------
$928,416 $565,971
======== ========
</TABLE>
6. PROPERTY AND EQUIPMENT
Major classes of property and equipment and accumulated depreciation are as
follows at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Outdoor Advertising
Buildings and improvements............................... $ 870,719 $ 593,537
Posters.................................................. 8,072,315 7,510,907
Bulletins................................................ 18,486,149 15,656,034
Shop equipment........................................... 458,691 329,493
Office furniture and equipment........................... 224,069 211,215
Autos and trucks......................................... 1,414,986 1,268,485
Land..................................................... 838,807 571,107
Construction in process, boards.......................... 363,913 178,736
----------- -----------
30,729,649 26,319,514
Less accumulated depreciation............................ 9,497,838 8,334,374
----------- -----------
21,231,811 17,985,140
----------- -----------
Winery
Buildings and improvements............................... $ 864,672 $ 844,850
Irrigation and wells..................................... 45,752 45,752
Vineyards................................................ 316,981 278,219
Landscaping.............................................. 26,194 26,194
Auto..................................................... 23,800 19,500
Vineyard equipment....................................... 129,356 125,502
Winery equipment......................................... 859,375 707,482
Office furniture and equipment........................... 50,349 40,749
Land..................................................... 376,133 376,133
----------- -----------
2,692,612 2,464,381
Less accumulated depreciation............................ 992,798 873,402
----------- -----------
1,699,814 1,590,979
----------- -----------
</TABLE>
F-205
<PAGE> 446
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Corporate
Buildings and improvements............................... $ 699,474 $ 689,293
Office furniture and equipment........................... 18,647 18,647
Land..................................................... 41,448 42,783
----------- -----------
759,569 750,723
Less accumulated depreciation............................ 163,737 139,382
----------- -----------
595,832 611,341
----------- -----------
$23,527,457 $20,187,460
=========== ===========
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1996 and the
six months ended December 31, 1995 was $1,468,013, $1,086,108, and $522,293,
respectively.
7. INTANGIBLE ASSETS
Intangible assets and accumulated amortization are as follows at December
31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Loans fees.................................................. $ 278,750 $ --
Goodwill.................................................... 5,339,883 438,965
Covenants not to compete.................................... 353,079 203,079
Advertising rights.......................................... 1,553,639 708,100
Permits and licenses........................................ 2,365,719 377,567
Lease rights................................................ 3,193,624 1,877,001
----------- ----------
13,084,694 3,604,712
Less accumulated amortization............................... 2,031,602 597,146
----------- ----------
$11,053,092 $3,007,566
=========== ==========
</TABLE>
Amortization expense for the years ended December 31, 1997 and 1996 and the
six months ended December 31, 1995 was $1,434,459, $230,412, and $52,998,
respectively.
F-206
<PAGE> 447
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Canadian Imperial Bank of Commerce, as administrative
agent for lenders under the Credit Agreement dated July
31, 1997, Term A loan, interest at LIBOR plus 2.75%,
collateralized by accounts receivable, inventory, sign
structures, and intangible assets, payable quarterly,
due June 2004**......................................... $30,000,000 $ --
Canadian Imperial Bank of Commerce, as administrative
agent for lenders under the Credit Agreement dated July
31, 1997, Revolving Line of Credit, interest ranging
from prime plus 2% or LIBOR plus 2.75%, collateralized
by accounts receivable, inventory, sign structures, and
intangible assets, payable quarterly, due June 2004**... 3,400,000 --
Canadian Imperial Bank of Commerce, as administrative
agent for lenders under the Credit Agreement dated July
31, 1997, Swing Loan, interest ranging from prime plus
2% or LIBOR plus 2.75%, collateralized by accounts
receivable, inventory, sign structures, and intangible
assets, payable at termination date, due June 2004**.... 1,455,565 --
Palmer Outdoor Advertising, Inc., 10.5%, collateralized by
sign structures, equipment, and inventory, payable
$10,266 monthly including interest, due January 2002.... 406,349 --
Anthony E. and Laverne L. Brum, 7%, collateralized by deed
of trust, payable $1,742 monthly including interest, due
August 2004............................................. 111,067 --
American Commercial Bank, 8%, collateralized by vehicle,
payable $394 monthly including interest, due March
2001.................................................... 13,443 --
American Commercial Bank, 8%, collateralized by vehicle,
payable $474 monthly including interest, due March
2001.................................................... 16,176 --
William H. and Jannette L. Kunz, 12.25%, uncollateralized,
payable $6,631 monthly including interest, due May
2010.................................................... 505,043 --
LarMark, Inc., non-interest bearing, unsecured, due
January 1998............................................ 425,000 --
Virgil and Ruth Rose, 7%, collateralized by deed of trust,
payable $931 monthly including interest, due February
2026.................................................... 137,315 138,822
Paragon Outdoor Advertising, non-interest bearing,
uncollateralized, payable $608 monthly, due July 2001... 26,157 33,456
Gaechter Outdoor Advertising, non-interest bearing,
uncollateralized, payable in decreasing annual
installments ranging from $28,000 to $21,600, due August
2001.................................................... 96,000 124,000
Ken Lyons and Michael Burkett, non-interest bearing,
uncollateralized, payable $710 monthly, due May 2001.... 29,097 37,613
</TABLE>
F-207
<PAGE> 448
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Pesenti Winery, noninterest bearing, collateralized by
sign structure, payable $1,500 per year, due December
2003.................................................... 9,000 10,500
Advanced Outdoor, noninterest bearing, collateralized by
sign structures, payable $9,500 per month, due December
1998.................................................... 102,000 214,000
Antelope Valley Bank, 8.5%, collateralized by vehicle,
payable $466 monthly including interest, payable August
2001.................................................... -- 21,471
Don Enger and Clayton Enger, 8.5%, collateralized by deed
of trust, payable $256 monthly including interest, due
July 2001............................................... -- 11,648
Massachusetts Mutual Life Insurance Co., 11.05%,
unsecured, payable $500,000 per year beginning November
11, 1994, interest payable quarterly, due November
1999.................................................... -- 1,500,000
Massachusetts Mutual Life Insurance Co., 10.9%, unsecured,
payable $687,500 per year, interest payable quarterly,
due August 1999......................................... -- 2,062,500
Massachusetts Mutual Life Insurance Company, 11.55%,
unsecured, payable $500,000 per year beginning June 1,
1996, interest payable quarterly, due June 2002......... -- 3,000,000
Bank of Santa Maria, interest at prime plus 2.5%,
collateralized by deed of trust, payable $1,188 per
month including interest, due May 2002.................. -- 119,695
Bank of Santa Maria, 9.5%, collateralized by vehicle,
payable $1,168 per month including interest, due August
1997.................................................... -- 4,244
Alta and Fred Higginbotham, 8%, collateralized by deed of
trust, payable $150 per month, due January 2000......... -- 6,771
Estates Trust, Inc., 9%, collateralized by deed of trust
and personally guaranteed by E. Thomas Martin, payable
$862 per month including interest, due October 2009..... -- 78,578
Barbara Lehmann, 10%, collateralized by deed of trust,
interest payable monthly, due March 1998................ -- 20,000
Christine and Alice Henderson, 9%, collateralized by deed
of trust, payable $805 per month including interest, due
April 2011.............................................. -- 96,034
Central Coast Federal Land Bank, 7.5%, collateralized by
winery deed of trust, products and crops inventory and
accounts receivable, payable $7,126 per month including
interest, due November 2015............................. -- 797,081
Central Coast Production Credit Association, 9.75%,
collateralized by winery accounts receivable and
inventory, interest payable quarterly, due January
1999.................................................... -- 150,000
Canadian Imperial Bank of Commerce, interest at LIBOR plus
2.5%, collateralized by the Amarillo Division's accounts
receivable, inventory, sign structures and intangible
assets and personally guaranteed by E. Thomas Martin and
David Weyrich, interest payable monthly, due May
1997**.................................................. -- 5,500,000
</TABLE>
F-208
<PAGE> 449
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Central Coast Production Credit Association, interest at
prime plus 1.5%, collateralized by winery equipment,
payable $5,590 monthly including interest, due August
2000.................................................... -- 198,165
Homer Hensley and Rick Hensley, 8.5%, collateralized by
deed of trust, payable $1,231 monthly including
interest, due January 2001.............................. -- 50,813
Paragon Outdoor Advertising, 8%, collateralized by sign
structures, payable $2,636 monthly including interest,
due July 2001........................................... -- 121,035
----------- -----------
36,732,212 14,296,426
Less current maturities................................... 690,718 7,460,727
----------- -----------
$36,041,494 $ 6,835,699
=========== ===========
</TABLE>
Aggregate maturities of long-term debt at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
------------
<S> <C>
1998........................................................ $ 690,718
1999........................................................ 5,676,502
2000........................................................ 6,189,260
2001........................................................ 6,937,451
2002........................................................ 10,084,059
Thereafter.................................................. 7,154,222
-----------
$36,732,212
===========
</TABLE>
- ---------------
** Loan has varying interest rates based on Company performance and indexes
found in the Credit Agreement dated July 31, 1997. At December 31, 1997 the
effective interest rates ranged from 7.1875% to 8.5%.
The Company has entered into an interest rate cap primarily to protect
against rising interest exposure of its floating rate long-term debt. The
difference to be paid or received on the cap is included in interest expense as
payments are made or received. At December 31, 1997, the Company had outstanding
interest rate cap agreements with two commercial banks having a total notional
principal amount of $50,000,000. This agreement effectively changes the
Company's interest exposure on $50,000,000 of floating rate debt to a fixed 6.5%
with a floor of 5.5%. The interest rate cap agreement matures September 18,
2000.
During 1997, the Company sold an interest rate floor for a gain of
$220,000. This gain is included in other income.
The counterparties to the Company's derivative financial instrument
contract are substantial and creditworthy commercial banks which are recognized
market makers. Neither the risks of counterparty nonperformance nor the economic
consequence of counterparty nonperformance associated with these contracts were
considered by the Company to be material.
Interest expense consists of interest on notes payable, management fees and
the cost associated with the purchase of the interest rate cap instrument.
Prime rate was 8.5% and 8.25% at December 31, 1997 and 1996, respectively.
F-209
<PAGE> 450
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
LIBOR rate was 5.938% and 5.625% at December 31, 1997 and 1996,
respectively.
9. NOTE PAYABLE, BANK
Note payable, bank is as follows at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- --------
<S> <C> <C>
Heritage Oaks Bank, interest at prime plus .5%,
uncollateralized, interest payable monthly, due May
1997...................................................... $ -- $800,000
==== ========
</TABLE>
Prime rate was 8.25% at December 31, 1996.
10. DISTRIBUTIONS
In January, May, August, and October 1997 and January, May, August, and
October 1996 and in July and October 1995, the Company declared a $.75 per share
cash distribution for 82,443 shares outstanding. At December 31, 1997 and 1996,
$61,832 and $61,658 were payable January 1, 1998 and 1997, respectively.
Subsequent to conversion of the Company to an S-corporation, effective July 1,
1995, the Company began making distributions equal to approximately 49% of
estimated taxable income to its' shareholders to cover their tax liabilities.
Distributions during the year ended December 31, 1997, amounted to $3,140,079,
including a $2,000,000 special distribution occurring as a result of an
acquisition. Distributions during the year ended December 31, 1996, related to
1995 and 1996 taxable income, amounted to $1,353,618.
11. DEFERRED INCOME TAXES
For state tax purposes, the applicable states do recognize "S" Corporation
status; however, they still impose a tax at the corporate level, generally at a
rate significantly lower than the regular corporate rate. Deferred tax assets
and liabilities relate to temporary differences associated with state income
taxes.
Income tax expense (benefit) for the years ended December 31, 1997 and 1996
and six months ended June 30, 1995 consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -----------
<S> <C> <C> <C>
Current.............................................. $23,458 $49,827 $ 24,170
Deferred............................................. -- 7,826 (2,996,487)
------- ------- -----------
Income tax expense (benefit)......................... $23,458 $57,653 $(2,972,317)
======= ======= ===========
</TABLE>
Components of deferred income tax balances at December 31, 1997 and 1996
consisted of:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Current deferred tax assets................................. $ 1,441 $ 1,500
======== ========
Long-term deferred tax liabilities.......................... $102,375 $111,008
======== ========
</TABLE>
Deferred income taxes arise primarily from temporary differences due to use
of accelerated depreciation methods for income tax purposes and the
straight-line method and the use of the allowance method of accounts receivable
for financial reporting purposes.
F-210
<PAGE> 451
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. RELATED PARTY TRANSACTIONS
Through February 1, 1996 the Company provided management services to Martin
Media, a company having common shareholders/partners, at a rate approximating 3%
of Martin Media's gross revenue. Management fees of $78,263 were received by the
Company from Martin Media during the year ended December 31, 1996.
Subsequent to December 31, 1995, and effective February 1, 1996, the
Company divested itself of all management and administrative employees and
contracted with M.W. Sign Company, a company wholly owned by E. Thomas Martin
and David Weyrich, to provide the Company with management services at 3% of
gross revenue. As of January 1, 1997, management fees increased to 4% of gross
revenue. Management fees of $895,281 and $472,931 were paid to M.W. Sign Company
during the years ended December 31, 1997 and 1996, respectively.
13. COMMITMENTS
Leases:
The Company leases land in connection with its outdoor advertising posters
and panels as well as for office and yard space. The Company also leases office
and shop buildings which are located in different geographic areas within the
various divisions. A portion of these are long-term leases.
Lease expense for the years ended December 31, 1997 and 1996 and six months
ended December 31, 1995 was $4,748,420, $2,333,218 and $1,064,875, respectively.
Future minimum lease payments under noncancellable leases at December 31,
1997 are as follows:
<TABLE>
<CAPTION>
POSTERS,
YEARS ENDING DECEMBER 31, BUILDINGS BULLETINS TOTAL
- ------------------------- --------- ---------- ----------
<S> <C> <C> <C>
1998.............................................. $ 19,533 $ 162,400 $ 181,933
1999.............................................. 19,944 162,400 182,344
2000.............................................. 19,944 162,400 182,344
2001.............................................. 21,285 162,400 183,685
2002.............................................. 21,732 162,400 184,132
Thereafter........................................ 48,897 454,400 503,297
-------- ---------- ----------
$151,335 $1,266,400 $1,417,735
======== ========== ==========
</TABLE>
On August 1, 1995, the Company entered into a lease with Outdoor Systems
Company of Kansas City. Under the terms of the lease Outdoor Systems leased 87
outdoor advertising structures from the Company for $12,500 per month. The
agreement terminated December 31, 1997.
Acquisition, purchase and sales options
On July 31, 1997, the Company entered into an agreement with another
company to acquire certain assets, including sign structures, equipment, and
related intangibles located in Nevada, Arizona, and California for a total
purchase price of $60,000,000. This purchase agreement has two segments, the
first of which provided for the purchase of assets totaling $20,500,000.
Simultaneously, and as part of the master agreement, the Company entered into an
agreement with Martin Media (related party) to sell them those assets located in
their geographical service area, primarily the Las Vegas and Colorado River
markets, for $11,273,400. The Company's net acquisition price under the first
segment of the agreement was $9,226,600.
F-211
<PAGE> 452
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The second segment of the agreement provides an option for the Company to
purchase additional assets for $39,500,000. As part of this transaction, the
Company has also provided Martin Media with an option to purchase the assets
located in the Las Vegas and Colorado River markets for $3,077,000. The
Company's net acquisition price for assets to be received under the second
segment of the agreement will be $36,423,000.
Upon execution of the option agreement, the Company deposited $6,000,000 in
good faith with the seller. Similarly, Martin Media deposited $463,800 with the
Company resulting in a net deposit of $5,536,200. The option agreement expires
October 1, 1998. Should the Company not exercise the option, the seller holds an
option agreement whereby it can repurchase the assets originally sold to the
Company and assets owned by the Company in and around the Bakersfield area.
As part of the option agreement, the Company will manage those assets
covered by the option agreement. The payment for the use of these assets through
the option period will approximate $285,000 per month. Revenue earned through
the managed assets is subject to the 4% management fee paid to M.W. Sign, Inc.
Credit facility
On July 31, 1997, the Company entered into an agreement with Canadian
Imperial Bank of Commerce, as administrative agent for Lenders under the credit
agreement dated July 31, 1997. Under the terms of this agreement, the Term B
Loan is available to fund future acquisitions in the amount of $20,000,000. As
of December 31, 1997, the Company's outstanding obligation was $-0-.
14. SUBSEQUENT EVENTS
Subsequent to December 31, 1997, the Company acquired substantially all of
the assets and assumed certain liabilities of one outdoor advertising company at
an aggregate purchase price of $12,500,000. Funds used to make the purchase were
provided through the Company's existing credit facility.
F-212
<PAGE> 453
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Martin & MacFarlane, Inc.
Paso Robles, California
We have audited the accompanying balance sheet of Martin & MacFarlane, Inc.
as of June 30, 1995 and the related statements of income, retained earnings and
cash flows for the year then ended (included at F-214 through F-224). These
financial statements are the responsibility of Martin & MacFarlane, Inc.'s
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Martin & MacFarlane, Inc. as
of June 30, 1995 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
BARBICH LONGCRIER HOOPER & KING
ACCOUNTANCY CORPORATION
By: /s/ GEOFFREY B. KING, CPA
--------------------------------
Geoffrey B. King, CPA
Bakersfield, California
August 25, 1995
F-213
<PAGE> 454
MARTIN & MACFARLANE, INC.
BALANCE SHEET
JUNE 30, 1995
ASSETS
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Current Assets
Cash and equivalents (Note 7)............................. $ 351,705
Restricted cash (Note 6).................................. 306,154
Certificates of deposit................................... 200,000
Investments............................................... 8,400
Trade accounts receivable, less allowance for doubtful
accounts of $100,000................................... 1,546,381
Other receivables......................................... 78,649
Inventories (Note 2)...................................... 768,035
Prepaid expenses (Note 3)................................. 630,548
Current deferred income taxes (Note 10)................... 145,554
-----------
4,035,426
-----------
Property and Equipment, net of accumulated depreciation
(Notes 4, 6 and 7)........................................ 16,872,469
-----------
Intangible Assets, net of accumulated amortization (Note
5)........................................................ 764,898
-----------
Other Assets................................................ 20,171
-----------
$21,692,964
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt (Note 6)............. $ 1,848,465
Note payable, bank (Note 7)............................... 200,000
Accounts payable.......................................... 652,567
Accrued expenses.......................................... 319,021
Dividends payable (Note 9)................................ 26,451
Unearned income........................................... 156,881
Income taxes payable (Note 10)............................ 891,486
-----------
4,094,871
-----------
Long-Term Debt, less current maturities (Note 6)............ 8,857,936
-----------
Long-Term Deferred Income Taxes (Note 10)................... 3,208,967
-----------
Commitments (Note 13)
Stockholders' Equity
Common stock, no par or stated value, authorized 150,000
shares, issued and outstanding 82,443 shares (Note
9)..................................................... 1,113,070
Retained earnings......................................... 4,418,120
-----------
5,531,190
-----------
$21,692,964
===========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-214
<PAGE> 455
MARTIN & MACFARLANE, INC.
STATEMENT OF INCOME
YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Revenues.................................................... $16,168,763
Cost of sales............................................... 2,045,552
-----------
Gross profit...................................... 14,123,211
Managers' controlled operating expenses..................... 10,070,408
-----------
Income from managers' operations.................. 4,052,803
-----------
Other operating expenses
Depreciation and amortization expense..................... 1,100,305
-----------
Operating income.................................. 2,952,498
-----------
Other income (expense)
Interest expense.......................................... (1,313,456)
Other income.............................................. 152,804
Gain on disposition of assets............................. 2,405,522
Employee separation expense............................... (269,803)
-----------
Income before income taxes.................................. 3,927,565
Income tax expense (Note 10)........................... 1,519,542
-----------
Net income........................................ $ 2,408,023
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-215
<PAGE> 456
MARTIN & MACFARLANE, INC.
STATEMENT OF RETAINED EARNINGS
YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Balance, beginning of year.................................. $2,195,593
Net income................................................ 2,408,023
Dividends (Note 9)........................................ (185,496)
----------
Balance, end of year........................................ $4,418,120
==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-216
<PAGE> 457
MARTIN & MACFARLANE, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 2,408,023
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 1,100,305
Gain on disposition of assets.......................... (2,405,522)
Increase in deferred income taxes...................... 469,749
Changes in operating assets and liabilities:
Increase in accounts receivable........................ (57,463)
Increase in other receivables.......................... (66,187)
Decrease in inventory.................................. 11,117
Decrease in prepaid expenses........................... 34,520
Increase in other assets............................... (9,065)
Increase (decrease) in accounts payable................ 5,887
Increase (decrease) in accrued liabilities............. (176,570)
Increase in unearned income............................ 30,106
Increase (decrease) in income taxes payable............ 820,732
-----------
Net cash provided by operating activities......... 2,165,632
-----------
Cash flows from investing activities:
Proceeds from sale of investments......................... 5,000
Increase in certificates of deposit....................... (200,000)
Proceeds from sale of fixed assets........................ 2,656,384
Capital expenditures...................................... (736,258)
Construction of capital improvements...................... (281,102)
Principal payments on loans and notes receivable.......... 32,000
Purchase of intangible assets............................. (310,001)
-----------
Net cash provided by investing activities......... 1,166,023
-----------
Cash flows from financing activities:
Proceeds from notes payable............................... 1,007,317
Principal payments on notes payable....................... (3,946,286)
Dividends paid............................................ (185,496)
-----------
Net cash used in financing activities............. (3,124,465)
-----------
Net increase in cash and cash equivalents................... 207,190
Cash and cash equivalents at beginning of year.............. 450,669
-----------
Cash and cash equivalents at end of year.................... $ 657,859
===========
Unrestricted cash........................................... $ 351,705
Restricted cash............................................. 306,154
-----------
$ 657,859
===========
Supplemental disclosures of cash flow information:
Interest paid............................................. $ 1,339,278
===========
Payment of income taxes................................... $ 229,061
===========
</TABLE>
Schedule of noncash investing:
The Company entered into an exchange agreement with National Outdoor
Media (3M) during the year ended June 30, 1995. In accordance with the
terms of the exchange agreement, the Company traded boards in Kansas City,
Missouri to 3M in exchange for posters and bulletins in Bakersfield,
California and Kansas at a value of $1,033,850 and $2,614,150 cash.
The accompanying notes are an integral part of this statement.
F-217
<PAGE> 458
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business
Martin & MacFarlane, Inc. (the Company) was incorporated December 2, 1971.
The Company owns, leases, and manages billboards on a contractual basis
nationwide for the purpose of providing outdoor advertising services. The
Company also owns and operates a small winery located in Paso Robles,
California. The Company extends credit in the form of accounts receivable to
businesses and advertisers doing business in the above noted areas.
Significant accounting policies
BASIS OF ACCOUNTING
The financial statements are prepared on an accrual basis, which recognizes
income when earned and expenses when incurred.
CASH AND CASH EQUIVALENTS
The Company considers cash and cash equivalents to be all highly liquid
investments purchased with a maturity of three months or less. As of June 30,
1995, the Company held funds of $646,293 in one financial institution.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Bad debts are recognized under the allowance method of accounting which is
based on an average of actual write-offs in past years.
INVESTMENTS
Investments in marketable equity securities are carried at the lower of
cost or market. Decline in market values below cost, which are temporary in
nature, are not recognized as losses until the decline in value is deemed
permanent or until the security is sold.
INVENTORY
Inventory is valued at the lower of cost or market. Valuation is determined
using the first-in, first-out method.
F-218
<PAGE> 459
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated over estimated
useful lives on a straight-line or accelerated basis. Repairs and maintenance
and small equipment purchases are expensed as incurred. Expenditures which
significantly increase asset values or extend useful lives are capitalized.
Estimated useful lives in years are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements.................................. 15-31
Posters..................................................... 7-25
Bulletins................................................... 7-25
Shop equipment.............................................. 3-10
Office furniture and equipment.............................. 5-10
Autos and trucks............................................ 3-7
Irrigation equipment........................................ 7-30
Vineyards................................................... 10-25
</TABLE>
INTANGIBLE ASSETS
Goodwill is recorded at cost and is amortized using the straight-line
method over a forty year period.
Covenants not to compete are recorded at cost and are amortized using the
straight-line method over the contractual period specified, which ranges from
five to ten years.
INCOME TAXES
Effective July 1, 1993, as required by professional standards, the Company
adopted Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Deferred income taxes are provided on timing differences between
financial statement and taxable incomes. Timing differences arise primarily from
the use of the accelerated methods of depreciation, the direct write-off method
of accounting for bad debts, and the carryforward of net operating losses for
income tax purposes. Determination of current or long-term status of the asset
or liability is based upon when the particular timing difference reverses.
2. INVENTORIES
Inventories are as follows at June 30, 1995:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Raw material................................................ $ 84,383
Winery:
Materials and grape production costs...................... 141,255
In process................................................ 162,669
Finished goods............................................ 359,060
Tasting room, miscellaneous and resale.................... 20,668
--------
$768,035
========
</TABLE>
F-219
<PAGE> 460
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PREPAID EXPENSES
Prepaid expenses consist of the following at June 30, 1995:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Leases...................................................... $519,079
Insurance................................................... 36,600
Miscellaneous............................................... 74,869
--------
$630,548
========
</TABLE>
4. PROPERTY AND EQUIPMENT
Major classes of property and equipment and accumulated depreciation are as
follows at June 30, 1995:
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Outdoor Advertising
Buildings and improvements................................ $ 500,731
Posters................................................... 5,987,468
Bulletins................................................. 13,850,302
Shop equipment............................................ 278,749
Office furniture and equipment............................ 191,692
Autos and trucks.......................................... 1,063,156
Land...................................................... 414,472
Construction in process, boards........................... 69,038
-----------
22,355,608
Less accumulated depreciation............................. 7,105,290
-----------
15,250,318
-----------
Winery
Buildings and improvements................................ 664,515
Irrigation and wells...................................... 45,752
Vineyards................................................. 278,219
Landscaping............................................... 26,194
Auto...................................................... 19,500
Vineyard equipment........................................ 119,142
Winery equipment.......................................... 320,720
Office furniture and equipment............................ 37,604
Land...................................................... 206,133
-----------
1,717,779
Less accumulated depreciation............................. 755,093
-----------
962,686
-----------
</TABLE>
F-220
<PAGE> 461
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Corporate
Buildings and improvements................................ $ 654,970
Office furniture and equipment............................ 267,308
Land...................................................... 42,783
-----------
965,061
Less accumulated depreciation............................. 305,596
-----------
659,465
-----------
$16,872,469
===========
</TABLE>
Depreciation expense for the year ended June 30, 1995 was $1,021,709.
5. INTANGIBLES
Intangible assets and accumulated amortization are as follows at June 30,
1995:
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Goodwill.................................................... $ 438,965
Covenants not to compete.................................... 69,000
Advertising rights.......................................... 136,100
Permits and licenses........................................ 168,567
Lease rights................................................ 335,001
----------
1,147,633
Less accumulated amortization............................... 382,735
----------
$ 764,898
==========
</TABLE>
Amortization expense for the year ended June 30, 1995 was $78,596.
6. RESTRICTED CASH
Restricted cash at June 30, 1995 consisted of the following:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Cash, interest bearing account, holdback account, held for
the mutual benefit of the Company and National Advertising
Company, by Chicago Title & Trust Company, until released
by joint order of the parties. Cash is to be released
within twelve months of the June 30, 1995 balance sheet
date. Cash subsequently received July 7, 1995............. $306,154
========
</TABLE>
F-221
<PAGE> 462
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT
Long-term debt consists of the following at June 30, 1995:
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Federal Land Bank, 5.75% and 6.73%, at 1995 and 1994,
collateralized by first trust deed, payable $3,510 per
month including interest, due May 1, 2011................. $ 410,068
Massachusetts Mutual Life Insurance Co., 11.05%, unsecured,
payable $500,000 per year beginning November 11, 1994,
interest payable quarterly, due November 15, 1999......... 2,500,000
Massachusetts Mutual Life Insurance Co., 10.9%, unsecured,
payable $687,500 per year beginning August 15, 1992,
interest payable quarterly, due August 15, 1999........... 3,437,500
Massachusetts Mutual Life Insurance Company, 11.55%,
unsecured, payable $500,000 per year beginning June 1,
1995, interest payable quarterly, due June 1, 2002........ 3,500,000
Boatmen's First National Bank, interest at prime plus 1.5%,
collateralized by first deed of trust, payable $1,420 per
month including interest, due July 8, 2002................ 91,056
Citizens Bank of Paso Robles, interest at prime plus 2.5%,
collateralized by first trust deed, payable $1,188 per
month including interest, due May 13, 2002................ 124,134
Sierra Outdoor, 8%, collateralized by bulletins, payable
$940 per month including interest, due April 15, 1996..... 9,065
Citizens Bank of Paso Robles, interest at 9.5%,
collateralized by vehicle, payable $555 per month
including interest, due August 15, 1997................... 12,962
Citizens Bank of Paso Robles, interest at 9.5%,
collateralized by vehicle, payable $613 per month
including interest, due August 15, 1997................... 14,206
Alta and Fred Higginbotham, 8%, collateralized by deed of
trust, payable $150 per month, due January 1, 2000........ 8,544
Estates Trust, Inc., 9%, collateralized by deed of trust,
payable $862 per month including interest, due October 1,
2009...................................................... 82,916
Barbara Lehmann, 10%, collateralized by deed of trust,
interest payable monthly, due March 30, 1998.............. 20,000
Christine and Alice Henderson, 9%, collateralized by deed of
trust, payable $805 per month including interest, due
April 8, 2011............................................. 97,450
Pesenti Winery, non-interest bearing, collateralized by sign
structure, payable $1,500 per year, due December 15,
2003...................................................... 13,500
Advanced Outdoor, non-interest bearing, collateralized by
sign structures, payable $8,500 per month, due December
10, 1998.................................................. 357,000
Advanced Outdoor, non-interest bearing, collateralized by
sign structures, payable $1,000 per month, due October 1,
1997...................................................... 28,000
-----------
10,706,401
Less current maturities..................................... 1,848,465
-----------
$ 8,857,936
===========
</TABLE>
Prime rate was 9% at June 30, 1995.
F-222
<PAGE> 463
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate maturities of long-term debt at June 30, 1995 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
JUNE 30,
------------
<S> <C>
1996........................................................ $ 1,848,465
1997........................................................ 1,853,095
1998........................................................ 1,850,465
1999........................................................ 1,775,319
2000........................................................ 1,728,146
Thereafter.................................................. 1,650,911
-----------
$10,706,401
===========
</TABLE>
8. NOTE PAYABLE, BANK
Note payable, bank is as follows at June 30, 1995:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Citizens Bank of Paso Robles, interest at 8.5%,
collateralized by certificate of deposit, annually
renewable on April 3, interest payable monthly, due April
3, 1996................................................... $200,000
========
</TABLE>
Prime rate was 9% at June 30, 1995.
9. DIVIDENDS PAYABLE
In January 1995, the Company declared a $.50 per share cash dividend, for
82,443 shares outstanding. In May 1995 the Company declared a $.75 per share
dividend, for 82,443 shares outstanding. At June 30, 1995 $26,451 was payable
July 1, 1995.
10. DEFERRED INCOME TAXES
Income tax expense for the year ended June 30, 1995 is computed under SFAS
109 and consisted of the following:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
---------- -------- ----------
<S> <C> <C> <C>
Current........................................... $ 808,602 $241,191 $1,049,793
Deferred.......................................... 657,023 100,162 757,185
Tax benefit of net operating loss carryforward.... (251,439) (35,997) (287,436)
---------- -------- ----------
Income tax expenses............................... $1,214,186 $305,356 $1,159,542
========== ======== ==========
</TABLE>
Components of deferred income tax balances at June 30, 1995 consisted of:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
----------- -------- ----------
<S> <C> <C> <C>
Current deferred tax assets....................... $ 136,254 $ 9,300 $ 145,554
========== ======== ==========
Long-term deferred tax liabilities................ $2,539,860 $669,107 $3,208,967
========== ======== ==========
</TABLE>
Deferred income tax liabilities arise primarily from timing differences due
to use of accelerated depreciation methods for income tax purposes and the
straight-line method for financial reporting purposes.
F-223
<PAGE> 464
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income tax assets arise primarily from the application of federal and
state net operating loss carryovers.
At June 30, 1995, the Company had alternative minimum tax credits in the
amount of $16,837, available to offset future taxes. Tax credits are included in
deferred tax assets.
11. RELATED PARTY TRANSACTIONS
The following transaction occurring between the Company and a related
party, which is not presented elsewhere in these financial statements, is as
follows:
Martin Media, which has partners who are also stockholders in the Company,
contracts the Company to perform management duties. Martin Media pays a
management fee to the Company which is approximately 3% of Martin Media's gross
revenue. Management fees of $986,356 were received from the partnership during
the fiscal year ending June 30, 1995.
12. PROFIT SHARING PLAN
Discretionary contributions under a defined contribution profit sharing
plan, which are determined by the Company's Board of Directors, have been
accrued to a trust for the benefit of qualified employees in the amount of
$50,000 for the year ended June 30, 1995. All costs are funded currently.
13. COMMITMENTS
The Company leases land in connection with its outdoor advertising posters
and panels as well as for office and yard spaces. These are long-term operating
leases which the Company and lessor have the option to terminate with thirty
days notice.
Lease expense for the year ended June 30, 1995 was $2,218,480.
The Company leases office and shop buildings which are located at various
divisions. A portion of these are long-term leases.
Future minimum lease payments under noncancellable leases at June 30, 1995
are as follows:
<TABLE>
<S> <C>
Years ending June 30,
1996...................................................... $ 47,747
1997...................................................... 22,665
1998...................................................... 18,711
1999...................................................... 19,944
2000...................................................... 19,944
Thereafter................................................ 121,830
--------
$250,841
========
</TABLE>
On August 1, 1995, the Company entered into a lease with Gannett Outdoor
Company of Kansas City. Under the terms of the lease, Gannett Outdoor is leasing
87 outdoor advertising structures from the Company for $12,500 per month. The
agreement will terminate on December 31, 1997. In addition, Gannett Outdoor
shall have the right to exercise an option to purchase these structures at any
time on or after November 2, 1995 and prior to June 30, 1997 for the option
price of $1,030,000.
F-224
<PAGE> 465
MARTIN & MACFARLANE, INC.
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Income...................................................... $16,352,832 $9,717,160
Cost of sales............................................... 1,620,010 1,151,641
----------- ----------
Gross profit...................................... 14,732,822 8,565,519
Managers' controlled operating expenses..................... 8,323,130 5,033,818
----------- ----------
Income from managers' operations.................. 6,409,692 3,531,701
Other operating expenses:
Depreciation and amortization............................. 1,676,518 909,068
Management fees........................................... 1,672,981 98,132
Refinance and acquisition................................. 103,614 39,801
----------- ----------
3,453,113 1,047,001
Operating income.................................. 2,956,579 2,484,700
Nonoperating income (expenses):
Interest expense.......................................... (1,928,998) (796,203)
----------- ----------
(1,928,998) (796,203)
----------- ----------
Income before income taxes.................................. 1,027,581 1,688,497
Income tax expense.......................................... (9,992) --
----------- ----------
Net income........................................ $ 1,017,589 $1,688,497
=========== ==========
</TABLE>
The accompanying note is an integral part of these statements.
F-225
<PAGE> 466
MARTIN & MACFARLANE, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 1,017,589 $ 1,688,497
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 1,676,518 909,068
Changes in operating assets and liabilities (exclusive
of acquisitions):
Increase in accounts receivable...................... (1,111,203) (118,870)
Increase in other receivables........................ (6,167) 279,700
Decrease in inventories, raw materials............... 75,728 117,325
Increase in prepaid expenses......................... (334,730) (225,219)
Decrease in deferred income tax asset................ 59 --
Increase in other assets............................. (125,142) (1,442,229)
Decrease in accounts payable......................... (711,997) 4,494,655
Decrease in accrued expenses......................... (121,962) (152,733)
Decrease in accrued income........................... (10,788) (64,230)
------------ -----------
Net cash provided (used) by operating
activities..................................... 347,905 5,485,964
Cash flows from investing activities:
Decrease (increase) in notes receivable................... 29,722 (22,129)
Change in intangible assets............................... (10,768,268) (810,001)
Capital expenditures...................................... (4,879,517) (1,821,808)
------------ -----------
Net cash used in investing activities............. (15,618,063) (2,653,938)
------------ -----------
Cash flows from financing activities:
Proceeds (payments) on long-term debt..................... 16,476,756 (325,153)
Distributions to partners................................. (463,235) (1,051,176)
------------ -----------
Net cash provided by investing activities......... 16,013,521 (1,376,329)
------------ -----------
Net decrease in cash........................................ 743,363 1,455,697
Cash at beginning of year................................... (27,790) (529,763)
------------ -----------
Cash at end of period....................................... $ 715,573 $ 925,934
============ ===========
Supplemental disclosures of cash flow information:
Interest paid........................................ $ 1,912,798 $ 796,203
============ ===========
Payment of income taxes.............................. $ 3,584 $ --
============ ===========
</TABLE>
The accompanying note is an integral part of these statements.
F-226
<PAGE> 467
MARTIN & MACFARLANE, INC.
NOTE TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial information with respect to the six months ended June 30,
1998 and 1997 is unaudited. In the opinion of management, the financial
statements contain all adjustments consisting of normal recurring accruals,
necessary for the fair presentation of the results for such periods. The
information is not necessarily indicative of the results of operations to be
expected for the fiscal year end.
F-227
<PAGE> 468
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Evergreen Media Corporation:
We have audited the accompanying combined balance sheets of Riverside
Broadcasting Co., Inc. and WAXQ Inc. as of December 31, 1995 and 1996, and the
related combined statements of earnings and cash flows for each of the years in
the three-year period ended December 31, 1996. These combined financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Riverside
Broadcasting Inc. and WAXQ Inc. as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
March 14, 1997
F-228
<PAGE> 469
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Accounts receivable, less allowance
for doubtful accounts of $99 in
1995, $208 in 1996 and $170 in
1997............................... $ 5,507 $ 9,713 $10,489
Prepaid expenses and other current
assets............................. 178 381 162
Deferred income taxes................. 45 829 829
------- ------- -------
Total current assets.......... 5,730 10,923 11,480
Property and equipment, net (note 4).... 1,075 4,177 2,668
Intangible assets, net (note 5)......... 47,422 66,626 74,038
------- ------- -------
$54,227 $81,726 $88,186
======= ======= =======
LIABILITIES AND EQUITY
Current liabilities -- accounts payable
and accrued expenses.................. $ 1,167 $ 3,669 $2,894
Deferred income taxes................... 222 4,373 4,373
Equity (note 9)......................... 52,838 73,684 80,919
Commitments and contingencies (note
10)...................................
------- ------- -------
$54,227 $81,726 $88,186
======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-229
<PAGE> 470
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
COMBINED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross revenues.......................... $28,254 $25,862 $36,121 $14,274 $25,135
Less agency commissions and national
rep fees........................... 4,700 4,342 5,892 2,107 3,652
------- ------- ------- ------- -------
Net revenues.................. 23,554 21,520 30,229 12,167 21,483
------- ------- ------- ------- -------
Operating expenses:
Station operating expenses excluding
depreciation and amortization...... 9,212 9,069 12,447 5,192 8,893
Depreciation and amortization......... 1,662 1,676 4,528 838 1,290
Corporate general and
administrative..................... 945 980 943 510 442
------- ------- ------- ------- -------
Operating expenses................. 11,819 11,725 17,918 6,540 10,625
------- ------- ------- ------- -------
Operating income................... 11,735 9,795 12,311 5,627 10,858
Other (income) expense (note 3)......... -- -- (741) -- --
------- ------- ------- ------- -------
Earnings before income taxes....... 11,735 9,795 13,052 5,627 10,858
Income tax expense (note 6)............. 6,053 5,154 6,683 2,881 4,336
------- ------- ------- ------- -------
Net earnings.................. $ 5,682 $ 4,641 $ 6,369 $ 2,746 $ 6,522
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-230
<PAGE> 471
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows provided by operating activities:
Net earnings................................... $ 5,682 $ 4,641 $ 6,369 $ 2,746 $ 6,522
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation................................ 153 168 286 84 266
Amortization of goodwill.................... 1,509 1,508 1,811 754 1,024
Changes in certain assets and liabilities:
Deferred income taxes..................... 32 110 (603) -- --
Accounts receivable, net.................. (676) 659 (4,172) (984) (776)
Prepaid expenses and other current
assets................................. 12 103 (203) 128 219
Accounts payable and accrued expenses..... (192) (483) 2,502 765 (775)
------- ------- ------- ------- -------
Net cash provided by operating
activities........................... 6,520 6,706 5,990 3,493 6,480
------- ------- ------- ------- -------
Cash flows used by investing activities --capital
expenditures................................... (150) (129) (695) (250) (417)
------- ------- ------- ------- -------
Net cash used by financing
activities -- distribution to parent........... (6,370) (6,577) (5,295) (3,243) (6,063)
------- ------- ------- ------- -------
Increase (decrease) in cash...................... -- -- -- -- --
Cash at beginning of period...................... -- -- -- -- --
------- ------- ------- ------- -------
Cash at end of period............................ $ -- $ -- $ -- $ -- $ --
======= ======= ======= ======= =======
Noncash financing activities -- contribution of
radio station net assets by parent (note 3).... $ -- $ -- $19,772 $ -- $ --
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-231
<PAGE> 472
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of
Riverside Broadcasting Co., Inc. and WAXQ Inc. (collectively, the "Company").
The Company owns and operates two commercial radio stations in the New York City
market -- WLTW-FM and WAXQ-FM and is wholly owned by Viacom International Inc.
("Viacom" or "Parent"), a wholly owned subsidiary of Viacom, Inc. Significant
intercompany accounts and transactions have been eliminated in combination.
On February 16, 1997, Viacom entered into a stock purchase agreement to
sell all the issued and outstanding shares of capital stock of WAXQ Inc. and
Riverside Broadcasting Co., Inc. in the New York City market, KYSR Inc. and KIBB
Inc. in the Los Angeles market, Viacom Broadcasting East Inc. and WMZQ Inc. in
the Washington, DC market, WLIT Inc. in the Chicago market and WDRQ Inc. in the
Detroit market (collectively, the "Viacom Radio Properties") to Evergreen Media
Corporation of Los Angeles ("Evergreen"), for $1.075 billion in cash ("Proposed
Transaction"). The Proposed Transaction is expected to close after the
expiration or termination of the applicable waiting periods under the HSR Act
and approval by the Federal Communications Commission ("FCC"). Contemporaneous
with this transaction, Evergreen entered into a joint purchase agreement with
Chancellor Broadcasting Company ("Chancellor") under which Chancellor agreed to
acquire the Chicago, Detroit and Los Angeles Viacom radio properties referred to
above for $480 million from Evergreen or from Viacom directly.
The accompanying combined financial statements reflect the carve-out
historical results of operations and financial position of Riverside
Broadcasting Co., Inc. and WAXQ Inc. These financial statements are not
necessarily indicative of the results that would have occurred if the Company
had been a separate stand-alone entity during the periods presented.
The financial statements do not include Viacom's corporate assets or
liabilities not specifically identifiable to the Company. Corporate overhead
allocations have been included in the accompanying statements of earnings in
corporate general and administrative expense and station operating expenses.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Repair and maintenance costs are charged to expense when
incurred.
(b) Intangible Assets
Intangible assets consist primarily of broadcast licenses. The Company
amortizes such intangible assets using the straight-line method over 40 years.
The Company continually evaluates the propriety of the carrying amount of
intangible assets as well as the amortization period to determine whether
current events or circumstances warrant adjustments to the carrying value and/or
revised estimates of useful lives. This evaluation consists of the projection of
undiscounted operating income before depreciation, amortization, nonrecurring
charges and interest over the remaining amortization periods of the related
intangible assets. At this time, the Company believes that no significant
impairment of intangible assets has occurred and that no reduction of the
estimated useful lives is warranted.
F-232
<PAGE> 473
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Barter Transactions
The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. An asset and
liability are recorded at the fair market value of the goods or services to be
received. Barter revenue is recorded and the liability relieved when commercials
are broadcast and barter expense is recorded and the asset relieved when goods
or services are received or used.
(d) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable earnings. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount more likely than not to be realized. Income
tax expense is the total of tax payable for the period and the change during the
period in deferred tax assets and liabilities.
(f) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
(g) Fair Value
The carrying amount of accounts receivable and accounts payable
approximates fair value because of the short maturity of these instruments.
(h) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of management, credit risk with respect to trade receivables
is limited due to the large number of diversified customers in the Company's
customer base. The Company performs ongoing credit
F-233
<PAGE> 474
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
evaluations of its customers and believes that adequate allowances for any
uncollectible trade receivables are maintained. No one customer accounted for
more than 10% of net revenues in 1994, 1995, or 1996.
(i) Unaudited Interim Financial Information
In the opinion of management, the unaudited interim combined financial
statements as of and for the six months ended June 30, 1996 and 1997, reflect
all adjustments, consisting of only normal and recurring items, which are
necessary for a fair presentation of the results for the interim periods
presented. The results for the interim periods ended June 30, 1996 and 1997 are
not necessarily indicative of results to be expected for any other interim
period or for the full year.
(3) ACQUISITIONS AND DISPOSITIONS
On August 1, 1996, Viacom exchanged the assets of KBSG-AM/FM and KNDD-FM in
Seattle for the assets of WAXQ-FM in New York. The transaction was accounted for
as a nonmonetary exchange and was based on the recorded amounts of the
nonmonetary assets relinquished. For the period from July 1, 1996 to July 31,
1996, Viacom operated WAXQ-FM under a time brokerage agreement.
Station start-up costs, including fees paid pursuant to the time brokerage
agreement, amounting to $2,431,000, were capitalized and amortized during 1996.
Acquisition-related costs are reflected in the accompanying financial statements
as other expense.
A summary of net assets relinquished by Viacom in connection with the
exchange is as follows:
<TABLE>
<S> <C>
Working capital............................................. $ 34
Property and equipment...................................... 2,693
Intangible assets........................................... 21,015
Deferred taxes.............................................. (3,970)
-------
$19,772
=======
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1995 and
1996:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1995 1996
----------- ------ ------
<S> <C> <C> <C>
Broadcast facilities.................................. 8-20 years $1,971 $4,783
Office equipment and other............................ 5-8 years 557 754
Construction in progress.............................. 10 389
------ ------
2,538 5,926
Accumulated depreciation.............................. 1,463 1,749
------ ------
$1,075 $4,177
====== ======
</TABLE>
(5) INTANGIBLE ASSETS
Intangible assets at December 31, 1995 and 1996 consist of broadcast
licenses which are being amortized over forty years and are presented net of
accumulated amortization of $13,177 and $14,988, respectively.
F-234
<PAGE> 475
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(6) INCOME TAXES
The Company's results of operations are included in the combined U.S.
federal and certain combined and separate state income tax returns of Viacom
International Inc.
The tax provisions and deferred tax liabilities presented have been
determined as if the Company were a stand-alone business filing separate tax
returns. Current tax liabilities are recorded through the equity account with
Viacom.
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Current:
Federal.................................................. $3,889 $3,258 $4,672
State and local.......................................... 2,132 1,786 2,614
Deferred:
Federal.................................................. 21 71 (356)
State.................................................... 11 39 (247)
------ ------ ------
$6,053 $5,154 $6,683
====== ====== ======
</TABLE>
A reconciliation of the U.S. Federal statutory tax rate to the Company's
effective tax rate on earnings before income taxes is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. tax rate..................................... 35.0% 35.0% 35.0%
Amortization of intangibles................................. 4.6 5.4 4.3
State and local taxes, net of federal tax benefit........... 11.9 12.1 11.8
Other, net.................................................. 0.1 0.1 0.1
---- ---- ----
Effective tax rate........................................ 51.6% 52.6% 51.2%
==== ==== ====
</TABLE>
Deferred tax assets and liabilities are computed by applying the U.S.
federal income tax rate in effect to the gross amounts of temporary differences
and other tax attributes. These temporary differences are primarily the result
of fixed asset basis differences and bad debt expense.
(7) DEBT AND INTEREST COST
Viacom has not allocated any portion of its debt or related interest cost
to the Company, and no portion of Viacom's debt is specifically related to the
operations of the Company. Accordingly, the Company's financial statements
include no charges for interest.
(8) RELATED PARTY TRANSACTIONS
Intercompany balances between the Company and Viacom resulting from normal
trade activity are reflected in Equity in the accompanying combined financial
statements
(see note 9).
Viacom provides services for the Company in management, accounting and
financial reporting, human resources and information systems. The allocation of
these expenses, which is generally based on revenue dollars, is reflected in the
accompanying combined financial statements as corporate general and
administrative expense. Management believes that the method of allocation of
corporate overhead is reasonable.
F-235
<PAGE> 476
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Viacom has a noncontributory pension plan covering substantially all of its
employees, including the employees of the Company. Costs related to these plans
are allocated to the Company based on payroll dollars. The Company recognized
expense related to these costs in the amounts of $63, $41 and $97 for 1994, 1995
and 1996, respectively. The assets and the related benefit obligation of the
plans will not be transferred to the Company upon consummation of the Proposed
Transaction, therefore, such assets and obligations are not included in the
notes to the Company's combined financial statements.
Viacom utilizes a centralized cash management system. As a result, the
Company carries minimal cash. Disbursements are funded by the Parent upon demand
and cash receipts are transferred to the Parent daily.
The Company, from time to time, enters into transactions with companies
owned by or affiliated with Viacom. Generally, services received from such
related parties are charged to the Company at amounts which would be incurred in
transactions between unrelated entities.
(9) EQUITY
Equity represents Viacom's ownership interest in the recorded net assets of
the Company. All cash transactions and intercompany transactions flow through
the equity account. A summary of the activity is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of period.......... $ 55,462 $ 54,774 $ 52,838
Net earnings............................ 5,682 4,641 6,369
Net intercompany activity............... (6,370) (6,577) 14,477
-------- -------- --------
Balance at end of period................ $ 54,774 $ 52,838 $ 73,684
======== ======== ========
</TABLE>
(10) COMMITMENTS AND CONTINGENCIES
The Company has noncancelable operating leases, primarily for office space.
These leases generally contain renewal options for periods ranging from one to
ten years and require the Company to pay all executory costs such as maintenance
and insurance. Rental expense for operating leases (excluding those with lease
terms of one month or less that were not renewed) was approximately $192, $155
and $442 during 1994, 1995 and 1996, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1996
are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1997.................................... $ 709
1998.................................... 722
1999.................................... 759
2000.................................... 795
2001.................................... 818
Thereafter.............................. 2,411
------
$6,214
======
</TABLE>
F-236
<PAGE> 477
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Evergreen Media Corporation:
We have audited the accompanying combined balance sheets of WMZQ Inc. and
Viacom Broadcasting East Inc. as of December 31, 1995 and 1996, and the related
combined statements of earnings and cash flows for each of the years in the
three-year period ended December 31, 1996. These combined financial statements
are the responsibility of the Companies' management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of WMZQ Inc.
and Viacom Broadcasting East Inc. as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
March 14, 1997, except for note 10,
which is as of April 14, 1997
F-237
<PAGE> 478
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------ JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Accounts receivable, less allowance
for doubtful accounts of $150 in
1995, $235 in 1996 and $136 in
1997............................... $ 4,893 $ 5,401 $ 5,407
Prepaid expenses and other current
assets............................. 467 629 55
Deferred income taxes (note 5)........ 60 94 94
------- ------- -------
Total current assets.......... 5,420 6,124 5,556
Property and equipment, net (note 3).... 2,407 2,316 2,408
Intangible assets, net (note 4)......... 50,204 48,695 50,399
------- ------- -------
$58,031 $57,135 $58,363
======= ======= =======
LIABILITIES AND EQUITY
Current liabilities -- accounts payable
and accrued expenses.................. $ 2,411 $ 2,458 $ 1,814
Deferred income taxes (note 5).......... 1,899 2,121 2,123
Equity (note 8)......................... 53,721 52,556 54,426
Commitments and contingencies (note
9)....................................
------- ------- -------
$58,031 $57,135 $58,363
======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-238
<PAGE> 479
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
COMBINED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross revenues................................... $21,389 $25,656 $26,584 $13,422 $13,837
Less agency commissions and national rep
fees........................................ 3,321 4,131 4,075 1,624 1,818
------- ------- ------- ------- -------
Net revenues........................... 18,068 21,525 22,509 11,798 12,019
------- ------- ------- ------- -------
Operating expenses:
Station operating expenses excluding
depreciation and amortization............... 10,398 11,445 11,362 6,394 6,043
Depreciation and amortization.................. 1,798 1,814 1,884 906 989
Corporate general and administrative........... 694 940 674 436 240
------- ------- ------- ------- -------
Operating expenses.......................... 12,890 14,199 13,920 7,736 7,272
------- ------- ------- ------- -------
Earnings before income taxes................ 5,178 7,326 8,589 4,062 4,747
Income tax expense (note 5)...................... 2,607 3,437 3,929 1,858 1,556
------- ------- ------- ------- -------
Net earnings........................... $ 2,571 $ 3,889 $ 4,660 $ 2,204 $ 3,191
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-239
<PAGE> 480
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows provided by operating
activities:
Net earnings.......................... $ 2,571 $ 3,889 $ 4,660 $ 2,204 $ 3,191
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation....................... 289 305 375 150 237
Amortization of goodwill........... 1,509 1,509 1,509 756 752
Deferred income tax expense........ 323 302 188 -- --
Changes in certain assets and
liabilities, net of effects of
acquisitions:
Accounts receivable, net......... 179 (1,485) (508) (445) (6)
Prepaid expenses and other
current assets................ 14 (121) (162) (730) 574
Accounts payable and accrued
expenses...................... (559) 20 47 2,446 (644)
------- ------- ------- ------- -------
Net cash provided by operating
activities.................. 4,326 4,419 6,109 4,381 4,104
------- ------- ------- ------- -------
Cash flows used by investing
activities -- capital expenditures.... (194) (491) (284) (142) (232)
------- ------- ------- ------- -------
Cash flows used by financing
activities -- distribution to
Parent................................ (4,132) (3,928) (5,825) (4,239) (3,872)
------- ------- ------- ------- -------
Increase (decrease) in cash............. -- -- -- -- --
Cash at beginning of period............. -- -- -- -- --
------- ------- ------- ------- -------
Cash at end of period................... $ -- $ -- $ -- $ -- $ --
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-240
<PAGE> 481
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of WMZQ
Inc. and Viacom Broadcasting East Inc. (collectively, the "Company"). The
Company owns and operates four commercial radio stations in the Washington, DC
market, WMZQ-FM, WJZW-FM, WBZS-AM and WZHF-AM, and is wholly owned by Viacom
International Inc. ("Viacom" or "Parent"), a wholly owned subsidiary of Viacom,
Inc. Significant intercompany accounts and transactions have been eliminated in
combination.
On February 16, 1997, Viacom International Inc. entered into a stock
purchase agreement to sell all the issued and outstanding shares of capital
stock of WAXQ Inc. and Riverside Broadcasting Co., Inc. in the New York City
market, KYSR Inc. and KIBB Inc. in the Los Angeles market, Viacom Broadcasting
East Inc. and WMZQ Inc. in the Washington, DC market, WLIT Inc. in the Chicago
market and WDRQ Inc. in the Detroit market (collectively the "Viacom Radio
Properties") to Evergreen Media Corporation for $1.075 billion in cash
("Proposed Transaction"). The Proposed Transaction is expected to close after
the expiration or termination of the applicable waiting periods under the HSR
Act and approval by the Federal Communications Commission ("FCC").
Contemporaneous with this transaction, Evergreen entered into a joint purchase
agreement with Chancellor Broadcasting Company ("Chancellor"), under which
Chancellor agreed to acquire the Chicago, Detroit and Los Angeles Viacom Radio
Properties referred to above for $480 million from Evergreen or from Viacom
directly.
The accompanying combined financial statements reflect the carve-out
historical results of operations and financial position of WMZQ Inc. and Viacom
Broadcasting East, Inc. These financial statements are not necessarily
indicative of the results that would have occurred if the Company had been a
separate stand-alone entity during the periods presented.
The financial statements do not include Viacom's corporate assets or
liabilities not specifically identifiable to the Company. Corporate overhead
allocations have been included in the accompanying statements of earnings in
corporate general and administrative expense and station operating expenses.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Repair and maintenance costs are charged to expense when
incurred.
(b) Intangible Assets
Intangible assets consist primarily of broadcast licenses. The Company
amortizes such intangible assets using the straight-line method over 40 years.
The Company continually evaluates the propriety of the carrying amount of
intangible assets as well as the amortization period to determine whether
current events or circumstances warrant adjustments to the carrying value and/or
revised estimates of useful lives. This evaluation consists of the projection of
undiscounted operating income before depreciation, amortization, nonrecurring
charges and interest over the remaining amortization periods of the related
intangible assets. At this time, the Company believes that no significant
impairment of intangible assets has occurred and that no reduction of the
estimated useful lives is warranted.
F-241
<PAGE> 482
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Barter Transactions
The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. An asset and
liability are recorded at the fair market value of the goods or services to be
received. Barter revenue is recorded and the liability relieved when commercials
are broadcast and barter expense is recorded and the asset relieved when goods
or services are received or used.
(d) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable earnings. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount more likely than not to be realized. Income
tax expense is the total of tax payable for the period and the change during the
period in deferred tax assets and liabilities.
(f) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
(g) Fair Value
The carrying amount of accounts receivable and accounts payable
approximates fair value because of the short maturity of these instruments.
(h) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of management, credit risk with respect to trade receivables
is limited due to the large number of diversified customers in the Company's
customer base. The Company performs ongoing credit
F-242
<PAGE> 483
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
evaluations of its customers and believes that adequate allowances for any
uncollectible trade receivables are maintained. No one customer accounted for
more than 10% of net revenues in 1994, 1995, or 1996.
(i) Unaudited Interim Financial Information
In the opinion of management, the unaudited interim combined financial
statements as of and for the six months ended June 30, 1996 and 1997, reflect
all adjustments, consisting of only normal and recurring items, which are
necessary for a fair presentation of the results for the interim periods
presented. The results for the interim periods ended June 30, 1996 and 1997 are
not necessarily indicative of results to be expected for any other interim
period or for the full year.
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1995 and
1996:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1995 1996
--------------- ------ ------
<S> <C> <C> <C>
Broadcast facilities................................... 8 - 20 years $2,268 $2,366
Land................................................... 440 440
Building............................................... 30 - 40 years 146 146
Office equipment and other............................. 5 - 8 years 1,866 1,808
Construction in progress............................... -- 5
------ ------
4,720 4,765
------ ------
Accumulated depreciation............................... 2,313 2,449
------ ------
$2,407 $2,316
====== ======
</TABLE>
(4) INTANGIBLE ASSETS
Intangible assets at December 31, 1995 and 1996 consist of broadcast
licenses which are being amortized over forty years and are presented net of
accumulated amortization of $10,714 and $12,223, respectively.
(5) INCOME TAXES
The Company's results of operations are included in the U.S. federal and
certain combined and separate state income tax returns of Viacom International
Inc.
The tax provisions and deferred tax liabilities presented have been
determined as if the Company were a stand-alone business filing separate tax
returns. Current tax liabilities are recorded through the equity account with
Viacom.
Income tax expense consists of:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Current:
Federal................................................... $1,704 $2,434 $2,943
State and local........................................... 580 701 798
Deferred federal and state.................................. 323 302 188
------ ------ ------
$2,607 $3,437 $3,929
====== ====== ======
</TABLE>
F-243
<PAGE> 484
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the U.S. Federal statutory tax rate to the Company's
effective tax rate on earnings before income taxes is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. tax rate................. 35.0% 35.0% 35.0%
Amortization of intangibles............. 7.4 5.2 4.5
State and local taxes, net of federal
tax benefit........................... 7.9 6.7 6.2
Other, net.............................. 0.0 0.0 0.0
---- ---- ----
Effective tax rate.................... 50.3% 46.9% 45.7%
==== ==== ====
</TABLE>
Deferred tax assets and liabilities are computed by applying the U.S.
federal income tax rate in effect to the gross amounts of temporary differences
and other tax attributes. These temporary differences are primarily the result
of fixed asset basis differences and bad debt expense. Deferred tax assets and
liabilities relating to state income taxes are not material.
(6) DEBT AND INTEREST COST
Viacom has not allocated any portion of its debt or related interest cost
to the Company, and no portion of Viacom's debt is specifically related to the
operations of the Company. Accordingly, the Company's financial statements
include no charges for interest.
(7) RELATED PARTY TRANSACTIONS
Intercompany balances between the Company and Viacom resulting from normal
trade activity are reflected in Equity in the accompanying combined financial
statements (see note 8).
Viacom provides services for the Company in management, accounting and
financial reporting, human resources, information systems, legal, taxes and
other corporate services. The allocation of these expenses, which is generally
based on revenue dollars, is reflected in the accompanying financial statements
as corporate general and administrative expense. Management believes that the
method of allocation of corporate overhead is reasonable.
Viacom has a noncontributory pension plan covering substantially all of its
employees, including the employees of the Company. Costs related to these plans
are allocated to the Company based on payroll dollars and are included in
station operating expenses. The Company recognized expense related to these
costs in the amounts of $77, $74 and $242 for 1994, 1995 and 1996, respectively.
The assets and the related benefit obligation of the plans will not be
transferred to the Company upon consummation of the Proposed Transaction,
therefore, such assets and obligations are not included in the notes to the
Company's financial statements.
Viacom utilizes a centralized cash management system. As a result, the
Company carries minimal cash. Disbursements are funded centrally upon demand and
cash receipts are transferred to the Parent daily.
The Company, from time to time, enters into transactions with companies
owned by or affiliated with Viacom. Generally, services received from such
related parties are charged to the Company at amounts which would be incurred in
transactions between unrelated entities.
F-244
<PAGE> 485
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(8) EQUITY
Equity represents Viacom's ownership interest in the recorded net assets of
the Company. All cash transactions and intercompany transactions flow through
the equity account. A summary of the activity is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of period......................... $55,321 $53,760 $53,721
Net earnings........................................... 2,571 3,889 4,660
Net intercompany activity.............................. (4,132) (3,928) (5,825)
------- ------- -------
Balance at end of period............................... $53,760 $53,721 $52,556
======= ======= =======
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES
The Company has noncancelable operating leases, primarily for office space.
These leases generally contain renewal options for periods ranging from 1 to 10
years and require the Company to pay all executory costs such as maintenance and
insurance. Rental expense for operating leases (excluding those with lease terms
of one month or less that were not renewed) was approximately $332, $356 and
$373 during 1994, 1995 and 1996, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1996
are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1997........................................................ $ 506
1998........................................................ 523
1999........................................................ 310
2000........................................................ 222
2001........................................................ 200
Thereafter.................................................. 814
------
$2,575
======
</TABLE>
(10) SUBSEQUENT EVENT
On April 14, 1997, Evergreen Media Corporation and Chancellor Broadcasting
Company entered into an agreement with ABC Radio ("ABC"), a division of The Walt
Disney Company, whereby ABC will purchase from Evergreen and Chancellor two
radio stations, WDRQ-FM and WJZW-FM for a total of $105 million.
F-245
<PAGE> 486
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Beasley FM Acquisition Corp.:
We have audited the accompanying balance sheet of WDAS-AM/FM (station owned
and operated by Beasley FM Acquisition Corp.) as of December 31, 1996, and the
related statements of earnings and station equity and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of WDAS-AM/FM as of December
31, 1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
St. Petersburg, Florida
March 28, 1997
F-246
<PAGE> 487
WDAS-AM/FM
(STATION OWNED AND OPERATED BY
BEASLEY FM ACQUISITION CORP.)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash...................................................... $ 2,111 $ 2,805
Accounts receivable, less allowance for doubtful accounts
of $166 and $138 in 1996 and 1997...................... 3,693 2,938
Trade sales receivable.................................... 359 29
Prepaid expense and other................................. 150 130
------- -------
Total current assets.............................. 6,313 5,902
Property and equipment, net (note 2)........................ 3,297 3,523
Notes receivable from related parties (note 5).............. 2,766 3,625
Intangibles, less accumulated amortization.................. 17,738 17,122
------- -------
$30,114 $30,172
======= =======
LIABILITIES AND STATION EQUITY
Current liabilities:
Current installments of long-term debt (note 3)........... $ 49 $ 49
Notes payable to related parties (note 5)................. 352 494
Accounts payable.......................................... 269 191
Accrued expenses.......................................... 515 313
Trade sales payable....................................... 39 12
------- -------
Total current liabilities......................... 1,224 1,059
Long-term debt, less current installments (note 3).......... 627 627
------- -------
Total liabilities................................. 1,851 1,686
Station equity.............................................. 28,263 28,486
Commitments and related party transactions (notes 4 and
5)........................................................
------- -------
$30,114 $30,172
======= =======
</TABLE>
See accompanying notes to financial statements.
F-247
<PAGE> 488
WDAS-AM/FM
(STATION OWNED AND OPERATED BY
BEASLEY FM ACQUISITION CORP.)
STATEMENTS OF EARNINGS AND STATION EQUITY
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED MARCH 31,
DECEMBER 31, ------------------
1996 1996 1997
------------ ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues................................................ $14,667 $ 2,623 $ 3,000
------- ------- -------
Costs and expenses:
Program and production.................................... 2,028 445 620
Technical................................................. 212 59 50
Sales and advertising..................................... 3,514 660 802
General and administrative................................ 2,005 497 459
------- ------- -------
7,759 1,661 1,931
------- ------- -------
Operating income, excluding items shown separately
below........................................... 6,908 962 1,069
Management fees (note 5).................................... (620) (156) (128)
Depreciation and amortization............................... (2,763) (651) (657)
Interest income (expense), net.............................. (40) (13) 7
Other....................................................... -- -- (78)
------- ------- -------
Net income........................................ 3,485 142 213
Station equity, beginning of period......................... 25,367 25,367 28,273
Forgiveness of related party note receivable (note 5)....... (589) -- --
------- ------- -------
Station equity, end of period............................... $28,263 $25,509 $28,486
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-248
<PAGE> 489
WDAS-AM/FM
(STATION OWNED AND OPERATED BY BEASLEY FM ACQUISITION CORP.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED MARCH 31,
DECEMBER 31, -------------------------------
1996 1996 1997
------------ --------------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 3,485 $ 142 $ 213
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 2,763 651 657
Allowance for doubtful accounts................... 8 (56) (28)
Decrease (increase) in receivables................ (398) 792 1,113
(Increase) decrease) in prepaid expense and other
assets.......................................... (96) (104) 20
Decrease in payables and accrued expenses......... (507) (331) (297)
------- ----- ------
Net cash provided by operating activities.... 5,255 1,094 1,678
------- ----- ------
Cash flows from investing activities -- capital
expenditures for property and equipment.............. (775) (572) (267)
------- ----- ------
Cash flows from financing activities:
Proceeds from issuance of indebtedness............... 676 - -
Principal payments on indebtedness................... (820) - -
Payment of loan fees................................. (6) - -
Net change in borrowings to/from affiliates.......... (2,647) (305) (717)
------- ----- ------
Net cash used in financing activities........ (2,797) (305) (717)
------- ----- ------
Net increase in cash................................... 1,683 217 694
Cash at beginning of period............................ 428 428 2,111
------- ----- ------
Cash at end of period.................................. $ 2,111 $ 645 $2,805
======= ===== ======
Noncash transactions:
Forgiveness of related note receivable
Release of WDAS-AM/FM's obligations under a note
payable which related to obtaining an easement.
WDAS-AM/FM is now directly responsible for the costs
necessary to obtain this easement and has included
these costs in accrued expenses in the accompanying
balance sheet........................................ $ 350
=======
</TABLE>
See accompanying notes to financial statements.
F-249
<PAGE> 490
WDAS-AM/FM
(STATION OWNED AND OPERATED BY BEASLEY FM ACQUISITION CORP.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(IN THOUSANDS)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
WDAS-AM/FM (the Station) is a radio station operating in Philadelphia,
Pennsylvania. The assets, liabilities and operations of WDAS-AM/FM are part of
Beasley FM Acquisition Corp. (BFMA). These financial statements reflect only the
assets, liabilities and operations relating to radio station WDAS-AM/FM and are
not representative of the financial statements of BFMA.
(b) Revenue Recognition
Revenue is recognized as advertising air time is broadcast and is net of
advertising agency commissions.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method over the estimated lives of the assets, which range
from 5 to 31 years.
(d) Intangibles
Intangibles consist primarily of FCC licenses, which are amortized
straight-line over ten years. Other intangibles are amortized straight-line over
5 to 10 years.
(e) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
BFMA adopted the provisions of Statement of Financial Accounting Standards
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, on January 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Adoption of this Statement did not have
a material impact on the Station's financial position, results of operations, or
liquidity.
(f) Barter Transactions
Trade sales are recorded at the fair value of the products or services
received and totaled approximately $676 for the year ended December 31, 1996.
Products and services received and expensed totaled approximately $449 for the
year ended December 31, 1996.
(g) Income Taxes
BFMA has elected to be treated as an "S" Corporation under provisions of
the Internal Revenue Code. Under this corporate status, the stockholders of BFMA
are individually responsible for reporting their share of
F-250
<PAGE> 491
WDAS-AM/FM
(STATION OWNED AND OPERATED BY BEASLEY FM ACQUISITION CORP.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
taxable income or loss. Accordingly, no provision for federal or state income
taxes has been reflected in the accompanying financial statements.
(h) Defined Contribution Plan
BFMA has a defined contribution plan which conforms with Section 401(k) of
the Internal Revenue Code. Under this plan, employees may contribute a minimum
of 1% of their compensation (no maximum) to the Plan. The Internal Revenue Code,
however, limited contributions to $9,500 in 1996. There are no employer matching
contributions.
(i) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from these estimates. To the
extent management's estimates prove to be incorrect, financial results for
future periods may be adversely affected.
(j) Interim Financial Statements
In the opinion of management, the accompanying unaudited interim financial
statements contain all adjustments, consisting of normal recurring accruals,
necessary to present fairly the financial position, results of operations, and
cash flows of the Station for the three-month periods ended March 31, 1997 and
1996 and as of June 30, 1997.
(2) PROPERTY AND EQUIPMENT
Property and equipment, at cost, is comprised of the following at December
31, 1996:
<TABLE>
<S> <C>
Land, buildings, and improvements........................... $2,204
Broadcast equipment......................................... 1,200
Office equipment and other.................................. 477
Transportation equipment.................................... 79
------
3,960
Less accumulated depreciation..................... (663)
------
$3,297
======
</TABLE>
(3) LONG-TERM DEBT
BFMA and six affiliates (the Group) refinanced their $100,000 revolving
credit loan on June 24, 1996. Under terms of the new agreement, the Group was
provided a revolving credit loan with an initial maximum commitment of $115,000.
The credit agreement was subsequently amended and the maximum commitment was
increased to $120,000. The Group's borrowings under the revolving credit loan
totaled $115,784 at December 31, 1996, of which $676 was allocated to
WDAS-AM/FM. The loan bears interest at either the base rate or LIBOR plus a
margin which is determined by the Group's debt to cash flow ratio. The base rate
is equal to the higher of the prime rate or the overnight federal funds
effective rate plus 0.5%. At December 31,
F-251
<PAGE> 492
WDAS-AM/FM
(STATION OWNED AND OPERATED BY BEASLEY FM ACQUISITION CORP.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1996, the revolving credit loan carried interest at an average rate of 8.61%.
Interest is generally payable monthly. The Group has entered into interest rate
hedge agreements as discussed in note 6.
The amount available under the Group's revolving credit loan will be
reduced quarterly beginning September 30, 1997 through its maturity on December
31, 2003. The loan agreement includes restrictive covenants and requires the
Group to maintain certain financial ratios. The loans are secured by the common
stock and substantially all assets of the Group.
Annual maturities on the Group's revolving credit loan for the next five
years are as follows:
<TABLE>
<CAPTION>
DEBT
MATURITIES
----------
<S> <C>
1997........................................................ $ 8,434
1998........................................................ 12,650
1999........................................................ 13,800
2000........................................................ 14,950
2001........................................................ 15,525
Thereafter.................................................. 50,425
--------
Total............................................. $115,784
========
</TABLE>
S-AM/FM paid interest of approximately $79 in 1996.
(4) COMMITMENTS
On September 19, 1996, BFMA entered into an asset purchase agreement (APA)
with Evergreen Media Corporation of Los Angeles (Evergreen) for the sale of
WDAS-AM/FM. Under the terms of the APA, BFMA will convey substantially all of
the assets used in the operation of the station to Evergreen in exchange for a
purchase price of $103,000, subject to adjustment, to be paid in cash. BFMA
expects to close on this sale before July 1, 1997.
WDAS-AM/FM leases facilities and a tower under 10-year operating leases
which expire in July 2004 and January 2007, respectively. WDAS-AM/FM also leases
certain other office equipment on a month-to-month basis. Lease expense was
approximately $215 in 1996. Future minimum lease payments by year are summarized
as follows:
<TABLE>
<S> <C>
1997........................................................ $ 236
1998........................................................ 247
1999........................................................ 258
2000........................................................ 270
2001........................................................ 283
Thereafter.................................................. 1,275
------
$2,569
======
</TABLE>
In the normal course of business, the Station is party to various legal
matters. The ultimate disposition of these matters will not, in management's
judgment, have a material adverse effect on the Station's financial position.
F-252
<PAGE> 493
WDAS-AM/FM
(STATION OWNED AND OPERATED BY BEASLEY FM ACQUISITION CORP.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) RELATED PARTY TRANSACTIONS
The Company has a management agreement with Beasley Management Company, an
affiliate of the Company's principal stockholder. Management fee expense under
the agreement was $620 in 1996.
The notes receivable from/payable to related parties are non-interest
bearing and are due on demand. A note receivable due from a related party of
$589 was forgiven in 1996.
(6) FINANCIAL INSTRUMENTS
WDAS-AM/FM's significant financial instruments and the methods used to
estimate their fair value are as follows:
Revolving credit loan -- The fair value approximates carrying value
due to the loan being refinanced on June 24, 1996 and the interest rate
being based on current market rates.
Notes receivable from/payable to related parties -- It is not
practicable to estimate the fair value of these notes payable due to their
related party nature.
Interest rate swap, cap and collar agreements -- The Group entered
into an interest rate swap agreement with a notional amount of $15,000, an
interest rate cap agreement with a notional amount of $3,100, and an
interest rate collar agreement with a notional amount of $15,000 to act as
a hedge by reducing the potential impact of increases in interest rates on
the revolving credit loan. These agreements expire on various dates in
1999. The Group is exposed to credit loss in the event of nonperformance by
the other parties to the agreements. The Group, however, does not
anticipate nonperformance by the counterparties. The fair value of the
interest rate swap agreement is estimated using the difference between the
present value of discounted cash flows using the base rate stated in the
swap agreement (5.37%) and the present value of discounted cash flows using
the LIBOR rate at December 31, 1996. The fair values of the interest rate
cap agreement, which establishes a maximum base rate of 7.50%, and the
interest rate collar agreement, which establishes a minimum base rate of
4.93% and a maximum base rate of 6%, are estimated based on the amounts the
Group would expect to receive or pay to terminate the agreement. The
estimated fair value of each of these agreements is negligible.
F-253
<PAGE> 494
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Chancellor Broadcasting Company:
We have audited the accompanying combined balance sheets of KYSR Inc. and
KIBB Inc. as of December 31, 1995 and 1996, and the related combined statements
of operations and cash flows for each of the years in the three-year period
ended December 31, 1996. These combined financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of KYSR Inc.
and KIBB Inc. as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Dallas, Texas
March 14, 1997
F-254
<PAGE> 495
KYSR INC. AND KIBB INC.
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Accounts receivable, less allowance for doubtful accounts
of $218 in 1995 and $246 in 1996 and $321 in 1997...... $ 6,253 $ 7,283 $ 7,403
Prepaid expenses and other................................ 412 609 18
Deferred income taxes (note 5)............................ 89 101 101
-------- -------- --------
Total current assets.............................. 6,754 7,993 7,522
Property and equipment, net (note 3)........................ 4,172 4,082 4,195
Intangible assets, net (note 4)............................. 116,946 113,644 111,984
Other assets, net........................................... 22 22 22
-------- -------- --------
$127,894 $125,741 $123,723
======== ======== ========
LIABILITIES AND EQUITY
Current liabilities -- accounts payable and accrued
expenses.................................................. $ 3,883 $ 3,624 $ 2,082
Deferred income taxes (note 5).............................. 9,683 11,027 11,027
Equity (note 8)............................................. 114,328 111,090 110,614
Commitments and contingencies (note 9)......................
-------- -------- --------
$127,894 $125,741 $123,723
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-255
<PAGE> 496
KYSR INC. AND KIBB INC.
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross revenues.......................... $28,590 $30,571 $33,769 $15,762 $16,784
Less agency commissions and national
rep fees........................... 4,490 4,882 5,462 2,196 2,385
------- ------- ------- ------- -------
Net revenues.................. 24,100 25,689 28,307 13,566 14,399
------- ------- ------- ------- -------
Operating expenses:
Station operating expenses, excluding
depreciation and amortization...... 13,407 12,901 13,378 6,834 7,119
Depreciation and amortization......... 3,640 3,661 3,627 1,826 1,844
Corporate general and
administrative..................... 892 1,094 844 542 302
------- ------- ------- ------- -------
Operating expenses................. 17,939 17,656 17,849 9,202 9,265
------- ------- ------- ------- -------
Operating income................... 6,161 8,033 10,458 4,364 5,134
Interest expense (note 7)............... 6,374 6,374 6,374 3,187 3,178
------- ------- ------- ------- -------
Earnings (loss) before income taxes... (213) 1,659 4,084 1,177 1,956
Income tax expense (benefit) (note 5)... (70) 699 1,694 494 296
------- ------- ------- ------- -------
Net earnings (loss)........... $ (143) $ 960 $ 2,390 $ 683 $ 1,660
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-256
<PAGE> 497
KYSR INC. AND KIBB INC.
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------ -----------------
1994 1995 1996 1996 1997
------ ------ ------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows provided by operating activities:
Net earnings (loss).......................... $ (143) $ 960 $2,390 $ 683 $ 1,660
Adjustments to reconcile net earnings (loss)
to net cash provided by operating
activities:
Depreciation.............................. 338 359 325 175 193
Amortization of intangibles............... 3,302 3,302 3,302 1,651 1,651
Deferred tax expense...................... 1,597 1,412 1,332 -- --
Changes in certain assets and liabilities:
Accounts receivable, net................ (1,452) (120) (1,030) (330) (120)
Prepaid expenses and other current
assets............................... 372 (149) (197) (1,468) 591
Accounts payable and accrued expenses... (345) 265 (259) 2,236 (1,542)
------ ------ ------ ------- -------
Net cash provided by operating
activities......................... 3,669 6,029 5,863 2,947 2,433
------ ------ ------ ------- -------
Cash used by investing activities -- capital
expenditures................................. (280) (223) (235) (80) (296)
------ ------ ------ ------- -------
Cash flows used by financing
activities -- distributions to Parent........ (3,389) (5,806) (5,628) (2,867) (2,137)
------ ------ ------ ------- -------
Increase (decrease) in cash.................... -- -- -- -- --
Cash at beginning of period.................... -- -- -- -- --
------ ------ ------ ------- -------
Cash at end of period.......................... $ -- $ -- $ -- $ -- $ --
====== ====== ====== ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-257
<PAGE> 498
KYSR INC. AND KIBB INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of KYSR
Inc. and KIBB Inc. (collectively, the "Company"). The Company owns and operates
two commercial radio stations in the Los Angeles market, KYSR-FM and KIBB-FM,
and is wholly owned by Viacom International Inc. ("Viacom" or "Parent"), a
wholly owned subsidiary of Viacom, Inc. Significant intercompany balances and
transactions have been eliminated in combination.
On February 16, 1997, Viacom entered into a stock purchase agreement to
sell all the issued and outstanding shares of capital stock of WAXQ Inc. and
Riverside Broadcasting Co., Inc. in the New York City market, KYSR Inc. and KIBB
Inc. in the Los Angeles market, Viacom Broadcasting East Inc. and WMZQ Inc. in
the Washington, DC market, WLIT Inc. in the Chicago market and WDRQ Inc. in the
Detroit market (collectively, the "Viacom Radio Properties") to Evergreen Media
Corporation of Los Angeles ("Evergreen"), for $1.075 billion in cash ("Proposed
Transaction"). The Proposed Transaction is expected to close after the
expiration or termination of the applicable waiting periods under the HRS Act
and approval by the Federal Communications Commission ("FCC"). Contemporaneous
with this transaction, Evergreen entered into a joint purchase agreement with
Chancellor Broadcasting Company ("Chancellor") under which Chancellor agreed to
acquire the Chicago, Detroit and Los Angeles Viacom Radio Properties referred to
above for $480 million from Evergreen or from Viacom directly.
The accompanying combined financial statements reflect the carve-out
historical results of operations and financial position of KYSR Inc. and KIBB
Inc. These financial statements are not necessarily indicative of the results
that would have occurred if the Company had been a separate stand-alone entity
during the period presented.
The combined financial statements do not include Viacom's corporate assets
or liabilities not specifically identifiable to the Company. Corporate overhead
allocations have been included in the accompanying combined statements of
earnings in corporate general and administrative expense and station operating
expenses.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Repair and maintenance costs are charged to expense when
incurred.
(b) Intangible Assets
Intangible assets consist primarily of broadcast licenses. The Company
amortizes such intangible assets using the straight-line method over 40 years.
The Company continually evaluates the propriety of the carrying amount of
intangible assets as well as the amortization period to determine whether
current events or circumstances warrant adjustments to the carrying value and/or
revised estimates of useful lives. This evaluation consists of the projection of
undiscounted operating income before depreciation, amortization, nonrecurring
charges and interest over the remaining amortization periods of the related
intangible assets. At this time, the Company believes that no significant
impairment of intangible assets has occurred and that no reduction of the
estimated useful lives is warranted.
F-258
<PAGE> 499
KYSR INC. AND KIBB INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Barter Transactions
The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. An asset and
liability are recorded at the fair market value of the goods or services to be
received. Barter revenue is recorded and the liability relieved when commercials
are broadcast and barter expense is recorded and the asset relieved when goods
or services are received or used.
(d) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable earnings. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount more likely than not to be realized. Income
tax expense is the total of tax payable for the period and the change during the
period in deferred tax assets and liabilities.
(f) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
(g) Fair Value
The carrying amount of accounts receivable and accounts payable
approximates fair value because of the short maturity of these instruments.
(h) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of management, credit risk with respect to trade receivables
is limited due to the large number of diversified customers in the Company's
customer base. The Company performs ongoing credit
F-259
<PAGE> 500
KYSR INC. AND KIBB INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
evaluations of its customers and believes that adequate allowances for any
uncollectible trade receivables are maintained. No one advertiser accounted for
more than 10% of net revenues in 1994, 1995, or 1996. Certain advertisers
purchase the advertising of the stations through a third party buying service.
Approximately 22%, 20% and 19% of total revenue was derived through the use of
this service in 1994, 1995 and 1996, respectively.
(i) Unaudited Interim Financial Information
In the opinion of management, the unaudited interim combined financial
statements as of and for the six months ended June 30, 1996 and 1997, reflect
all adjustments, consisting of only normal and recurring items, which are
necessary for a fair presentation of the results for the interim periods
presented. The results for the interim periods ended June 30, 1996 and 1997 are
not necessarily indicative of results to be expected for any other interim
period or for the full year.
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1995 and
1996:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1995 1996
----------- ------ ------
<S> <C> <C> <C>
Land.................................................... $2,875 $2,875
Building................................................ 40 years 474 474
Broadcast facilities.................................... 8-20 years 1,501 1,572
Office equipment and other.............................. 5-8 years 725 902
Construction in progress................................ 36 24
------ ------
5,611 5,847
Accumulated depreciation................................ 1,439 1,765
------ ------
$4,172 $4,082
====== ======
</TABLE>
(4) INTANGIBLE ASSETS
Intangible assets at December 31, 1995 and 1996 consist of broadcast
licenses which are being amortized over forty years and are presented net of
accumulated amortization of $15,148 and $18,450, respectively.
(5) INCOME TAXES
The Company's results of operations are included in the combined U.S.
federal and certain combined and separate state income tax returns of Viacom
International Inc.
The tax provisions and deferred tax liabilities presented have been
determined as if the Company were a stand-alone business filing separate tax
returns. Current tax liabilities are recorded through the equity account with
Viacom.
F-260
<PAGE> 501
KYSR INC. AND KIBB INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
1994 1995 1996
------- ----- ------
<S> <C> <C> <C>
Current:
Federal.................................................. $(1,289) $(551) $ 278
State and local.......................................... (378) (162) 84
Deferred federal........................................... 1,597 1,412 1,332
------- ----- ------
$ (70) $ 699 $1,694
======= ===== ======
</TABLE>
A reconciliation of the U.S. Federal statutory tax rate to the Company's
effective tax rate on earnings (loss) before income taxes is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. tax rate..................................... 35.0% 35.0% 35.0%
State and local taxes, net of federal tax benefit........... 6.2 6.2 6.1
Other, net.................................................. (8.3) 0.9 0.4
---- ---- ----
Effective tax rate.......................................... 32.9% 42.1% 41.5%
==== ==== ====
</TABLE>
Deferred tax assets and liabilities are computed by applying the U.S.
federal income tax rate in effect to the gross amounts of temporary differences
and other tax attributes. These temporary differences are primarily the result
of fixed asset basis differences and bad debt expense. Deferred tax assets and
liabilities relating to state income taxes are not material.
(6) DEBT AND INTEREST COST
Viacom has not allocated any portion of its debt or related interest cost
to the Company, and no portion of Viacom's debt is specifically related to the
operations of the Company.
(7) RELATED PARTY TRANSACTIONS
Intercompany balances between the Company and Viacom resulting from normal
trade activity are reflected in Equity in the accompanying combined financial
statements (see note 8).
On January 25, 1990, KYSR, Inc., formerly KXEZ, Inc., issued an
intercompany demand note to Viacom in the amount of $66,400. The note bears
interest at 9.6% per year payable on the last day of each calendar year. The
principal and final interest payment are payable on January 25, 2000. However,
immediately prior to closing of the Proposed Transaction, all debts between the
Company and Viacom will be canceled. As such, the promissory note issued to
Viacom is reflected as an increase to equity and included in intercompany
activity in the amount of $66,400 at December 31, 1995 and 1996 (see note 8).
Viacom provides services for the Company in management, accounting and
financial reporting, human resources, information systems, legal, taxes and
other corporate services. The allocation of these expenses, which is generally
based on revenue dollars, is reflected in the accompanying combined financial
statements as corporate general and administrative expense. Management believes
that the method of allocation of overhead is reasonable.
Viacom has a noncontributory pension plan covering substantially all of its
employees, including the employees of the Company. Costs related to this plan
are allocated to the Company based on payroll dollars and are included in
station operating expenses. The Company recognized expense related to this plan
in the amounts of $70, $56 and $191 for 1994, 1995 and 1996, respectively. The
assets and the related benefit
F-261
<PAGE> 502
KYSR INC. AND KIBB INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
obligation of the plan will not be transferred to the Company upon consummation
of the Proposed Transaction, therefore, such assets and obligations are not
included in the notes to the Company's combined financial statements.
Viacom utilizes a centralized cash management system. As a result, the
Company carries minimal cash. Disbursements are funded by the Parent upon demand
and cash receipts are transferred to the Parent daily.
The Company, from time to time, enters into transactions with companies
owned by or affiliated with Viacom. Generally, services rendered from such
related parties are charged to the Company at amounts which would be incurred in
transactions between unrelated entities.
(8) EQUITY
Equity represents Viacom's ownership interest in the recorded net assets of
the Company. All cash transactions and intercompany transactions flow through
the equity account. A summary of the activity is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of period....................... $122,706 $119,174 $114,328
Net earnings (loss).................................. (143) 960 2,390
Net intercompany activity............................ (3,389) (5,806) (5,628)
-------- -------- --------
Balance at end of period............................. $119,174 $114,328 $111,090
======== ======== ========
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES
The Company has noncancelable operating leases, primarily for office space.
These leases generally contain renewal options for periods ranging from one to
ten years and require the Company to pay all executory costs such as maintenance
and insurance. Rental expense for operating leases (excluding those with lease
terms of one month or less that were not renewed) was approximately $377, $365
and $405 during 1994, 1995 and 1996, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1996
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31:
- ------------
<S> <C> <C>
1997.................................................................. $ 365
1998.................................................................. 366
1999.................................................................. 312
2000.................................................................. 19
Thereafter............................................................ --
------
$1,062
======
</TABLE>
F-262
<PAGE> 503
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Chancellor Broadcasting Company:
We have audited the accompanying balance sheets of WLIT Inc. as of December
31, 1995 and 1996, and the related statements of earnings and cash flows for
each of the years in the three-year period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of WLIT Inc. as of December 31,
1995 and 1996, and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
March 14, 1997
F-263
<PAGE> 504
WLIT INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Accounts receivable, less allowance for doubtful accounts
of $79 in 1995 and $87 in 1996 and $110 in 1997........ $ 3,110 $ 3,627 $ 3,836
Prepaid expenses and other current assets................. 592 490 200
Deferred income taxes (note 5)............................ 37 44 44
------- ------- -------
Total current assets.............................. 3,739 4,161 4,080
Property and equipment, net (note 3)........................ 461 457 545
Intangible assets, net (note 4)............................. 16,958 16,415 16,143
------- ------- -------
$21,158 $21,033 $20,768
======= ======= =======
LIABILITIES AND EQUITY
Current liabilities -- accounts payable and accrued
expenses.................................................. $ 1,442 $ 1,195 $ 1,376
Deferred income taxes (note 5).............................. 58 53 53
Equity (note 8)............................................. 19,658 19,785 19,339
Commitment and contingencies (note 9).......................
------- ------- -------
$21,158 $21,033 $20,768
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-264
<PAGE> 505
WLIT INC.
STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross revenues................................ $14,367 $16,720 $18,294 $8,080 $10,035
Less agency commissions and national rep
fees..................................... 2,523 2,848 3,071 1,144 1,410
------- ------- ------- ------ -------
Net revenues........................ 11,844 13,872 15,223 6,936 8,625
------- ------- ------- ------ -------
Operating expenses:
Station operating expenses excluding
depreciation and amortization............ 6,555 6,977 7,508 3,839 4,221
Depreciation and amortization............... 655 653 659 327 340
Corporate general and administrative........ 478 630 479 274 172
------- ------- ------- ------ -------
Operating expenses....................... 7,688 8,260 8,646 4,440 4,733
------- ------- ------- ------ -------
Earnings before income taxes............. 4,156 5,612 6,577 2,496 3,892
Income tax expense (note 5)................... 1,804 2,359 2,728 1,048 1,280
------- ------- ------- ------ -------
Net earnings........................ $ 2,352 $ 3,253 $ 3,849 $1,448 $ 2,612
======= ======= ======= ====== =======
</TABLE>
See accompanying notes to financial statements.
F-265
<PAGE> 506
WLIT INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows provided by operating
activities:
Net earnings.......................... $ 2,352 $ 3,253 $ 3,849 $ 1,448 $ 2,612
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation....................... 114 114 116 55 68
Amortization of intangibles........ 541 539 543 272 272
Deferred income taxes.............. (13) 5 (8) -- --
Changes in certain assets and
liabilities:
Accounts receivable, net......... (73) (460) (517) (476) (209)
Prepaid expenses and other
current assets................ (101) (181) 98 (577) 295
Accounts payable and accrued
expenses...................... (384) 173 (247) 1,461 (1,542)
------- ------- ------- ------- -------
Net cash provided by operating
activities.................. 2,436 3,443 3,834 2,183 1,496
------- ------- ------- ------- -------
Cash flows used by investing
activities -- capital expenditures.... (180) (110) (112) (45) (156)
------- ------- ------- ------- -------
Cash flows used by financing
activities -- distributions to
Parent................................ (2,256) (3,333) (3,722) (2,138) (1,340)
------- ------- ------- ------- -------
Increase (decrease) in cash............. -- -- -- -- --
Cash at beginning of period............. -- -- -- -- --
------- ------- ------- ------- -------
Cash at end of period................... $ -- $ -- $ -- $ -- $ --
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-266
<PAGE> 507
WLIT INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying financial statements include the accounts of WLIT Inc.
(the "Company"). The Company owns and operates a commercial radio station in the
Chicago market, WLIT-FM, and is wholly owned by Viacom International Inc.
("Viacom" or "Parent"), a wholly owned subsidiary of Viacom, Inc.
On February 16, 1997, Viacom International Inc. entered into a stock
purchase agreement to sell all the issued and outstanding shares of capital
stock of WAXQ Inc. and Riverside Broadcasting Co., Inc. in the New York City
market, KYSR Inc. and KIBB Inc. in the Los Angeles market, Viacom Broadcasting
East Inc. and WMZQ Inc. in the Washington, DC market, WLIT Inc. in the Chicago
market and WDRQ Inc. in the Detroit market (collectively, the "Viacom Radio
Properties") to Evergreen Media Corporation ("Evergreen") for $1.075 billion in
cash ("Proposed Transaction"). The Proposed Transaction is expected to close
after the expiration or termination of the applicable waiting periods under the
HSR Act and approval by the Federal Communications Commission ("FCC").
Contemporaneous with this transaction, Evergreen entered into a joint purchase
agreement with Chancellor Broadcasting Company ("Chancellor"), under which
Chancellor agreed to acquire the Chicago, Detroit and Los Angeles Viacom Radio
Properties referred to above for $480 million from Evergreen or from Viacom
directly.
The accompanying financial statements reflect the carve-out historical
results of operations and financial position of WLIT Inc. These financial
statements are not necessarily indicative of the results that would have
occurred if the Company had been a separate stand-alone entity during the
periods presented.
The financial statements do not include Viacom's corporate assets or
liabilities not specifically identifiable to the Company. Corporate overhead
allocations have been included in the accompanying statements of earnings in
corporate general and administrative expense and station operating expenses.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Repair and maintenance costs are charged to expense when
incurred.
(b) Intangible Assets
Intangible assets consist primarily of broadcast licenses. The Company
amortizes such intangible assets using the straight-line method over 40 years.
The Company continually evaluates the propriety of the carrying amount of
intangible assets as well as the amortization period to determine whether
current events or circumstances warrant adjustments to the carrying value and/or
revised estimates of useful lives. This evaluation consists of the projection of
undiscounted operating income before depreciation, amortization, nonrecurring
charges and interest over the remaining amortization periods of the related
intangible assets. At this time, the Company believes that no significant
impairment of intangible assets has occurred and that no reduction of the
estimated useful lives is warranted.
(c) Barter Transactions
The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. An asset and
liability are recorded at the fair market value of the goods or
F-267
<PAGE> 508
WLIT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
services to be received. Barter revenue is recorded and the liability relieved
when commercials are broadcast and barter expense is recorded and the asset
relieved when goods or services are received or used.
(d) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable earnings. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount more likely than not to be realized. Income
tax expense is the total of tax payable for the period and the change during the
period in deferred tax assets and liabilities.
(f) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
(g) Fair Value
The carrying amount of accounts receivable and accounts payable
approximates fair value because of the short maturity of these instruments.
(h) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of management, credit risk with respect to trade receivables
is limited due to the large number of diversified customers in the Company's
customer base. The Company performs ongoing credit evaluations of its customers
and believes that adequate allowances for any uncollectible trade receivables
are maintained. No one customer accounted for more than 10% of net revenues in
1994, 1995, or 1996.
F-268
<PAGE> 509
WLIT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(i) Unaudited Interim Financial Information
In the opinion of management, the unaudited interim combined financial
statements as of and for the six months ended June 30, 1996 and 1997, reflect
all adjustments, consisting of only normal and recurring items, which are
necessary for a fair presentation of the results for the interim periods
presented. The results for the interim periods ended June 30, 1996 and 1997 are
not necessarily indicative of results to be expected for any other interim
period or for the full year.
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1995 and
1996:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1995 1996
----------- ------ ------
<S> <C> <C> <C>
Broadcast facilities.................................... 8-20 years $1,116 $1,141
Office equipment and other.............................. 5-8 years 791 868
Construction in progress................................ 13 13
------ ------
1,920 2,022
Accumulated depreciation................................ 1,459 1,565
------ ------
$ 461 $ 457
====== ======
</TABLE>
(4) INTANGIBLE ASSETS
Intangible assets at December 31, 1995 and 1996 consist of broadcast
licenses which are being amortized over forty years and are presented net of
accumulated amortization of $5,585 and $6,128, respectively.
(5) INCOME TAXES
The Company's results of operations are included in the U.S. federal and
certain combined and separate state income tax returns of Viacom International
Inc.
The tax provisions and deferred tax liabilities presented have been
determined as if the Company were a stand-alone business filing separate tax
returns. Current tax liabilities are recorded through the equity account with
Viacom.
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Current:
Federal.................................................. $1,588 $2,058 $2,391
State and local.......................................... 229 296 345
Deferred federal........................................... (13) 5 (8)
------ ------ ------
$1,804 $2,359 $2,728
====== ====== ======
</TABLE>
F-269
<PAGE> 510
WLIT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the U.S. Federal Statutory tax rate to the Company's
effective tax rate on earnings before income taxes is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. tax rate..................................... 35.0% 35.0% 35.0%
Amortization of intangibles................................. 4.7 3.4 2.9
State and local taxes, net of federal tax benefit........... 3.6 3.4 3.4
Other, net.................................................. 0.2 0.2 0.2
---- ---- ----
Effective tax rate................................ 43.5% 42.0% 41.5%
==== ==== ====
</TABLE>
Deferred tax assets and liabilities are computed by applying the U.S.
federal income tax rate in effect to the gross amounts of temporary differences
and other tax attributes. These temporary differences are primarily the result
of fixed asset basis differences and bad debt expense. Deferred tax assets and
liabilities relating to state income taxes are not material.
(6) DEBT AND INTEREST COST
Viacom has not allocated any portion of its debt or related interest cost
to the Company, and no portion of Viacom's debt is specifically related to the
operations of the Company. Accordingly, the Company's financial statements
include no charges for interest.
(7) RELATED PARTY TRANSACTIONS
Intercompany balances between the Company and Viacom resulting from normal
trade activity are reflected in Equity in the accompanying financial statements
(see note 8).
Viacom provides services for the Company in management, accounting and
financial reporting, human resources, information systems, legal, tax and other
corporate services. The allocation of these expenses, which is generally based
on revenue dollars, is reflected in the accompanying financial statements as
corporate general and administrative expense. Management believes that the
method of allocation of corporate overhead is reasonable.
Viacom has a noncontributory pension plan covering substantially all of its
employees, including the employees of the Company. Costs related to this plan
are allocated to the Company based on payroll dollars. The Company recognized
expense related to this plan in the amounts of $67, $46 and $126 for 1994, 1995
and 1996, respectively. The assets and the related benefit obligation of the
plan will not be transferred to the Company upon consummation of the Proposed
Transaction, therefore, such assets and obligations are not included in the
notes to the Company's financial statements.
Viacom utilizes a centralized cash management system. As a result, the
Company carries minimal cash. Disbursements are funded by the Parent upon demand
and cash receipts are transferred to the Parent daily.
The Company, from time to time, enters into transactions with companies
owned by or affiliated with Viacom. Generally, services received from such
related parties are charged to the Company at amounts which would be incurred in
transactions between unrelated entities.
F-270
<PAGE> 511
WLIT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(8) EQUITY
Equity represents Viacom's ownership interest in the recorded net assets of
the Company. All cash transactions and intercompany transactions flow through
the equity account. A summary of the activity is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of period.......................... $19,642 $19,738 $19,658
Net earnings............................................ 2,352 3,253 3,849
Net intercompany activity............................... (2,256) (3,333) (3,722)
------- ------- -------
Balance at end of period................................ $19,738 $19,658 $19,785
======= ======= =======
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES
The Company has noncancelable operating leases, primarily for office space.
These leases generally contain renewal options for periods ranging from 1 to 10
years and require the Company to pay all executory costs such as maintenance and
insurance. Rental expense for operating leases (excluding those with lease terms
of one month or less that were not renewed) was approximately $319, $337 and
$327 during 1994, 1995 and 1996, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1996
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31:
- ------------
<S> <C> <C>
1997.................................................................. $ 266
1998.................................................................. 291
1999.................................................................. 298
2000.................................................................. 287
2001.................................................................. 296
Thereafter............................................................ 103
------
$1,541
======
</TABLE>
F-271
<PAGE> 512
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Colfax Communications, Inc. Radio Group:
We have audited the accompanying combined balance sheets of the Colfax
Communications, Inc. Radio Group (the "Company") as of December 31, 1996, 1995,
and 1994, and the related combined statements of income (loss), changes in
partners' equity and cash flows for each of the three years in the period ended
December 31, 1996. These combined financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In January 1997, substantially all of the assets and liabilities of the
Company were sold.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Colfax
Communications, Inc. Radio Group as of December 31, 1996, 1995, and 1994, and
the results of its operations and its cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Washington, D.C.
March 31, 1997
F-272
<PAGE> 513
COLFAX COMMUNICATIONS, INC. RADIO GROUP
COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Current assets:
Cash............................................... $ 1,718,589 $ 682,672 $ 216,414
Accounts receivable, net of allowance for doubtful
accounts of $710,813, $441,889, and $238,801,
respectively.................................... 15,514,187 7,626,579 8,978,881
Prepaid expenses and other current assets.......... 520,358 286,774 343,441
------------ ----------- -----------
Total current assets....................... 17,753,134 8,596,025 9,538,736
Property and equipment at cost, net of
depreciation....................................... 14,508,097 8,675,724 9,608,603
Intangibles and other noncurrent assets at cost, net
of amortization.................................... 147,579,599 32,383,587 37,653,803
------------ ----------- -----------
Total assets............................... $179,840,830 $49,655,336 $56,801,142
============ =========== ===========
Liabilities:
Accounts payable and accrued expenses.............. $ 5,116,890 $ 3,224,139 $ 3,883,242
Current maturities of long-term debt............... -- -- 900,000
------------ ----------- -----------
Total current liabilities.................. 5,116,890 3,224,139 4,783,242
Long-term debt..................................... 55,650,000 39,225,000 7,100,000
------------ ----------- -----------
Total liabilities.......................... 60,766,890 42,449,139 11,883,242
------------ ----------- -----------
Commitments (Note 8):
Partners' equity:
Radio Acquisition Associates....................... (1,141,558) (2,783,226) (3,121,671)
Equity Group Holdings.............................. 119,013,080 9,888,902 47,558,478
Colfax Communications, Inc......................... 1,202,418 100,521 481,093
Class B Limited Partners........................... -- -- --
------------ ----------- -----------
Total partners' equity..................... 119,073,940 7,206,197 44,917,900
------------ ----------- -----------
Total liabilities and partners' equity..... $179,840,830 $49,655,336 $56,801,142
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-273
<PAGE> 514
COLFAX COMMUNICATIONS, INC. RADIO GROUP
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Advertising revenues:
Local sponsors...................................... $37,496,454 $23,425,588 $24,147,363
National sponsors................................... 12,885,713 9,151,724 8,221,228
Other............................................... 2,518,200 1,910,483 2,090,737
----------- ----------- -----------
Gross advertising revenues.................. 52,900,367 34,487,795 34,459,328
Less -- Commissions................................. (6,785,322) (4,345,062) (4,283,386)
----------- ----------- -----------
Net advertising revenues.................... 46,115,045 30,142,733 30,175,942
----------- ----------- -----------
Operating expenses:
Programming......................................... 7,675,793 5,461,691 9,604,067
Sales and advertising............................... 14,507,662 11,360,597 10,885,717
General and administrative.......................... 5,793,377 4,332,286 3,651,832
Engineering......................................... 1,260,447 1,014,375 1,084,282
Depreciation and amortization....................... 4,617,958 6,505,492 7,599,901
----------- ----------- -----------
Total operating expenses.................... 33,855,237 28,674,441 32,825,799
----------- ----------- -----------
Income (loss) from operations............... 12,259,808 1,468,292 (2,649,857)
Interest expense...................................... 4,368,669 655,795 531,387
Loss on sale of fixed assets.......................... -- 770,689 --
Other expense (income)................................ (184,289) -- 75,364
----------- ----------- -----------
Net income (loss)........................... $ 8,075,428 $ 41,808 $(3,256,608)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-274
<PAGE> 515
COLFAX COMMUNICATIONS, INC. RADIO GROUP
COMBINED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
RADIO EQUITY CLASS B
ACQUISITION COLFAX GROUP LIMITED
ASSOCIATES COMM., INC. HOLDINGS PARTNERS TOTAL
----------- ----------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993.......... $(2,464,398) $ 528,938 $ 52,305,936 $ -- $ 50,370,476
Capital contributions from
partners....................... 368,281 60,023 5,949,744 -- 6,378,048
Capital distributions to
partners....................... (1,678,638) (68,618) (6,826,760) -- (8,574,016)
Net income (loss)................. 653,084 (39,250) (3,870,442) -- (3,256,608)
----------- ---------- ------------ ----- ------------
Balance, December 31, 1994.......... (3,121,671) 481,093 47,558,478 -- 44,917,900
Capital contributions from
partners....................... -- 5,735 567,746 -- 573,481
Capital distributions to
partners....................... (1,031,464) (372,709) (36,922,819) -- (38,326,992)
Net income (loss)................. 1,369,909 (13,598) (1,314,503) -- 41,808
----------- ---------- ------------ ----- ------------
Balance, December 31, 1995.......... (2,783,226) 100,521 9,888,902 -- 7,206,197
Capital contributions from
partners....................... 5,104 1,130,725 111,941,654 -- 113,077,483
Capital distributions to
partners....................... (981,106) (82,845) (8,221,217) -- (9,285,168)
Net income (loss)................. 2,617,670 54,017 5,403,741 -- 8,075,428
----------- ---------- ------------ ----- ------------
Balance, December 31, 1996.......... $(1,141,558) $1,202,418 $119,013,080 $ -- $119,073,940
=========== ========== ============ ===== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-275
<PAGE> 516
COLFAX COMMUNICATIONS, INC. RADIO GROUP
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................ $ 8,075,428 $ 41,808 $(3,256,608)
Adjustments to reconcile net loss to net cash
used in operating activities --
Depreciation and amortization................. 4,617,958 6,505,492 7,599,901
Loss on asset disposal........................ -- 770,689 57,398
Restructuring charge.......................... -- 737,729 --
Change in assets and liabilities:
(Increase) decrease in accounts
receivable............................... (7,888,416) 1,352,302 (1,664,323)
(Increase) decrease in prepaid expenses and
other current assets..................... (233,584) 56,667 170,619
Increase (decrease) in accounts payable and
accrued expenses......................... 1,892,751 (1,396,832) 708,448
------------- ------------ -----------
Net cash provided by operating
activities............................. 6,464,137 8,067,855 3,615,435
------------- ------------ -----------
Cash flows from investing activities:
Cash paid for acquisition of intangibles and
other noncurrent assets....................... (126,017,951) (363,174) (12,944)
Payments for additions to property and
equipment..................................... (5,907,584) (823,737) (968,929)
Disposal of intangible assets.................... 6,280,000 -- --
Disposal of fixed assets......................... -- 113,825 --
------------- ------------ -----------
Net cash used in investing activities.... (125,645,535) (1,073,086) (981,873)
------------- ------------ -----------
Cash flows from financing activities:
Repayment of note payable........................ (5,800,000) (8,000,000) (800,000)
Loan proceeds.................................... 22,225,000 39,225,000 --
Capital contributions from partners.............. 113,077,483 573,481 6,378,048
Capital distributions to partners................ (9,285,168) (38,326,992) (8,190,101)
------------- ------------ -----------
Net cash provided by (used in) financing
activities............................. 120,217,315 (6,528,511) (2,612,053)
------------- ------------ -----------
Net increase (decrease) in cash.................... 1,035,917 466,258 21,509
Cash, beginning of period.......................... 682,672 216,414 194,905
------------- ------------ -----------
Cash, end of period................................ $ 1,718,589 $ 682,672 $ 216,414
============= ============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest........... $ 4,391,300 $ 615,900 $ 514,213
============= ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-276
<PAGE> 517
COLFAX COMMUNICATIONS, INC. RADIO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996, 1995, AND 1994
1. BASIS OF PRESENTATION:
The accompanying combined financial statements include the radio station
holdings of Colfax Communications, Inc. ("Colfax"), a Maryland Corporation.
Three of the stations serve the Washington, D.C., market: WGMS-FM (classical
format), WBIG-FM (oldies format), and WTEM(AM) (all-sports format). Two
stations, WBOB-FM (country format) and KQQL(FM) (oldies format), serve the
Minneapolis-St. Paul market. Five of the stations serve the Phoenix market:
KOOL-FM (oldies format), KOY(AM) (nostalgia format), KZON-FM (alternative
format), KISO(AM) (urban adult contemporary format), and KYOT-FM (new adult
contemporary format). Two stations serve the Milwaukee market: WMIL-FM (country
format) and WOKY(AM) (adult standard format). Three stations serve the Boise
market: KIDO(AM) (news/talk format), KLTB(FM) (oldies format), and KARO(FM)
(class rock format). All stations are owned by entities under the common control
of Colfax and its affiliates.
2. DESCRIPTION OF COLFAX COMMUNICATIONS, INC., RADIO GROUP:
Classical Acquisition Limited Partnership
Classical Acquisition Limited Partnership ("CALP") is a Maryland limited
partnership formed to acquire and operate radio stations WGMS(AM) (currently
WTEM(AM)) and WGMS-FM. Radio Acquisition Associates Limited Partnership, a
Maryland limited partnership, had a 98.04 percent general partner interest and
Equity Group Holdings, a District of Columbia general partnership, had a 1.96
percent limited partner interest in CALP prior to the admission of the Class B
Limited Partners as discussed below. Radio Acquisition Associates Limited
Partnership has Colfax as a 1 percent general partner and Equity Group Holdings
as a 99 percent limited partner.
Certain Class B Limited Partners were admitted to the partnership on
January 1, 1993 and on January 1, 1995. The Class B Limited Partners have a
13.25 percent interest in CALP and Equity Group Holdings' limited partnership
interest in CALP was reduced to 1.813 percent effective January 1, 1993. Radio
Acquisition Associates' Limited Partnership general partnership interest was
reduced to 90.687 percent and 84.937 percent effective January 1, 1993 and
January 1, 1995, respectively.
Radio 570 Limited Partnership
Radio 570 Limited Partnership ("Radio 570") is a Maryland limited
partnership formed on December 10, 1991, to operate radio station WTEM-AM
(formerly WGMS-AM). Radio 570 was formed by Colfax as the 1 percent general
partner and Equity Group Holdings as the 99 percent limited partner. WTEM began
broadcasting on May 24, 1992.
Effective January 1, 1993, certain Class B Limited Partners were admitted
to the partnership. On September 15, 1995, a Class B Limited Partner was
redeemed of his partnership interest. As of December 31, 1996 and 1995, the
Class B Limited Partners had a 9.25 percent interest and Equity Group Holdings
had an 89.75 percent Class A Limited Partnership interest.
Radio 100 Limited Partnership
Radio 100 Limited Partnership ("Radio 100") was formed on August 11, 1992,
to acquire and operate radio stations. Radio 100 was formed by Colfax as the 1
percent general partner and Equity Group Holdings as the 99 percent limited
partner.
F-277
<PAGE> 518
COLFAX COMMUNICATIONS, INC. RADIO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In 1993, Radio 100 completed its acquisition of two radio stations in
Minnesota for $25,500,000. WBOB-FM (formerly WCTS-FM) and KQQL(FM) began on-air
operations under Radio 100 ownership on May 7, 1993, and February 18, 1993,
respectively.
Effective January 1, 1993, certain Class B Limited Partners were admitted
to the partnership. The Class B Limited Partners have a 10.25 percent interest
and the Equity Group Holdings Class A Limited Partnership interest was reduced
to 88.75 percent.
Radio 100 of Maryland Limited Partnership
Radio 100 of Maryland Limited Partnership ("Radio 100 of Maryland") was
formed on December 2, 1992 to acquire and operate radio stations. Radio 100 of
Maryland was formed by Colfax as the 1 percent general partner and Equity Group
Holdings as the 99 percent limited partner.
On June 3, 1993, Radio 100 of Maryland acquired WBIG-FM (formerly WJZE-FM)
in Washington, D.C. for $19,500,000.
Effective January 1, 1993, certain Class B Limited Partners were admitted
to the partnership. On September 15, 1995, a Class B Limited Partner was
redeemed of his partnership interest. On October 1, 1995, a Class B Limited
Partner was admitted to the partnership. As of December 31, 1996 and 1995, the
Class B Limited Partners had an 11.25 percent interest and Equity Group Holdings
had an 87.75 percent Class A Limited Partnership interest.
Radio 94 of Phoenix Limited Partnership
Radio 94 of Phoenix Limited Partnership ("Radio 94") was formed on January
3, 1996, to acquire and operate radio stations. Radio 94 was formed by Colfax as
the 1 percent general partner and Equity Group Holdings as the 99 percent
limited partner. On April 1, 1996, Radio 94 acquired KOOL(AM) and KOOL-FM in
Phoenix, Arizona for $35,000,000. Effective April 5, 1996, certain Class B
Limited Partners were admitted to the partnership. The Class B Limited Partners
have an 8.25 percent interest and the Equity Group Holdings Class A Limited
Partnership interest was reduced to 90.75 percent. On October 4, 1996, Radio 94
sold KOOL(AM) to Salem Media of Arizona, Inc.
Radio 95 of Phoenix Limited Partnership
Radio 95 of Phoenix Limited Partnership ("Radio 95") was formed on May 3,
1996, to acquire and operate radio stations. Radio 95 was formed by Colfax as
the 1 percent general partner and Equity Group Holdings as the 99 percent
limited partner. On September 12, 1996, Radio 95 acquired KYOT-FM, KZON-FM,
KOY(AM), and KISO(AM), each in Phoenix, Arizona; KIDO(AM) and KLTB(FM), each in
Boise, Idaho; KARO(FM) in Caldwell, Idaho; WMIL-FM in Waukesha, Wisconsin; and
WOKY(AM) in Milwaukee, Wisconsin, for $95,000,000.
F-278
<PAGE> 519
COLFAX COMMUNICATIONS, INC. RADIO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Sale of Stations
On August 24, 1996, Chancellor Radio Broadcasting Company ("Chancellor"), a
Delaware Corporation, agreed to purchase substantially all of the assets of
CALP, Radio 570, Radio 100, Radio 100 of Maryland, Radio 94 (with the exception
of KOOL(AM)), and Radio 95 (with the exception of KIDO(AM), KLTB(FM), and
KARO(FM)) for total consideration of $365,000,000 plus the net working capital
of the stations. The transaction closed on January 23, 1997. The agreement
stipulates that the purchase price for the assets be allocated among the limited
partnerships as follows:
<TABLE>
<S> <C>
CALP........................................................ $ 50,000,000
Radio 570................................................... 21,000,000
Radio 100................................................... 85,000,000
Radio 100 of Maryland....................................... 90,000,000
Radio 94.................................................... 30,000,000
Radio 95.................................................... 89,000,000
------------
$365,000,000
============
</TABLE>
On October 28, 1996, Jacor Broadcasting of Idaho, Inc., an Ohio
corporation, entered into an agreement to purchase substantially all of the
assets of radio stations KIDO(AM), KLTB(FM), and KARO(FM) for $11,000,000. The
transaction closed on January 31, 1997.
Partnership Allocations
The partnerships distribute cash from operations and allocate net profits
or losses to the partners, in general, in accordance with their stated interests
except that no partner shall receive any distribution from a partnership until
such time as the net invested capital of the general partner and Class A Limited
Partner have been distributed, along with a cumulative priority return on the
average net invested capital at an annual rate equal to the prime rate plus one
quarter of one percent compounded monthly.
In accordance with the Company's debt agreement (described below)
distributions to partners may be permitted on a quarterly basis if certain
requirements are met.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Accounting
The accompanying financial statements are prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles.
Barter Transactions
The partnerships enter into barter transactions in which they provide
on-air advertising in exchange for goods and services. Revenues and expenses
from barter transactions are presented in the accompanying statement of revenues
and expenses based on the estimated fair market value of the goods or services
received. Barter revenue approximated $1,925,000, $1,590,000, and $1,870,000 for
the years ended December 31, 1996, 1995, and 1994, respectively; while barter
expense approximated $1,763,000, $1,486,000, and $1,520,000 for the years ended
December 31, 1996, 1995, and 1994, respectively.
F-279
<PAGE> 520
COLFAX COMMUNICATIONS, INC. RADIO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Provision for Federal and state income taxes has not been made in the
accompanying financial statements since the partnerships do not pay Federal and
state income taxes but rather allocate profits and losses to the partners for
inclusion in their respective income tax returns.
Buildings and Leasehold Improvements
Buildings and leasehold improvements are recorded at cost or appraised
value at acquisition. Depreciation is recorded using the straight-line method
over 31.5 or 40 years as prescribed by the Internal Revenue Code.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are recorded at cost or appraised value
at acquisition. Depreciation is recorded using the straight-line method over the
estimated useful life of the assets, which is typically 5 to 7 years.
Intangible Assets
Intangible assets are recorded at cost or appraised value at acquisition.
Amortization is recorded over their useful lives. The estimated useful lives of
intangible assets as of December 31, 1996, are as follows:
<TABLE>
<CAPTION>
USEFUL LIFE
-----------
<S> <C>
FCC Licenses................................................ 7-25 years
Covenants Not to Compete.................................... 3 years
Employment Agreements....................................... 2 years
Organizational Costs........................................ 5 years
Start-up Costs.............................................. 5 years
</TABLE>
Land
Certain partners have contributed to Radio 570 a parcel of land in
Germantown, Maryland which is being used as the site for a new array of
broadcasting towers. The land has been recorded at its original purchase price
plus costs related to preparing the land for its intended use.
Radio 100 of Maryland acquired a parcel of land and property in Washington,
D.C., in connection with the acquisition of WJZE-FM. This parcel of land was
recorded at its appraised value at acquisition. This land was sold in February
1995.
Radio 100 acquired a parcel of land in Nowthen, Minnesota, through the
purchase of KQQL-FM. This parcel of land was recorded at its appraised value at
acquisition.
Radio 95 acquired various parcels of land located in Phoenix, Milwaukee,
and Boise in connection with its purchase of nine stations during 1996. These
parcels of land were recorded at their estimated market value at acquisition.
Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
F-280
<PAGE> 521
COLFAX COMMUNICATIONS, INC. RADIO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Fair Value of Financial Instruments
In 1995 the Company adopted Statement of Financial Accounting Standard
("SFAS") No. 107, "Disclosure about Fair Value of Financial Instruments," which
requires disclosures of fair value information about financial instruments,
whether or not recognized in the balance sheet.
The carrying amount reported in the balance sheets for cash, accounts
receivable, accounts payable and accrued liabilities, approximate their fair
value due to the immediate or short-term maturity of such instruments. The
carrying amount reported for long-term debt approximates fair value due to the
debt being priced at floating rates (see Note 7 for additional information).
4. PROPERTY AND EQUIPMENT:
The components of property and equipment at December 31, 1996 and 1995, are
summarized below:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Land.................................... $ 3,719,572 $ 1,901,663 $ 2,233,341
Buildings............................... 1,372,161 26,453 604,927
Construction in progress................ 27,660 27,232 201,404
Furniture, fixtures and equipment....... 11,323,175 8,520,853 7,690,841
Leasehold improvements.................. 835,407 816,031 522,806
----------- ----------- -----------
17,277,975 11,292,232 11,253,319
Less -- Accumulated depreciation........ (2,769,878) (2,616,508) (1,644,716)
----------- ----------- -----------
$14,508,097 $ 8,675,724 $ 9,608,603
=========== =========== ===========
</TABLE>
5. FCC LICENSES AND OTHER NONCURRENT ASSETS:
The components of FCC licenses and other noncurrent assets at December 31,
1996 and 1995, are summarized below:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
FCC licenses............................ $163,988,330 $ 39,505,773 $ 39,505,773
Covenants not to compete................ 1,931,834 8,493,147 8,493,147
Start-up and organization costs......... 2,489,973 2,132,587 2,153,036
Other................................... 1,376,763 958,245 1,891,395
------------ ------------ ------------
169,786,900 51,089,752 52,043,351
Less -- Accumulated amortization........ (22,207,301) (18,706,165) (14,389,548)
------------ ------------ ------------
$147,579,599 $ 32,383,587 $ 37,653,803
============ ============ ============
</TABLE>
6. RELATED-PARTY TRANSACTIONS:
Each partnership is involved in certain transactions with other
partnerships in the radio group related to sharing of services and purchasing.
These transactions are settled on a current basis through adjustments to
partners' equity accounts.
F-281
<PAGE> 522
COLFAX COMMUNICATIONS, INC. RADIO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
On January 18, 1995, CALP and Radio 100 of Maryland each entered into a 10
year agreement to lease tower space from Colfax Towers, Inc. The annual rental
payment for CALP equaled $31,200 and $30,000 for the years ended December 31,
1996 and 1995, respectively. The annual rental payment for Radio 100 of Maryland
equaled $37,200 and $36,000 for the years ended December 31, 1996 and 1995,
respectively. Colfax Towers, Inc., is owned by the shareholders of Colfax
Communications, Inc.
Employees of Colfax perform activities on behalf of and oversee the
operations of the radio stations included in the radio group. Colfax does not
charge any fees to the radio stations for the performance of such services.
Corporate expenses of $1,240,253, $1,354,296, and $1,144,082 related to those
services are not included in the financial statements of the radio group for the
years ending December 31, 1996, 1995, and 1994, respectively. These corporate
expenses were funded directly by the owners of Colfax Communications, Inc.
7. LONG-TERM DEBT:
On December 27, 1995, CALP, Radio 570, Radio 100, and Radio 100 of Maryland
entered into a $40 million revolving loan agreement. On April 2, 1996, under an
amendment to the loan agreement, CALP, Radio 570, Radio 100, Radio 100 of
Maryland, and Radio 94 (collectively, the "Borrowers") increased the amount
available under the revolving loan agreement to $60 million. At December 31,
1996, $55,650,000 was outstanding under this agreement. The proceeds were
allocated to each borrower on the basis of each station's capital account as
follows:
<TABLE>
<S> <C>
CALP........................................................ $ 5,702,360
Radio 570................................................... 4,156,587
Radio 100................................................... 16,423,860
Radio 100 of Maryland....................................... 9,214,544
Radio 94.................................................... 20,152,649
-----------
$55,650,000
===========
</TABLE>
The initial proceeds were used to repay the indebtedness of CALP to make
certain permitted distributions to partners of the Borrowers, and for working
capital purposes in the operations of the Borrowers. Borrowings under this
agreement bear interest at floating rates equal to prime and/or LIBOR (as
defined in the loan agreement) plus an applicable margin determined by a
leverage ratio. The expiration date of the loan agreement is December 31, 2002.
Under the loan agreement, the Borrowers are required to maintain a specific
leverage ratio and certain ratios pertaining to cash flow coverage.
In connection with the sale of the stations (discussed in Note 2), the debt
was repaid in full in January 1997.
F-282
<PAGE> 523
COLFAX COMMUNICATIONS, INC. RADIO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS:
The Radio Group has entered into various contracts for exclusive radio
broadcasting rights and other programming. In addition, the partnerships lease
office space and have entered into various service contracts, including certain
personal service contracts. These broadcasting rights, leases and service
contracts expire over periods ranging from 1997 to 2012. The minimum future
commitments under these agreements, leases and service contracts are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 3,766,028
1998........................................................ 2,826,433
1999........................................................ 1,178,594
2000........................................................ 1,140,345
2001........................................................ 646,234
Thereafter.................................................. 2,077,616
-----------
$11,635,250
===========
</TABLE>
9. RESTRUCTURING CHARGES:
During 1995, the Radio Group recorded restructuring costs of $737,729 at
certain radio stations. These costs included severance and salary payments to
terminated employees of $357,563, costs related to hiring a new general manager
at one of the radio stations of $135,519 and costs related to a loss on space
vacated by one of the radio stations of $244,647.
F-283
<PAGE> 524
REPORT OF INDEPENDENT AUDITORS
Board of Directors
SFX Broadcasting, Inc.
We have audited the accompanying consolidated balance sheets of SFX
Broadcasting, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
SFX Broadcasting, Inc. and Subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
March 5, 1998 except for
Notes 2 and 14
as to which the date
is April 27, 1998
F-284
<PAGE> 525
(This page intentionally left blank)
F-285
<PAGE> 526
SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------
1998 1997 1996
----------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents............................. $ 38,464 $ 24,686 $ 10,601
Cash pledged for letters of credit.................... -- -- 20,000
Accounts receivable less allowance for doubtful
accounts of $2,400 in 1998, $2,264 in 1997 and
$1,620 in 1996..................................... 64,447 71,241 47,275
Assets under contract for sale........................ 38,268 42,883 8,352
Prepaid and other current assets...................... 3,791 3,109 2,461
Receivable from SFX Entertainment..................... 125,378 11,539 --
---------- ---------- --------
Total current assets.......................... 270,348 153,458 88,689
Property and equipment:
Land.................................................. 6,169 6,169 6,791
Buildings and improvements............................ 20,389 18,295 11,485
Broadcasting equipment and other...................... 68,714 67,821 54,736
---------- ---------- --------
95,272 92,285 73,012
Less accumulated depreciation and amortization.......... (19,976) (17,456) (10,192)
---------- ---------- --------
Net property and equipment.............................. 75,296 74,829 62,820
Intangible Assets:
Broadcast licenses.................................... 915,020 913,887 558,640
Goodwill.............................................. 131,601 131,601 98,165
Deferred financing costs.............................. 22,250 22,250 19,504
Other................................................. 5,406 5,406 4,727
---------- ---------- --------
1,074,277 1,073,144 681,036
Less accumulated amortization........................... (46,898) (39,580) (16,933)
---------- ---------- --------
Net intangible assets................................... 1,027,379 1,033,564 664,103
Net assets to be distributed to shareholders............ 11,454 102,144 --
Deposits and other payments for pending acquisitions.... 4,295 5,830 31,692
Other assets............................................ 5,123 5,790 12,023
---------- ---------- --------
Total Assets.................................. $1,393,895 $1,375,615 $859,327
========== ========== ========
</TABLE>
See accompanying notes.
F-286
<PAGE> 527
SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------
1998 1997 1996
----------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C>
Current Liabilities:
Accounts payable........................................ $ 14,624 $ 8,665 $ 10,921
Accrued expenses........................................ 11,966 19,246 21,913
Payable to former national sales representative......... 11,783 23,025 --
Accrued interest and dividends.......................... 25,851 20,475 7,111
Income tax payable...................................... 115,037 -- --
Current portion of long-term debt....................... 535 509 231
Current portion of capital lease obligations............ 82 101 150
---------- ---------- --------
Total current liabilities................................. 179,878 72,021 40,326
Long-term debt, less current portion...................... 763,882 763,966 480,875
Capital lease obligations, less current portion........... 103 126 204
Deferred income taxes..................................... 77,781 102,681 91,352
---------- ---------- --------
Total liabilities......................................... 1,021,644 938,794 612,757
Redeemable preferred stock................................ 376,615 361,996 145,999
Minority interests -- SFX Entertainment................... 56,200 -- --
Commitments and contingencies
Shareholders' Equity (Deficit):
Class A Voting common stock, $.01 par value; 100,000,000
shares authorized; and 9,562,602 issued and 9,532,157
outstanding at March 31, 1998, 9,508,379 issued and
9,477,934 outstanding at December 31, 1997 and
8,089,367 issued and 8,063,348 outstanding at
December 31, 1996.................................... 95 95 81
Class B Voting convertible common stock, $.01 par value;
10,000,000 shares authorized; 1,190,911 issued and
1,047,037 outstanding at March 31, 1998 and at
December 31, 1997 and 1,208,810 issued and 1,064,936
outstanding at December 31, 1996..................... 12 12 12
Additional paid-in capital................................ 183,141 185,537 189,920
Treasury Stock; 174,319 shares at March 31, 1998 and
December 31, 1997 and 170,192 shares at December 31,
1996.................................................... (6,523) (6,523) (6,393)
Accumulated deficit....................................... (237,289) (104,296) (83,049)
---------- ---------- --------
Total shareholders' equity (deficit)...................... (60,564) 74,825 100,571
---------- ---------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)...... $1,393,895 $1,375,615 $859,327
========== ========== ========
</TABLE>
See accompanying notes.
F-287
<PAGE> 528
SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------------- ---------------------------------
1998 1997 1997 1996 1995
----------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross revenues................................ $ 74,405 $ 50,994 $ 306,842 $ 162,011 $ 87,140
Less agency commissions....................... (8,654) (6,003) (36,478) (18,950) (10,310)
----------- --------- --------- --------- ---------
Net revenues.................................. 65,751 44,991 270,364 143,061 76,830
Station operating expenses.................... 44,636 29,916 167,063 92,816 51,039
Depreciation, amortization, duopoly
integration costs and acquisition related
costs....................................... 10,653 7,485 38,232 17,311 9,137
Corporate expenses, net of $2,206 allocated to
SFX Entertainment in 1997, including related
party expenses of $151 in 1996 and $330 in
1995, net of related party advisory fees of
$802 in 1996................................ 1,569 1,035 6,837 6,261 3,797
Non-cash stock compensation................... 138 156 624 52 --
Non-recurring and unusual charges, including
adjustments to broadcast rights agreement... 24,974 -- 20,174 28,994 5,000
----------- --------- --------- --------- ---------
Total operating expenses...................... 81,970 38,592 232,930 145,434 68,973
----------- --------- --------- --------- ---------
Operating income (loss)....................... (16,219) 6,399 37,434 (2,373) 7,857
Investment income............................. 202 1,654 2,821 4,017 650
Interest expense.............................. (19,190) (12,712) (64,506) (34,897) (12,903)
Loss on sale of radio station................. -- -- -- (1,900) --
----------- --------- --------- --------- ---------
Loss from continuing operations before income
taxes and extraordinary item................ (35,207) (4,659) (24,251) (35,153) (4,396)
Income tax expense............................ 210 285 810 480 --
----------- --------- --------- --------- ---------
Loss from continuing operations before
extraordinary item.......................... (35,417) (4,944) (25,061) (35,633) (4,396)
Discontinued operations:
Income (loss) from operations to be
distributed to shareholders, net of
taxes..................................... (97,576) (1,544) 3,814 -- --
Loss on disposal of operations to be
distributed to shareholders............... -- -- -- -- --
----------- --------- --------- --------- ---------
Income (loss) from discontinued operations.... (97,576) (1,544) 3,814 -- --
----------- --------- --------- --------- ---------
Loss before extraordinary item................ (132,993) (6,488) (21,247) (35,633) (4,396)
Extraordinary loss on debt retirement......... -- -- -- 15,219 --
----------- --------- --------- --------- ---------
Net loss...................................... (132,993) (6,488) (21,247) (50,852) (4,396)
Redeemable preferred stock dividends and
accretion................................... 10,350 7,952 38,510 6,061 291
----------- --------- --------- --------- ---------
Net loss applicable to common stock........... $ (143,343) $ (14,440) $ (59,757) $ (56,913) $ (4,687)
=========== ========= ========= ========= =========
Loss per basic common share from continuing
operations.................................. $ (4.34) $ (1.41) $ (6.67) $ (5.51) $ (0.71)
(Loss) income per basic common share from
operations to be distributed to
shareholders................................ (9.24) (0.17) 0.40 -- --
----------- --------- --------- --------- ---------
Loss per basic common share before
extraordinary item.......................... $ (13.58) $ (1.58) $ (6.27) $ (5.51) $ (0.71)
Extraordinary loss on debt retirement per
basic common share.......................... -- -- -- (2.01) --
----------- --------- --------- --------- ---------
Loss per basic common share................... $ (13.58) $ (1.58) $ (6.27) $ (7.52) $ (0.71)
=========== ========= ========= ========= =========
Weighted average common shares outstanding.... 10,554,130 9,161,433 9,526,429 7,563,600 6,595,728
=========== ========= ========= ========= =========
</TABLE>
See accompanying notes.
F-288
<PAGE> 529
SFX BROADCASTING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND THREE MONTHS ENDED MARCH 31,
1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A CLASS B PAID-IN TREASURY ACCUMULATED
COMMON COMMON CAPITAL STOCK DEFICIT TOTAL
------- ------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994..... $48 $ 9 $ 76,600 -- $ (27,801) $ 48,856
Public offering, net of
expenses..................... 17 39,149 39,166
Redemption of Class C Common... (459) (459)
Accretion and dividends on
redeemable preferred stock... (291) (291)
Conversion of Class A Common to
Class B Common............... (1) 1 --
Decrease in unrealized holding
losses....................... 185 185
Net loss....................... (4,396) (4,396)
--- --- -------- ------- --------- ---------
Balance, December 31, 1995..... $64 $10 $115,184 $ -- $ (32,197) $ 83,061
=== === ======== ======= ========= =========
Accretion and dividends on
redeemable preferred stock... (6,061) (6,061)
Issuance upon exercise of stock
options...................... 370 370
Issuance of warrants to SCMC... 8,905 8,905
Issuance of equity securities
for MMR Merger............... 17 2 71,522 71,541
Repurchase of common stock..... (6,393) (6,393)
Net loss....................... (50,852) (50,852)
--- --- -------- ------- --------- ---------
Balance, December 31, 1996..... $81 $12 $189,920 $(6,393) $ (83,049) $ 100,571
=== === ======== ======= ========= =========
Issuance upon exercise of stock
options...................... 11 21,132 21,143
Issuance upon exercise of Class
B Warrants................... 2,476 2,476
Issuance of stock for
acquisitions................. 3 9,519 9,522
Payment from shareholder....... 1,000 1,000
Accretion and dividends on
redeemable preferred stock... (38,510) (38,510)
Repurchase of common stock..... (130) (130)
Net loss....................... (21,247) (21,247)
--- --- -------- ------- --------- ---------
Balance, December 31, 1997..... $95 $12 $185,537 $(6,523) $(104,296) $ 74,825
=== === ======== ======= ========= =========
Redeemable preferred stock
dividends and accretion...... (10,350) (10,350)
Other, principally shares
issued pursuant to stock
option plans................. 7,954 7,954
Net loss....................... (132,993) (132,993)
--- --- -------- ------- --------- ---------
Balance at March 31, 1998
(unaudited).................. $95 $12 $183,141 $(6,523) $(237,289) $ (60,564)
=== === ======== ======= ========= =========
</TABLE>
See accompanying notes.
F-289
<PAGE> 530
SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
--------------------- --------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss.............................................. $(132,993) $ (6,488) $ (21,247) $ (50,852) $ (4,396)
Income from operations to be distributed to
shareholders........................................ 27,296 1,544 (3,814) -- --
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation........................................ 2,986 2,253 10,955 5,972 2,658
Amortization........................................ 7,546 4,932 26,406 10,202 5,099
Noncash portion of non-recurring and unusual
charge............................................ 4,196 -- 4,712 9,878 --
Extraordinary loss on debt repayment................ -- -- -- 15,219 --
Loss on sale of radio station and other noncash
items............................................. -- -- -- 1,900 (207)
Deferred taxes...................................... (13,500) -- -- (710) --
Changes in assets and liabilities, net of amounts
acquired:
Accounts receivable............................... 6,794 6,076 (22,189) (13,839) (5,164)
Prepaid and other assets.......................... 6,140 (1,256) 2,599 (1,704) 2,052
Accrued interest and dividends.................... 12,098 11,966 345 3,841 6
Accounts payable, accrued expenses and other
liabilities..................................... (14,991) (9,959) 6,275 6,646 451
--------- --------- --------- --------- --------
Cash provided by (used in) continuing
operations................................... (94,428) 9,068 4,042 (13,447) 499
Cash from operating activities of SFX
Entertainment.............................. 9,140 307 1,005 -- --
--------- --------- --------- --------- --------
Net cash provided by (used in) operating
activities................................... (85,288) 9,375 5,047 (13,447) 499
Investing activities:
Purchase of stations and related businesses, net of
cash acquired..................................... -- (63,667) (408,788) (493,433) (26,057)
Proceeds from sales of stations and other assets.... 4,692 717 1,836 56,943 703
Deposits and other payments for pending
acquisitions...................................... (59) (14,545) (3,594) (30,799) (3,000)
Purchase of property and equipment.................. (3,602) (2,763) (12,409) (3,224) (3,261)
Sale of short-term investments...................... -- -- -- -- 7,918
Loans and advances to related parties............... -- (2,800) (2,800) -- (2,000)
Net tax liability on Spin-Off to be reimbursed...... 105,975 -- -- -- --
--------- --------- --------- --------- --------
Net cash used in investing activities........... 107,006 (83,058) (425,755) (470,513) (25,697)
Cash from investing activities of SFX
Entertainment..................................... (379,782) (22,612) (73,296) -- --
--------- --------- --------- --------- --------
Net cash used in investing activities........... (272,776) (105,670) (499,051) (470,513) (25,697)
Financing activities:
Payments on long-term debt, including prepayment
premiums.......................................... (100) (50,123) (73,863) (110,396) (22,521)
Additions to debt issuance costs.................... -- (52) (3,006) (19,505) (2,139)
Proceeds from issuance of senior and subordinated
debt.............................................. -- 20,000 356,500 501,500 22,000
Net proceeds from sales of preferred stock.......... -- 215,258 215,258 143,445 --
Dividends paid on preferred stock................... (2,459) (2,459) (23,487) (4,983) --
Proceeds from issuance of common stock and
shareholders...................................... 3,759 46 24,619 -- 39,166
Purchases of treasury stock......................... -- -- (130) (6,393) --
Stock, redemptions, retirements and other........... -- -- (1,000) (1,000) (2,609)
--------- --------- --------- --------- --------
Net cash provided by financing activities....... 1,200 182,670 494,891 502,668 33,897
Cash from financing activities of SFX
Entertainment..................................... 458,654 (29) (823) -- --
--------- --------- --------- --------- --------
Net cash provided by financing activities....... 459,854 182,641 494,068 502,668 33,897
Net increase in cash and cash equivalents........... 101,790 86,346 64 18,708 8,699
Cash and cash equivalents at beginning of period.... 30,666 30,601 30,601 11,893 3,194
Cash of SFX Entertainment at the end of period...... (93,992) (2,622) (5,979) -- --
--------- --------- --------- --------- --------
Cash and equivalents at end of period............... $ 38,464 $ 114,325 $ 24,686 $ 30,601 $ 11,893
========= ========= ========= ========= ========
</TABLE>
Supplemental disclosure of cash flow information (See Note 13).
See accompanying notes.
F-290
<PAGE> 531
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
SFX Broadcasting, Inc. (the "Company"), a Delaware corporation, is one of
the largest radio station groups in the United States. At December 31, 1997, the
Company owned and operated, provided programming to or sold advertising on
behalf of sixty-three FM stations and nineteen AM stations serving the following
twenty-three markets: Dallas, Texas; Houston, Texas; Pittsburgh, Pennsylvania;
Milwaukee, Wisconsin; San Diego, California; Providence, Rhode Island;
Indianapolis, Indiana; Charlotte, North Carolina; Hartford, Connecticut;
Greensboro, North Carolina; Nashville, Tennessee; Raleigh-Durham, North
Carolina; Jacksonville, Florida; Richmond, Virginia; Albany, New York;
Greenville-Spartanburg, South Carolina; Tucson, Arizona;
Springfield/Northampton, Massachusetts; Wichita, Kansas; Daytona Beach, Florida;
New Haven, Connecticut; Jackson, Mississippi and Biloxi, Mississippi.
In addition, in 1997, the Company, through the acquisitions of
Delsener/Slater Enterprises, Ltd. ("Delsener/Slater"), a concert promotion
company based in New York City, Sunshine Promotions, Inc., ("Sunshine
Promotions"), an Indianapolis concert promotion company which owns the Deer
Creek Music Theater and the Polaris Amphitheater and certain related companies,
and certain companies which collectively own and operate the Meadows Music
Theater, (the "Meadows"), a 25,000-seat indoor/outdoor complex located in
Hartford, Connecticut, became one of the largest live entertainment groups in
the United States.
As more fully described in Note 2, the Company has entered into an
Agreement and Plan of Merger and intends to distribute to its shareholders its
live entertainment business. Therefore, the live entertainment business has been
classified as net assets to be distributed to shareholders and income from
operations to be distributed to shareholders in the consolidated financial
statements. The Company has also recently completed substantial additional
acquisitions in the live entertainment business (see Note 14).
NOTE 2 -- RECENT DEVELOPMENT; SPIN-OFF AND PENDING MERGER
On August 24, 1997, the Company entered into an Agreement and Plan of
Merger with SBI Holdings Corporation, a wholly owned subsidiary of Capstar
Broadcasting Corporation ("Buyer"), and SBI Radio Acquisition Corporation
pursuant to which the Company will become a wholly owned subsidiary of Buyer
(the "Merger"). In the Merger, holders of the Company's Class A Common Stock
will receive $75.00 per share, Class B Common Stock will receive $97.50 per
share, and the 6 1/2% Series D Cumulative Convertible Exchangeable Preferred
Stock will convert into the right to receive an amount equal to the product of
(i) $75.00 and (ii) the number of shares of Class A Common Stock into which that
share would convert immediately prior to the consummation of the Merger; in each
case, subject to adjustment under certain circumstances. Pursuant to the merger
agreement, the Company distributed the net assets (the "Spin-Off") of its live
entertainment business ("SFX Entertainment") pro-rata to its stockholders and
the holders of certain warrants, options and stock appreciation rights on April
27, 1998.
Until the consummation of the Merger, senior management of the Company will
continue to serve in their present capacities with the Company while devoting
such time as they deem reasonably necessary to conduct the operations of SFX
Entertainment. Although SFX Entertainment has not yet entered into employment
agreements with such members of senior management, most members of existing
management have agreed in principle to become full-time employees of SFX
Entertainment and Mr. Sillerman, Executive Chairman, will continue to be
Executive Chairman of SFX Entertainment upon consummation of the Merger.
SFX Entertainment is required to repay to the Company all amounts paid in
connection with its concert promotion acquisitions and certain capital
improvements since the date of the Merger agreement and SFX Entertainment will
assume all the liabilities and obligations related to such company's business.
As of March 31, 1998, the Company had a $5.4 million receivable from SFX
Entertainment related to such obligations. In April 1998, SFX Entertainment
reimbursed such amount to the Company.
F-291
<PAGE> 532
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Upon the consummation of the Merger, all net working capital of the
Company, as determined in accordance with the merger agreement, will be paid to
SFX Entertainment by the Company or any net negative working capital will be
paid to the Company by SFX Entertainment. As of March 31, 1998, the Company
estimates that the working capital to be paid by SFX Entertainment would have
been approximately $3.3 million.
The consummation of the Merger is subject to the receipt of certain
regulatory approvals. In February 1998, the Company received the consents of the
holders of the Series E Preferred Stock and certain of the Company's outstanding
notes and in March 1998 the required approval of the shareholders.
SFX Entertainment also will be responsible for any taxes of the Company
resulting from the Spin-Off, including any income taxes to the extent that the
income taxes result from gain on the distribution that exceeds the net operating
losses of the Company and SFX Entertainment available to offset gain. In
connection with the use of the Company's NOL's to offset the Spin-Off gain, a
tax benefit of $13.5 million has been recorded in operations to be distributed
to shareholders. Such tax benefit includes a $8.5 million reversal of the
Company's deferred tax asset valuation allowance at December 31, 1997, the
remainder reflects a benefit for a $5.0 million estimated use of the Company's
NOL generated during the first quarter of 1998. In addition, the Spin-Off gain
was also offset by the Company NOL's generated from the exercise of stock
options in 1997. As a result, the deferred tax asset valuation allowance at
December 31, 1997 was reduced by an additional $11.4 million and the related tax
benefit has reduced the income (loss) from operations to be distributed to
shareholders, net of taxes, in the consolidated statement of operations for the
three months ended March 31, 1998. Also included in income (loss) from
operations to be distributed to shareholders, net of tax benefit for the three
months ended March 31, 1998 is estimated tax expense of $117 million related to
the taxable gain on the spin-off.
The actual amount of the tax indemnification payment will be based largely
on the excess of the value of SFX Entertainment's Common Stock on the date of
the Spin-Off over the tax basis of that stock. Management estimates that SFX
Entertainment will be required to pay approximately $120.0 million pursuant to
such indemnification obligation, based on the $30 1/2 average per share price on
the Spin-Off date. The Company expects that such indemnity payment will be due
on or about June 15, 1998. It is the Company's understanding that SFX
Entertainment intends to pay such indemnification amount with the proceeds from
a public offering of SFX Entertainment's capital stock. No assurances can be
given that SFX Entertainment's public offering will be successful or, if
successful, that such payment will be received in time by the Company to pay
such tax liability.
The Company anticipates that the Merger will be consummated in the second
quarter of 1998. There can be no assurance that the regulatory approvals will be
given or that the conditions to consummating the Merger will be met.
The operations of SFX Entertainment have been presented in the financial
statements as operations to be distributed to shareholders pursuant to the
Spin-Off. During the three months ended March 31, 1998, revenue and loss from
operations for SFX Entertainment were $61.0 million and $27.6 million,
respectively. Included in operating expenses is $1.3 million of allocated
corporate expenses, net of $133,000 of reimbursements from Triathlon (Note 9).
Additionally, interest expense relating to the debt to be distributed to the
shareholders pursuant to the Spin-off of $6.7 million has been allocated to SFX
Entertainment. During the year ended December 31, 1997, revenue and income from
operations for SFX Entertainment were $96.1 million and $5.1 million,
respectively. Included in operating expenses is $2.2 million of allocated
corporate expenses net of $1.8 million of reimbursement from Triathlon (Note 9).
Additional, interest expense relating to the debt to be distributed to the
shareholders pursuant to the Spin-Off of $1.6 million has been allocated to SFX
Entertainment. The Company provides various administrative services to SFX
Entertainment. It is the Company's policy to allocate these expenses on the
basis of direct usage. In the opinion of management, this
F-292
<PAGE> 533
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
method of allocation is reasonable and allocated expenses approximate what SFX
Entertainment would have occurred on a stand-alone basis.
NOTE 3 -- ACQUISITIONS AND DISPOSITIONS
Radio Broadcasting Acquisitions. In August 1997, the Company acquired two
radio stations operating in Pittsburgh, Pennsylvania and two radio stations in
Milwaukee, Wisconsin for $35.0 million (the "Hearst Acquisition").
In August 1997, the Company exchanged one radio station in Pittsburgh,
Pennsylvania, which the Company had recently acquired from Secret Communications
Limited Partnership ("Secret Communications") (part of the Secret Communications
Acquisition, as defined below), and $20.0 million in cash for one radio station
in Charlotte, North Carolina (the "Charlotte Exchange"). The Company operated
the radio station in Charlotte, North Carolina pursuant to a local market
agreement during July 1997.
In July 1997, the Company acquired substantially all of the assets of four
radio stations operating in Richmond, Virginia for approximately $46.5 million
in cash, including payments made to buy out minority equity interests which the
Company had originally agreed to provide to certain of the sellers (the
"Richmond Acquisition").
In April 1997, the Company acquired substantially all of the assets of
three radio stations in Indianapolis, Indiana and in June 1997 the Company
acquired substantially all of the assets of four stations in Pittsburgh,
Pennsylvania from Secret Communications for a total purchase price of $255.0
million in cash (collectively, the "Secret Communications Acquisition").
Also in April 1997, the Company sold one radio station operating in Little
Rock, Arkansas (the "Little Rock Disposition") to Triathlon Broadcasting
Company, a related party. The station was sold for $4.1 million, of which $3.5
million had been held as a deposit by the Company since 1996. No gain or loss
was recorded on the transaction as the radio station was recently acquired in
connection with the MMR Merger, as defined below.
In March 1997, the Company acquired two radio stations operating in
Houston, Texas, for a purchase price of approximately $43.0 million in cash,
exclusive of certain additional contingent liabilities which may become payable
(the "Texas Coast Acquisition"). The Texas Coast Acquisition increased the
number of stations the Company owns in the Houston market to four.
In March 1997, the Company exchanged one radio station operating in
Washington D.C./Baltimore, Maryland, for two radio stations operating in Dallas,
Texas (the "CBS Exchange") and completed the sale of two radio stations
operating in the Myrtle Beach, South Carolina market for $5.1 million payable in
installments over a five year period (present value approximately $4.3 million).
The CBS Exchange was structured as a substantially tax free exchange of
like-kind assets. The contract for the sale of the Myrtle Beach stations was in
place prior to the merger with Multi-Market Radio, Inc. ("MMR"). No gain or loss
was recognized on the Myrtle Beach stations that were recently acquired in the
MMR Merger, as defined below.
Costs of $871,000 related to the reformatting of the Dallas stations was
included in depreciation, amortization, duopoly integration costs and
acquisition related costs in 1997.
In February 1997, the Company purchased WWYZ-FM, operating in Hartford,
Connecticut, for a purchase price of $25.9 million in cash (the "Hartford
Acquisition"). The Hartford Acquisition increased the number of stations the
Company owns in the Hartford market to five.
F-293
<PAGE> 534
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In January 1997, the Company purchased one radio station operating in
Albany, New York, for $1.0 million in cash (the "Albany Acquisition").
In December 1996, the Company acquired substantially all of the assets of
WHSL-FM, operating in Greensboro, North Carolina, for a purchase price of $6.0
million in cash (the "Greensboro Acquisition") and exchanged radio station
KRLD-AM, Dallas, Texas and the Texas State Networks for radio station KKRW-FM,
Houston, Texas (the "Houston Exchange"). The Houston Exchange was structured as
a substantially tax free exchange of like kind assets. No gain or loss was
recorded on the Houston Exchange as the book values of KRLD-AM and the Texas
State Networks approximated the fair value of the assets of KKRW-FM.
In November 1996, the Company consummated its merger with MMR (the "MMR
Merger"), pursuant to which it acquired MMR in exchange for 1,631,450 shares of
Class A Common Stock, 208,810 shares of Class B Common Stock both valued at $34
per share and other equity securities with a total market value for all
securities issued of approximately $71.5 million in cash (Note 7). Concurrently
with the consummation of the MMR Merger, the Company paid approximately $43.0
million in cash to satisfy outstanding indebtedness of MMR. MMR was organized in
1992 by the Company's executive chairman and another officer and director of the
Company. The Company's executive chairman owned a substantial equity interest in
MMR which was exchanged for Class B Common Stock of the Company upon the
consummation of the MMR Merger. MMR owned and operated, provided programming to
or sold advertising on behalf of thirteen FM stations and on AM station located
in eight markets: New Haven, Connecticut; Hartford, Connecticut;
Springfield/Northampton, Massachusetts; Daytona Beach, Florida; Augusta,
Georgia; Biloxi, Mississippi; Myrtle Beach, South Carolina and Little Rock,
Arkansas. Prior to the MMR Merger, MMR had entered into agreements to sell two
stations operating in Myrtle Beach, South Carolina and one station operating in
Little Rock, Arkansas (the "MMR Dispositions"). The MMR Dispositions, which were
completed in 1997 as described above, are classified as assets under contract
for sale in the accompanying balance sheet at December 31, 1996. The Company
also terminated a Joint Sales Agreement ("JSA") with one station operating in
Augusta, Georgia and its Local Marketing Agreement ("LMA") with one station
operating in Myrtle Beach, South Carolina in December 1996.
In October 1996, the Company sold radio station KTCK-AM, Dallas, Texas for
approximately $13.4 million in cash, net of certain sale expenses (the "Dallas
Disposition"). The Company acquired the assets of KTCK-AM in Dallas, Texas (the
"Dallas Acquisition") in September 1995 from a third party for $8,633,000 in
cash (including $133,000 in transaction costs) and $2,000,000 of 6% current
coupon Series C Redeemable Preferred Stock (Note 6). The purchase agreement
contains a provision for a contingent payment not to exceed $7,500,000 payable
in 1998 if the Company's Dallas properties achieve certain ratings and financial
goals. In 1996, the Company recorded a loss of $1.9 million on the Dallas
disposition, based on its estimate of the ultimate resolution of the
contingency. During 1997, the company paid $3,000,000 to the Seller in
connection with this provision, leaving a remaining accrual at December 31, 1997
of approximately $300,000, and it is unable to reasonably estimate future
amounts due, if any. The Company had provided programming to KTCK-AM pursuant to
an LMA since March 1, 1995.
In July 1996, the Company acquired Liberty Broadcasting, Inc. ("Liberty
Broadcasting") for a purchase price of approximately $239.7 million in cash,
including $10.4 million for working capital (the "Liberty Acquisition"). Liberty
Broadcasting was a privately-held radio broadcasting company which owned and
operated, provided programming to or sold advertising on behalf of fourteen FM
and six AM radio stations (the "Liberty Stations") located in six markets:
Washington, DC/Baltimore, Maryland; Nassau-Suffolk, New York; Providence, Rhode
Island; Hartford, Connecticut; Albany, New York and Richmond, Virginia.
F-294
<PAGE> 535
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In July 1996, the Company sold three of the Liberty Stations operating in
the Washington, DC/Baltimore, Maryland market (the "Washington Dispositions")
for $25.0 million. No gain or loss was recognized on the Washington
Dispositions.
In July 1996, the Company acquired from Prism Radio Partners, L.P.
("Prism"), substantially all of the assets used in the operation of eight FM and
five AM radio stations located in four markets: Jacksonville, Florida; Raleigh,
North Carolina; Tucson, Arizona and Wichita, Kansas. In September 1996, the
Company also acquired from Prism substantially all of the assets of three radio
stations operating in Louisville, Kentucky (the "Louisville Stations"), upon
renewal of the Federal Communications Commission ("FCC") licenses of such
stations (the "Louisville Acquisition") (collectively the "Prism Acquisition").
The total purchase price for the Prism Acquisition was approximately $105.3
million in cash. In October 1996, the Company sold the Louisville Stations (the
"Louisville Disposition") for $18.5 million in cash. The Company recognized no
gain or loss on the Louisville Disposition.
In July 1996, the Company acquired substantially all of the assets of
WJDX-FM, Jackson, Mississippi for a purchase price of approximately $3.2
million. In addition, in August 1996, the Company acquired substantially all of
the assets of WSTZ-FM and WZRX-AM, each operating in Jackson, Mississippi, for
approximately $3.5 million in cash (collectively, the "Jackson Acquisitions").
In June 1996, the Company acquired substantially all of the assets of
WROQ-FM, Greenville, South Carolina, for approximately $14.0 million in cash
(the "Greenville Acquisition") and WTRG-FM and WRDU-FM, both operating in
Raleigh, North Carolina, and WMFR-AM, WMAG-FM and WTCK-AM (formerly WWWB-AM),
each operating in Greensboro, North Carolina for approximately $36.8 million in
cash (the Raleigh-Greensboro Acquisition").
In February 1996, the Company acquired radio stations WTDR-FM and WLYT-FM
(formerly WEZC-FM), both operating in Charlotte, North Carolina (the "Charlotte
Acquisition"), for an aggregate purchase price of $24.3 million in cash. Costs
of $785,000 related to the integration and reformatting of the Charlotte
stations were included in depreciation, amortization, duopoly integration costs
and acquisition related costs in 1996.
In April 1995, the Company acquired all of the outstanding stock of Parker
Broadcasting Company ("Parker"), the owner and licensee of radio station KYXY-FM
in San Diego, California (the "San Diego Acquisition"), for approximately
$17,424,000 in cash (including transaction costs of $831,000 of which $175,000
was paid to Sillerman Communications Management Company ("SCMC") for providing
or paying for legal services necessary in negotiating and documenting the
transaction), including a $650,000 three year covenant not to compete with the
former owners. In addition, costs of $1,380,000 related to the integration of
KYXY-FM and reformatting of its duopoly partner, KPLN-FM, were included in
depreciation, amortization, duopoly integration costs and acquisition related
costs in 1995. The Company had provided programming to and sold advertising on
behalf of KYXY-FM pursuant to an LMA since January 18, 1995.
For financial statement purposes, all of the acquisitions described above
were accounted for using the purchase method, with the aggregate purchase price
allocated to the tangible and identifiable intangible assets based upon current
estimated fair market values. Certain of the recent transactions are based on
preliminary estimates of the fair value of the net assets acquired and subject
to final adjustment. The assets and liabilities of these acquisitions and the
results of their operations for the period from the date of acquisition have
been included in the accompanying consolidated financial statements. The
following unaudited pro forma summary presents the consolidated results of
operations, excluding operations to be distributed to shareholders, for the
years ended December 31, 1997, 1996 and 1995 as if the acquisitions for any
given year and the subsequent year had occurred at the beginning of such year
after giving effect to certain adjustments, including amortization of goodwill
and interest expense on the acquisition debt. These pro forma results have been
F-295
<PAGE> 536
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
prepared for comparative purposes only and do not purport to be indicative of
what would have occurred had the acquisition been made as of that date or of
results which may occur in the future.
PRO FORMA
YEAR ENDED DECEMBER 31
IN THOUSANDS EXCEPT PER SHARE DATA
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net revenues.......................................... $ 309,049 $ 276,075 $ 189,595
========== ========== ==========
Loss before extraordinary item........................ $ (23,436) $ (49,285) $ (16,978)
========== ========== ==========
Net loss.............................................. $ (23,436) $ (64,504) $ (32,197)
========== ========== ==========
</TABLE>
Pending Radio Broadcasting Transactions.
Pursuant to separate agreements, the Company has agreed to: (i) exchange
four radio stations owned by the Company and located on Long Island, New York,
for $11 million cash and two radio stations operating in Jacksonville, Florida,
where the Company currently owns four stations, (the "Chancellor Exchange");
(ii) acquire three radio stations operating in Nashville, Tennessee, where the
Company currently owns two radio stations, for $35 million (the "Nashville
Acquisition"); and (iii) sell six stations in Jackson, Mississippi and two
stations in Biloxi, Mississippi for $66.0 million in cash (the "Jackson and
Biloxi Disposition"). The assets related to the Jackson and Biloxi Deposition
are classified as assets under contract for sale in the accompanying balance
sheet as of December 31, 1997. The Chancellor Exchange and the Nashville
Acquisition are collectively referred to as the "Pending Acquisition." The
Jackson and Biloxi Disposition is referred to herein as the "Pending
Disposition." The U.S. Department of Justice, Antitrust Division (the "DOJ") has
brought suit alleging that the Chancellor Exchange is likely to reduce
competition. The complaint requests permanent injunctive relief preventing the
consummation of the acquisition of the Long Island stations by Chancellor Media
Corporation ("Chancellor"). The Company, Chancellor, an affiliate of Buyer, and
DOJ are currently involved in settlement discussions. If successfully concluded,
these settlement discussions will resolve all competitive issues raised by DOJ
and will terminate all investigations or litigation by DOJ with respect to the
Company, the Merger, the Pending Acquisitions and the Pending Disposition. The
Company cannot, however, be certain that the settlement discussions will be
successful. If the Company fails to reach an acceptable settlement agreement
with DOJ, the Company intends to defend the suit vigorously. At December 31,
1997, the Company had capitalized $1.7 million of costs related to the
acquisition of the Jacksonville radio stations. In the event the Chancellor
Exchange does not take place the Company will be required to write-off such
costs.
The aggregate proceeds to be received from these transactions, net of
acquisitions, is approximately $42 million. The Company has deposited $2.0
million in escrow to secure its obligations under these agreements. The Company
expects to record a pre-tax gain of approximately $20.0 million on the Jackson
and Biloxi Disposition. The Company does not expect to record a gain or loss on
the other transactions as the assets were recently acquired.
Concert Promotion Acquisitions. During 1997, the Company also acquired the
following concert promotion companies, which are expected to be contributed to
SFX Entertainment at the Spin-Off date.
In January 1997, the Company purchased Delsener/Slater for an aggregate
consideration of approximately $26.6 million, including $2.9 million for working
capital and the present value of deferred payments of $3.0 million to be paid,
without interest, over five years and $1.0 million to be paid, without interest,
over ten
F-296
<PAGE> 537
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
years (the "Delsener/Slater Acquisition"). The deferred payments are subject to
acceleration in certain circumstances.
In March 1997, Delsener/Slater consummated the acquisition of certain
companies which collectively own and operate the Meadows (the "Meadows
Acquisition") for $900,000 in cash, 250,838 shares of SFX Class A Common Stock
with a value of approximately $7.5 million and the assumption of approximately
$15.4 million of debt.
SFX Entertainment may assume the obligation to exercise an option held by
the Company to repurchase 250,838 shares of the Company's Class A Common Stock
for an aggregate purchase price of $8.3 million (the "Meadows Repurchase"). This
option was granted in connection with the acquisition of the Meadows Music
Theater. If the option were exercised by the Company, the exercise would result
in a reduction of working capital in connection with the Spin-Off by
approximately $8.3 million. If the option were not exercised, working capital
would decrease by approximately $10.5 million.
Also in March 1997, the Company, in partnership with Pavilion Partners,
entered into a twenty-two year lease to operate the PNC Bank Arts Center, a
10,800 seat complex located in Holmdel, New Jersey. The lease also granted
Pavilion Partners the right to expand the capacity to 17,500 prior to the 1998
season.
In June 1997, the Company acquired Sunshine Promotions for $53.9 million in
cash at closing, $2.0 million in cash payable over 5 years, 62,792 shares of
Class A Common Stock issued and issuable over a two year period with a value of
approximately $4.0 million and the assumption of approximately $1.6 million of
debt. The assets to be acquired include Deer Creek Music Center, a 21,000 seat
complex located in Indianapolis, Indiana, the Polaris Amphitheater, a 20,000
seat complex located in Columbus, Ohio and a 99 year lease to operate Murat
Centre, a 2,700 seat theater and 2,200 seat ballroom, located in Indianapolis,
Indiana.
For financial statement purposes, all of the concert acquisitions described
above were accounted for using the purchase method, with the aggregate purchase
price allocated to the tangible and identifiable intangible assets based upon
current estimated fair market values. The concert acquisitions are based on
preliminary estimates of the fair value of the net assets acquired and subject
to final adjustment. The assets and liabilities of these acquisitions and the
results of their operations for the period from the date of acquisition have
been included as net assets and income from operations to be distributed to
shareholders in the accompanying consolidated financial statements.
NOTE 4 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts for
transactions have been eliminated in consolidation. The Company accounts for
investments in which it has a 50% or less and 20% or greater ownership interest
under the equity method.
Cash and Cash Equivalents
All highly liquid investments with an original maturity of less than three
months are classified as cash equivalents. The carrying amounts of cash and cash
equivalents reported in the balance sheet approximate their fair values.
F-297
<PAGE> 538
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization is
provided on the straight-line method over the estimated useful lives of the
assets as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 7-20 years
Broadcasting equipment and other............................ 5-7 years
</TABLE>
Leasehold improvements are amortized over the shorter of the lease term or
estimated useful lives of the assets. Amortization of assets recorded under
capital leases is included in depreciation expense.
Amortization of Intangible Assets
Broadcast licenses and goodwill are amortized using the straight-line
method over 40 years. Other intangible assets are being amortized using the
straight-line method over their estimated remaining useful lives from 1 to 10
years. Debt issuance costs and discounts are being amortized by the
straight-line method, which closely approximates the interest method, over the
life of the respective debt. Concert promotion goodwill was amortized using the
straight-line method over 15 years.
In 1996 the Company adopted FAS No. 121 "Accounting for the Impairment of
Long-Lived Assets". Under FAS No. 121, the carrying values of intangible assets
are reviewed if the facts and circumstances suggest that they may be impaired.
If this review indicates the intangible assets will not be recoverable as
determined based on the undiscounted cash flows of the Company over the
remaining amortization period, the Company's carrying value of the intangible
assets will be reduced to their estimated fair values, if lower than the
carrying value. The impact of this adoption had no effect on the consolidated
financial statements.
Payable to Former National Sales Representative
The Company is obligated to pay $23 million to a national advertising
representative company in 1998 in connection with switching its affiliations.
The amount is classified in the current liabilities section of the consolidated
balance sheets at December 31, 1997.
Revenue Recognition
The Company's primary source of revenue is the sale of airtime to
advertisers. Revenue from the sale of airtime is recorded when the
advertisements are broadcast.
Barter Transactions
The Company barters unsold advertising time for products and services. Such
transactions are recorded at the estimated fair value of the products or
services received or used. Barter revenue is recorded when commercials are
broadcast and related expenses are recorded when the product or service is
received or used. For the years ended December 31, 1997, 1996 and 1995, the
Company recorded barter revenue of $11,995,000, $8,029,000 and $4,961,000
respectively, and expenses of $11,281,000, $7,476,000 and $4,811,000
respectively.
F-298
<PAGE> 539
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Local Marketing Agreements/Joint Sales Agreements
From time to time, the Company enters into LMAs and JSAs with respect to
radio stations owned by third parties including radio stations which it intends
to acquire. Terms of the agreements generally require the Company to pay a
monthly fee in exchange for the right to provide station programming and sell
related advertising time in the case of an LMA or sell advertising in the case
of a JSA. The agreements terminate upon the acquisition of the stations. It is
the Company's policy to expense the fees as incurred as a component of operating
income (loss). The Company accounts for payments received pursuant to LMAs of
owned stations as net revenue to the extent that the payment received represents
a reimbursement of the Company's ownership costs.
Advertising Costs
Advertising costs are expensed as incurred and approximated $9,789,000,
$5,068,000 and $3,336,000 in 1997, 1996 and 1995, respectively.
Concentration of Credit Risk
The Company's revenue and accounts receivable primarily relate to the sale
of advertising within the radio stations' broadcast areas. Credit is extended
based on an evaluation of a customer's financial condition, and generally
collateral is not required. Credit losses are provided for in the financial
statements and consistently have been within management's expectations.
New Accounting Pronouncement
The Company adopted SFAS No. 130 "Reporting Comprehensive Income" during
the first quarter of 1998. The Company has no items of other comprehensive
income as described in SFAS No. 130. Therefore, net income is equal to
comprehensive income for all periods presented.
Reclassification
Certain amounts in 1995 and 1996 have been reclassified to conform to the
1997 presentation.
Interim Financial Information
Information as of March 31, 1998 and for the three months ended March 31,
1998 and 1997 is unaudited. The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, the unaudited interim financial statements contain
all adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the financial position, results of operations and cash flows of
the Company, for the periods presented. The
F-299
<PAGE> 540
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
results of operations for the three month period are not necessarily indicative
of the results of operations for the full year.
NOTE 5 -- DEBT AND SUBORDINATED NOTES
Debt consists of the following at December 31, 1997 and 1996 (in
thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Senior subordinated notes................................... $450,566 $450,566
Senior credit facility...................................... 313,000 30,000
Other....................................................... 909 540
-------- --------
764,475 481,106
Less: current portion....................................... (509) (231)
-------- --------
$763,966 $480,875
======== ========
</TABLE>
The aggregate contractual maturities of long-term debt for the years ending
December 31 are as follows: 1998 -- $509,000; 1999 -- $200,000;
2000 -- $766,000; 2001 -- $57,000,000; 2002 -- $72,000,000;
thereafter -- $634,000,000.
In May 1996, the Company completed the placement of $450.0 million in
aggregate principal amount of its 10.75% Senior Subordinated Notes due 2006 (the
"Note Offering"). Interest is payable semi-annually on May 15 and November 15.
The notes are unsecured obligations of the Company and are subordinate to all
senior debt of the Company. The Company incurred issuance costs totaling $15.3
million related to the Note Offering which were recorded as deferred financing
costs. In addition to the Note Offering, the Company sold in a private placement
2,990,000 shares of Series D Preferred Stock aggregating $149.5 million in
liquidation preference (the "Preferred Stock Offering").
Concurrently with the closings of the Note Offering and the Preferred Stock
Offering, the Company completed a tender offer (the "Tender Offer") and related
consent solicitation with respect to its 11.375% Senior Subordinated Notes due
2000 (the "Old Notes"). SFX repurchased approximately $79.4 million in principal
amount of the $80.0 million in principal amount of the Old Notes outstanding in
the Tender Offer. The Company also entered into a supplemental indenture
amending the terms of the indenture pursuant to which the remaining Old Notes
were issued.
In March 1995, the Company entered into a $50.0 million senior credit
facility (the "Old Credit Facility") pursuant to which the Company made
borrowings to finance the Charlotte Acquisition and certain working capital
needs. On May 31, 1996 all amounts outstanding under the Old Credit Facility
were repaid with a portion of the proceeds of the Note Offering and the
Preferred Stock Offering.
In connection with the repurchase of the Old Notes and the repayment of the
Old Credit Facility, the Company recorded an extraordinary loss on debt
retirement of approximately $15.2 million to reflect the cost of prepayment
premiums and the write-off of debt issuance costs.
On November 22, 1996, the Company entered into a new credit facility, as
amended (the "New Credit Agreement"), a senior revolving credit facility
providing for borrowings of up to $400 million. Borrowings under the New Credit
Agreement may be used to finance permitted acquisitions, for working capital and
general corporate purposes, and for letters of credit up to $20.0 million. The
credit facility will be reduced by $18 million on a quarterly basis commencing
March 31, 2000 to December 31, 2004 and two final payments of $20 million will
be paid on March 31, 2005 and June 30, 2005. Interest on the funds borrowed
under the New Credit Agreement is based on a floating rate selected by the
Company of either (i) the higher of (a) the Bank of New York's prime rate and
(b) the federal funds rate plus 0.5%, plus a margin which varies from 0.25% to
F-300
<PAGE> 541
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1.5%, based on the Company's then-current leverage ratio, or (ii) the LIBOR rate
plus a margin which varies from 1.875% to 2.75%, based on the Company's
then-current leverage ratio. The Company must prepay certain outstanding
borrowings in advance of their scheduled due dates in certain circumstances,
including but not limited to achieving certain cash flow levels or receiving
certain proceeds from asset disposition as defined. The Company must also pay
annual commitment fees of 0.5% of the unutilized total commitments under the New
Credit Agreement. The Company's obligations under the New Credit Agreement are
secured by substantially all of its assets, including property, stock of
subsidiaries and accounts receivable, and are guaranteed by the Company's
subsidiaries. At December 31, 1997, the weighted average interest rate was
8.19%.
The New Credit Agreement and the indentures related to the Company's
subordinated notes contain covenants that impose certain restrictions on the
Company, such as total leverage, pro forma debt service and pro forma interest
expense ratios.
The fair value of the Company's senior subordinated notes was $493,313,000
at December 31, 1997 based upon the quoted market price. The book value of the
Company's senior credit facility and other debt approximates fair value, which
was estimated using discounted cash flow analysis based on the Company's
incremental borrowing rate for similar types of borrowing arrangements.
The Company's 10.75% senior subordinated notes and 11.375% senior
subordinated notes are guaranteed by every direct and indirect subsidiary of the
Company. There are no non-guarantor subsidiaries. The guarantees by the
guarantor subsidiaries are full, unconditional, and joint and several. All of
the guarantor subsidiaries are wholly-owned. The Company is a holding company
with no assets, liabilities or operations other than its investment in its
subsidiaries. Separate financial statements of each guarantor have not been
included as management has determined that they are not material to investors.
NOTE 6 -- REDEEMABLE PREFERRED STOCK
Preferred stock consists of the following at December 31, 1997 and 1996
(dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Preferred Stock of the Company, $.01 par value, 10,012,000
shares authorized:
Series B Redeemable, 0 and 1,000 shares issued and
outstanding in 1997 and 1996, respectively................ $ -- $ 917
Series C Redeemable, 2,000 shares issued and outstanding in
1997 and 1996, includes accreted dividends of $197 in 1997
and $108 in 1996.......................................... 1,725 1,636
Series D Cumulative Convertible Exchangeable Preferred
Stock, 2,990,000 shares issued and outstanding, includes
accreted issuance costs of $878 in 1997................... 144,324 143,446
Series E Cumulative Exchangeable Preferred Stock, 2,250,000
shares issued and outstanding, net of issuance costs,
includes accreted issuance costs of $951 in 1997.......... 215,947 --
-------- --------
$361,996 $145,999
======== ========
</TABLE>
The Series B Redeemable Preferred Stock which was non-voting and not
entitled to receive dividends was redeemed in October 1997 at the liquidation
value of $1,000 per share.
The shares of Series C Redeemable Preferred Stock receive cumulative
dividends equal to 6% per annum paid by the Company in arrears on a quarterly
basis. The shares are non-voting and are redeemable by the Company after
September 15, 1998 or by the holder after September 15, 2000, at the liquidation
value of $1,000 per share. The Series C Redeemable Preferred Stock ranks senior
to other preferred stock and to the Company's common stock as to dividends and
liquidation rights.
F-301
<PAGE> 542
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The shares of Series D Cumulative Convertible Exchangeable Preferred Stock
(the "Series D Preferred Stock") receive cumulative dividends equal to 6 1/2%
per annum ($0.8125 per share) which are paid by the Company on a quarterly
basis. The shares of Series D Preferred Stock are redeemable at the option of
the Company on or after June 1, 1999, in whole or in part, at redemption prices
ranging from 104.5% in 1999 to 100.0% in 2006, plus accrued and unpaid dividends
to the redemption date. The Series D Preferred Stock is not subject to any
scheduled mandatory redemption prior to its maturity. The Series D Preferred
Stock will mature on May 31, 2007.
The Series D Preferred Stock is convertible at the option of the holder
into shares of Class A Common Stock of the Company at any time prior to maturity
at a conversion price of $45.51 per share (equivalent to a conversion rate of
1.0987 shares per $50 in Liquidation Preference of Series D Preferred Stock),
subject to adjustment in certain events. The Series D Preferred Stock is
exchangeable in full but not in part, at the Company's option on any dividend
payment date, for the Company's 6 1/2% Convertible Subordinated Exchange Notes
due 2007.
The Series D Preferred Stock ranks senior to the Company's common stock as
to dividends and liquidation rights.
The shares of Series E Cumulative Exchangeable Preferred Stock (the "Series
E Preferred Stock") receive cumulative dividends equal to the rate of 12 5/8%
per annum which are paid by the Company on January 15 and July 15 of each year.
Dividends may be paid, at the Company's option, through January 15, 2002, in
cash or additional shares of Series E Preferred Stock. Subject to certain
condition, the shares of the Series E Preferred Stock are exchangeable in whole
or in part on a pro rata basis, at the option of the Company, on any dividend
payment date, for the Company's 12 5/8% Senior Subordinated Exchangeable
Debentures due 2006. The Company is required, subject to certain conditions, to
redeem all of the Series E Preferred Stock outstanding on October 31, 2006. The
semi-annual dividend payable on January 15, 1998 was paid in additional shares
of preferred stock.
NOTE 7 -- SHAREHOLDER'S EQUITY
Common Stock
The holders of Class A Common Stock are entitled to one vote per share and
the holders of Class B Common Stock are entitled to ten votes per share on all
matters to be voted on by stockholders, except (i) for the election of
directors, (ii) with respect to any "going private" transaction between the
Company and its Chairman, or any of his affiliates, and (iii) as otherwise
provided by law. The holders of Class A and Class B Common Stock share ratably
in all dividends and other distributions. As of December 31, 1997, 1,047,937
shares of Class A Common Stock, authorized but unissued, are reserved for
conversion of the Class B Common Stock. Shares of the Company's Class B Common
Stock convert on a share per share basis into the same number of Class A Common
Stock under certain circumstances.
In December 1995, 16,784 shares of non-voting Class C Common Stock were
repurchased and retired by the Company for $459,000. In May 1996, 26,318 shares
of Class A common Stock and 143,874 shares of Class B Common Stock were
repurchased from the Company's former President. In July 1997, the Company
repurchased 3,667 shares of Class A Common for $111,000. In addition, in
September 1997, the Company repurchased 460 shares of Class A Common Stock for
$19,000.
In July 1995, the Company completed an offering of 1,725,000 shares of its
Class A Common Stock for $24.50 per share. The net proceeds of the offering were
$39,166,000 after underwriting discounts, commissions and other costs of the
offering. The net proceeds were utilized to repay senior indebtedness of
$21,500,000 and to fund the Dallas Acquisition and a portion of the Charlotte
Acquisition.
F-302
<PAGE> 543
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Securities Issued in MMR Merger
The following MMR warrants and options issued and outstanding at the date
of the merger were assumed by the Company and are now convertible into SFX
shares:
<TABLE>
<CAPTION>
NUMBER MMR NUMBER SFX
OF MMR EXERCISE OF SFX EXERCISE
SECURITIES SHARES PRICE SECURITIES PRICE
---------- ------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Underwriters Warrants exercisable
through July 22, 1998................ 125,000 $9.10 37,288 $30.51
Class B Warrants exercisable through
March 22, 1999....................... 749,460 $11.50 217,162 $38.55
Unit Purchase Options exercisable
through March 22, 1999 (entitle the
holder to purchase one share of MMR
Common Stock, one MMR Class A Warrant
and one MMR Class B Warrant)......... 160,000 $7.75-$11.50 47,728 $25.98-$38.55
Stock options exercisable at various
dates through November 22, 2006...... 305,000 $5.00-$10.50 90,982 $16.76-$35.20
Warrants issued to Huff Alternative
Income Fund, L.P. exercisable through
March 31, 2005....................... 728,000 $7.75 223,564 $25.98
Sillerman Options...................... 10,000 $2.50 2,983 $8.38
</TABLE>
The former MMR warrants and options are exercisable for that number of
shares of the Company's Class A Common Stock equal to the product of the number
of MMR shares covered by the security times 0.2983 and the per share exercise
price for the share of the Company's Class A Common Stock issuable upon the
exercise of each warrant and option is equal the quotient determined by dividing
the exercise price per share of the MMR shares specified for such security by
0.2983.
During 1997, certain holders of the former MMR securities exercised 95,874,
215,344, 153,445, and 142,001 of Underwriters Warrants, Class B Warrants, Unit
Purchase Options and Stock Options, respectively, of the securities describe
above. The warrants issued to the Huff Alternative Income Fund, L.P. were
exercised through election of cashless exercise provisions whereby the Company
issued 165,023 shares of the Company's Class A Common Stock.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to employees" ("APB25") and related
interpretations in accounting for its employee stock options, as opposed to the
fair value accounting provided for under FAS Statement No. 123, "Accounting for
Stock-Based Compensation."
Under stock option plans adopted annually since 1993, stock options to
acquire Class A Common Stock have been granted to certain officers, key
employees and other key individuals who perform services for the Company.
Options granted under these plans are generally granted at option prices equal
to the fair market value of the Class A Common Stock on the date of grant. As
such, under APB25, no expense is recorded in the statement of operations. Terms
of the options, determined by the Company, provided that the maximum term of
each options shall not exceed ten years and the options become fully exercisable
within five years of continued employment with the exception of certain options
granted to executives which were fully vested upon issuance.
F-303
<PAGE> 544
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the Merger, the Board has approved that all outstanding
options will vest immediately upon the date of such Merger.
At December 31, 1997, options outstanding had an average exercise price of
$22.04 and expiration dates ranging from December 1, 2003 to April 15, 2007. The
table below does not include the MMR options described above.
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- --------------
<S> <C> <C> <C>
Options outstanding at beginning of
year................................. 910,000 748,000 500,000
Option price........................... $13.00-$33.75 $13.00-$21.25 $13.00-$13.50
Options granted........................ 420,000 349,000 248,000
Options price.......................... $28.00 $27.25-$33.75 $21.25
Options exercised...................... 726,050 -- --
Option price........................... $13.00-$33.75 -- --
Options repurchased.................... -- 187,000 --
Option price........................... -- $13.00-$21.25
Options expired or canceled............ -- -- --
Options outstanding at end of year..... 603,950 910,000 748,000
Option price........................... $13.00-$28.75 $13.00-$33.75 $13.00-$21.25
Options exercisable at end of year..... 439,750 461,200 153,000
</TABLE>
NOTE 8 -- INCOME TAXES
The provision for income taxes for the years ended December 31, 1997, 1996
and 1995 is summarized in thousands as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ------ ------
<S> <C> <C> <C>
Current
Federal................................................. $ -- $ -- $ --
State................................................... 990 1,190 --
----- ------ ------
990 1,190 --
----- ------ ------
Deferred
Federal................................................. -- -- --
State................................................... (180) (710) --
----- ------ ------
(180) (710) --
----- ------ ------
$ 810 $ 480 $ --
===== ====== ======
</TABLE>
The Company files a consolidated tax return for federal income tax
purposes. As a result of current losses, no federal tax provision was recorded
for the year ended December 31, 1997 and 1996. The current income tax expense
recorded during 1997 and 1996 is a result of current state and local income
taxes in certain states where subsidiaries file separate tax returns. Deferred
state tax benefit was recognized in 1997 and 1996 attributable to the
disposition of stations acquired in transactions in which associated deferred
tax liabilities were recorded in purchase accounting. As a result of current
losses and the deferred benefit associated with the losses, no current or
deferred expense or benefit was recorded for the year ended December 31, 1995.
At December 31, 1997, the Company had total net operating loss
carryforwards of approximately $69,000,000 that will expire from 2003 through
2012, including net operating losses of acquired subsidiaries. Due to ownership
changes related to the acquisition of subsidiaries, the utilization of
approximately
F-304
<PAGE> 545
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$15,300,000 of which losses is subject to various limitations. The future use of
remaining net operating loss carryforwards may be impacted and subject to
additional limitations as a result of the Merger.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Company's deferred tax assets and liabilities as of December
31, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred Tax Assets:
Accounts receivable......................................... $ 860 $ 563
Net operating loss carryforwards............................ 23,965 12,044
Management service contract................................. 2,356 2,128
Other reserves.............................................. 113 646
National sales representative contract settlement........... 8,740 --
Accrued bonuses and other compensation...................... 1,563 997
--------- ---------
Total deferred tax assets................................... 37,597 16,378
Valuation allowance......................................... (21,876) (5,623)
--------- ---------
Net Deferred Tax Assets................................... 15,721 10,755
Deferred Tax Liabilities:
Property, plant and equipment............................... (684) (372)
Intangible assets........................................... (117,718) (101,658)
Other....................................................... -- (77)
--------- ---------
Total Deferred Tax Liabilities............................ (118,402) (102,107)
--------- ---------
Net Deferred Tax Liabilities.............................. $(102,681) $ (91,352)
========= =========
</TABLE>
The acquisition of radio station WWYZ resulted in the recognition of
deferred tax liabilities of approximately $10 million under the purchase method
of accounting. The amounts were based upon the excess of the financial statement
basis over the tax basis in assets, primarily intangibles.
The 1997, 1996 and 1995 effective tax rate varied from the statutory
federal income tax rate as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Income taxes at the statutory rate................. $ (8,488) $(16,924) $ (1,495)
Effect of non-recurring and unusual charges........ 6,781 6,875 --
Valuation allowance................................ 13,977 9,859 1,434
Effect of nondeductible amortization of
intangibles...................................... 295 264 198
Nonqualified stock options......................... (12,380) -- --
State and local income taxes (net of federal
benefit)......................................... 535 317 (145)
Other.............................................. 90 89 8
-------- -------- --------
Total.................................... $ 810 $ 480 $ --
======== ======== ========
</TABLE>
NOTE 9 -- RELATED PARTY TRANSACTIONS
Prior to April 1996, SCMC, where Robert F.X. Sillerman, the Company's
Executive Chairman, serves as Chairman of the Board of Directors and Chief
Executive Officer, had been engaged by the Company from
F-305
<PAGE> 546
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
time to time for advisory services with respect to specific transactions. In
April 1996, the Company and SCMC entered into the SCMC Termination Agreement,
pursuant to which SCMC assigned to the Company its rights to provide services
to, and receive fees payable by each of, MMR and Triathlon in respect of such
consulting and marketing services to be performed on behalf of such companies,
except for fees related to certain transactions pending at the date of such
agreement. In addition, the Company and SCMC terminated the arrangement pursuant
to which SCMC performed financial consulting services for the Company. Upon
consummation of the MMR Merger, SCMC's agreement with MMR was terminated. Prior
to consummation of the MMR Merger, MMR paid an annual fee of $500,000 to SCMC
and Triathlon paid SCMC an annual fee of $300,000 (which increased to $500,000
effective January 1, 1997). In addition, Triathlon has agreed to advance to SCMC
an amount of $500,000 per year in connection with transaction-related services
to be rendered by SCMC. However, if the agreement between SCMC and Triathlon is
terminated or if an unaffiliated person acquires a majority of the capital stock
of Triathlon the unearned fees must be repaid. Pursuant to the SCMC Termination
Agreement, the Company has agreed to continue to provide consulting and
marketing services to Triathlon until the expiration of their agreement on June
1, 2005, and not to perform any consulting or investment banking services for
any person or entity other than Triathlon in the radio broadcasting industry or
in any business which uses technology for the audio transmission of information
or entertainment. In consideration of the foregoing agreements, the Company
issued to SCMC warrants to purchase up to 600,000 shares of Class A Common Stock
at an exercise price, subject to adjustment, of $33.75 (the market price at the
time the financial consulting arrangement was terminated). The Company also
forgave a $2.0 million loan made by the Company to SCMC, plus accrued and unpaid
interest thereon. Pursuant to such agreement, the Chairman has agreed with the
Company that he will supervise, subject to the direction of the Board of
Directors, the performance of the financial consulting and other services
previously performed by SCMC for the Company. During 1996, the Company received
fees of $292,000 from MMR and $511,000 from Triathlon. During 1997, the Company
received fees of $1,794,000 from Triathlon. In connection with this agreement,
the Company had a $44,000 receivable from Triathlon at December 31, 1997.
Pursuant to the Merger, the Company will transfer the Triathlon consulting
contract to SFX Entertainment. Triathlon has previously announced that it is
exploring ways of maximizing stockholder value, including possible sale to a
third party. If Triathlon were acquired by a third party, the agreement might
not continue for the remainder of its term.
In 1996, the Company paid to SCMC advisory fees of $4.0 million in
connection with the Liberty Acquisition, the Prism Acquisition, the Greenville
Acquisition, the Jackson Acquisitions, the Greensboro Acquisition and the
Raleigh-Greensboro Acquisition. In addition, the Company paid SCMC, on behalf of
MMR, a non-refundable fee of $2.0 million for investment banking services
provided to MMR in connection with the MMR Merger.
No pending transactions, as described in Note 3, predate the SCMC
Termination Agreement, and therefore no fees are payable to SCMC.
Prior to June 1996, the Company held a non-recourse note receivable from
the Company's former President in the amount of $2,000,000 which was secured by
133,333 shares of Class B Common Stock. The note bore interest at 6% per annum.
Interest income of $60,000 and $120,000 was accrued in 1996 and 1995 on the
loan, respectively. The loan and interest accrued were forgiven in June 1996
pursuant to an agreement with the former President and are included in
non-recurring and unusual charges.
In January 1995, the Company paid a $1,000,000 fee to SCMC in connection
with the transfer of shares of the Company's Class C Common Stock.
During the last quarter of 1996, the Company consolidated all of its
corporate office functions in New York. Prior to such time, the Company had an
agreement with the Chairman related to the maintenance of the Company's New York
Office whereby the Company reimbursed SCMC for certain office expenses and
F-306
<PAGE> 547
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
salaries for certain employees of SCMC who provided services on behalf of the
Company. In addition certain of the Company's employees performed certain
services for other entities affiliated with SCMC. In connection with SCMC
Termination Agreement and the consolidation of the Company's Corporate Office in
New York, SCMC employees who provided services on behalf of the Company became
employees of the Company. Total reimbursements paid to SCMC for office expenses
and salaries totaled approximately $1,082,000 and $530,000 for the years ended
December 31, 1996 and 1995. The reimbursements paid to SCMC in 1996 included
$292,000 and $261,000 of fees paid by MMR and Triathlon, respectively, directly
to SCMC following the effective date of the SCMC Termination Agreement. The
timing of these payments during the year were such that the Company had advanced
amounts to SCMC of up to $230,000 during the period. As of December 31, 1996 and
1997, there are no amounts due to or from SCMC.
The transactions above were not negotiated on an arms-length basis.
Accordingly, each transaction was approved by the Company's Board of Directors,
including the Company's independent directors, in accordance with the provisions
relating to affiliate transactions in the Company's by-laws, bank agreements and
Indenture, which provisions require a determination as to the fairness of the
transactions to the Company.
The Company's Executive Vice President, General Counsel and Director is Of
Counsel to the law firm of Baker & McKenzie. Baker & McKenzie serves as counsel
to the Company in certain matters. Baker & McKenzie compensates the executive
based, in part, on the fees it receives from providing legal services to the
Company and other clients originated by the executive. The Company paid Baker &
McKenzie $6,813,000, $4,886,000 and $793,000 for legal services during 1997,
1996 and 1995, respectively. During February 1998, the Company was reimbursed by
SFX Entertainment for approximately $2,948,000 of legal fees related to concert
acquisitions and the Spin-Off. As of December 31, 1997 and 1996, the Company
accrued Baker & McKenzie legal fees of approximately $4,782,000 and $1,550,000,
respectively.
NOTE 10 -- NON-RECURRING AND UNUSUAL CHARGES, INCLUDING ADJUSTMENTS TO BROADCAST
RIGHTS AGREEMENT
Audited:
The Company recorded non-recurring and unusual charges related to the
Merger of SFX Broadcasting and the Spin-Off of SFX Entertainment of $20,174,000
in 1997 which consisted primarily of (i) $12,140,000 related to bonuses paid to
officers of the Company (ii) a write-off of a $2,500,000 loan made to the
Company's Executive Chairman (iii) $1,713,000 relating to an increase in value
of certain Stock Appreciation Rights and (iv) $3,821,000 of other expenses,
primarily legal, accounting and regulatory fees.
The Company recorded non-recurring and unusual charges of $28,994,000 in
1996 which consisted primarily of payments in excess of the fair value of stock
repurchased totaling $12,461,000 to the company's former President and the
reserve by the Company of $2,330,000 relating to the loan and accrued interest
to the Company's former President, $5,586,000 related to the SCMC Termination
Agreement (Note 9), $4,575,000 for the repurchase of options and rights to
receive options held by the Chief Operating Officer, and a charge of $1,600,000
related to the termination of the Company's contractual four-year broadcast
rights of Texas Rangers baseball and an adjustment in the value of the contract
for the 1996 season. In 1995, the Company recorded a $5 million charge related
to the write down in value of the Company's Texas Rangers broadcast rights.
Unaudited:
In the first quarter of 1998, the Company recorded non-recurring and
unusual charges of $25.0 million which consisted primarily of (i) $4.2 million
of compensation expense related to options issued, (ii) $550,000 relating to the
settlement of a lawsuit, (iii) $489,000 relating to the increase in value of
certain SARs, (iv) $16.6 million relating to the consent solicitations from the
holders of its Senior Subordinated Notes due
F-307
<PAGE> 548
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2006 and the holders of its 12 5/8% Series E Preferred Stock in connection with
the Spin-Off and (v) $3.2 million of expenses, primarily legal, accounting and
regulatory fees associated with the pending Merger and the consent solicitations
in connection with the Spin-Off.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
The Company has entered into various operating leases, broadcast rights
agreements and employment agreements. Total rent expense was $5,403,000,
$2,903,000 and $1,506,000 for the years ending December 31, 1997, 1996 and 1995,
respectively. The Company has entered into employment agreements with certain
officers and other key employees. Expenses under the contracts approximated
$19,748,000 for the year ended December 31, 1997. Future minimum payments in the
aggregate for all noncancelable operating leases including broadcast rights
agreements and employment agreements with initial terms of one year or more
consist of the following at December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
SFX BROADCASTING, INC. SFX ENTERTAINMENT, INC.
---------------------- ------------------------
OPERATING EMPLOYMENT OPERATING EMPLOYMENT
LEASES AGREEMENTS LEASES AGREEMENTS
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
1998.............................................. $11,186 $18,090 $ 3,366 $1,900
1999.............................................. 7,232 12,394 3,823 1,864
2000.............................................. 6,373 5,638 1,648 1,624
2001.............................................. 4,084 2,133 1,666 1,534
2002.............................................. 2,913 1,471 1,678 300
2003 and thereafter............................... 7,725 1,159 14,117 --
------- ------- ------- ------
$39,513 $40,885 $26,298 $7,222
======= ======= ======= ======
</TABLE>
The future minimum payments pursuant to operating leases does not include
the New York offices as theses facilities will be transferred to SFX
Entertainment.
Future minimum payments in the aggregate for all noncancelable capital
leases with initial terms of one year or more consist of the following at
December 31, 1997 (in thousands)
<TABLE>
<CAPTION>
CAPITAL
LEASES
-------
<S> <C>
1998........................................................ $ 124
1999........................................................ 86
2000........................................................ 43
2001........................................................ 14
2002 and thereafter......................................... --
-----
Total minimum lease payments................................ 267
Less: amount representing interest.......................... (40)
-----
Present value of future minimum lease payments.............. 227
Less: current portion....................................... (101)
-----
Long-term capital lease obligations......................... $ 126
=====
</TABLE>
The Company is the subject of various claims and litigation principally in
the normal course of business. In the opinion of management, the ultimate
resolution of such matters will not have a material adverse impact on the
consolidated financial statements. SFX Entertainment has committed to certain
renovation and construction projects totaling $35.5 million.
F-308
<PAGE> 549
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- DEFINED CONTRIBUTION PLAN
The Company sponsors a 401(k) defined contribution plan in which most of
its employees were eligible to participate. The Plan presently provides for
discretionary employer contributions. The Company made no contributions in 1997,
1996 or 1995.
NOTE 13 -- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Cash paid during the year for:
Interest................................................ $65,184 $30,898 $12,903
Income taxes............................................ $ 1,059 $ 81 $ --
</TABLE>
Supplemental schedule of noncash investing and financing activities:
Issuance of equity securities, including deferred equity security issuance, and
assumption of debt in connection with certain acquisitions (Note 3)
Agreements to pay future cash consideration in connection with certain
acquisitions (Note 3)
Exchange of radio stations (Note 3)
Issuance of warrants in connection with SCMC termination agreement (Note 9).
NOTE 14 -- SUBSEQUENT EVENTS
Radio Broadcasting. In January 1998, the Company sold one radio station
operating in Richmond, Virginia (the "Richmond Disposition") for $4.3 million.
Concert Promotion Acquisitions and Financing. In February and March 1998,
SFX Entertainment acquired the following live entertainment businesses which
were contributed to SFX Entertainment upon the Spin-Off.
PACE Entertainment Corporation ("PACE"), one of the largest diversified
producers and promoters of live entertainment in the United States, having what
SFX Entertainment believes to be the largest distribution network in the United
Sates in each of its music, theater and specialized motor sports businesses (the
"PACE Acquisition"), for total consideration of approximately $156,056,000. In
connection with the PACE Acquisition, SFX Entertainment acquired 100% of
Pavilion Partners, a partnership that owns interest in 10 venues ("Pavilion"),
through the PACE Acquisition and directly from PACE's various partners for
$90,627,000. The Company has guaranteed the performance of SFX Entertainment's
obligation to PACE until PACE is issued the SFX Entertainment stock it is
entitled to under the acquisition agreement.
The Contemporary Group ("Contemporary"), a fully-integrated live
entertainment and special event promoter and producer, venue owner and operator
and consumer marketer, for total consideration of approximately $101,402,000.
The Network Magazine Group ("Network Magazine"), a publisher of trade
magazines for the radio broadcasting industry, and SJS Entertainment ("SJS"), an
independent creator, producer and distributor of music-related radio
programming, services and research which it exchanges with radio broadcasters
for commercial air-time sold, in turn, to national network advertisers (the
"Network Acquisition"), for total consideration of approximately $66,784,000.
F-309
<PAGE> 550
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BG Presents ("BGP"), one of the oldest promoters of, and owner-operators of
venues for, live entertainment in the United States, and a leading promoter in
the San Francisco Bay area (the "BGP Acquisition"), for total consideration of
approximately $80,327,000.
Concert/Southern Promotions ("Concert/Southern"), a promoter of live music
events in the Atlanta, Georgia metropolitan area (the "Concert/Southern
Acquisition"), for total consideration of approximately $16,600,000.
Westbury Music Fair, a theater located in Westbury, New York for aggregate
consideration of $3.0 million in cash and an agreement to issue 75,019 shares of
Class A Common Stock of SFX Entertainment.
On February 11, 1998, SFX Entertainment completed the private placement of
$350.0 million of 9 1/8% Senior Subordinated Notes (the "Notes") due 2008.
Interest is payable on the Notes on February 1 and August 1 of each year.
On February 26, 1998, SFX Entertainment executed a Credit and Guarantee
Agreement (the "Credit Agreement") which established a $300.0 million senior
secured credit facility comprised of (i) a $150.0 million eight-year term loan
(the "Term Loan") and (ii) a $150.0 million seven-year reducing revolving credit
facility. Borrowings under the Credit Agreement are secured by substantially all
of the assets of SFX Entertainment, including a pledge of the outstanding stock
of substantially all of its subsidiaries and guaranteed by all of SFX
Entertainment's subsidiaries. On February 27, 1998, SFX Entertainment borrowed
$150.0 million under the Term Loan. Together with the proceeds from the Notes,
the proceeds from the Term Loan were used to finance the 1998 acquisitions
discussed above.
Consent Solicitation. To facilitate the Spin-Off, SFX Entertainment's 1998
acquisitions and its financing thereof, the Company sought and obtained consents
from the holders of its Old Notes and the holders of its Senior Subordinate
Notes due 2006 and the holders of its 12 5/8% Series E Preferred Stock. In
connection with these consents, the Company modified certain covenants.
Management anticipates that the Company will be in compliance with these
covenants in the foreseeable future. Fees and expenses of approximately $18.0
million were incurred by the Company in connection with the consent
solicitations and were reimbursed by SFX Entertainment with the proceeds of the
SFX Entertainment Notes. Such charges are included in non-recurring and unusual
charges, including adjustments to broadcast rights agreement.
Legal Proceedings
On August 29, 1997, two lawsuits were commenced against the Company and its
directors which allege that the consideration to be paid as a result of the
Merger to the holders of the Company's Class A Common Stock is unfair and that
the individual defendants have breached their fiduciary duties.
On March 16, 1998, all of the parties entered into a Memorandum of
Understanding, pursuant to which they have reached an agreement providing for a
settlement of the action (the "Settlement"). The Settlement provides for the
Company to pay plaintiffs' counsel an aggregate of $950,000, including all fees
and expenses as approved by the court. The Company anticipates that a
significant portion of such payment will be funded by the Company's insurance.
The Settlement is conditioned on the (a) consummation of the Merger, (b)
completion of the confirmatory discovery and (iii) approval of the court.
F-310
<PAGE> 551
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation of Los Angeles:
We have audited the accompanying combined statement of assets acquired as
of April 3, 1998 and the related combined statements of revenues and direct
operating expenses of KBIG-FM, KLDE-FM, and WBIX-FM (formerly WNSR-FM),
(collectively, the "Company"), for each of the three years ended December 31,
1997. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined statement of assets acquired and
the combined statements of revenues and direct operating expenses are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
The accompanying combined financial statements reflect the assets acquired
and the revenues and direct operating expenses attributable to the Company as
described in Note 1 and are not intended to be a complete presentation of the
assets or revenues and expenses of the Company.
In our opinion, the combined statement of assets acquired and statements of
revenues and direct operating expenses present fairly, in all material respects,
the assets described in Note 1 as of April 3, 1998 and the revenues and direct
operating expenses as described in Note 1 for each of the three years ended
December 31, 1997 of the Company, in conformity with generally accepted
accounting principles.
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
February 16, 1999
F-311
<PAGE> 552
KBIG-FM, KLDE-FM AND WBIX-FM (FORMERLY WNSR-FM)
COMBINED STATEMENT OF ASSETS ACQUIRED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 3,
1998
--------
<S> <C>
Property and equipment, net................................. $5,699
Broadcast licenses.......................................... --
------
$5,699
======
</TABLE>
The accompanying notes are an integral part of the financial statements
F-312
<PAGE> 553
KBIG-FM, KLDE-FM, AND WBIX-FM (FORMERLY WNSR-FM)
COMBINED STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- -------------------
1995 1996 1997 1997 1998
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Total revenue................................ $55,125 $55,286 $44,738 $ 9,870 $10,109
Less agency commissions...................... (9,252) (8,485) (6,290) (1,521) (1,398)
------- ------- ------- ------- -------
Net revenue........................ 45,873 46,801 38,448 8,349 8,711
------- ------- ------- ------- -------
Direct operating expenses:
Programming, technical and news............ 7,933 7,081 6,906 1,820 1,690
Sales and promotion........................ 15,720 13,187 10,536 3,294 2,293
Station general and administrative......... 4,981 5,437 5,064 1,754 1,674
Depreciation expense....................... 976 975 1,000 250 185
------- ------- ------- ------- -------
Total.............................. 29,610 26,680 23,506 7,118 5,842
------- ------- ------- ------- -------
Excess of net revenues over direct operating
expenses................................... $16,263 $20,121 $14,942 $ 1,231 $ 2,869
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements
F-313
<PAGE> 554
KBIG-FM, KLDE-FM, AND WBIX-FM (FORMERLY WNSR-FM)
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of
KBIG-FM, KLDE-FM and WBIX-FM (formerly WNSR-FM), (collectively, the "Company").
The Company operates three commercial radio stations, KBIG-FM in Los Angeles,
KLDE-FM in Houston and WBIX-FM in New York. The Company is wholly owned by
Bonneville International Corporation. Bonneville Holding Company is the licensee
of the Company pursuant to certain licenses and authorizations issued by the
Federal Communications Commission.
On April 3, 1998, Bonneville International Corporation and Bonneville
Holding Company (together, "Bonneville") exchanged KBIG-FM, KLDE-FM and WBIX-FM
for Chancellor Media Corporation of Los Angeles ("CMCLA") stations WTOP-AM in
Washington, KZLA-FM in Los Angeles and WGMS-FM in Washington plus $63,000 in
cash under an asset exchange agreement. No liabilities were assumed by CMCLA in
the transaction. The accompanying financial statements do not reflect any
adjustments relating to this transaction. CMCLA operated KBIG-FM and KDLE-FM
under time brokerage agreements from October 1, 1997 to April 3, 1998 and
WBIX-FM from October 10, 1997 to April 3, 1998. Revenues and direct operating
expenses of the Company included in the Combined Statements of Revenues and
Direct Operating Expenses and recognized by CMCLA in its Consolidated Statement
of Operations amounted to net revenue of approximately $9,959 and direct
operating expenses of approximately $4,229 for the period ended December 31,
1997 and net revenue of approximately $8,711 and direct operating expenses of
approximately $5,657 for the period ended March 31, 1998.
The accompanying statement of assets acquired and statements of revenues
and direct operating expenses have been prepared in accordance with generally
accepted accounting principles and were derived from the historical accounting
records of the Company. Significant intercompany balances and transactions have
been eliminated in combination.
The statement of assets acquired includes the assets of the Company, which
were acquired by Chancellor Media Corporation of Los Angeles on April 3, 1998.
This statement does not include cash, accounts receivable, prepaid or other
assets, accounts payable, accrued expenses or other borrowings.
The statements of revenues and direct operating expenses include the
revenues and direct expenses directly attributable to each station. The
statements do not include amortization expense, corporate general and
administrative costs, interest expense, income taxes or the LMA fees earned by
Bonneville pursuant to the time brokerage agreements.
Complete financial statements, including historical balance sheets and
statements of cash flows, were not prepared as Bonneville has not segregated
indirect corporate operating cost information or related assets and liabilities
for the Company in its accounting records.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation
which approximates the appraised value of the assets at the date of exchange.
The Company continually evaluates the propriety of the carrying amount of
property and equipment to determine whether current events or circumstances
warrant adjustment to the carrying value. Repairs and maintenance costs are
charged to expense when incurred.
F-314
<PAGE> 555
KBIG-FM, KLDE-FM AND WBIX-FM (FORMERLY WNSR-FM)
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(b) Broadcast Licenses
Broadcast licenses are stated at zero as Bonneville has not segregated the
cost basis of such licenses to the station level. The Company continually
evaluates the propriety of the carrying amount of broadcast licenses to
determine whether current events or circumstances warrant adjustment to the
carrying value.
(c) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
(d) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
reported amounts of revenues and expenses. Actual results could differ from
those estimates.
(e) Unaudited Interim Financial Information
In the opinion of management, the unaudited interim combined statements of
revenues and direct operating expenses for the three months ended March 31, 1998
and 1997, reflect all adjustments, consisting of only normal and recurring
items, which are necessary for a fair presentation of the results for the
interim period presented. The results for the interim periods are not
necessarily indicative of results to be expected for any other interim periods
or for the full year.
F-315
<PAGE> 556
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation of Los Angeles:
We have audited the accompanying statement of assets acquired as of May 29,
1998 and the related statements of revenues and direct operating expenses of
KODA-FM, (the "Company"), for each of the two years ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of assets acquired and the
statements of revenues and direct operating expenses are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying financial statements reflect the assets acquired and the
revenues and direct operating expenses attributable to the Company as described
in Note 1 and are not intended to be a complete presentation of the assets or
revenues and expenses of the Company.
In our opinion, the statement of assets acquired and statements of revenues
and direct operating expenses present fairly, in all material respects, the
assets described in Note 1 as of May 29, 1998 and the revenues and direct
operating expenses as described in Note 1 for each of the two years ended
December 31, 1997 of the Company, in conformity with generally accepted
accounting principles.
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
February 16, 1999
F-316
<PAGE> 557
KODA-FM
STATEMENT OF ASSETS ACQUIRED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 29,
1998
-------
<S> <C>
Property and equipment, net................................. $391
Broadcast license........................................... --
----
$391
====
</TABLE>
The accompanying notes are an integral part of the financial statements
F-317
<PAGE> 558
KODA-FM
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
----------------- ---------------
1996 1997 1997 1998
------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Total revenue............................................ $18,950 $20,869 $4,440 $5,044
Less agency commissions.................................. (2,605) (2,889) (608) (691)
------- ------- ------ ------
Net revenue.................................... 16,345 17,980 3,832 4,353
------- ------- ------ ------
Direct operating expenses:
Programming, technical and news........................ 1,012 960 359 412
Sales and promotion.................................... 4,269 4,539 790 754
Station general and administrative..................... 2,125 2,036 529 465
Depreciation expense................................... 183 185 46 47
------- ------- ------ ------
Total.......................................... 7,589 7,720 1,724 1,678
------- ------- ------ ------
Excess of net revenues over direct operating expenses.... $ 8,756 $10,260 $2,108 $2,675
======= ======= ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements
F-318
<PAGE> 559
KODA-FM
NOTES TO THE FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying financial statements include the accounts of KODA-FM, (the
"Company"). The Company operates a commercial radio station, KODA-FM in Houston.
The Company is wholly owned by Capstar Broadcasting Corporation ("Capstar") and
formerly owned by SFX Broadcasting, Inc. ("SFX") prior to Capstar's acquisition
of SFX.
On May 29, 1998, Capstar exchanged KODA-FM for Chancellor Media Corporation
of Los Angeles ("CMCLA") stations WAPE-FM and WFYV-FM in Jacksonville under an
asset exchange agreement. As part of the transaction, CMCLA also paid cash of
$90,250 to the owners of KVET-AM, KVET-FM and KASE-FM, who simultaneously
transferred such stations to Capstar. No liabilities were assumed by CMCLA in
the transaction. The accompanying financial statements do not reflect any
adjustments relating to this transaction.
The accompanying statement of assets acquired and statements of revenues
and direct operating expenses have been prepared in accordance with generally
accepted accounting principles and were derived from the historical accounting
records of the Company.
The statement of assets acquired includes the assets of the Company, which
were acquired by Chancellor Media Corporation of Los Angeles on May 29, 1998.
This statement does not include cash, accounts receivable, prepaid or other
assets, accounts payable, accrued expenses or other borrowings.
The statements of revenues and direct operating expenses include the
revenues and direct expenses directly attributable to each station. The
statements do not include amortization expense, corporate general and
administrative costs, interest expense or income taxes.
Complete financial statements, including historical balance sheets and
statements of cash flows, were not prepared as Capstar and SFX had not
segregated indirect corporate operating cost information or related assets and
liabilities for the Company in its accounting records.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation
which approximates the appraised value of the assets at the date of exchange.
The Company continually evaluates the propriety of the carrying amount of
property and equipment to determine whether current events or circumstances
warrant adjustment to the carrying value. Repairs and maintenance costs are
charged to expense when incurred.
(b) Broadcast Licenses
Broadcast licenses are stated at zero as Capstar has not segregated the
cost basis of such licenses to the station level. The Company continually
evaluates the propriety of the carrying amount of broadcast licenses to
determine whether current events or circumstances warrant adjustment to the
carrying value.
(c) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
F-319
<PAGE> 560
KODA-FM
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(d) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
reported amounts of revenues and expenses. Actual results could differ from
those estimates.
(e) Unaudited Interim Financial Information
In the opinion of management, the unaudited interim statements of revenues
and direct operating expenses for the three months ended March 31, 1998 and
1997, reflect all adjustments, consisting of only normal and recurring items,
which are necessary for a fair presentation of the results for the interim
period presented. The results for the interim periods are not necessarily
indicative of results to be expected for any other interim periods or for the
full year.
F-320
<PAGE> 561
ANNEX I
AGREEMENT AND PLAN OF MERGER
BETWEEN
CHANCELLOR MEDIA CORPORATION
AND
RANGER EQUITY HOLDINGS CORPORATION
DATED AS OF JULY 7, 1998
<PAGE> 562
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
Article I
The Merger
1.1 The Merger....................... I-1
1.2 Closing.......................... I-1
1.3 Effective Time................... I-2
1.4 Certificate of Incorporation..... I-2
1.5 Bylaws........................... I-2
1.6 Directors........................ I-2
1.7 Officers......................... I-2
1.8 Effect on LIN Capital Stock...... I-2
(a) Outstanding LIN Common
Stock........................ I-2
(b) Treasury Shares.............. I-3
(c) Impact of Stock Splits,
etc. ............................ I-3
1.9 Effect on Chancellor Capital
Stock............................ I-3
1.10 Exchange of Certificates......... I-3
(a) Paying Agent................. I-3
(b) Exchange Procedures.......... I-3
(c) Letter of Transmittal........ I-4
(d) Distributions with Respect to
Unexchanged Shares........... I-4
(e) No Further Ownership Rights
in LIN Common Stock.............. I-4
(f) No Fractional Shares......... I-5
(g) Termination of Payment
Fund............................. I-5
(h) No Liability................. I-5
(i) Withholding of Tax........... I-6
1.11 Dissenting Shares................ I-6
Article II
Representations and Warranties
of LIN
2.1 Organization, Standing and
Corporate Power.................. I-7
2.2 Capital Structure................ I-7
2.3 Authority; Noncontravention...... I-8
2.4 LIN SEC Document; Financial
Statements....................... I-10
2.5 Absence of Certain Changes or
Events........................... I-10
2.6 No Extraordinary Payments or
Change in Benefits............... I-11
2.7 Voting Requirements.............. I-11
2.8 State Takeover Statutes.......... I-11
2.9 LIN FCC Licenses; Operations of
LIN Licensed Facilities.......... I-11
2.10 Brokers.......................... I-12
2.11 FCC Qualification................ I-13
2.12 Compliance With Applicable
Laws............................. I-13
2.13 Absence of Undisclosed
Liabilities...................... I-13
2.14 Litigation....................... I-13
2.15 Transactions With Affiliates..... I-13
2.16 Labor Matters.................... I-14
2.17 Employee Arrangements and Benefit
Plans............................ I-14
2.18 Tax Matters...................... I-15
2.19 Intellectual Property............ I-16
2.20 Environmental Matters............ I-16
2.21 Material Agreements.............. I-17
2.22 Tangible Property................ I-18
2.23 NBC Station Venture.............. I-18
2.24 No Other Representations and
Warranties....................... I-18
Article III
Representations and Warranties of
Chancellor
3.1 Organization, Standing and
Corporate Power.................. I-19
3.2 Capital Structure................ I-19
3.3 Authority; Noncontravention...... I-20
3.4 Chancellor SEC Documents......... I-21
3.5 Absence of Certain Changes or
Events........................... I-22
3.6 No Extraordinary Payments or
Change in Benefits............... I-23
3.7 Brokers.......................... I-23
3.8 Opinion of Financial Advisor..... I-23
3.9 Absence of Undisclosed
Liabilities...................... I-23
3.10 Litigation....................... I-23
3.11 Transactions With Affiliates..... I-24
3.12 Chancellor Common Stock.......... I-24
3.13 Voting Requirements.............. I-24
3.14 FCC Qualification................ I-24
3.15 Employee Arrangements and Benefit
Plans............................ I-24
3.16 Tax Matters...................... I-25
3.17 Intellectual Property............ I-26
3.18 Environmental Matters............ I-26
3.19 No Other Representations and
Warranties....................... I-26
Article IV
Additional Agreements
4.1 Preparation of Form S-4 and Proxy
Statement/Prospectus; Information
Supplied......................... I-27
4.2 Stockholder Approval............. I-28
</TABLE>
i
<PAGE> 563
<TABLE>
<C> <S> <C>
4.3 Access to Information;
Confidentiality.................. I-28
4.4 Public Announcements............. I-29
4.5 Acquisition Proposals............ I-29
4.6 Consents, Approvals and
Filings.......................... I-30
4.7 Affiliates Letters............... I-30
4.8 Nasdaq Listing................... I-30
4.9 Indemnification.................. I-30
4.10 Letter of Chancellor's
Accountants...................... I-31
4.11 Letter of LIN's Accountants...... I-31
4.12 Employee Benefit Matters......... I-31
4.13 Termination of Stockholders
Agreement........................ I-31
Article V
Covenants Relating to Conduct of
Business Prior to Merger
5.1 Conduct of Business.............. I-32
5.2 Stock Options; Phantom Stock
Plan............................. I-34
5.3 Other Actions.................... I-35
Article VI
Conditions Precedent
6.1 Conditions to Each Party's
Obligation to Effect the
Merger........................... I-36
(a) Stockholder Approval......... I-36
(b) FCC Order.................... I-36
(c) Governmental and Regulatory
Consents..................... I-36
(d) HSR Act...................... I-36
(e) No Injunctions or
Restraints....................... I-36
(f) Nasdaq Listing............... I-36
(g) Form S-4..................... I-36
6.2 Conditions to Obligations of
LIN.............................. I-36
(a) Representations and
Warranties................... I-36
(b) Performance of Obligations of
Chancellor................... I-37
(c) Tax Opinion.................. I-37
(d) Chancellor Stockholders
Agreement................... I-37
6.3 Conditions to Obligations of
Chancellor....................... I-38
(a) Representations and
Warranties................... I-38
(b) Performance of Obligations of
LIN......................... I-38
(c) Tax Opinion.................. I-38
(d) KXTX Transaction............. I-38
(e) Network Affiliation
Agreements................... I-38
(f) Financial Services
Agreements................... I-38
(g) Dissenting Shares............ I-39
Article VII
Termination, Amendment and Waiver
7.1 Termination...................... I-39
7.2 Effect of Termination............ I-40
7.3 Amendment........................ I-40
7.4 Extension; Consent; Waiver....... I-40
7.5 Procedure For Termination,
Amendment, Extension, Consent or
Waiver........................... I-41
Article VIII
Survival of Provisions
8.1 Survival......................... I-41
Article IX
Notices
9.1 Notices.......................... I-41
Article X
Miscellaneous
10.1 Entire Agreement................. I-43
10.2 Expenses......................... I-43
10.3 Counterparts..................... I-43
10.4 No Third Party Beneficiary....... I-43
10.5 Governing Law.................... I-43
10.6 Assignment; Binding Effect....... I-43
10.7 Headings, Gender, Etc. .......... I-43
10.8 Invalid Provisions............... I-44
10.9 No Recourse Against Others....... I-44
Exhibits
- ----------------------------------------------
Exhibit A Form of Affiliate Letter
</TABLE>
ii
<PAGE> 564
LIST OF DEFINED TERMS
<TABLE>
<S> <C>
Acquisition Proposal.................... 41
Actions................................. 22
Agreement............................... 1
Assumed Stock Options................... 47
breaches................................ 12
Chancellor Benefit Plans................ 31
Chancellor SEC Documents................ 29
Chancellor Common Stock................. 1
Chancellor Stockholders Meeting......... 39
Chancellor 7% Convertible Preferred
Stock................................. 4
Chancellor $3.00 Convertible Preferred
Stock................................. 4
Chancellor Convertible Preferred
Stock................................. 4
Chancellor.............................. 1
Chancellor Disclosure Letter............ 30
Chancellor Stockholders Agreement....... 51
Chancellor Operating Subsidiary......... 27
Chancellor Material Adverse Effect...... 26
Chancellor Significant Subsidiary....... 26
Chancellor Stockholders Approval........ 27
Chancellor Stock Options................ 26
Chancellor Stock Option Plans........... 26
Closing Date............................ 2
Closing................................. 2
Code.................................... 1
Communications Act...................... 12
D&O Insurance........................... 42
Delaware Code........................... 2
Delaware Secretary of State............. 2
Dissenting Shares....................... 8
DSHC.................................... 46
Effective Time.......................... 2
Employment Arrangements................. 19
Environmental Liabilities............... 23
Environmental Laws...................... 23
Equity Holdings A....................... 9
Equity Holdings B....................... 9
ERISA................................... 19
Exchange Ratio.......................... 3
FCC..................................... 12
FCC Order............................... 49
Financial Advisory Agreement............ 53
Form S-4................................ 37
Form S-8................................ 48
Fractional Shares....................... 6
GAAP.................................... 13
GECC Guarantee.......................... 10
Governmental Entity..................... 12
Greenhill............................... 17
Hazardous Materials..................... 23
Hicks Muse.............................. 17
HSR Act................................. 12
Indemnified Parties..................... 42
Intellectual Property................... 22
IRS..................................... 19
KXTX Transaction........................ 46
KXTX Option............................. 47
KXTX-Texas.............................. 47
Liens................................... 10
LIN Stock Option Plan................... 10
LIN..................................... 1
LIN SEC Document........................ 13
LIN Licensed Facilities................. 15
LIN Benefit Plans....................... 15
LIN Stock Options....................... 10
LIN Disclosure Letter................... 11
LIN Stockholders Approval............... 11
LIN Holdings............................ 9
LIN Operating Subsidiary................ 9
LIN LMA Facilities...................... 16
LIN Entities............................ 53
LIN Texas............................... 46
LIN FCC Licenses........................ 15
LIN Significant Subsidiary.............. 9
LIN/Ranger Merger Agreement............. 43
LIN Common Stock........................ 3
LIN Material Adverse Effect............. 9
LMA Facility FCC Licenses............... 16
LMA Agreement........................... 24
M&O Agreement........................... 53
Material Agreements..................... 24
Material Breach......................... 55
Merger Consideration.................... 3
Merger.................................. 2
</TABLE>
iii
<PAGE> 565
<TABLE>
<S> <C>
Morgan Stanley.......................... 31
Network Affiliation Agreement........... 24
New LIN Stock Options................... 10
Paying Agent............................ 4
Payment Fund............................ 4
Permits................................. 17
Phantom Stock Plan...................... 10
Phantom Stock Units..................... 10
Proxy Statement/Prospectus.............. 29
Representatives......................... 40
SEC..................................... 13
Securities Act.......................... 13
significant subsidiary.................. 26
Sports Agreement........................ 24
Stockholders Agreement.................. 10
subsidiary.............................. 9
Substitute LIN Stock Options............ 10
Surviving Corporation................... 2
Tax Return.............................. 21
Taxes................................... 21
Wasserstein............................. 31
</TABLE>
iv
<PAGE> 566
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered into as
of July 7, 1998, by and between CHANCELLOR MEDIA CORPORATION, a Delaware
corporation ("Chancellor") and RANGER EQUITY HOLDINGS CORPORATION, a Delaware
corporation ("LIN").
RECITALS
WHEREAS, Chancellor and LIN and their respective subsidiaries are engaged in the
radio and television broadcasting businesses, respectively;
WHEREAS, Chancellor and LIN believe it is in the best interests of their
respective stockholders to combine their respective broadcast businesses;
WHEREAS, subject to the terms and conditions set forth herein, (i) the Board of
Directors of Chancellor, upon the recommendation of a duly authorized special
committee thereof (consisting of independent directors), has approved the merger
of LIN with Chancellor and the issuance of shares of the Common Stock, $0.01 par
value (the "Chancellor Common Stock"), of Chancellor in connection therewith,
and (ii) the Board of Directors of LIN has approved the foregoing merger;
WHEREAS, it is the intention of Chancellor and LIN that such merger will qualify
as a tax-free reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, Chancellor and LIN desire to make certain representations, warranties,
covenants and agreements in connection with such merger and also to prescribe
various conditions to such merger;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement, at the
Effective Time (as defined in Section 1.3), LIN shall merge with and into
Chancellor (the "Merger") in accordance with the General Corporation Law of the
State of Delaware (the "Delaware Code"). At the Effective Time, the separate
corporate existence of LIN shall cease and Chancellor shall continue as the
surviving corporation of the Merger (the "Surviving Corporation") under the laws
of the State of Delaware and with all the rights, privileges, immunities and
powers, and subject to all the duties and liabilities, of a corporation
organized under the Delaware Code. The Merger shall have the effects set forth
in the Delaware Code.
1.2 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.1, and subject to the satisfaction or waiver of the conditions set forth in
Article VI, the closing of the Merger (the "Closing") will take place at 10:00
a.m., Dallas, Texas time, on the second business day following the date on which
the last to be fulfilled or waived of the conditions set forth
I-1
<PAGE> 567
in Article VI shall be fulfilled or waived in accordance with this Agreement
(the "Closing Date"), at the offices of Weil, Gotshal & Manges LLP, 100 Crescent
Court, Suite 1300, Dallas, Texas 75201, unless another date, time or place is
agreed to in writing by the parties hereto.
1.3 Effective Time. The parties hereto will file with the Secretary of State of
the State of Delaware (the "Delaware Secretary of State") on the Closing Date
(or on such other date as the parties may agree) a certificate of merger or
other appropriate documents, executed in accordance with the relevant provisions
of the Delaware Code, and make all other filings or recordings required under
the Delaware Code in connection with the Merger. The Merger shall become
effective upon the filing of the certificate of merger with the Delaware
Secretary of State, or at such later time specified in such certificate of
merger (the "Effective Time").
1.4 Certificate of Incorporation. The Certificate of Incorporation of
Chancellor shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended in accordance with its terms and as
provided by the Delaware Code.
1.5 Bylaws. The Bylaws of Chancellor in effect immediately prior to the Merger
shall be the bylaws of the Surviving Corporation until thereafter amended in
accordance with their terms and as provided by applicable law.
1.6 Directors. The directors of Chancellor immediately prior to the Effective
Time and Gary R. Chapman shall, from and after the Effective Time, be the
directors of the Surviving Corporation (with respect to Chancellor directors, in
the same class and term expiration as such director currently serves on the
Chancellor Board of Directors and, with respect to Gary R. Chapman, in such
class and term expiration as determined by the Board of Directors of Chancellor
prior to Closing), until their successors shall have been duly elected or
appointed or qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Certificate of Incorporation and
Bylaws.
1.7 Officers. The officers of Chancellor immediately prior to the Effective
Time shall, from and after the Effective Time, be the officers of the Surviving
Corporation until their successors shall have been duly elected or appointed or
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Certificate of Incorporation and Bylaws.
1.8 Effect on LIN Capital Stock.
(a) Outstanding LIN Common Stock. Each share of common stock, $0.01 par value,
of LIN ("LIN Common Stock"), issued and outstanding immediately prior to the
Effective Time (other than shares of LIN Common Stock held as treasury shares by
LIN and other than Dissenting Shares, as defined in Section 1.11) shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be converted into the right to receive 0.0300 validly issued, fully paid and
nonassessable shares of Chancellor Common Stock. The ratio of the shares of
Chancellor Common Stock to be issued in exchange for each whole share of LIN
Common Stock is referred to as the "Exchange Ratio." The shares of Chancellor
Common Stock to be issued to holders of LIN Common Stock in accordance with this
Section 1.8(a), and any cash to be paid in accordance with Section 1.10(f) in
lieu of fractional shares of Chancellor Common Stock, are referred to as the
"Merger Consideration."
I-2
<PAGE> 568
(b) Treasury Shares. Each share of LIN Common Stock which is held as a treasury
share by LIN at the Effective Time shall, by virtue of the Merger and without
any action on the part of LIN, be cancelled and retired and cease to exist,
without any conversion thereof.
(c) Impact of Stock Splits, etc. In the event of any change in Chancellor Common
Stock and/or LIN Common Stock between the date of this Agreement and the
Effective Time of the Merger in accordance with the terms of this Agreement by
reason of any stock split, stock dividend, subdivision, reclassification,
recapitalization, combination, exchange of shares or the like, the number and
class of shares of Chancellor Common Stock to be issued and delivered in the
Merger in exchange for each outstanding share of LIN Common Stock as provided in
this Agreement shall be appropriately adjusted so as to maintain the relative
proportionate interests of the holders of LIN Common Stock and Chancellor Common
Stock.
1.9 Effect on Chancellor Capital Stock. Each share of Chancellor Common Stock,
7% Convertible Preferred Stock, $0.01 par value ("Chancellor 7% Convertible
Preferred Stock"), and $3.00 Convertible Exchangeable Preferred, $0.01 par value
("Chancellor $3.00 Convertible Preferred Stock" and, collectively with the
Chancellor 7% Convertible Preferred Stock, the "Chancellor Convertible Preferred
Stock"), of Chancellor issued and outstanding immediately prior to the Effective
Time shall remain outstanding and shall be unaffected by the Merger.
1.10 Exchange of Certificates.
(a) Paying Agent. Immediately following the Effective Time, Chancellor shall
deposit with its transfer agent and registrar (the "Paying Agent"), for the
benefit of the holders of LIN Common Stock (other than treasury shares and
Dissenting Shares), certificates representing the shares of Chancellor Common
Stock to be issued to such holders pursuant to Section 1.8 (such certificates,
together with any dividends or distributions with respect to the shares
represented by such certificates and any cash paid in lieu of fractional shares
of Chancellor Common Stock pursuant to Section 1.10(f), being hereinafter
referred to as the "Payment Fund").
(b) Exchange Procedures. As soon as practicable after the Effective Time, each
holder of an outstanding certificate or certificates which prior thereto
represented shares of LIN Common Stock shall, upon surrender to the Paying Agent
of such certificate or certificates and acceptance thereof by the Paying Agent,
be entitled to a certificate representing that number of whole shares of
Chancellor Common Stock which the aggregate number of shares of LIN Common Stock
previously represented by such certificate or certificates surrendered shall
have been converted into the right to receive pursuant to Section 1.8 of this
Agreement, as the case may be, plus any cash to be received in lieu of
fractional shares, as provided in Section 1.10(f) below. The Paying Agent shall
accept such certificates upon compliance with such reasonable terms and
conditions as the Paying Agent may impose to effect an orderly exchange thereof
in accordance with its normal exchange practices. If the Merger Consideration
(or any portion thereof) is to be delivered to any person other than the person
in whose name the certificate or certificates representing the shares of LIN
Common Stock surrendered in exchange therefor is registered, it shall be a
condition to such exchange that the certificate or certificates so surrendered
shall be properly endorsed or otherwise be in proper form for transfer and that
the person requesting such exchange shall pay to the Paying Agent any transfer
or other
I-3
<PAGE> 569
Taxes (as defined in Section 2.18) required by reason of the payment of such
consideration to a person other than the registered holder of the certificate(s)
surrendered, or shall establish to the satisfaction of the Paying Agent that
such Tax has been paid or is not applicable. After the Effective Time, there
shall be no further transfer on the records of LIN or its transfer agent of
certificates representing shares of LIN Common Stock, and if such certificates
are presented to the Surviving Corporation, they shall be cancelled against
delivery of the Merger Consideration as hereinabove provided. Until surrendered
as contemplated by this Section 1.10(b), each certificate representing shares of
LIN Common Stock (other than certificates representing treasury shares to be
cancelled in accordance with the terms of this Agreement), shall be deemed at
any time after the Effective Time to represent only the right to receive upon
such surrender the Merger Consideration without any interest thereon, as
contemplated by Section 1.8.
(c) Letter of Transmittal. Promptly after the Effective Time (but in no event
more than five business days thereafter), Chancellor shall require the Paying
Agent to mail to each record holder of certificates that immediately prior to
the Effective Time represented shares of LIN Common Stock which have been
converted pursuant to Section 1.8, a form of letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title shall pass,
only upon proper delivery of certificates representing shares of LIN Common
Stock to the Paying Agent, and which shall be in such form and have such
provisions as Chancellor reasonably may specify) and instructions for use in
surrendering such certificates and receiving the Merger Consideration to which
such holder shall be entitled therefor pursuant to Section 1.8.
(d) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to Chancellor Common Stock with a record date after
the Effective Time shall be paid to the holder of any certificate that
immediately prior to the Effective Time represented shares of LIN Common Stock
which have been converted pursuant to Section 1.8, until the surrender for
exchange of such certificate in accordance with this Article I. Following
surrender for exchange of any such certificate, there shall be paid to the
holder of such certificate, without interest, (i) at the time of such surrender,
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to the number of whole shares of
Chancellor Common Stock into which the shares of LIN Common Stock represented by
such certificate immediately prior to the Effective Time were converted pursuant
to Section 1.8, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time,
but prior to such surrender, and with a payment date subsequent to such
surrender, payable with respect to such whole shares of Chancellor Common Stock.
(e) No Further Ownership Rights in LIN Common Stock. The Merger Consideration
(or, in the case of Dissenting Shares, the cash payment therefor) paid upon the
surrender for exchange of certificates representing shares of LIN Common Stock
in accordance with the terms of this Article I shall be deemed to have been
issued and paid in full satisfaction of all rights pertaining to the shares of
LIN Common Stock theretofore represented by such certificates, subject, however,
to Chancellor's obligation (if any) to pay any dividends or make any other
distributions with a record date prior to the Effective Time which may have been
declared by LIN on the shares of LIN Common Stock in accordance with the terms
of this Agreement or prior to the date of this Agreement and which remain unpaid
at the Effective Time.
I-4
<PAGE> 570
(f) No Fractional Shares. No certificates or scrip representing fractional
shares of Chancellor Common Stock shall be issued upon the surrender for
exchange of certificates that immediately prior to the Effective Time
represented shares of LIN Common Stock which have been converted pursuant to
Section 1.8, and such fractional share interests will not entitle the owner
thereof to vote or any rights of a stockholder of Chancellor. In lieu of any
such fractional shares, the Paying Agent shall, on behalf of all holders of
fractional shares of Chancellor Common Stock, aggregate all such fractional
interests (collectively, the "Fractional Shares") and such Fractional Shares
shall be sold by the Paying Agent as agent for the holders of such Fractional
Shares at the then prevailing price on the Nasdaq Stock Market, all in the
manner provided hereinafter. Until the net proceeds of such sale or sales have
been distributed to the holders of Fractional Shares, the Paying Agent shall
retain such proceeds in trust for the benefit of such holders as part of the
Payment Fund. All commissions, transfer taxes and other out-of-pocket
transaction costs, including reasonable expenses and compensation of the Paying
Agent shall be charged against the proceeds from the sale of the Fractional
Shares. The sale of the Fractional Shares shall be executed on the Nasdaq Stock
Market or through one or more member firms of the Nasdaq Stock Market and will
be executed in round lots, to the extent practicable. The Paying Agent will
determine the portion, if any, of the net proceeds of such sale or sales to
which each holder of Fractional Shares is entitled, by multiplying the amount of
the aggregate net proceeds of the sale of the Fractional Shares by a fraction,
the numerator of which is the amount of Fractional Shares to which such holder
is entitled and the denominator of which is the aggregate amount of Fractional
Shares to which all holders of Fractional Shares are entitled; provided,
however, that in lieu of the foregoing, at the sole option of Chancellor,
Chancellor may instead satisfy payment with respect to such Fractional Shares by
delivering to the Paying Agent reasonably promptly following the Effective Time
cash (without interest) in an amount equal to the aggregate amount of all such
Fractional Shares multiplied by the closing price per share of Chancellor Common
Stock on the Nasdaq Stock Market on the trading day immediately prior to the
Effective Time.
(g) Termination of Payment Fund. Any portion of the Payment Fund which remains
undistributed to the holders of certificates representing shares of LIN Common
Stock for 120 days after the Effective Time shall be delivered to Chancellor,
upon demand, and any holders of shares of LIN Common Stock who have not
theretofore complied with this Article I shall thereafter look only to
Chancellor and only as general creditors thereof for payment of their claims for
any Merger Consideration and any dividends or distributions with respect to
Chancellor Common Stock to which they are entitled pursuant to this Article I.
(h) No Liability. Neither the Surviving Corporation nor the Paying Agent shall
be liable to any person in respect of any cash, shares, dividends or
distributions payable from the Payment Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law. If any
certificates representing shares of LIN Common Stock shall not have been
surrendered prior to five years after the Effective Time (or immediately prior
to such earlier date on which any Merger Consideration in respect of such
certificate would otherwise escheat to or become the property of any
Governmental Entity (as defined in Section 2.3)), any such cash, shares,
dividends or distributions payable in respect of such certificate shall, to the
extent permitted by applicable law, become the
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property of Surviving Corporation, free and clear of all claims or interest of
any person previously entitled thereto.
(i) Withholding of Tax. Chancellor shall be entitled to deduct and withhold from
the Merger Consideration otherwise payable pursuant to this Agreement to any
former holder of LIN Common Stock such amount as Chancellor (or any affiliate
thereof) or the Paying Agent is required to deduct and withhold with respect to
the making of such payment under the Code or state, local or foreign Tax law. To
the extent that amounts are so withheld by Chancellor, such withheld amounts
shall be treated for all purposes of this Agreement as having been paid to the
former holder of LIN Common Stock in respect of which such deduction and
withholding was made by Chancellor.
1.11 Dissenting Shares. Notwithstanding anything herein to the contrary in this
Agreement, shares of LIN Common Stock outstanding immediately prior to the
Effective Time and held by a holder who has not voted in favor of the Merger or
consented thereto and who properly demands in writing appraisal of such shares
of LIN Common Stock in accordance with Section 262 of the Delaware Code and who
shall not have withdrawn such demand or otherwise have forfeited appraisal
rights, shall not be converted into or represent the right to receive the Merger
Consideration therefor ("Dissenting Shares"). Such stockholders shall be
entitled to receive payment of the appraised value of such shares of LIN Common
Stock held by them in accordance with the provisions of Section 262 of the
Delaware Code, except that all Dissenting Shares held by stockholders who shall
have failed to perfect or who effectively shall have withdrawn or lost their
rights to appraisal of such securities under Section 262 shall thereupon be
deemed to have been converted into, as of the Effective Time, the right to
receive, without any interest thereon, the Merger Consideration, upon surrender,
in the manner provided in this Article I, of the certificate or certificates
that formerly represented such securities. LIN shall take all actions required
to be taken by it in accordance with Section 262(d) of the Delaware Code with
respect to the holders of LIN Common Stock. LIN shall give to Chancellor prompt
written notice of any demands for appraisal received by it, withdrawals of such
demands, and any other instruments served pursuant to Delaware law and received
by it, and Chancellor shall have the right to participate in all negotiations
and proceedings with respect to such demands. Prior to the Effective Time, LIN
shall not, except with the prior written consent of Chancellor, make any
payments with respect to any demands for appraisal, or settle or offer to
settle, any such demands.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF LIN
LIN hereby represents and warrants to Chancellor as follows:
2.1 Organization, Standing and Corporate Power. Each of LIN and the LIN
Significant Subsidiaries (as defined below) is a corporation, limited
partnership or limited liability company duly organized, validly existing and in
good standing under the laws of the jurisdiction in which it is organized and
has the requisite corporate, partnership or limited liability company power and
authority to carry on its business as now being conducted. Each of LIN and the
LIN Significant Subsidiaries is duly qualified to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary,
except where the failure to be so qualified could not reasonably be expected to
have a material adverse effect on the business, properties, results of
operations, or condition (financial or otherwise) of LIN and its subsidiaries,
considered as a whole (other than as a result of changes in general economic
conditions or in economic conditions generally affecting the television
broadcasting industry) (a "LIN Material Adverse Effect"). LIN has delivered to
Chancellor complete and correct copies of its Certificate of Incorporation and
Bylaws, as amended to the date of this Agreement. For purposes of this
Agreement, a "LIN Significant Subsidiary" means (i) Ranger Equity Holdings A
Corp., a Delaware corporation ("Equity Holdings A"), (ii) Ranger Equity Holdings
B Corp., a Delaware corporation ("Equity Holdings B"), (iii) LIN Holdings Corp.,
a Delaware corporation ("LIN Holdings"), (iv) LIN Television Corporation, a
Delaware corporation (the "LIN Operating Subsidiary"), and (v) any other
subsidiary of LIN that operates, or holds an FCC license to operate, a LIN
Licensed Facility (as defined in Section 2.9) or a LIN LMA Facility (as defined
in Section 2.9) or is a party to a Material Agreement (as defined in Section
2.21). For purposes of this Agreement, a "subsidiary" of any person shall mean
any other entity at least a majority of the equity interests in which is
beneficially owned, directly or indirectly, by the specified person.
2.2 Capital Structure. (a) The authorized capital stock of LIN consists of (i)
1,000,000,000 shares of LIN Common Stock and (ii) 5,000,000 shares of preferred
stock, $0.01 par value, none of which shares of preferred stock are issued and
outstanding. At the close of business on July 6, 1998, 539,321,532 shares of LIN
Common Stock were issued and outstanding, 30,100,000 shares of LIN Common Stock
were reserved for issuance pursuant to options to purchase LIN Common Stock
which have been, or will be prior to the Effective Time, granted to directors,
officers or employees of LIN or others ("New LIN Stock Options") pursuant to the
LIN 1998 Stock Option Plan (the "LIN Stock Option Plan"), 5,594,086 shares of
LIN Common Stock were reserved for issuance pursuant to certain additional
options to purchase LIN Common Stock that have been granted to directors,
officers or employees of LIN or others (the "Substitute LIN Stock Options" and,
collectively with the New LIN Stock Options, the "LIN Stock Options"), and no
shares of LIN Common Stock were held as treasury shares by LIN or any subsidiary
of LIN. At the close of business on July 6, 1998, 14,152,290 Phantom Stock Units
("Phantom Stock Units") were outstanding under LIN's Phantom Stock Plan (the
"Phantom Stock Plan"). Except as set forth above, at the close of business on
July 6, 1998, no shares of capital stock or other equity securities of LIN were
authorized, issued, reserved for issuance or outstanding. All outstanding shares
of LIN Common Stock are,
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and all shares which may be issued pursuant to the LIN Stock Option Plan, or
upon the exercise of outstanding LIN Stock Options will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. No bonds, debentures, notes or other indebtedness of LIN or
any subsidiary of LIN having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
the stockholders of LIN or any subsidiary of LIN may vote are issued or
outstanding. All the outstanding shares of capital stock or other equity
interests of each subsidiary of LIN have been validly issued and are fully paid
and nonassessable and are owned by LIN, by one or more wholly-owned subsidiaries
of LIN or by LIN and one or more such wholly-owned subsidiaries, free and clear
of all pledges, claims, liens, charges, encumbrances and security interests of
any kind or nature whatsoever (collectively, "Liens"), except for (i) Liens
arising out of the senior credit facility of the LIN Operating Subsidiary, and
(ii) Liens arising out of the guarantee by Equity Holdings B of certain
obligations of Station Venture Holdings, LLC to General Electric Capital
Corporation (the "GECC Guarantee"). Except as set forth above and except as set
forth in that certain Stockholders Agreement, dated as of March 3, 1998 (the
"Stockholders Agreement"), among LIN and the holders of LIN Common Stock parties
thereto (which provides for preemptive rights and restrictions on transfer),
neither LIN nor any subsidiary of LIN has any outstanding option, warrant,
subscription or other right, agreement or commitment that either (i) obligates
LIN or any subsidiary of LIN to issue, sell or transfer, repurchase, redeem or
otherwise acquire or vote any shares of the capital stock of LIN or any LIN
Significant Subsidiary or (ii) restricts the transfer of LIN Common Stock. Since
the close of business on July 6, 1998 to the date hereof, neither LIN nor any
subsidiary of LIN has issued any capital stock or securities or other rights
convertible into or exercisable or exchangeable for shares of such capital
stock.
(b) LIN owns and has good and marketable title to all of the issued and
outstanding shares of capital stock of each of Equity Holdings A and Equity
Holdings B, in each case free and clear of all Liens, and LIN has no independent
assets, operations or liabilities other than the ownership of the capital stock
of Equity Holdings A and Equity Holdings B. Equity Holdings A and Equity
Holdings B collectively own and have good and marketable title to all of the
outstanding capital stock of LIN Holdings, free and clear of all Liens other
than with respect to Equity Holdings B, the GECC Guarantee, and neither Equity
Holdings A nor Equity Holdings B has any independent assets, operations or
liabilities other than the ownership of the capital stock of LIN Holdings.
2.3 Authority; Noncontravention. LIN has the requisite corporate power and
authority to enter into this Agreement and, subject to the approval of its
stockholders as set forth in Section 4.2(a) with respect to the approval of this
Agreement and the consummation of the Merger (the "LIN Stockholders Approval"),
to consummate the transactions contemplated by this Agreement. The execution and
delivery of this Agreement by LIN and the consummation by LIN of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of LIN, subject, in the case of the Merger, to the
LIN Stockholders Approval. This Agreement has been duly executed and delivered
by LIN and, assuming this Agreement constitutes the valid and binding agreement
of each of the other parties hereto, constitutes a valid and binding obligation
of LIN, enforceable against it in accordance with its terms except that the
enforcement thereof may be limited by (a) bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect relating
to creditor's rights generally and (b) general
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principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity). Except as disclosed in writing by LIN to
Chancellor in a disclosure letter (the "LIN Disclosure Letter") delivered prior
to the execution and delivery of the Agreement, the execution and delivery of
this Agreement do not, and the consummation of the transactions contemplated by
this Agreement and compliance with the provisions hereof will not, (i) conflict
with any of the provisions of the Certificate of Incorporation or Bylaws of LIN
or the comparable documents of any LIN Significant Subsidiary, (ii) subject to
the governmental filings and other matters referred to in the following
sentence, conflict with, result in a breach of or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a material benefit
under, or require the consent of any person under, any indenture or other
agreement, permit, concession, franchise, license or similar instrument or
undertaking to which LIN or any of the LIN Significant Subsidiaries is a party
or by which LIN or any of the LIN Significant Subsidiaries or any of their
assets is bound or affected, (iii) result in an obligation by LIN, the Surviving
Corporation, Chancellor, or any of their respective subsidiaries to redeem,
repurchase or retire (or offer to redeem, repurchase or retire) any indebtedness
of LIN or any of its subsidiaries outstanding as of the date hereof or equity
security of LIN or any of its subsidiaries outstanding as of the date hereof, or
(iv) subject to the governmental filings and other matters referred to in the
following sentence, contravene any law, rule or regulation of any state or of
the United States or any political subdivision thereof or therein, or any order,
writ, judgment, injunction, decree, determination or award currently in effect,
except, in the cases of the foregoing clauses (ii) through (iv), for conflicts,
breaches, defaults or other consequences (collectively, "breaches") that,
individually or in the aggregate, could not reasonably be expected to have a LIN
Material Adverse Effect or to materially hinder LIN's ability to consummate the
transactions contemplated by this Agreement. No consent, approval or
authorization of, or declaration or filing with, or notice to, any governmental
agency or regulatory authority (a "Governmental Entity") which has not been
received or made, is required by or with respect to LIN or any of the LIN
Significant Subsidiaries in connection with the execution and delivery of this
Agreement by LIN or the consummation by LIN of the transactions contemplated
hereby, except for (i) the filing of premerger notification and report forms
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), with respect to the Merger and the termination or earlier expiration
of the applicable waiting period thereunder, (ii) such filings with and
approvals required by the Federal Communications Commission or any successor
entity (the "FCC") under the Communications Act of 1934, as amended, and the
rules, regulations and policies of the FCC promulgated thereunder (collectively,
the "Communications Act") including those required in connection with the
transfer of control of LIN FCC Licenses (as defined in Section 2.9) for the
operation of the LIN Licensed Facilities, (iii) the filing of the certificate of
merger with the Delaware Secretary of State and appropriate documents with the
relevant authorities of other states in which LIN is qualified to do business,
(iv) such filings and consents as may be required under any environmental,
health or safety law or regulation pertaining to any notification, disclosure or
required approval triggered by the Merger or the other transactions contemplated
by this Agreement, and (v) such filings as may be required in connection with
statutory provisions and regulations relating to real property transfer gains
taxes and real property transfer taxes.
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2.4 LIN SEC Document; Financial Statements. (i) LIN Holdings and the LIN
Operating Subsidiary (together with certain subsidiary guarantors thereof) have
filed with the Securities and Exchange Commission (the "SEC") a Registration
Statement on Form S-1 (the "LIN SEC Document"), filed on May 29, 1998, with
respect to the registration of certain senior discount notes of LIN Holdings and
senior subordinated notes of the LIN Operating Subsidiary; (ii) as of the date
of such filing, the LIN SEC Document complied in all material respects with the
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and the rules and regulations of the SEC promulgated thereunder applicable to
such LIN SEC Document, and such LIN SEC Document as of such date did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading (provided, however, it is acknowledged and agreed by Chancellor that
the Merger and the transactions contemplated by this Agreement and further
developments since the date of such filing with respect to the matters described
in Section 5.1(b)(i) were not disclosed or required to be disclosed in the LIN
SEC Document on the date of such filing); and (iii) as of their respective
dates, the consolidated financial statements of LIN Holdings and its
predecessors included in the LIN SEC Document complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto or, in the case of unaudited statements, as permitted by Rule
10-01 of Regulation S-X) and fairly present, in all material respects, the
consolidated financial position of LIN Holdings and its consolidated
subsidiaries (or its predecessors and their respective consolidated
subsidiaries) as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (on the basis stated
therein and subject, in the case of unaudited quarterly statements, to normal
year-end audit adjustments).
2.5 Absence of Certain Changes or Events. Except as disclosed in the LIN SEC
Document or the LIN Disclosure Letter, or as otherwise agreed to in writing
after the date hereof by Chancellor, or as expressly permitted by this
Agreement, since the date of the most recent audited financial statements of LIN
Holdings contained in the LIN SEC Document, LIN and its subsidiaries have
conducted their business only in the ordinary course, and there has not been (i)
any change which could reasonably be expected to have a LIN Material Adverse
Effect (including as a result of the consummation of the transactions
contemplated by this Agreement), (ii) any declaration, setting aside or payment
of any dividend or other distribution (whether in cash, stock or property) with
respect to any of LIN's outstanding capital stock, (iii) any split, combination
or reclassification of any of its outstanding capital stock or any issuance or
the authorization of any issuance of any other securities in respect of, in lieu
of or in substitution for shares of its outstanding capital stock, (iv) (x) any
granting by LIN or any of its subsidiaries to any director, officer or other
employee or independent contractor of LIN or any of its subsidiaries of any
increase in compensation or acceleration of benefits, except in the ordinary
course of business consistent with prior practice or as was required under
employment agreements in effect as of the date of the most recent audited
financial statements of LIN Holdings contained in the LIN SEC Document, (y) any
granting by LIN or any of its subsidiaries to any director, officer or other
employee or independent contractor of any increase in, or acceleration of
benefits in respect of, severance or
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termination pay, or pay in connection with any change of control of LIN, except
in the ordinary course of business consistent with prior practice or as was
required under any employment, severance or termination agreements in effect as
of the date of the most recent audited financial statements of LIN Holdings
contained in the LIN SEC Document, or (z) any entry by LIN or any of its
subsidiaries into any employment, severance, change of control, or termination
or similar agreement with any director, executive officer or other employee or
independent contractor other than in the ordinary course of business consistent
with past practices, or (v) any change in accounting methods, principles or
practices by LIN or any of its subsidiaries materially affecting its assets,
liability or business, except insofar as may have been required by a change in
generally accepted accounting principles.
2.6 No Extraordinary Payments or Change in Benefits. Except as disclosed in the
LIN Disclosure Letter, no current or former director, officer, employee or
independent contractor of LIN or any of its subsidiaries is entitled to receive
any payment under any agreement, arrangement or policy (written or oral)
relating to employment, severance, change of control, termination, stock
options, stock purchases, compensation, deferred compensation, fringe benefits
or other employee benefits currently in effect (collectively, the "LIN Benefit
Plans"), nor will any benefit received or to be received by any current or
former director, officer, employee or independent contractor of LIN or any of
its subsidiaries under any LIN Benefit Plan be accelerated or modified, as a
result of or in connection with the execution and delivery of, or the
consummation of the transactions contemplated by, this Agreement.
2.7 Voting Requirements. The affirmative vote of a majority of the outstanding
shares of LIN Common Stock entitled to vote with respect to the approval of the
Merger is the only vote of the holders of any class or series of LIN's capital
stock necessary to approve this Agreement and the transactions contemplated by
this Agreement.
2.8 State Takeover Statutes. The Board of Directors of LIN has approved the
terms of this Agreement and the consummation of the transactions contemplated by
this Agreement, and such approval is sufficient to render inapplicable to the
Merger and the other transactions contemplated by this Agreement the provisions
of Section 203 of the Delaware Code. To LIN's knowledge, no other state takeover
statute or similar statute or regulation applies or purports to apply to the
Merger, this Agreement or any of the transactions contemplated by this Agreement
and no provision of the Certificate of Incorporation, Bylaws or other governing
instrument of LIN or any of its subsidiaries would, directly or indirectly,
restrict or impair the ability of LIN to consummate the transactions
contemplated by this Agreement.
2.9 LIN FCC Licenses; Operations of LIN Licensed Facilities. LIN and its
subsidiaries have operated the television stations for which LIN and any of its
subsidiaries holds licenses from the FCC, in each case which are owned or
operated by LIN and its subsidiaries (each a "LIN Licensed Facility" and
collectively the "LIN Licensed Facilities"), in material compliance with the
terms of the licenses issued by the FCC to LIN and its subsidiaries (the "LIN
FCC Licenses") (complete and correct copies of each of which have been made
available to Chancellor), and in material compliance with the Communications
Act, except where the failure to do so could not, individually or in the
aggregate, reasonably be expected to have a LIN Material Adverse Effect. To the
knowledge of LIN, each broadcast television station for which LIN or any of its
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subsidiaries provides programming and advertising services pursuant to a local
marketing agreement (each a "LIN LMA Facility" and collectively the "LIN LMA
Facilities") has been operated in material compliance with the terms of the
licenses issued by the FCC to the owner of such LIN LMA Facility (each an "LMA
Facility FCC License" and collectively the "LMA Facility FCC Licenses"). LIN
has, and its subsidiaries have, timely filed or made all applications, reports
and other disclosures required by the FCC to be made with respect to the LIN
Licensed Facilities and have timely paid all FCC regulatory fees with respect
thereto, except where the failure to do so could not, individually or in the
aggregate, reasonably be expected to have a LIN Material Adverse Effect. LIN and
each of its subsidiaries have, and are the authorized legal holders of, all the
LIN FCC Licenses necessary or used in the operation of the businesses of the LIN
Licensed Facilities as presently operated. To the knowledge of LIN, the
third-parties with which LIN or its subsidiaries have entered into local
marketing agreements with respect to the LIN LMA Facilities have, and are the
authorized legal holders of, the LMA Facility FCC License necessary or used in
the operation of the business of the respective LIN LMA Facility to which such
local marketing agreement relates. All LIN FCC Licenses and, to the knowledge of
LIN, LMA Facility FCC Licenses are validly held and are in full force and
effect, unimpaired by any act or omission of LIN, each of its subsidiaries (or,
to LIN's knowledge, their respective predecessors) or their respective officers,
employees or agents, except where such impairments could not, individually or in
the aggregate, reasonably be expected to have a LIN Material Adverse Effect. As
of the date hereof, except as set forth in the LIN Disclosure Letter, no
application, action or proceeding is pending for the renewal of any LIN FCC
License or, to the knowledge of LIN, LMA Facility FCC License as to which any
petition to deny has been filed and, to LIN's knowledge, there is not now before
the FCC any material investigation, proceeding, notice of violation or order of
forfeiture relating to any LIN Licensed Facility or LIN LMA Facility that, if
adversely determined, could reasonably be expected to have a LIN Material
Adverse Effect, and LIN is not aware of any basis that could reasonably be
expected to cause the FCC not to renew any of the LIN FCC Licenses or the LMA
Facility FCC Licenses (other than proceedings to amend FCC rules or the
Communications Act of general applicability to the television or broadcast
industry). There is not now pending and, to LIN's knowledge, there is not
threatened, any action by or before the FCC to revoke, suspend, cancel, rescind
or modify in any material respect any of the LIN FCC Licenses or, to the
knowledge of LIN, any of the LMA Facility FCC Licenses that, if adversely
determined, could reasonably be expected to have a LIN Material Adverse Effect
(other than proceedings to amend FCC rules or the Communications Act of general
applicability to the television or broadcast industry).
2.10 Brokers. Except with respect to Hicks, Muse & Co. Partners, L.P. ("Hicks
Muse") and Greenhill & Co., LLC ("Greenhill"), all negotiations relating to this
Agreement and the transactions contemplated hereby have been carried out by LIN
directly with Chancellor without the intervention of any person on behalf of LIN
in such a manner as to give rise to any valid claim by any person against LIN,
Chancellor, the Surviving Corporation or any subsidiary of any of them for a
finder's fee, brokerage commission, or similar payment. The LIN Disclosure
Letter sets forth a written summary of the terms of its agreement relating to
the transactions contemplated by this Agreement with Greenhill and Section
6.3(f) of this Agreement sets forth a summary of the terms of its agreement
relating to the transactions contemplated by this Agreement with Hicks Muse, and
LIN has no other agreements or understandings (written or oral) with respect to
such services.
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2.11 FCC Qualification. LIN and its subsidiaries are fully qualified under the
Communications Act to be the transferors of control of the LIN FCC Licenses.
Except as disclosed in the LIN Disclosure Letter, LIN is not aware of any facts
or circumstances relating to the FCC qualifications of LIN or any of its
subsidiaries that would prevent the FCC's granting the FCC Form 315 Transfer of
Control Application to be filed with respect to the Merger.
2.12 Compliance With Applicable Laws. Each of LIN and its subsidiaries has in
effect all federal, state, local and foreign governmental approvals,
authorizations, certificates, filings, franchises, licenses, notices, permits
and rights (collectively, "Permits") necessary for it to own, lease or operate
its properties and assets and to carry on its business as now conducted, other
than such Permits the absence of which could not, individually or in the
aggregate, reasonably be expected to have a LIN Material Adverse Effect, and
there has occurred no default under any such Permit other than such defaults
which, individually or in the aggregate, could not reasonably be expected to
have a LIN Material Adverse Effect. Except as disclosed in the LIN Disclosure
Letter, LIN and its subsidiaries are in compliance with all applicable statutes,
laws, ordinances, rules orders and regulations of any Governmental Entity,
except for such noncompliance which individually or in the aggregate could not
reasonably be expected to have a LIN Material Adverse Effect.
2.13 Absence of Undisclosed Liabilities. Except for (x) liabilities disclosed
in the LIN SEC Document, (y) current liabilities incurred by LIN Holdings and
its subsidiaries in the ordinary course of business consistent with past
practices since the date of the most recent consolidated balance sheet of LIN
Holdings set forth in the LIN SEC Document and (z) liabilities contemplated by
this Agreement or disclosed in the LIN Disclosure Letter, LIN and its
subsidiaries do not have any material indebtedness, obligations or liabilities
of any kind (whether accrued, absolute, contingent or otherwise) (i) required by
GAAP to be reflected on a consolidated balance sheet of LIN and its consolidated
subsidiaries or in the notes, exhibits or schedules thereto or (ii) which
reasonably could be expected to have a LIN Material Adverse Effect.
2.14 Litigation. Except as disclosed in the LIN SEC Document or the LIN
Disclosure Letter, to the date of this Agreement, there is no litigation,
administrative action, arbitration or other proceeding pending against LIN or
any of its subsidiaries or, to the knowledge of LIN, threatened that,
individually or in the aggregate, could reasonably be expected to (i) have a LIN
Material Adverse Effect or (ii) prevent, or significantly delay the consummation
of the transactions contemplated by this Agreement. Except as set forth in the
LIN Disclosure Letter, to the date of this Agreement, there is no judgment,
order, injunction or decree of any Governmental Entity outstanding against LIN
or any of its subsidiaries that, individually or in the aggregate, could
reasonably be expected to have any effect referred to in the foregoing clauses
(i) and (ii) of this Section 2.14.
2.15 Transactions With Affiliates. Other than the transactions contemplated by
this Agreement, or except to the extent disclosed in the LIN SEC Document or in
the LIN Disclosure Letter, there have been no transactions, agreements,
arrangements or understandings between LIN or its subsidiaries, on the one hand,
and LIN's affiliates (other than subsidiaries of LIN) or any other person, on
the other hand, that would be required to be disclosed under Item 404 of
Regulation S-K under the Securities Act.
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2.16 Labor Matters. Except as set forth in the LIN Disclosure Letter or in the
LIN SEC Document, (i) neither LIN nor any of its subsidiaries is a party to any
labor or collective bargaining agreement, and no employees of LIN or any of its
subsidiaries are represented by any labor organization, (ii) to the knowledge of
LIN, there are no material representation or certification proceedings, or
petitions seeking a representation proceeding, pending or threatened to be
brought or filed with the National Labor Relations Board or any other labor
relations tribunal or authority and (iii) to the knowledge of LIN, there are no
material organizing activities involving LIN or any of its subsidiaries with
respect to any group of employees of LIN or its subsidiaries.
2.17 Employee Arrangements and Benefit Plans. (a) The LIN Disclosure Letter
sets forth a complete and correct list of (i) all LIN Benefit Plans, including
all employee benefit plans within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and (ii) all
written employment, severance, termination, change-in-control, or
indemnification agreements (collectively, the "Employment Arrangements"), in
each case under which LIN or any of its subsidiaries has any obligation or
liability (contingent or otherwise), except for on-air agreements entered into
in the ordinary course of business consistent with past practices and any
Employment Arrangement which provides for annual compensation (excluding
benefits) of $150,000 or less or has an unexpired term of and can be terminated
(before, on or after a change in control) in less than one year from the date
hereof without additional cost or penalty. Except as set forth in the LIN SEC
Document or in the LIN Disclosure Letter and except as could not, individually
or in the aggregate, reasonably be expected to have a LIN Material Adverse
Effect: (A) each LIN Benefit Plan has been administered and is in compliance
with the terms of such plan and all applicable laws, rules and regulations, (B)
no "reportable event" (as such term is used in section 4043 of ERISA) (other
than those events for which the 30 day notice has been waived pursuant to the
regulations), "prohibited transaction" (as such term is used in section 406 of
ERISA or section 4975 of the Code) or "accumulated funding deficiency" (as such
term is used in section 412 or 4971 of the Code) has heretofore occurred with
respect to any LIN Benefit Plan and (C) each LIN Benefit Plan intended to
qualify under Section 401(a) of the Code has received a favorable determination
from the United States Internal Revenue Service ("IRS") regarding its qualified
status and no notice has been received from the IRS with respect to the
revocation of such qualification.
(b) To the date of this Agreement, there is no litigation or administrative or
other proceeding involving any LIN Benefit Plan or Employment Arrangement nor
has LIN or any of its subsidiaries received written notice that any such
proceeding is threatened, in each case where an adverse determination could
reasonably be expected to have a LIN Material Adverse Effect. Except as set
forth in the LIN Disclosure Letter, neither LIN nor any of its subsidiaries has
contributed to any "multiemployer plan" (within the meaning of section 3(37) of
ERISA) and neither LIN nor any of its subsidiaries has incurred, nor, to the
best of LIN's knowledge, is reasonably likely to incur any withdrawal liability
which remains unsatisfied in an amount which could reasonably be expected to
have a LIN Material Adverse Effect. The termination of, or withdrawal from, any
LIN Benefit Plan or multiemployer plan to which LIN or its subsidiaries
contributes, on or prior to the Closing Date, will not subject LIN or any of its
subsidiaries to any liability under Title IV of ERISA that could reasonably be
expected to have a LIN Material Adverse Effect.
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2.18 Tax Matters. Except as set forth in the LIN Disclosure Letter, (A) LIN and
each of its subsidiaries have timely filed with the appropriate taxing
authorities all material Tax Returns (as defined below) required to be filed
through the date hereof and will timely file any such material Tax Returns
required to be filed on or prior to the Closing Date (except those under valid
extension) and all such Tax Returns are and will be true and correct in all
material respects, (B) all Taxes (as defined below) of LIN and each of its
subsidiaries shown to be due on the Tax Returns described in (A) above have been
or will be timely paid or adequately reserved for in accordance with GAAP
(except to the extent that such Taxes are being contested in good faith), (C) no
material deficiencies for any Taxes have been proposed, asserted or assessed
against LIN or any of its subsidiaries that have not been fully paid or
adequately provided for in the appropriate financial statements of LIN and its
subsidiaries, and no power of attorney with respect to any Taxes has been
executed or filed with any taxing authority and no material issues relating to
Taxes have been raised in writing by any governmental authority during any
presently pending audit or examination, (D) LIN and its subsidiaries are not now
subject to audit by any taxing authority and no waivers of statutes of
limitation with respect to the Tax Returns have been given by or requested in
writing from LIN or any of its subsidiaries, (E) there are no material liens for
Taxes (other than for Taxes not yet due and payable) on any assets of LIN or any
of its subsidiaries, (F) neither LIN nor any of its subsidiaries is a party to
or bound by (nor will any of them become a party to or bound by) any tax
indemnity, tax sharing, tax allocation agreement, or similar agreement,
arrangement or practice with respect to Taxes, (G) neither LIN nor any of its
subsidiaries has ever been a member of an affiliated group of corporations
within the meaning of Section 1504 of the Code, other than the affiliated group
of which LIN is the common parent, (H) neither LIN nor any of its subsidiaries
has filed a consent pursuant to the collapsible corporation provisions of
Section 341(f) of the Code (or any corresponding provision of state or local
law) or agreed to have Section 341(f)(2) of the Code (or any corresponding
provisions of state or local law) apply to any disposition of any asset owned by
LIN or any of its subsidiaries, as the case may be, (l) neither LIN nor any of
its subsidiaries has agreed to make, nor is any required to make, any adjustment
under Section 481(a) of the Code or any similar provision of state, local or
foreign law by reason of a change in accounting method or otherwise, (J) LIN and
its subsidiaries have complied in all material respects with all applicable
laws, rules and regulations relating to withholding of Taxes and (K) no property
owned by LIN or any of its subsidiaries (i) is property required to be treated
as being owned by another person pursuant to the provisions of Section 168(f)(8)
of the Internal Revenue Code of 1954, as amended and in effect immediately prior
to the enactment of the Tax Reform Act of 1986; (ii) constitutes "tax exempt use
property" within the meaning of Section 168(h)(l) of the Code; or (iii) is tax
exempt bond financed property within the meaning of Section 168(g) of the Code.
As used in this Agreement, "Tax Return" shall mean any return, report, claim for
refund, estimate, information return or statement or other similar document
relating to or required to be filed with any governmental authority with respect
to Taxes, including any schedule or attachment thereto, and including any
amendment thereof. As used in this Agreement, "Taxes" shall mean taxes of any
kind, including but not limited to those measured by or referred to as income,
gross receipts, sales, use, ad valorem, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
value added, property or windfall profits taxes, customs, duties or similar
fees, assessments or
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charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any governmental authority,
domestic or foreign.
2.19 Intellectual Property. Except as set forth in the LIN Disclosure Letter
and except to the extent that the inaccuracy of any of the following (or the
circumstances giving rise to such inaccuracy), individually or in the aggregate,
could not reasonably be expected to have a LIN Material Adverse Effect: (a) LIN
and each of its subsidiaries owns, or is licensed to use (in each case, free and
clear of any Liens), all Intellectual Property (as defined below) used in or
necessary for the conduct of its business as currently conducted; (b) the use of
any Intellectual Property by LIN and its subsidiaries does not infringe on or
otherwise violate the rights of any person and is in accordance with any
applicable license pursuant to which LIN or any subsidiary acquired the right to
use any Intellectual Property; (c) to the knowledge of LIN, no person is
challenging, infringing on or otherwise violating any right of LIN or any of its
subsidiaries with respect to any Intellectual Property owned by and/or licensed
to LIN or its subsidiaries; and (d) neither LIN nor any of its subsidiaries has
received any written notice of any pending claim with respect to any
Intellectual Property used by LIN and its subsidiaries and to its knowledge no
Intellectual Property owned and/or licensed by LIN or its subsidiaries is being
used or enforced in a manner that would result in the abandonment, cancellation
or unenforceability of such Intellectual Property.
For purposes of this Agreement, "Intellectual Property" shall mean trademarks,
service marks, brand names and other indications of origin, the goodwill
associated with the foregoing and registrations in any jurisdiction of, and
applications in any jurisdiction to register, the foregoing, including any
extension, modification or renewal of any such registration or application;
inventions, discoveries and ideas, whether patentable or not, in any
jurisdiction; patents, applications for patents (including, without limitation,
divisions, continuations, continuations in part and renewal applications), and
any renewals, extensions or reissues thereof, in any jurisdiction; nonpublic
information, trade secrets and confidential information and rights in any
jurisdiction to limit the use or disclosure thereof by any person; writings and
other works, whether copyrightable or not, in any jurisdiction; registrations or
applications for registration of copyrights in any jurisdiction, and any
renewals or extensions thereof; any similar intellectual property or proprietary
rights; and any claims or causes of action arising out of or relating to any
infringement or misappropriation of any of the foregoing.
2.20 Environmental Matters. Except as disclosed in the LIN SEC Document or in
the LIN Disclosure Letter and except as could not reasonably be expected to have
a LIN Material Adverse Effect: (i) the operations of LIN and its subsidiaries
have been and are in compliance with all Environmental Laws (as defined below)
and with all Permits required by Environmental Laws, (ii) to the date of this
Agreement, there are no pending or, to the knowledge of LIN, threatened,
actions, suits, claims, investigations or other proceedings (collectively,
"Actions") under or pursuant to Environmental Laws against LIN or its
subsidiaries or involving any real property currently or, to the knowledge of
LIN, formerly owned, operated or leased by LIN or its subsidiaries, (iii) LIN
and its subsidiaries are not subject to any Environmental Liabilities (as
defined below), and, to the knowledge of LIN, no facts, circumstances or
conditions relating to, arising from, associated with or attributable to any
real property currently or, to the knowledge of LIN, formerly owned, operated or
leased by LIN or its subsidiaries or operations thereon that
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could reasonably be expected to result in Environmental Liabilities, (iv) all
real property owned and to the knowledge of LIN all real property operated or
leased by LIN or its subsidiaries is free of contamination from Hazardous
Material (as defined below) and (v) there is not now, nor, to the knowledge of
LIN, has there been in the past, on, in or under any real property owned, leased
or operated by LIN or any of its predecessors (a) any underground storage tanks,
above-ground storage tanks, dikes or impoundments containing Hazardous
Materials, (b) any asbestos-containing materials, (c) any polychlorinated
biphenyls, or (d) any radioactive substances.
As used in this Agreement, "Environmental Laws" means any and all federal,
state, local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decisions, injunctions, orders, decrees, requirements of any
Governmental Entity, any and all common law requirements, rules and bases of
liability regulating, relating to or imposing liability or standards of conduct
concerning pollution, Hazardous Materials or protection of human health or the
environment, as currently in effect and includes, but is not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
42 U.S.C. sec. 9601 et seq., the Hazardous Materials Transportation Act 49
U.S.C. sec. 1801 et seq., the Resource Conservation and Recovery Act ("RCRA"),
42 U.S.C. sec. 6901 et seq., the Clean Water Act, 33 U.S.C. sec. 1251 et seq.,
the Clean Air Act, 33 U.S.C. sec. 2601 et seq., the Toxic Substances Control
Act, 15 U.S.C. sec. 2601 et seq., the Federal Insecticide, Fungicide and
Rodenticide Act, 7 U.S.C., sec. 136 et seq., and the Oil Pollution Act of 1990,
33 U.S.C. sec. 2701 et seq., as such laws have been amended or supplemented, and
the regulations promulgated pursuant thereto, and all analogous state or local
statutes. As used in this Agreement, "Environmental Liabilities" with respect to
any person means any and all liabilities of or relating to such person or any of
its subsidiaries (including any entity which is, in whole or in part, a
predecessor of such person or any of such subsidiaries), whether vested or
unvested, contingent or fixed, actual or potential, known or unknown, which (i)
arise under or relate to matters covered by Environmental Laws and (ii) relate
to actions occurring or conditions existing on or prior to the Closing Date. As
used in this Agreement, "Hazardous Materials" means any hazardous or toxic
substances, materials or wastes, defined, listed, classified or regulated as
such in or under any Environmental Laws which includes, but is not limited to,
petroleum, petroleum products, friable asbestos, urea formaldehyde and
polychlorinated biphenyls.
2.21 Material Agreements. (a) Except as disclosed in the LIN Disclosure Letter,
from and after the date of filing of the LIN SEC Document, to the date of this
Agreement, neither LIN nor any of its subsidiaries has entered into any
contract, agreement or other document or instrument (other than this Agreement)
that would be required to be filed with the SEC or any material amendment,
modification or waiver under any contract, agreement or other document or
instrument (other than any such amendments, modifications or waivers entered
into following the date of this Agreement in connection with the transactions
contemplated hereby) that was previously filed with the SEC or would be required
to be so filed.
(b) Except as filed as an exhibit to the LIN SEC Document or as set forth in the
LIN Disclosure Letter, to the date of this Agreement, neither LIN nor any of its
subsidiaries is a party to or has entered into or made any material amendment or
modification to or granted any material waiver under the following
(collectively, the "Material Agreements"): (A) any network affiliation agreement
for any LIN Licensed Facility or LIN LMA
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Facility (a "Network Affiliation Agreement"), (B) any material sports
broadcasting agreement (a "Sports Agreement"), (C) any main transmitter site or
main studio lease for any LIN Licensed Facility or LIN LMA Facility, (D) any
agreement pursuant to which LIN agrees to provide programming to a LIN LMA
Facility, or pursuant to which LIN has either a contingent programming
obligation or the right to purchase the assets of a LIN LMA Facility or any
shares of capital stock of any corporation holding any assets relating to a LIN
LMA Facility (an "LMA Agreement"), or (E) any partnership or joint venture
agreement obligating LIN to contribute cash in excess of $200,000 per year.
(c) Each of the Material Agreements is valid and enforceable against LIN in
accordance with its terms, and there is no default under any Material Agreements
either by LIN or any of its subsidiaries which is a party to such Material
Agreements or, to the knowledge of LIN, by any other party thereto, and no event
has occurred that with the lapse of time or the giving of notice or both would
constitute a default thereunder by LIN or, to the knowledge of LIN, any other
party thereto, in any such case in which such default or event could reasonably
be expected to have a LIN Material Adverse Effect. In addition, neither LIN nor
any subsidiary of LIN is in material breach of any Network Affiliation
Agreement, Sports Agreement or LMA Agreement (including any breach which would
give rise to a right to terminate any such agreement). To the date of this
Agreement, neither LIN nor any subsidiary of LIN has received any written notice
(or to the knowledge of LIN any other notice) of default or termination under
any Material Agreement, and to the knowledge of LIN, there exists no basis for
any assertion of a right of default or termination under such agreements. To the
date of this Agreement, neither LIN nor any subsidiary of LIN has received any
written notice (or to the knowledge of LIN any other notice) of the exercise of
a put option or other right pursuant to which LIN or any of its subsidiaries
would be obligated to purchase capital stock or assets relating to any LIN LMA
Facility.
2.22 Tangible Property. All of the assets of LIN and its Significant
Subsidiaries are in good operating condition, reasonable wear and tear excepted,
and usable in the ordinary course of business, except where the failure to be in
such condition or so usable could not, individually or in the aggregate,
reasonably be expected to have a LIN Material Adverse Effect.
2.23 NBC Station Venture. To the knowledge of LIN, except as disclosed in the
LIN SEC Document, since the date of the most recent financial statements of LIN
Holdings contained in the LIN SEC Document, there has been no material adverse
change in the business, properties, results of operations, or condition
(financial or otherwise) of Station Venture Holdings, LLC (a minority equity
investment of one of LIN's subsidiaries) and its subsidiaries, taken as a whole,
that could reasonably be expected to have a LIN Material Adverse Effect.
2.24 No Other Representations and Warranties. Except for the representations
and warranties made by LIN as expressly set forth in this Agreement or in any
certificate or document delivered pursuant this Agreement, neither LIN nor any
of its affiliates has made and shall not be construed as having made to
Chancellor or to any affiliate thereof any representation or warranty of any
kind.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CHANCELLOR
Chancellor represents and warrants to LIN as follows:
3.1 Organization, Standing and Corporate Power. Each of Chancellor and the
Chancellor Significant Subsidiaries (as defined below) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated and has the requisite corporate power
and authority to carry on its business as now being conducted. Each of
Chancellor and the Chancellor Significant Subsidiaries is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except where the failure to be so qualified could not reasonably be
expected to have a material adverse effect on the business, properties, results
of operations, or condition (financial or otherwise) of Chancellor and its
subsidiaries, considered as a whole (other than as a result of changes in
general economic conditions or in economic conditions generally affecting the
radio broadcasting industry) (a "Chancellor Material Adverse Effect").
Chancellor has delivered to LIN complete and correct copies of its Certificate
of Incorporation and Bylaws, as amended to the date of this Agreement. For
purposes of this Agreement, a "Chancellor Significant Subsidiary" means any
subsidiary of Chancellor that would constitute a "significant subsidiary" within
the meaning of Rule 1-02 of Regulation S-X of the SEC.
3.2 Capital Structure. The authorized capital stock of Chancellor consists of
(i) 75,000,000 shares of Chancellor Class A Common Stock, none of which are
issued and outstanding, (ii) 200,000,000 shares of Chancellor Common Stock and
(iii) 50,000,000 shares of preferred stock, $0.01 par value, of which (x)
2,200,000 shares have been designated as 7% Convertible Preferred Stock and (y)
6,000,000 shares have been designated as $3.00 Convertible Exchangeable
Preferred Stock. At the close of business on July 6, 1998: (i) 142,288,959
shares of Chancellor Common Stock were issued and outstanding, 14,160,810 shares
of Chancellor Common Stock were reserved for issuance pursuant to outstanding
options or warrants to purchase Chancellor Common Stock which have been granted
to directors, officers or employees of Chancellor or others ("Chancellor Stock
Options"), 18,059,088 shares of Chancellor Common Stock were reserved for
issuance upon the conversion of the Chancellor Convertible Preferred Stock, and
no shares of Chancellor Common Stock were held as treasury shares by Chancellor
or any subsidiary of Chancellor; (ii) 2,200,000 shares of Chancellor 7%
Convertible Preferred Stock were issued and outstanding; (iii) 6,000,000 shares
of Chancellor $3.00 Convertible Preferred Stock were issued and outstanding; and
(iv) no shares of Chancellor Convertible Preferred Stock were held as treasury
shares by Chancellor or any subsidiary of Chancellor. Except as set forth above,
at the close of business on July 6, 1998, no shares of capital stock or other
equity securities of Chancellor were authorized, issued, reserved for issuance
or outstanding. All outstanding shares of capital stock of Chancellor are, and
all shares which may be issued pursuant to Chancellor's stock option plans, as
amended to the date hereof (the "Chancellor Stock Option Plans"), or upon the
exercise of outstanding Chancellor Stock Options or upon the conversion of
outstanding shares of Chancellor Convertible Preferred Stock will be, when
issued, duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights. No bonds, debentures, notes or other indebtedness
of Chancellor or any subsidiary of Chancellor having the right to vote (or
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convertible into, or exchangeable for, securities having the right to vote) on
any matters on which the stockholders of Chancellor or any subsidiary of
Chancellor may vote are issued or outstanding. All the outstanding shares of
capital stock of each subsidiary of Chancellor have been validly issued and are
fully paid and nonassessable and (except for the shares of 12 1/4% Series A
Senior Cumulative Exchangeable Preferred Stock, $0.01 par value, of Chancellor
Media Corporation of Los Angeles, a Delaware corporation (the "Chancellor
Operating Subsidiary")), are owned by Chancellor, by one or more wholly-owned
subsidiaries of Chancellor or by Chancellor and one or more such wholly-owned
subsidiaries, free and clear of all Liens, except for Liens arising out of the
senior credit facility of Chancellor Operating Subsidiary and those that,
individually or in the aggregate, could not reasonably be expected to have a
Chancellor Material Adverse Effect. Except as set forth above and in the
Chancellor Stockholders Agreement (as defined in Section 6.2(d)) (which
restricts the transfer of shares of Chancellor Common Stock by the parties to
the Chancellor Stockholders Agreement in certain circumstances), and except for
certain provisions of the Certificate of Incorporation of Chancellor relating to
"alien ownership" of the Chancellor Common Stock, neither Chancellor nor any
subsidiary of Chancellor has any outstanding option, warrant, subscription or
other right, agreement or commitment that either (i) obligates Chancellor or any
subsidiary of Chancellor to issue, sell or transfer, repurchase, redeem or
otherwise acquire or vote any shares of the capital stock of Chancellor or any
Chancellor Significant Subsidiary or (ii) restricts the transfer of Chancellor
Common Stock. Since the close of business on July 6, 1998 to the date hereof,
neither Chancellor nor any subsidiary of Chancellor has issued any capital stock
or securities or other rights convertible into or exercisable or exchangeable
for shares of such capital stock, other than shares of Chancellor Common Stock
issued upon the exercise of Chancellor Stock Options outstanding on July 6, 1998
or upon the conversion of shares of Chancellor Convertible Preferred Stock
outstanding on July 6, 1998.
3.3 Authority; Noncontravention. Chancellor has the requisite corporate power
and authority to enter into this Agreement and, subject to the approval of its
stockholders as set forth in Section 4.2(b) with respect to the approval of this
Agreement and the consummation of the Merger and the issuance of shares of
Chancellor Common Stock therein (the "Chancellor Stockholders Approval"), to
consummate the transactions contemplated by this Agreement. The execution and
delivery of this Agreement by Chancellor and the consummation by Chancellor of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Chancellor, subject, in the case of the Merger
and the issuance of shares of Chancellor Common Stock therein, the Chancellor
Stockholders Approval. This Agreement has been duly executed and delivered by
Chancellor and, assuming this Agreement constitutes the valid and binding
agreement of each of the other parties hereto, constitutes a valid and binding
obligation of Chancellor, enforceable against it in accordance with its terms
except that the enforcement thereof may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect relating to creditor's rights generally and (b) general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity). The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and compliance
with the provisions hereof will not, (i) conflict with any of the provisions of
the Certificate of Incorporation or Bylaws of Chancellor or the comparable
documents of any subsidiary of Chancellor, (ii) subject to the governmental
filings and other matters referred to in the following sentence, conflict with,
result in a breach of or default (with or without notice or
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lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a material benefit
under, or require the consent of any person under, any indenture or other
agreement, permit, concession, franchise, license or similar instrument or
undertaking to which Chancellor or any of its subsidiaries is a party or by
which Chancellor or any of its subsidiaries or any of their assets is bound or
affected, (iii) result in an obligation by Chancellor or any of its subsidiaries
to redeem, repurchase or retire (or offer to redeem, repurchase or retire) any
indebtedness of Chancellor or any of its subsidiaries outstanding as of the date
hereof or equity security of Chancellor or any of its subsidiaries outstanding
as of the date hereof, or (iv) subject to the governmental filings and other
matters referred to in the following sentence, contravene any law, rule or
regulation of any state or of the United States or any political subdivision
thereof or therein, or any order, writ, judgment, injunction, decree,
determination or award currently in effect, except, in the cases of the
foregoing clauses (ii) through (iv), for breaches that, individually or in the
aggregate, could not reasonably be expected to have a Chancellor Material
Adverse Effect or to materially hinder Chancellor's ability to consummate the
transactions contemplated by this Agreement. No consent, approval or
authorization of, or declaration or filing with, or notice to, any Governmental
Entity which has not been received or made, is required by or with respect to
Chancellor or any of its subsidiaries in connection with the execution and
delivery of this Agreement by Chancellor or the consummation by Chancellor of
the transactions contemplated hereby, except for (i) the filing of premerger
notification and report forms under the HSR Act with respect to the Merger and
the termination or earlier expiration of the applicable waiting period
thereunder, (ii) such filings with and approvals required by the FCC under the
Communications Act, including those required in connection with the acquisition
of control of the LIN FCC Licenses for the operation of the LIN Licensed
Facilities, (iii) the filing of a registration statement under the Securities
Act with respect to the issuance of shares of Chancellor Common Stock in the
Merger, (iv) a proxy statement to be filed with the SEC by Chancellor relating
to the Chancellor Stockholders Approval (such proxy statement, as amended or
supplemented from time to time, the "Proxy Statement/ Prospectus"), (v) any
filing required by the Nasdaq Stock Market with respect to the issuance of
shares of Chancellor Common Stock in the Merger and upon exercise of Assumed
Stock Options (as defined in Section 5.2(a)), (vi) the filing of such reports
under the Exchange Act as may be required in connection with this Agreement and
the transactions contemplated by this Agreement, (vii) such filings and consents
as may be required under any environmental, health or safety law or regulation
pertaining to any notification, disclosure or required approval triggered by the
Merger or the other transactions contemplated by this Agreement, and (viii) such
filings as may be required in connection with statutory provisions and
regulations relating to real property transfer gains taxes and real property
transfer taxes.
3.4 Chancellor SEC Documents. (i) Chancellor and its predecessors have filed
all required reports, schedules, forms, statements and other documents with the
SEC since January 1, 1995 (such reports, schedules, forms, statements and other
documents and any other documents filed with the SEC and publicly available
prior to the date of this Agreement are hereinafter referred to as the
"Chancellor SEC Documents"); (ii) as of their respective dates, the Chancellor
SEC Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Chancellor SEC
Documents, and none of the Chancellor SEC Documents as of such dates
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contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and (iii) as of their respective dates, the consolidated financial
statements of Chancellor and its predecessors included in the SEC Documents
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto or, in the case of unaudited statements,
as permitted by Rule 10-01 of Regulation S-X) and fairly present, in all
material respects, the consolidated financial position of Chancellor and its
consolidated subsidiaries (or its predecessors and their respective consolidated
subsidiaries) as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (on the basis stated
therein and subject, in the case of unaudited quarterly statements, to normal
year-end audit adjustments).
3.5 Absence of Certain Changes or Events. Except as disclosed in the Chancellor
SEC Documents or except as disclosed in writing by Chancellor to LIN in a
disclosure letter (the "Chancellor Disclosure Letter") prior to the execution
and delivery of the Agreement, or as otherwise agreed to in writing after the
date hereof by LIN, or as expressly permitted by this Agreement, since the date
of the most recent audited financial statements included in the Chancellor SEC
Documents, Chancellor and its subsidiaries have conducted their business only in
the ordinary course, and there has not been (i) any change which could
reasonably be expected to have a Chancellor Material Adverse Effect (including
as a result of the consummation of the transactions contemplated by this
Agreement), (ii) any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with respect to any of
Chancellor's currently outstanding capital stock (other than the payment of
regular cash dividends on the Chancellor 7% Convertible Preferred Stock and
Chancellor $3.00 Convertible Preferred Stock, and other than the payment of
dividends (including accrued dividends) on the 12% Exchangeable Preferred Stock,
$0.01 par value, and 12 1/4% Series A Senior Cumulative Exchangeable Preferred
Stock, $0.01 par value, of Chancellor Operating Subsidiary, in each case in
accordance with usual record and payment dates (other than accrued and unpaid
dividends paid on the 12% Exchangeable Preferred Stock)), (iii) any split,
combination or reclassification of any of its outstanding capital stock or any
issuance or the authorization of any issuance of any other securities in respect
of, in lieu of or in substitution for shares of its outstanding capital stock,
(iv) (x) any granting by Chancellor or any of its subsidiaries to any director,
officer or other employee or independent contractor of Chancellor or any of its
subsidiaries of any increase in compensation or acceleration of benefits, except
in the ordinary course of business consistent with prior practice or as was
required under employment agreements in effect as of the date of the most recent
audited financial statements included in the Chancellor SEC Documents, (y) any
granting by Chancellor or any of its subsidiaries to any director, officer or
other employee or independent contractor of any increase in, or acceleration of
benefits in respect of, severance or termination pay, or pay in connection with
any change of control of Chancellor, except in the ordinary course of business
consistent with prior practice or as was required under any employment,
severance or termination agreements in effect as of the date of the most recent
audited financial statements included in the Chancellor SEC Documents or (z) any
entry by Chancellor or any of its subsidiaries into any employment,
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severance, change of control, or termination or similar agreement with any
director, executive officer or other employee or independent contractor other
than in the ordinary course of business consistent with past practices, or (v)
any change in accounting methods, principles or practices by Chancellor or any
of its subsidiaries materially affecting its assets, liability or business,
except insofar as may have been required by a change in generally accepted
accounting principles.
3.6 No Extraordinary Payments or Change in Benefits. Except as disclosed in the
Chancellor Disclosure Letter, no current or former director, officer, employee
or independent contractor of Chancellor or any of its subsidiaries is entitled
to receive any payment under any agreement, arrangement or policy (written or
oral) relating to employment, severance, change of control, termination, stock
options, stock purchases, compensation, deferred compensation, fringe benefits
or other employee benefits currently in effect (collectively, the "Chancellor
Benefit Plans"), nor will any benefit received or to be received by any current
or former director, officer, employee or independent contractor of Chancellor or
any of its subsidiaries under any Chancellor Benefit Plan be accelerated or
modified, as a result of or in connection with the execution and delivery of, or
the consummation of the transactions contemplated by, this Agreement.
3.7 Brokers. Except with respect to Morgan Stanley & Co. Incorporated ("Morgan
Stanley") and Wasserstein Perella & Co. ("Wasserstein"), all negotiations
relating to this Agreement and the transactions contemplated hereby have been
carried out by Chancellor directly with LIN without the intervention of any
person on behalf of Chancellor in such a manner as to give rise to any valid
claim by any person against Chancellor, LIN, the Surviving Corporation or any
subsidiary of any of them for a finder's fee, brokerage commission, or similar
payment. The Chancellor Disclosure Letter sets forth a written summary of the
terms of its agreements relating to the transactions contemplated by this
Agreement with Morgan Stanley and Wasserstein, and Chancellor has no other
agreements or understandings (written or oral) with respect to such services.
3.8 Opinion of Financial Advisor. Chancellor has received the opinion of
Wasserstein, dated the date hereof, to the effect that, as of such date, the
Exchange Ratio is fair, from a financial point of view, to Chancellor and the
holders of Chancellor Common Stock.
3.9 Absence of Undisclosed Liabilities. Except as disclosed in the Chancellor
SEC Documents and except for liabilities contemplated by this Agreement or
disclosed in the Chancellor Disclosure Letter, Chancellor and its subsidiaries
do not have any material indebtedness, obligations or liabilities of any kind
(whether accrued, absolute, contingent or otherwise) (i) required by GAAP to be
reflected on a consolidated balance sheet of Chancellor and its consolidated
subsidiaries or in the notes, exhibits or schedules thereto or (ii) which
reasonably could be expected to have a Chancellor Material Adverse Effect.
3.10 Litigation. Except as disclosed in the Chancellor SEC Documents, to the
date of this Agreement, there is no litigation, administrative action,
arbitration or other proceeding pending against Chancellor or any of its
subsidiaries or, to the knowledge of Chancellor, threatened that, individually
or in the aggregate, could reasonably be expected to (i) have a Chancellor
Material Adverse Effect or (ii) prevent, or significantly delay the consummation
of the transactions contemplated by this Agreement. Except as set forth in the
Chancellor SEC Documents, to the date of this Agreement, there is no judgment,
order, injunction or decree of any Governmental Entity outstanding against
Chancellor or
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any of its subsidiaries that, individually or in the aggregate, could reasonably
be expected to have any effect referred to in the foregoing clauses (i) and (ii)
of this Section 3.10.
3.11 Transactions with Affiliates. Other than the transactions contemplated by
this Agreement or except to the extent disclosed in the Chancellor SEC Documents
or in the Chancellor Disclosure Letter, there have been no transactions,
agreements, arrangements or understandings between Chancellor or its
subsidiaries, on the one hand, and Chancellor's affiliates (other than
subsidiaries of Chancellor) or any other person, on the other hand, that would
be required to be disclosed under Item 404 of Regulation S-K under the
Securities Act.
3.12 Chancellor Common Stock. The shares of Chancellor Common Stock to be
issued in the Merger will be, upon delivery against receipt of the shares of LIN
Common Stock for which such shares will be issued in accordance with Section 1.8
of this Agreement, duly authorized, validly issued, fully paid and
nonassessable. The shares of Chancellor Common Stock to be issued upon exercise
of the Assumed Stock Options (as defined in Section 5.2(a)) will be, upon
delivery of the exercise price therefor in accordance with the terms of the LIN
Stock Option Plan and agreements pursuant to which such Assumed Stock Options
were issued, duly authorized, validly issued, fully paid and nonassessable.
3.13 Voting Requirements. The affirmative vote of a majority of the outstanding
shares of Chancellor Common Stock entitled to vote with respect to the approval
of the Merger and the issuance of shares of Chancellor Common Stock therein is
the only vote of the holders of any class or series of Chancellor's capital
stock necessary to approve this Agreement and the transactions contemplated by
this Agreement.
3.14 FCC Qualification. Chancellor and its subsidiaries are fully qualified
under the Communications Act to be the transferees of control of the LIN FCC
Licenses. Except as disclosed in the Chancellor Disclosure Letter, Chancellor is
not aware of any facts or circumstances relating to the FCC qualifications of
Chancellor or any of its subsidiaries that would prevent the FCC's granting the
FCC Form 315 Transfer of Control Application to be filed with respect to the
Merger.
3.15 Employee Arrangements and Benefit Plans. (a) Except as set forth in the
Chancellor SEC Documents or in the Chancellor Disclosure Letter and except as
could not, individually or in the aggregate, reasonably be expected to have a
Chancellor Material Adverse Effect: (A) each Chancellor Benefit Plan has been
administered and is in compliance with the terms of such plan and all applicable
laws, rules and regulations, (B) no "reportable event" (as such term is used in
section 4043 of ERISA) (other than those events for which the 30 day notice has
been waived pursuant to the regulations), "prohibited transaction" (as such term
is used in section 406 of ERISA or section 4975 of the Code) or "accumulated
funding deficiency" (as such term is used in section 412 or 4971 of the Code)
has heretofore occurred with respect to any Chancellor Benefit Plan and (C) each
Chancellor Benefit Plan intended to qualify under Section 401(a) of the Code has
received a favorable determination from the IRS regarding its qualified status
and no notice has been received from the IRS with respect to the revocation of
such qualification.
(b) To the date of this Agreement, there is no litigation or administrative or
other proceeding involving any Chancellor Benefit Plan nor has Chancellor or its
subsidiaries received written notice that any such proceeding is threatened, in
each case where an
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adverse determination could reasonably be expected to have a Chancellor Material
Adverse Effect. Neither Chancellor nor any of its subsidiaries has incurred,
nor, to the best of Chancellor's knowledge, is reasonably likely to incur any
withdrawal liability with respect to any "multiemployer plan" (within the
meaning of section 3(37) of ERISA) which remains unsatisfied in an amount which
could reasonably be expected to have a Chancellor Material Adverse Effect. The
termination of, or withdrawal from, any Chancellor Benefit Plan or multiemployer
plan to which Chancellor or its subsidiaries contributes, on or prior to the
Closing Date, will not subject Chancellor or any of its subsidiaries to any
liability under Title IV of ERISA that could reasonably be expected to have a
Chancellor Material Adverse Effect.
3.16 Tax Matters. Except as set forth in the Chancellor Disclosure Letter, (A)
Chancellor and each of its subsidiaries have timely filed with the appropriate
taxing authorities all material Tax Returns required to be filed through the
date hereof and will timely file any such material Tax Returns required to be
filed on or prior to the Closing Date (except those under valid extension) and
all such Tax Returns are and will be true and correct in all material respects,
(B) all Taxes of Chancellor and each of its subsidiaries shown to be due on the
Tax Returns described in (A) above have been or will be timely paid or
adequately reserved for in accordance with GAAP (except to the extent that such
Taxes are being contested in good faith), (C) no material deficiencies for any
Taxes have been proposed, asserted or assessed against Chancellor or any of its
subsidiaries that have not been fully paid or adequately provided for in the
appropriate financial statements of Chancellor and its subsidiaries, and no
power of attorney with respect to any Taxes has been executed or filed with any
taxing authority and no material issues relating to Taxes have been raised in
writing by any governmental authority during any presently pending audit or
examination, (D) Chancellor and its subsidiaries are not now subject to audit by
any taxing authority and no waivers of statutes of limitation with respect to
the Tax Returns have been given by or requested in writing from Chancellor or
any of its subsidiaries, (E) there are no material liens for Taxes (other than
for Taxes not yet due and payable) on any assets of Chancellor or any of its
subsidiaries, (F) neither Chancellor nor any of its subsidiaries is a party to
or bound by (nor will any of them become a party to or bound by) any tax
indemnity, tax sharing, tax allocation agreement, or similar agreement,
arrangement or practice with respect to Taxes, (G) neither Chancellor nor any of
its subsidiaries has ever been a member of an affiliated group of corporations
within the meaning of Section 1504 of the Code, other than the affiliated group
of which Chancellor is the common parent, (H) neither Chancellor nor any of its
subsidiaries has filed a consent pursuant to the collapsible corporation
provisions of Section 341(f) of the Code (or any corresponding provision of
state or local law) or agreed to have Section 341(f)(2) of the Code (or any
corresponding provisions of state or local law) apply to any disposition of any
asset owned by Chancellor or any of its subsidiaries, as the case may be, (I)
neither Chancellor nor any of its subsidiaries has agreed to make, nor is any
required to make, any adjustment under Section 481(a) of the Code or any similar
provision of state, local or foreign law by reason of a change in accounting
method or otherwise, (J) Chancellor and its subsidiaries have complied in all
material respects with all applicable laws, rules and regulations relating to
withholding of Taxes and (K) no property owned by Chancellor or any of its
subsidiaries (i) is property required to be treated as being owned by another
person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue
Code of 1954, as amended and in effect immediately prior to the enactment of the
Tax Reform Act of 1986; (ii) constitutes "tax exempt use property" within the
meaning of
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Section 168(h)(l) of the Code; or (iii) is tax exempt bond financed property
within the meaning of Section 168(g) of the Code.
3.17 Intellectual Property. Except as set forth in the Chancellor Disclosure
Letter and except to the extent that the inaccuracy of any of the following (or
the circumstances giving rise to such inaccuracy), individually or in the
aggregate, could not reasonably be expected to have a Chancellor Material
Adverse Effect: (a) Chancellor and each of its subsidiaries owns, or is licensed
to use (in each case, free and clear of any Liens), all Intellectual Property
used in or necessary for the conduct of its business as currently conducted; (b)
the use of any Intellectual Property by Chancellor and its subsidiaries does not
infringe on or otherwise violate the rights of any person and is in accordance
with any applicable license pursuant to which Chancellor or any subsidiary
acquired the right to use any Intellectual Property; and (c) to the knowledge of
Chancellor, no person is challenging, infringing on or otherwise violating any
right of Chancellor or any of its subsidiaries with respect to any Intellectual
Property owned by and/or licensed to Chancellor or its subsidiaries; and (d)
neither Chancellor nor any of its subsidiaries has received any written notice
of any pending claim with respect to any Intellectual Property used by
Chancellor and its subsidiaries and to its knowledge no Intellectual Property
owned and/or licensed by Chancellor or its subsidiaries is being used or
enforced in a manner that would result in the abandonment, cancellation or
unenforceability of such Intellectual Property.
3.18 Environmental Matters. Except as disclosed in the Chancellor SEC Documents
or in the Chancellor Disclosure Letter and except as could not reasonably be
expected to have a Chancellor Material Adverse Effect (i) the operations of
Chancellor and its subsidiaries have been and are in compliance with all
Environmental Laws and with all Permits required by Environmental Laws, (ii) to
the date of this Agreement, there are no pending or, to the knowledge of
Chancellor, threatened, Actions under or pursuant to Environmental Laws against
Chancellor or its subsidiaries or involving any real property currently or, to
the knowledge of Chancellor, formerly owned, operated or leased by Chancellor or
its subsidiaries, (iii) Chancellor and its subsidiaries are not subject to any
Environmental Liabilities, and, to the knowledge of Chancellor, no facts,
circumstances or conditions relating to, arising from, associated with or
attributable to any real property currently or, to the knowledge of Chancellor,
formerly owned, operated or leased by Chancellor or its subsidiaries or
operations thereon that could reasonably be expected to result in Environmental
Liabilities, (iv) all real property owned and to the knowledge of Chancellor all
real property operated or leased by Chancellor or its subsidiaries is free of
contamination from Hazardous Material and (v) there is not now, nor, to the
knowledge of Chancellor, has there been in the past, on, in or under any real
property owned, leased or operated by Chancellor or any of its predecessors (a)
any underground storage tanks, above-ground storage tanks, dikes or impoundments
containing Hazardous Materials, (b) any asbestos-containing materials, (c) any
polychlorinated biphenyls, or (d) any radioactive substances.
3.19 No Other Representations and Warranties. Except for the representations
and warranties made by Chancellor as expressly set forth in this Agreement or in
any certificate or document delivered pursuant this Agreement, neither
Chancellor nor any of its affiliates has made and shall not be construed as
having made to LIN or to any affiliate thereof any representation or warranty of
any kind.
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ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 Preparation of Form S-4 and Proxy Statement/Prospectus; Information
Supplied.
(a) As soon as practicable following the date of this Agreement, Chancellor
shall prepare and file with the SEC (i) a preliminary Proxy Statement/Prospectus
and (ii) a Registration Statement on Form S-4 (the "Form S-4") with respect to
the registration of the issuance of shares of Chancellor Common Stock in the
Merger, of which the Proxy Statement/Prospectus will form a part. Chancellor
shall use its reasonable best efforts to have the Form S-4 declared effective
under the Securities Act as promptly as practicable after such filing.
Chancellor shall use its best efforts to cause the Proxy Statement/ Prospectus
to be mailed to Chancellor's stockholders and LIN's stockholders as promptly as
practicable after the Form S-4 is declared effective under the Securities Act.
Chancellor shall also take any action (other than qualifying to do business in
any jurisdiction in which it is not now so qualified or take any action that
would subject it to the service of process in suits, other than as to matters
and transactions relating to the Form S-4, in any jurisdiction where it is not
so subject) required to be taken under any applicable state securities laws in
connection with the issuance of the Chancellor Common Stock in the Merger and
LIN shall furnish all information concerning itself and the holders of shares of
LIN Common Stock as may be reasonably requested in connection with any such
action.
(b) LIN agrees and represents and warrants that the information supplied or to
be supplied by it specifically for inclusion or incorporation by reference in
the (i) Form S-4 will not, at the time the Form S-4 is filed with the SEC, at
any time it is amended or supplemented or at the time it becomes effective under
the Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading, or (ii) the Proxy Statement/Prospectus will not, at the
date it is first mailed to Chancellor's stockholders or at the time of the
Chancellor Stockholders Meeting (as defined in Section 4.2), contain any
statement which, at the time and in light of the circumstances under which it is
made, is false or misleading with respect to any material fact, or omits to
state any material fact necessary in order to make the statements therein not
false or misleading or necessary to correct any statement in any earlier
communication with respect to the solicitation of a proxy for the same meeting
or subject matter thereof which has become false or misleading.
(c) Chancellor agrees and represents and warrants that the information supplied
or to be supplied by it specifically for inclusion or incorporation by reference
in (i) the Form S-4 will not, at the time the Form S-4 is filed with the SEC, at
any time it is amended or supplemented or at the time it becomes effective under
the Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading, or (ii) the Proxy Statement/Prospectus will not, at the
date it is first mailed to Chancellor's stockholders or at the time of the
Chancellor Stockholders Meeting, contain any statement which, at the time and in
light of the circumstances under which it is made, is false or misleading with
respect to any material fact, or omits to state any material fact necessary in
order to make the statements therein not false or misleading or necessary to
correct any statement in any earlier
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communication with respect to the solicitation of a proxy for the same meeting
or subject matter thereof which has become false or misleading. Chancellor
agrees that the Form S-4 will comply as to form in all material respects with
the requirements of the Securities Act and the rules and regulations promulgated
thereunder and Chancellor agrees that the Proxy Statement/Prospectus will comply
as to form in all material respects with the requirements of the Exchange Act
and the rules and regulations promulgated thereunder, except in each case with
respect to statements made or incorporated by reference in the Form S-4 or the
Proxy Statement/Prospectus supplied by LIN specifically for inclusion or
incorporation by reference therein as to which Chancellor assumes no
responsibility.
4.2 Stockholder Approval. (a) LIN agrees that it will take all action necessary
in accordance with applicable law and its Certificate of Incorporation and
Bylaws to convene a meeting of its common stockholders or obtain the written
consent of its common stockholders for the approval of this Agreement and the
Merger. LIN will use its best efforts to obtain the LIN Stockholders Approval as
soon as practicable after the date hereof. Without limiting the generality of
the foregoing, LIN agrees that its obligations pursuant to the first two
sentences of this Section 4.2(a) shall not be affected by (i) the commencement,
public proposal, public disclosure or communication to Chancellor of any
Acquisition Proposal (as defined in Section 4.5(a) below) or (ii) the withdrawal
or modification by the Board of Directors of LIN of its approval or
recommendation of this Agreement or the Merger. The Board of Directors of LIN
shall recommend to its stockholders that they vote in favor of the adoption of
this Agreement and the Merger.
(b) Chancellor agrees that it will take all action necessary in accordance with
applicable law and its Certificate of Incorporation and Bylaws to convene a
meeting of its stockholders (the "Chancellor Stockholders Meeting") to submit
this Agreement, together with the affirmative recommendation of Chancellor's
Board of Directors, to the Chancellor's stockholders so that they may consider
and vote upon the approval of this Agreement, the Merger and the issuance of
shares of Chancellor Common Stock therein. Chancellor will use its best efforts
to hold the Chancellor Stockholders Meeting as soon as practicable after the
date hereof and to obtain the favorable votes of its stockholders. The Board of
Directors of Chancellor shall recommend to its stockholders that they vote in
favor of the adoption of this Agreement and the Merger.
4.3 Access to Information; Confidentiality. Upon reasonable notice, each of
Chancellor and LIN shall, and shall cause each of its respective subsidiaries
to, afford to the other parties hereto and to their respective officers,
employees, counsel, financial advisors and other representatives reasonable
access during normal business hours during the period prior to the Effective
Time to all its properties, books, contracts, commitments, personnel and records
and, during such period, each of Chancellor and LIN shall, and shall cause each
of its respective subsidiaries to, furnish as promptly as practicable to the
other parties hereto such information concerning its business, properties,
financial condition, operations and personnel as such parties may from time to
time reasonably request. Except as required by law or the rules of regulations
of the Nasdaq Stock Market or any national stock exchange, each of Chancellor
and LIN agree that, until the earlier of (i) two years from the date of this
Agreement and (ii) the Effective Time, each of Chancellor and LIN and their
respective subsidiaries will not, and will cause its respective directors,
officers, partners, employees, agents, accountants, counsel, financial advisors
and other representatives and affiliates (collectively, "Representatives") not
to, disclose any nonpublic
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information obtained from Chancellor or LIN, as the case may be, to any other
person, in whole or in part, other than to its Representatives in connection
with an evaluation of the transactions contemplated by this Agreement, and each
of Chancellor and LIN and their respective subsidiaries will not, and will cause
its respective Representatives not to, use any of such nonpublic information to
directly or indirectly divert or attempt to divert any business, customer or
employee of the other.
4.4 Public Announcements. Chancellor and LIN agree that each of them will
consult with each of the others before issuing, and will provide each other the
opportunity to review and comment upon, any press release or other public
statements with respect to the transactions contemplated by this Agreement,
including the Merger, and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
applicable law, court process or by obligations pursuant to rules of any
national securities exchange or The Nasdaq Stock Market (to the extent
applicable to them).
4.5 Acquisition Proposals. (a) From and after the date hereof, without the
prior written consent of Chancellor, LIN shall not, and shall not authorize or
permit any of its subsidiaries to, and shall direct and use its best efforts to
cause its and its subsidiaries' Representatives not to, (i) directly or
indirectly, solicit, initiate or encourage (including by way of furnishing
information or assistance) or take any other action to facilitate any inquiries
or the making of any proposal which constitutes or may reasonably be expected to
lead to an Acquisition Proposal (as defined below) or (ii) enter into or
participate in any discussions or negotiations regarding any Acquisition
Proposal. LIN shall immediately cease and terminate any existing solicitation,
initiation, encouragement, activity, discussion or negotiation with any persons
conducted heretofore by it or its Representatives with respect to the foregoing.
LIN agrees not to release any third party from, or waive any provision of, any
standstill agreement to which it is a party or any confidentiality agreement
between it and another person who has made, or who may reasonably be considered
likely to make, an Acquisition Proposal. LIN agrees that it will notify
Chancellor orally and in writing, of any such inquiries, offers or proposals
(including, without limitation, the terms and conditions of any such proposal).
(b) Neither the Board of Directors of LIN nor any committee thereof shall (i)
withdraw or modify, or propose to withdraw or modify, in a manner adverse to
Chancellor, the approval or recommendation by such Board of Directors or
committee thereof of this Agreement or the Merger, (ii) approve or recommend, or
propose to approve or recommend, any Acquisition Proposal or (iii) cause LIN to
enter into any letter of intent, agreement in principle, acquisition agreement
or other similar agreement related to any Acquisition Proposal.
(c) For purposes of this Agreement, an "Acquisition Proposal" means any proposal
or offer from any person (other than Chancellor or any of its subsidiaries) for
a tender or exchange offer, merger, consolidation, other business combination,
recapitalization, liquidation, dissolution or similar transaction involving LIN
or any LIN Significant Subsidiary, or any proposal to acquire in any manner a
substantial equity interest in, or an substantial portion of the assets of, LIN
or a LIN Significant Subsidiary; provided that an Acquisition Proposal shall not
include any direct or indirect acquisition or disposition of television
broadcast stations (or the assets thereof) disclosed in the LIN Disclosure
Letter.
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4.6 Consents, Approvals and Filings. Chancellor and LIN will make and cause
their respective subsidiaries and, to the extent necessary, their other
affiliates to make all necessary filings, including, without limitation, those
required under the HSR Act, the Securities Act, the Exchange Act, and the
Communications Act (including filing an application with the FCC for the
transfer of control of the LIN FCC Licenses, which the parties shall file as
soon as practicable (and in any event not more than 20 business days) after the
date of this Agreement), in order to facilitate the prompt consummation of the
Merger and the other transactions contemplated by this Agreement. In addition,
Chancellor and LIN will each use its best efforts, and will cooperate fully and
in good faith with each other, (i) to comply as promptly as practicable with all
governmental requirements applicable to the Merger and the other transactions
contemplated by this Agreement, and (ii) to obtain as promptly as practicable
all necessary permits, orders or other consents of Governmental Entities and
consents of all third parties necessary for the consummation of the Merger and
the other transactions contemplated by this Agreement, including without
limitation, the consent of the FCC to the transfer of control of the LIN FCC
Licenses. Each of Chancellor and LIN shall use its best efforts to promptly
provide such information and communications to Governmental Entities as such
Governmental Entities may reasonably request. Each of the parties hereto shall
provide to the other parties copies of all applications in advance of filing or
submission of such applications to Governmental Entities in connection with this
Agreement and shall make such revisions thereto as reasonably requested by each
other party hereto. Each of the parties hereto shall provide to the other
parties the opportunity to participate in all meetings and material
conversations with Governmental Entities with respect to the matters
contemplated by this Agreement.
4.7 Affiliates Letters. Prior to the Closing Date, LIN shall deliver to
Chancellor a letter identifying all persons who, at the time the Merger is
submitted for approval to the stockholders, may be deemed to be an "affiliate"
of such party for purposes of Rule 145 under the Securities Act. LIN shall use
its best efforts to cause each such person to deliver to Chancellor on or prior
to the Closing Date a written agreement substantially in the form attached as
Exhibit A hereto.
4.8 Nasdaq Listing. Chancellor shall use its best efforts to cause the shares
of Chancellor Common Stock to be issued in the Merger and upon the exercise of
the Assumed Stock Options (as defined in Section 5.2(a)) to be approved for
quotation in the Nasdaq Stock Market.
4.9 Indemnification. The Certificate of Incorporation of the Surviving
Corporation shall contain the provisions with respect to indemnification
contained in the certificate of incorporation of LIN, as in effect on the date
hereof, and none of such provisions shall be amended, repealed or otherwise
modified for a period of six years after the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who at any time
prior to the Effective Time were directors or officers of LIN, or any of its
respective subsidiaries (the "Indemnified Parties") in respect of actions or
omissions occurring at or prior to the Effective Time (including, without
limitation, the transactions contemplated by this Agreement), unless such
modification is required by law. Chancellor will cause to be maintained for a
period of not less than six years from the Effective Time LIN's current
directors' and officers' insurance and indemnification policies to the extent
that they provide coverage for events occurring prior to the Effective Time (the
"D&O Insurance")
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for all persons who are directors and executive officers of LIN on the date of
this Agreement, so long as the annual premium therefor would not be in excess of
250% of the last annual premium paid prior to the date of this Agreement;
provided, however, that Chancellor or its subsidiaries may, in lieu of
maintaining such existing D&O Insurance as provided above, cause coverage to be
provided under any policy maintained for the benefit of Chancellor and its
subsidiaries so long as the terms thereof are not less advantageous to the
beneficiaries thereof than the existing D&O Insurance. The provisions of this
Section 4.9 are intended to be for the benefit of, and shall be enforceable by,
each Indemnified Party, his heirs and his personal representatives and shall be
binding on all successors and assigns of Chancellor, the Surviving Corporation
and LIN.
4.10 Letter of Chancellor's Accountants. Chancellor shall use its reasonable
best efforts to cause to be delivered to LIN a letter of PricewaterhouseCoopers,
LLP, Chancellor's independent public accountants, and any other independent
public accountants whose report would be required to be included in the Form S-4
pursuant to the rules and regulations under the Securities Act, each dated a
date within two business days before the date on which the Form S-4 shall become
effective and an additional letter from each of them dated a date within two
business days before the Closing Date, each addressed to such party, in form and
substance reasonably satisfactory to LIN and customary in scope and substance
for letters delivered by independent public accountants in connection with
registration statements similar to the Form S-4.
4.11 Letter of LIN's Accountants. LIN shall use its reasonable best efforts to
cause to be delivered to Chancellor, a letter of PricewaterhouseCoopers, LLP,
LIN's independent public accountants, and any other independent public
accountants whose report would be required to be included in the Form S-4
pursuant to the rules and regulations under the Securities Act, each dated a
date within two business days before the date on which the Form S-4 shall become
effective and an additional letter from each of them dated a date within two
business days before the Closing Date, each addressed to such party, in form and
substance reasonably satisfactory to Chancellor and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Form S-4.
4.12 Employee Benefit Matters. Chancellor acknowledges and agrees that the LIN
Operating Subsidiary is bound by the terms of Section 5.4 of that certain Merger
Agreement, dated as of August 12, 1997, among LIN Holdings (formerly known as
Ranger Holdings Corp.) and the LIN Operating Subsidiary (successor by merger to
each of Ranger Acquisition Company and LIN Television Corporation) (as amended,
the "LIN/Ranger Merger Agreement"), with respect to employee benefit matters set
forth therein in effect at the time of the consummation of the transactions
contemplated by the LIN/Ranger Merger Agreement, and Chancellor agrees that it
shall take all such action as is necessary or desirable to cause the LIN
Operating Subsidiary to satisfy such obligations thereunder.
4.13 Termination of Stockholders Agreement. Prior to Closing, LIN shall use its
reasonable best efforts to obtain the consent of all parties to the Stockholders
Agreement to terminate such Stockholders Agreement at the Effective Time. At any
special meeting of LIN stockholders (or written consent in lieu thereof) called
for the purpose of obtaining the LIN Stockholders Approval, LIN agrees that the
vote on the Merger will be structured so that a vote in favor of the Merger by a
LIN stockholder will constitute a
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waiver of each LIN stockholder of rights with respect to the Stockholders
Agreement following the Effective Time.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER
5.1 Conduct of Business.
(a) Except as expressly contemplated by this Agreement, during the period from
the date of this Agreement to the Effective Time, LIN shall, and shall cause its
subsidiaries to, act and carry on their respective businesses in the ordinary
course of business and, to the extent consistent therewith, use reasonable
efforts to preserve intact their current business organizations, keep available
the services of their current officers and employees and preserve the goodwill
of those engaged in material business relationships with them. Without limiting
the generality of the foregoing, during the period from the date of this
Agreement to the Effective Time and except as set forth in the LIN SEC Document
or the LIN Disclosure Letter, LIN shall not, and shall not permit any of its
subsidiaries to, without the prior consent of Chancellor (which shall not be
unreasonably delayed or withheld):
(i) (w) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any of
its or its subsidiaries' outstanding capital stock (except dividends and
distributions by a direct or indirect wholly owned subsidiary of LIN to its
parent), (x) split, combine or reclassify any of its outstanding capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its outstanding capital
stock, (y) except in connection with the termination of the employment of
any employees, purchase, redeem or otherwise acquire any shares of
outstanding capital stock or any rights, warrants or options to acquire any
such shares, or (z) issue, sell, grant, pledge or otherwise encumber any
shares of its capital stock, any other equity securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, equity securities or convertible securities (other than (A) upon
the exercise of LIN Stock Options outstanding on the date of this Agreement
or issued under clause (C) below, (B) pursuant to employment agreements or
other contractual arrangements in effect on the date of this Agreement, (C)
LIN Stock Options granted after the date of this Agreement to purchase up
to an aggregate amount of (1) 31,100,000 shares of LIN Common Stock, minus
(2) that number of shares of LIN Common Stock for which LIN Stock Options
have been granted on or prior to the date of this Agreement, at an exercise
per share of at least $1.00, which are to be issued to existing or future
employees and (D) issuances of stock of any direct or indirect wholly owned
Subsidiary of LIN to its parent);
(ii) amend its Certificate of Incorporation, Bylaws or other comparable
charter or organizational documents;
(iii) acquire any business (including the assets thereof) or any
corporation, partnership, joint venture, association or other business
organization or division thereof;
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(iv) sell, mortgage or otherwise encumber or subject to any Lien or
otherwise dispose of any of its properties or assets that are material to
LIN and its subsidiaries, taken as whole;
(v) (x) other than working capital borrowings in the ordinary course of
business and consistent with past practices, incur any indebtedness for
borrowed money or guarantee any such indebtedness of another person, other
than indebtedness owing to or guarantees of indebtedness owing to LIN or
any of its direct or indirect wholly-owned subsidiaries or (y) make any
material loans or advances to any other person, other than to LIN or any of
its direct or indirect wholly-owned subsidiaries and other than routine
advances to employees consistent with past practices;
(vi) make any Tax election or settle or compromise any Tax liability that
could reasonably be expected to be material to LIN and its subsidiaries,
taken as a whole or change its Tax or accounting methods, policies,
practice or procedures, except as required by GAAP;
(vii) pay, discharge, settle or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the
notes thereto) of LIN (for this purpose meaning LIN Holdings) included in
the LIN SEC Document or incurred since the date of such financial
statements in the ordinary course of business consistent with past
practice;
(viii) make any material commitments or agreements for capital expenditures
or capital additions or betterments except as materially consistent with
the budget for capital expenditures as of the date of this Agreement, in
the ordinary course of business consistent with past practices;
(ix) except as may be required by law:
(A) other than in the ordinary course of business and consistent with
past practices, make any representation or promise, oral or written, to
any employee or former director, officer or employee of LIN or any of
its subsidiaries which is inconsistent with the terms of any LIN Benefit
Plan;
(B) other than in the ordinary course of business, make any change to,
or amend in any way, the contracts, salaries, wages, or other
compensation of any director, employee or any agent or consultant of LIN
or any of its subsidiaries other than routine changes or amendments that
are required under existing contracts;
(C) except for renewals in the ordinary course of business consistent
with past practices, adopt, enter into, amend, alter or terminate,
partially or completely, any LIN Benefit Plan, or any election made
pursuant to the provisions of any LIN Benefit Plan, to accelerate any
payments, obligations or vesting schedules under any LIN Benefit Plan;
or
(D) other than in the ordinary course of business consistent with past
practices, approve any general or company-wide pay increases for
employees;
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(x) except in the ordinary course of business, modify, amend or terminate
any material agreement, permit, concession, franchise, license or similar
instrument to which LIN or any of its subsidiaries is a party or waive,
release or assign any material rights or claims thereunder; or
(xi) authorize any of, or commit or agree to take any of, the foregoing
actions.
(b) Notwithstanding the foregoing, nothing in this Section 5.1 shall prohibit
(i) LIN Television of Texas, L.P. ("LIN Texas") from entering into an agreement
with Dallas Sports Holding Company ("DSHC") relating to the assets used or
useful in the operation of television station KXTX-TV (Dallas, TX) (the "KXTX
Transaction"), including without limitation, in a federal income tax-free
transaction, (A) the assignment by LIN Texas to DSHC of its rights under that
certain Option and Put Agreement, dated as of May 31, 1994, as amended on
December 24, 1997, among the LIN Operating Subsidiary, LIN Texas, KXTX of Texas,
Inc. ("KXTX-Texas"), and KXTX, Inc. (the "KXTX Option"), and the assignment of
its rights under the local marketing agreement relating thereto, or (B) the
exercise of the KXTX Option by LIN and subsequent sale of the capital stock of
KXTX-Texas to DSHC, in exchange for (Y) $50 million liquidation preference of
DSHC convertible preferred stock, the terms of which shall include a 6% annual
paid-in-kind dividend, payable semiannually, and permit LIN Texas to convert
such shares of convertible preferred stock into common stock of DSHC upon the
consummation of a firm commitment underwritten initial public offering of the
shares of common stock of DSHC at a conversion price per share equal to the
public offering price of such common stock, or (Z) such other consideration that
is mutually agreed by each of Chancellor and LIN to be of comparable or superior
value or (ii) any amendments to the M&O Agreement and Financial Advisory
Agreement (each as defined in Section 6.3(f)) upon the terms set forth in
Section 6.3(f) or any amendment under the LIN Stock Option Plan to include the
LIN Substitute Stock Options.
5.2 Stock Options; Phantom Stock Plan. (a) At the Effective Time, each
outstanding LIN Stock Option that is outstanding and unexercised immediately
prior to the Effective Time shall be deemed to have been assumed by Chancellor,
without further action by Chancellor, the Surviving Corporation or the holders
of such options, and shall thereafter be deemed to be an option to acquire
shares of Chancellor Common Stock in such amount and at the exercise price
provided below and otherwise having the same terms and conditions as are in
effect immediately prior to the Effective Time (except to the extent that such
terms and conditions may be altered in accordance with their terms as a result
of the transactions contemplated hereby) (such LIN Stock Options assumed by
Chancellor being the "Assumed Stock Options"):
(i) the number of shares of Chancellor Common Stock to be subject to the
new option shall be equal to the product of (x) the number of shares of LIN
Common Stock subject to the original option and (y) the Exchange Ratio
(rounded to the nearest 1/100 of a share);
(ii) the exercise price per share of Chancellor Common Stock under the new
option shall be equal to (x) the exercise price per share of LIN Common
Stock under the original option divided by (y) the Exchange Ratio (rounded
to the nearest $0.01); and
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(iii) in accordance with the terms of the LIN Stock Option Plan under which
the LIN Stock Options were issued, fractional shares of any Assumed Stock
Options resulting from the adjustments set forth in this Section 5.2(a)
shall be eliminated.
The adjustments provided herein to any options which are "incentive stock
options" (as defined in Section 422 of the Code) shall be effected in a manner
consistent with Section 424(a) of the Code.
(b) LIN shall take all actions reasonably necessary (including, if appropriate,
by way of obtaining the written consent of optionholders) to ensure that the
consummation of the Merger is not deemed to constitute a "change of control" (or
transaction of similar import) with respect to such stock options or otherwise
result, in and of itself, in the acceleration of any LIN Stock Option
outstanding immediately prior to the Effective Time, and to ensure that all such
options shall be exercisable after the Merger solely for shares of Chancellor
Common Stock.
(c) At the Effective Time, Chancellor shall assume the LIN Stock Option Plan,
with such changes thereto as may be necessary to reflect the consummation of the
transactions contemplated hereby. Nothing in this Section 5.2(c) shall be
construed to prevent Chancellor in any way from terminating or freezing the
benefits under any such plans (subject to the rights of the holders of the
Assumed Stock Options thereunder) and adopting one or more new stock option
plans, as approved by the Board of Directors of Chancellor following the
Effective Time.
(d) Promptly following the Effective Time, Chancellor shall use its reasonable
best efforts to file with the SEC a Registration Statement on Form S-8 (or an
amendment to any such form of Chancellor currently on file with the SEC that is
available therefor) (the "Form S-8") for the purpose of registering the shares
of Chancellor Common Stock issuable upon the exercise of the Assumed Stock
Options, and Chancellor shall use its reasonable best efforts to have the Form
S-8 (or any post-effective amendment thereto) declared effective under the
Securities Act as soon as practicable after such filing.
(e) At the Effective Time, Chancellor shall assume the Phantom Stock Plan. Each
Phantom Stock Unit outstanding under the Phantom Stock Plan that is outstanding
immediately prior to the Effective Time shall be appropriately adjusted to
reflect the Exchange Ratio as if each such Phantom Stock Unit was one share of
LIN Common Stock immediately prior to the Effective Time and was converted into
the appropriate fraction of a share of Chancellor Common Stock pursuant to
Section 1.8 of this Agreement. To the extent shares of Chancellor Common Stock
are issued in satisfaction of Phantom Stock Units, Chancellor shall use its
reasonable best efforts to register such shares on Form S-8.
5.3 Other Actions. Neither Chancellor nor LIN shall, and neither of them shall
permit any of their respective subsidiaries to, take any action that would, or
that could reasonably be expected to, result in any of the conditions of the
Merger set forth in Article VI not being satisfied.
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ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The respective
obligation of each party to effect the Merger is subject to the satisfaction or
waiver on or prior to the Closing Date of the following conditions:
(a) Stockholder Approval. The LIN Stockholders Approval and Chancellor
Stockholders Approval shall have been obtained.
(b) FCC Order. The FCC shall have issued an order (the "FCC Order") approving
the transfers of control pursuant to the Merger of the LIN FCC Licenses for the
operation of the LIN Licensed Facilities without the imposition of any
conditions or restrictions that could reasonably be expected to have a LIN
Material Adverse Effect, and which FCC Order has not been reversed, stayed,
enjoined, set aside or suspended and with respect to which no timely request for
stay, petition for reconsideration or appeal has been filed and as to which the
time period for filing of any such appeal or request for reconsideration or for
any sua sponte action by the FCC with respect to the FCC Order has expired, or,
in the event that such a filing or review sua sponte has occurred, as to which
such filing or review shall have been disposed of favorably to the grant of the
FCC Order and the time period for seeking further relief with respect thereto
shall have expired without any request for such further relief having been filed
or review initiated.
(c) Governmental and Regulatory Consents. All required consents, approvals,
permits and authorizations to the consummation of the Merger shall be obtained
from any Governmental Entity (other than the FCC) whose consent, approval,
permission or authorization is required by reason of a change in law after the
date of this Agreement, unless the failure to obtain such consent, approval,
permission or authorization could not reasonably be expected to have a LIN
Material Adverse Effect, or to materially and adversely affect the validity or
enforceability of this Agreement or the Merger.
(d) HSR Act. The waiting period (and any extension thereof) applicable to the
Merger under the HSR Act shall have been terminated or shall have otherwise
expired.
(e) No Injunctions or Restraints. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the Merger shall be in effect; provided, however, that the party invoking
this condition shall use its reasonable best efforts to have any such order or
injunction vacated.
(f) Nasdaq Listing. The shares of Chancellor Common Stock issuable pursuant to
the Merger shall have been approved for quotation in the Nasdaq Stock Market.
(g) Form S-4. The Form S-4 shall have become effective under the Securities Act
and shall not be the subject of any stop order or proceedings seeking a stop
order.
6.2 Conditions to Obligations of LIN. The obligation of LIN to effect the
Merger is further subject to the following conditions:
(a) Representations and Warranties. The representations and warranties of
Chancellor contained in this Agreement shall have been true and correct on the
date of this Agreement and shall be true and correct at and as of the Closing
Date as though made at
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<PAGE> 602
and as of such time (except to the extent that any such representations and
warranties expressly relate only to an earlier time, in which case they shall
have been true and correct at such earlier time); provided, however, that this
condition shall be deemed to have been satisfied unless the individual or
aggregate impact of all inaccuracies of such representations and warranties
(without regard to any materiality or Chancellor Material Adverse Effect
qualifier(s) contained therein) could reasonably be expected to have a material
adverse effect on the condition (financial or otherwise) of Chancellor and its
subsidiaries, considered as a whole, and except to the extent that any
inaccuracies of such representations and warranties are a result of changes in
the United States financial markets generally or in national, regional or local
economic conditions generally, or are a result of matters arising after the date
hereof that affect the broadcast industry generally. Chancellor shall have
delivered to LIN a certificate dated as of the Closing Date, signed by a senior
executive officer of Chancellor, to the effect set forth in this Section 6.2(a).
(b) Performance of Obligations of Chancellor. Chancellor shall have performed in
all material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and LIN shall have received a
certificate signed on behalf of Chancellor by a senior executive officer to such
effect.
(c) Tax Opinion. LIN shall have received an opinion of Vinson & Elkins L.L.P.,
dated as of the Closing Date, to the effect that (i) the Merger will constitute
a reorganization under Section 368(a) of the Code, (ii) Chancellor and LIN will
each be a party to the reorganization under Section 368(b) of the Code, and
(iii) no gain or loss will be recognized by the stockholders of LIN upon the
receipt of Chancellor Common Stock in exchange for LIN Common Stock pursuant to
the Merger except with respect to any cash received in lieu of Fractional Shares
or any cash received in respect of Dissenting Shares. In rendering such opinion,
Vinson & Elkins L.L.P. shall receive and may rely upon representations contained
in certificates of Chancellor, LIN and certain stockholders of LIN.
(d) Chancellor Stockholders Agreement. Chancellor shall have amended or caused
to be amended the terms of that certain Amended and Restated Stockholders
Agreement, dated as of February 14, 1996, as amended by the First Amendment to
Amended and Restated Stockholders Agreement dated as of September 4, 1997, among
Chancellor and the stockholders parties thereto (the "Chancellor Stockholders
Agreement"), in order that (A) in the event that the holders of LIN Common Stock
receive shares of Chancellor Common Stock which are deemed to be "restricted
securities" (within the meaning of Rule 144 under the Securities Act) in the
Merger, all holders of LIN Common Stock at the Effective Time shall be deemed
"Holders" thereunder and the shares of Chancellor Common Stock received by them
in the Merger shall be "Registrable Shares" thereunder, or (B) in the event that
holders of LIN Common Stock receive shares of Chancellor Common Stock which are
not deemed to be "restricted securities" (within the meaning of Rule 144 under
the Securities Act) in the Merger, the holders of LIN Common Stock at the
Effective Time that, after giving effect to the Merger and the issuance of
shares of Chancellor Common Stock therein, will own at least 1% of the
outstanding shares of Chancellor Common Stock immediately following the
Effective Time, shall be (and their transferees shall be) deemed "Holders"
thereunder and shares of Chancellor Common Stock received in the Merger shall be
"Registrable Shares" thereunder.
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6.3 Conditions to Obligations of Chancellor. The obligations of Chancellor to
effect the Merger is further subject to the following conditions:
(a) Representations and Warranties. The representations and warranties of LIN
contained in this Agreement shall have been true and correct on the date of this
Agreement and shall be true and correct at and as of the Closing Date as though
made at and as of such time (except to the extent that any such representations
and warranties expressly relate only to an earlier time, in which case they
shall have been true and correct at such earlier time); provided, however, that
this condition shall be deemed to have been satisfied unless the individual or
aggregate impact of all inaccuracies of such representations and warranties
(without regard to any materiality or LIN Material Adverse Effect qualifier(s)
contained therein) could reasonably be expected to have a material adverse
effect on the condition (financial or otherwise) of LIN (or, following the
Effective Time, the Surviving Corporation) and its subsidiaries, considered as a
whole, and except to the extent that any inaccuracies of such representations
and warranties are a result of changes in the United States financial markets
generally or in national, regional or local economic conditions generally, or
are a result of matters arising after the date hereof that affect the broadcast
industry generally. LIN shall have delivered to Chancellor a certificate dated
as of the Closing Date, signed by a senior executive officer of LIN, to the
effect set forth in this Section 6.3(a).
(b) Performance of Obligations of LIN. LIN shall have performed in all material
respects all obligations required to be performed by it under this Agreement at
or prior to the Closing Date, and Chancellor shall have received a certificate
signed on behalf of LIN by a senior executive officer of LIN to such effect.
(c) Tax Opinion. Chancellor shall have received an opinion of Weil, Gotshal &
Manges LLP, dated as of the Closing Date, to the effect that (i) the Merger will
constitute a reorganization under Section 368(a) of the Code, (ii) Chancellor
and LIN will each be a party to the reorganization under Section 368(b) of the
Code, and (iii) no gain or loss will be recognized by Chancellor or LIN by
reason of the Merger. In rendering such opinion, Weil, Gotshal & Manges LLP
shall receive and may rely upon representations contained in certificates of
Chancellor, LIN and certain stockholders of LIN.
(d) KXTX Transaction. In the event that LIN Texas shall have consummated the
KXTX Transaction, LIN Texas, LIN or one of its other subsidiaries shall have
received the convertible preferred stock of DSHC on substantially the terms set
forth in Section 5.1(b)(i) or such other consideration that is deemed by the
Board of Directors of Chancellor to be of comparable or superior value.
(e) Network Affiliation Agreements. LIN and its subsidiaries shall have received
any necessary consents required as a result of the Merger and transactions
contemplated by this Agreement with respect to each Network Affiliation
Agreement relating to a LIN Licensed Facility, a true and correct list of which
is set forth in the LIN Disclosure Letter.
(f) Financial Services Agreements. LIN and certain of its subsidiaries and Hicks
Muse shall have entered into an amendment to each of the Monitoring and
Oversight Agreement (the "M&O Agreement") and the Financial Advisory Agreement
(the "Financial Advisory Agreement") that provides (i) the M&O Agreement will
terminate at the Effective Time and, in consideration therefor, LIN shall
deliver to Hicks Muse at Closing a one-time cash payment of $11,000,000, (ii)
Hicks Muse will receive a fee from LIN of
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$11,000,000 in cash, payable at Closing, in satisfaction of its services
performed under the Financial Advisory Agreement in connection with the Merger,
and (iii) the Financial Advisory Agreement would terminate with respect to LIN
(and as successor in the Merger, Chancellor) but not its subsidiaries (the "LIN
Entities") and would be amended to provide that following the Closing Date (A)
Hicks Muse will be the exclusive financial advisor to the LIN Entities and (B)
Hicks Muse will receive a "market fee" for the services it provides, provided
that (1) Hicks Muse would not receive a fee in a transaction in which the Chief
Executive Officer of Chancellor does not elect to retain an outside financial
advisor to any of the LIN Entities, and (2) if the Chief Executive Officer of
Chancellor and Hicks Muse mutually agree that an additional financial advisor to
any of the LIN Entities would be appropriate in a given transaction, Hicks Muse
will split its fee equally with such co-advisor unless otherwise agreed to
between the Chief Executive Officer of Chancellor and Hicks Muse.
(g) Dissenting Shares. Holders of not more than 5% of the outstanding shares of
LIN Common Stock shall have properly demanded appraisal rights for their shares
under the Delaware Code.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated and the Merger abandoned as
follows:
(a) at any time prior to the Effective Time, whether before or after approval of
this Agreement and the Merger by the stockholders of LIN or Chancellor, by
mutual written consent of Chancellor and LIN;
(b) at any time prior to the Effective Time, whether before or after approval of
this Agreement and the Merger by the stockholders of LIN or Chancellor:
(i) by Chancellor if the LIN Stockholders Approval shall not have been
obtained after submission by the Board of Directors of LIN of this
Agreement and the Merger for approval by the common stockholders of LIN at
a special meeting called for such purpose or by written consent of such
stockholders in accordance with Section 4.2(a);
(ii) by LIN if the Chancellor Stockholders Approval shall not have been
obtained after submission by the Board of Directors of Chancellor of this
Agreement and the Merger for approval by the common stockholders of
Chancellor at a special meeting called for such purpose in accordance with
Section 4.2(b);
(iii) by Chancellor or LIN if the Merger shall not have been consummated on
or before June 30, 1999, unless the failure to consummate the Merger is the
result of a willful and material breach of this Agreement by the party
seeking to terminate this Agreement;
(iv) by Chancellor or LIN if any Governmental Entity shall have issued an
order, decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the Merger and such order, decree,
ruling or other action shall have become final and nonappealable;
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<PAGE> 605
(v) by Chancellor or LIN in the event of a breach by the other party of any
representation, warranty, covenant or other agreement contained in this
Agreement which (A) would give rise to the failure of a condition set forth
in Section 6.2(a) or (b) or Section 6.3(a) or (b), as applicable, and (B)
cannot be or has not been cured within 30 days after the giving of written
notice to the breaching party of such breach (a "Material Breach"),
provided that the terminating party is not then in Material Breach of any
representation, warranty, covenant or other agreement contained in this
Agreement; or
(vi) by Chancellor if LIN shall have breached the requirements of Section
4.5 hereof, unless Chancellor shall at such time be in Material Breach of
any representation, warranty, covenant or other agreement contained in this
Agreement.
7.2 Effect of Termination. (a) In the event that Chancellor or LIN terminates
this Agreement as provided in Section 7.1(a), 7.1(b)(iii) or 7.1(b)(iv), this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Chancellor or LIN, other than the last sentence of
Section 4.3 and Sections 2.10, 3.7, 7.2 and 10.2.
(b) In the event that this Agreement is terminated by Chancellor pursuant to
Section 7.1(b)(i), 7.1(b)(vi) or 7.1(b)(v), LIN shall promptly reimburse
Chancellor for all substantiated out-of-pocket costs and expenses incurred by
them in connection with this Agreement and the transactions contemplated hereby,
including, without limitation, costs and expenses of accountants, attorneys and
financial advisors. In the event that this Agreement is terminated by LIN
pursuant to Section 7.1(b)(ii) or 7.1(b)(v), Chancellor shall promptly reimburse
LIN for all substantiated out-of-pocket costs and expenses incurred by it in
connection with this Agreement and the transactions contemplated hereby,
including, without limitation, costs and expenses of accountants, attorneys and
financial advisors. This Agreement shall not be deemed to have been validly
terminated until all payments contemplated by this Section 7.2(b) shall have
been made in full. In the event of a termination pursuant to Sections 7.1(b)(v)
or 7.1(b)(vi), the reimbursement of expenses by the breaching party pursuant to
this Section 7.2(b) shall be the parties sole remedy unless the termination
resulted from a willful material breach of the representations, warranties,
covenants or other agreements in this Agreement, in which case the non-breaching
party may seek damages or any other appropriate remedy at law or in equity.
7.3 Amendment. Subject to the applicable provisions of the Delaware Code, at
any time prior to the Effective Time, the parties hereto may modify or amend
this Agreement, by written agreement executed and delivered by duly authorized
officers of the respective parties; provided, however, that after the LIN
Stockholders Approval has been obtained, no amendment shall be made which
reduces the consideration payable in the Merger or adversely affects the rights
of LIN's stockholders hereunder without the approval of such stockholders. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties.
7.4 Extension; Consent; Waiver. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this Agreement
or in any document delivered pursuant to this
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Agreement or (c) subject to Section 7.3, waive compliance with any of the
agreements or conditions of the other parties contained in this Agreement or
consent to any action requiring consent pursuant to this Agreement. Any
agreement on the part of a party to any such extension, waiver or consent shall
be valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise shall not constitute a waiver of such rights.
7.5 Procedure for Termination, Amendment, Extension, Consent or Waiver. A
termination of this Agreement pursuant to Section 7.1, an amendment of this
Agreement pursuant to Section 7.3 or an extension, consent or waiver pursuant to
Section 7.4 shall, in order to be effective, require in the case of Chancellor
or LIN, action by its Board of Directors or a duly authorized committee of its
Board of Directors.
ARTICLE VIII
SURVIVAL OF PROVISIONS
8.1 Survival. The representations and warranties of Chancellor and LIN made in
this Agreement, or in any certificate, respectively, delivered by any of them
pursuant to this Agreement, will not survive the Closing.
ARTICLE IX
NOTICES
9.1 Notices. All notices and other communications under this Agreement must be
in writing and will be deemed to have been duly given if delivered, telecopied
or mailed, by certified mail, return receipt requested, first-class postage
prepaid, to the parties at the following addresses:
If to Chancellor, to:
Chancellor Media Corporation
433 East Las Colinas Boulevard
Suite 1130
Irving, Texas 75039
Attention: Jeffrey A. Marcus
Facsimile: (972) 879-3671
with copies to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Attention: Michael A. Saslaw
Facsimile: (214) 746-7777
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<PAGE> 607
and
Thompson & Knight, P.C.
1700 Pacific Avenue
Suite 3300
Dallas, Texas 75201
Attention: Sam P. Burford, Jr.
Facsimile: (214) 969-1751
If to LIN, to:
LIN Television Corporation
4 Richmond Square
Suite 200
Providence, Rhode Island 02906
Attention: Gary R. Chapman
Facsimile: (401) 454-2817
and
c/o Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court
Suite 1600
Dallas, Texas 75201
Attention: Lawrence D. Stuart, Jr.
Facsimile: (214) 740-7313
with copies to:
Vinson & Elkins L.L.P.
3700 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Michael D. Wortley
Facsimile: (214) 999-7732
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this Article IX will, if delivered personally,
be deemed given upon delivery, will, if delivered by telecopy, be deemed
delivered when confirmed and will, if delivered by mail in the manner described
above, be deemed given on the third business day after the day it is deposited
in a regular depository of the United States mail. Any party from time to time
may change its address for the purpose of notices to that party by giving a
similar notice specifying a new address, but no such notice will be deemed to
have been given until it is actually received by the party sought to be charged
with the contents thereof.
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<PAGE> 608
ARTICLE X
MISCELLANEOUS
10.1 Entire Agreement. Except for the documents executed by Chancellor and LIN
pursuant hereto, this Agreement supersedes all prior discussions and agreements
between the parties with respect to the subject matter of this Agreement, and
this Agreement (including the exhibits hereto and other documents delivered in
connection herewith) contains the sole and entire agreement between the parties
hereto with respect to the subject matter hereof.
10.2 Expenses. Except as provided in Section 7.2, whether or not the Merger is
consummated, each of Chancellor and LIN will pay its own costs and expenses
incident to preparing for, entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby. In the event of any
lawsuit or other judicial proceeding brought by either party to enforce any of
the provisions of this Agreement, the losing party in such proceeding shall
reimburse the prevailing party's fees and expenses incurred in connection
therewith, including the fees and expenses of its attorneys.
10.3 Counterparts. This Agreement may be executed in one or more counterparts,
each of which will be deemed an original, but all of which will constitute one
and the same instrument and shall become effective when one or more counterparts
have been signed by each of the parties and delivered to the other parties.
10.4 No Third Party Beneficiary. Except for Sections 4.9 and 4.12, the terms
and provisions of this Agreement are intended solely for the benefit of the
parties hereto, and their respective successors or assigns, and it is not the
intention of the parties to confer third-party beneficiary rights upon any other
person.
10.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
10.6 Assignment; Binding Effect. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties, and any such assignment that is not
consented to shall be null and void. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by,
the parties and their respective successors and assigns.
10.7 Headings, Gender, Etc. The headings used in this Agreement have been
inserted for convenience and do not constitute matter to be construed or
interpreted in connection with this Agreement. Unless the context of this
Agreement otherwise requires, (a) words of any gender are deemed to include each
other gender; (b) words using the singular or plural number also include the
plural or singular number, respectively; (c) the terms "hereof," "herein,"
"hereby," "hereto," and derivative or similar words refer to this entire
Agreement; (d) the terms "Article" or "Section" refer to the specified Article
or Section of this Agreement; (e) all references to "dollars" or "$" refer to
currency of the United States of America; (f) the term "person" shall include
any natural person, corporation, limited liability company, general partnership,
limited partnership, or other entity, enterprise, authority or business
organization; and (g) the term "or" is not exclusive.
I-43
<PAGE> 609
10.8 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future law, and if the
rights or obligations of LIN or Chancellor under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable; (b) this Agreement will be construed and enforced as if such illegal,
invalid, or unenforceable provision had never comprised a part hereof; and (c)
the remaining provisions of this Agreement will remain in full force and effect
and will not be affected by the illegal, invalid, or unenforceable provision or
by its severance herefrom.
10.9 No Recourse Against Others. No past, present or future director, officer,
employee, stockholder, incorporator or partner, as such, of Chancellor, LIN or
the Surviving Corporation shall have any liability for any obligations of
Chancellor, LIN or the Surviving Corporation under this Agreement or for any
claim based on, in respect of or by reason of such obligations or their
creation.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the
duly authorized officers of Chancellor and LIN effective as of the date first
written above.
CHANCELLOR MEDIA CORPORATION
By: /s/ JEFFREY A. MARCUS
-----------------------------------
Name: Jeffrey A. Marcus
Title: President and Chief
Executive Officer
RANGER EQUITY HOLDINGS CORPORATION
By: /s/ MICHAEL J. LEVITT
-----------------------------------
Name: Michael J. Levitt
Title: Vice President
I-44
<PAGE> 610
EXHIBIT A
, 1998
Chancellor Media Corporation
433 East Las Colinas Boulevard, Suite 1130
Irving, Texas 75039
Ladies and Gentlemen:
I have been advised that I have been identified as a possible "affiliate" of
Ranger Equity Holdings Corporation, a Delaware corporation (the "Company"), as
that term is defined for purposes of paragraphs (c) and (d) of Rule 145 of the
General Rules and Regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933 (the
"Securities Act"), although nothing contained herein should be construed as an
admission of such fact.
Pursuant to the terms of an Agreement and Plan of Merger dated as of July 7,
1998 (the "Merger Agreement"), by and among the Company and Chancellor Media
Corporation, a Delaware corporation ("Chancellor"), the Company will be merged
with and into Chancellor (the "Merger"), with Chancellor continuing as the
surviving corporation in the Merger. As a result of the Merger, I will receive
Merger Consideration (as defined in the Merger Agreement), including shares of
Common Stock, $0.01 par value, of Chancellor ("Chancellor Common Stock") in
exchange for shares of Common Stock, $.01 par value, of the Company
(collectively, the "Shares") owned by me at the effective time of the Merger as
determined pursuant to the Merger Agreement.
A. In connection therewith, I represent, warrant and agree that:
1. I shall not make any sale, transfer or other disposition of the
Chancellor Common Stock I receive as a result of the Merger in violation of
the Securities Act or the Rules and Regulations.
2. I have been advised that the issuance of Chancellor Common Stock to me
as a result of the Merger has been registered with the Commission under the
Securities Act on a Registration Statement on Form S-4. However, I have
also been advised that, if at the time the Merger was submitted for a vote
of the stockholders of the Company I am determined to have been an
"affiliate" of the Company, any sale by me of the shares of Chancellor
Common Stock I receive as a result of the Merger must be (i) registered
under the Securities Act, (ii) made in conformity with the provisions of
Rule 145 promulgated by the Commission under the Securities Act or (iii)
made pursuant to a transaction which, in the opinion of counsel reasonably
satisfactory to Chancellor or as described in a "no action" or interpretive
letter from the staff of the Commission, is not required to be registered
under the Securities Act.
3. I have carefully read this letter and the Merger Agreement and have
discussed the requirements of the Merger Agreement and other limitations
upon the sale, transfer or other disposition of the shares of Chancellor
Common Stock to be received by me, to the extent I have felt necessary,
with my counsel or with counsel for the Company.
I-45
<PAGE> 611
B. Furthermore, in connection with the matters set forth herein, I understand
and agree that:
1. I understand that Chancellor will give stop transfer instructions to its
transfer agents with respect to the Chancellor Common Stock and that the
certificates for the Chancellor Common Stock issued to the undersigned, or
any substitutions therefor, will bear a legend substantially to the
following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, MAY APPLY. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT, DATED 1998, BETWEEN THE REGISTERED HOLDER
HEREOF AND CHANCELLOR MEDIA CORPORATION, A COPY OF WHICH AGREEMENT IS ON
FILE AT THE PRINCIPAL OFFICES OF CHANCELLOR MEDIA CORPORATION."
2. I also understand that unless the transfer by the undersigned of any
Chancellor Common Stock has been registered under the Securities Act or is
a sale made in conformity with the provisions of Rule 145, Chancellor
reserves the right to place the following legend on the certificates issued
to any transferee:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SECURITIES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, MAY APPLY. THE SECURITIES
HAVE NOT BEEN ACQUIRED BY THE HOLDER WITH A VIEW TO, OR FOR RESALE IN
CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF SUCH ACT
AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT.
It is understood and agreed that the legends set forth in paragraphs (B) 1 and 2
above shall be removed by delivery of new certificates without such legend if
Chancellor receives an opinion of counsel reasonably satisfactory to Chancellor
to the effect that such legend is not required for purposes of the Securities
Act. It is understood and agreed that such legends and the stop orders referred
to above will be removed if (i) one year shall have elapsed from the date the
undersigned acquired Chancellor Common Stock received in the Merger and the
provisions of Rule 145(d)(2) under the Securities Act are then available to the
undersigned, (ii) two years shall have elapsed from the date the undersigned
acquired Chancellor Common Stock received in the Merger and the provisions of
Rule 145(d)(3) under the Securities Act are then available to the undersigned,
or (iii) Chancellor has received under the Securities Act an opinion of counsel,
which opinion and counsel shall be reasonably satisfactory to Chancellor, to the
effect that the
I-46
<PAGE> 612
restrictions imposed by Rule 145 under the Securities Act no longer apply to the
undersigned.
Except pursuant to any contractual registration rights, if any, that I have on
the date hereof or may hereafter enter into, Chancellor shall be under no
further obligation to register the sale, transfer or other disposition of the
shares of Chancellor Common Stock received by me as a result of the Merger or to
take any other action necessary in order to make compliance with an exemption
from registration available.
Very truly yours,
I-47
<PAGE> 613
ANNEX II
Wasserstein Perella & Co., Inc.
31 West 52nd Street
New York, New York 10019-6118
WASSERSTEIN Telephone 212-969-2700
PERELLA & CO Fax 212-969-7836
July 7, 1998
Special Committee of the Board of Directors
Chancellor Media Corporation
433 East Las Colinas Boulevard, Suite 1130
Irving, TX 75039
Members of the Special Committee of the Board:
You have asked us to advise you with respect to the fairness, from a financial
point of view, to Chancellor Media Corporation ("Chancellor") and the holders of
Chancellor common stock of the Exchange Ratio (as defined below) provided for
pursuant to the terms of the Agreement and Plan of Merger, dated as of July 7,
1998 (the "Merger Agreement"), between Chancellor and Ranger Equity Holdings
Corporation ("LIN"). The Merger Agreement provides for, among other things, a
merger of LIN with and into Chancellor (the "Merger") pursuant to which each
outstanding share of common stock, par value $0.01 per share, of LIN (other than
any such shares held in the treasury of LIN) will be converted into 0.0300
shares of common stock, par value $0.01 per share, of Chancellor (the "Exchange
Ratio"). The terms and conditions of the Merger are set forth in more detail in
the Merger Agreement.
In connection with rendering our opinion, we have reviewed a draft of the Merger
Agreement, and for purposes hereof, we have assumed that the final form of this
document will not differ in any material respect from the draft provided to us.
We have also reviewed and analyzed certain publicly available business and
financial information relating to LIN and Chancellor for recent years and
interim periods to date, as well as certain internal financial and operating
information, including financial forecasts, analyses and projections prepared by
or on behalf of LIN and Chancellor and provided to us for purposes of our
analysis, and we have met with management of LIN and Chancellor to review and
discuss such information and, among other matters, LIN's and Chancellor's
business, operations, assets, financial condition and future prospects.
We have reviewed and considered certain financial data relating to LIN, and
certain financial and stock market data relating to Chancellor, and we have
compared that data with similar data for certain other companies, the securities
of which are publicly traded, that we believe may be relevant or comparable in
certain respects to LIN or Chancellor or one or more of their respective
businesses or assets, and we have reviewed and considered
New York Chicago Dallas Frankfurt Houston London Los Angeles Paris San
Francisco Tokyo
<PAGE> 614
July 7, 1998
Page 2
the financial terms of certain recent acquisitions and business combination
transactions in the television broadcasting industry specifically, and in other
industries generally, that we
believe to be reasonably comparable to the Merger or otherwise relevant to our
inquiry. We have also performed such other financial studies, analyses, and
investigations and reviewed such other information as we considered appropriate
for purposes of this opinion. We reviewed a draft of a term sheet (the "Term
Sheet") regarding the proposed $50,000,000 aggregate amount of Series A
Preferred Stock that LIN would receive from Dallas Sports Holding Company.
In our review and analysis and in formulating our opinion, we have assumed and
relied upon the accuracy and completeness of all the financial and other
information provided to or discussed with us or publicly available, and we have
not assumed any responsibility for independent verification of any of such
information. We also have assumed and relied upon the reasonableness and
accuracy of the financial projections, forecasts and analyses provided to us,
and we have assumed that such projections, forecasts and analyses were
reasonably prepared in good faith and on bases reflecting the best currently
available judgments and estimates of LIN's and Chancellor's management. We
express no opinion with respect to such projections, forecasts and analyses or
the assumptions upon which they are based. In addition, we have not reviewed any
of the books and records of LIN or Chancellor, or assumed any responsibility for
conducting a physical inspection of the properties or facilities of LIN or
Chancellor, or for making or obtaining an independent valuation or appraisal of
the assets or liabilities of LIN or Chancellor, and no such independent
valuation or appraisal was provided to us. We note that the Merger is intended
to qualify as a tax free reorganization for United States Federal tax purposes,
and we have assumed that the Merger will so qualify. We also have assumed that
obtaining all regulatory and other approvals and third party consents required
for consummation of the Merger will not have an adverse impact on Chancellor or
LIN or on the anticipated benefits of the Merger, and we have assumed that the
transactions described in the Merger Agreement will be consummated without
waiver or modification of any of the material terms or conditions contained
therein by any party thereto. We also have assumed that the transaction
described in the Term Sheet will be consummated as described therein and
otherwise in a customary manner. Our opinion is necessarily based on economic
and market conditions and other circumstances as they exist and can be evaluated
by us as of the date hereof. We are not expressing any opinion herein as to the
prices at which any securities of Chancellor or LIN will actually trade at any
time.
In the ordinary course of our business, we may actively trade the debt and
equity securities of LIN and Chancellor for our own account and for the accounts
of customers and, accordingly, may at any time hold a long or short position in
such securities.
WP&Co. advised Evergreen Media Corporation in its merger with Chancellor
Broadcasting Corporation, which transaction resulted in the formation of
Chancellor. WP&Co. advised Evergreen Media Corporation in its joint acquisition
with Chancellor of Viacom Radio Group. WP&Co. advised the predecessor of LIN,
LIN Television Corporation, and the Independent Directors of the Board of
Directors of LIN Television Corporation in its merger with an affiliate of Hicks
Muse Tate and Furst, Inc.
<PAGE> 615
July 7, 1998
Page 3
Our opinion addresses only the fairness, from a financial point of view, to
Chancellor and the holders of Chancellor common stock of the Exchange Ratio
provided for pursuant to the Merger Agreement, and we do not express any views
on any other terms of the Merger. Specifically, our opinion does not address
Chancellor's underlying business decision to effect the transactions
contemplated by the Merger Agreement. We have advised the Special Committee of
the Board of Directors of Chancellor (the "Special Committee") that, based on
the terms of our engagement by the Company we do not believe that any person
(including any stockholder of the Company), other than the Special Committee,
has the legal right to rely upon this letter to support any claim against us
arising under applicable state law and that, should any such claim be brought
against us by any such person, this assertion would be raised as a defense. In
the absence of applicable state law, the availability of such a defense would be
resolved by a court of competent jurisdiction. Resolution of the question of the
availability of such a defense, however, would have no effect on the rights and
responsibilities of the Special Committee under applicable state law.
Furthermore, the availability of such defense to us would have no effect on the
rights and responsibilities of either us or the Special Committee under federal
securities laws.
It is understood that this letter is solely for the benefit and use of the
Special Committee of the Board of Directors of Chancellor in its consideration
of the Merger and may not be relied upon by any other person, and except for
inclusion in its entirety in any registration statement or proxy statement
required to be circulated to shareholders of Chancellor relating to the Merger,
may not be disseminated, quoted, referred to or reproduced at any time or in any
manner without our prior written consent. This opinion does not constitute a
recommendation to any shareholder as to how such holder should vote with respect
to the Merger, and should not be relied upon by any shareholder as such.
Based upon and subject to the foregoing, including the various assumptions and
limitations set forth herein, it is our opinion that, as of the date hereof, the
Exchange Ratio provided for pursuant to the Merger Agreement is fair to
Chancellor and the holders of Chancellor common stock from a financial point of
view.
Very truly yours,
WASSERSTEIN PERELLA & CO., INC.
WASSERSTEIN PERELLA & CO., INC. SIGNATURE
<PAGE> 616
ANNEX III
[MORGAN STANLEY LETTERHEAD]
July 7, 1998
Board of Directors
Chancellor Media Corporation
433 East Las Colinas Boulevard
Irving, TX 75039
Members of the Board:
We understand that Chancellor Media Corporation ("Chancellor") and Ranger Equity
Holdings Corporation ("LIN" or the "Company") have entered into an Agreement and
Plan of Merger, dated as of July 7, 1998 (the "Merger Agreement"), which
provides, among other things, for the merger (the "Merger") of LIN with and into
Chancellor. Pursuant to the Merger, LIN will become a wholly-owned subsidiary of
Chancellor and each outstanding share of common stock, par value $.01 per share,
of LIN (the "LIN Common Stock"), other than shares held as treasury shares and
other than Dissenting Shares, will be converted into the right to receive 0.0300
shares of Chancellor common stock, par value $.01 per share, (the "Chancellor
Common Stock"). The total number of shares of Chancellor Common Stock (assuming
no exercise of dissenters' rights) to be issued pursuant to the Merger Agreement
is approximately 17.7 million shares (the "Consideration"). The terms and
conditions of the Merger are more fully set forth in the Merger Agreement. We
also understand that Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse")
currently owns approximately 72% of the LIN Common Stock and approximately 10%
of the Chancellor Common Stock.
You have asked for our opinion as to whether the Consideration to be paid by
Chancellor pursuant to the Merger Agreement is fair from a financial point of
view to Chancellor.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of Chancellor and the Company;
(ii) reviewed certain internal financial statements and other financial and
operating data concerning Chancellor and the Company prepared by the
management of Chancellor and the Company, respectively;
(iii) reviewed certain financial projections prepared by the management of
Chancellor and the Company, respectively;
(iv) discussed the past and current operations and financial condition and
the prospects of Chancellor and of the Company with senior executives of
Chancellor and the Company, respectively;
(v) reviewed the reported prices and trading activity for the Chancellor
Common Stock;
(vi) compared the financial performance of Chancellor and the Company with
that of certain other comparable publicly-traded companies;
III-1
<PAGE> 617
(vii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(viii) participated in discussions and negotiations among representatives
of Chancellor and the Company and their financial and legal advisors;
(ix) reviewed the Merger Agreement dated July 7, 1998 and certain related
documents; and
(x) performed such other analyses as we have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of Chancellor and
the Company. We have assumed that the Merger will take place in accordance with
the Merger Agreement and related documents. We have not made any independent
valuation or appraisal of the assets or liabilities of the Company, nor have we
been furnished with any such appraisals. Our opinion is necessarily based on
economic, market and other conditions as in effect on, and the information made
available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of Chancellor in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory or financing services for Chancellor, the Company, and Hicks
Muse and have received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of Chancellor and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by Chancellor with the Securities and Exchange Commission
with respect to the Merger. In addition, we express no opinion or
recommendations as to how the holders of Chancellor Common Stock should vote at
the shareholders' meeting held in connection with the issuance of the Chancellor
Common Stock pursuant to the Merger.
Based on the foregoing, we are of the opinion on the date hereof that the
Consideration to be paid by Chancellor pursuant to the Merger Agreement is fair
from a financial point of view to Chancellor.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ PAUL J. TAUBMAN
--------------------------------------
Paul J. Taubman
Managing Director
III-2
<PAGE> 618
ANNEX IV
[GREENHILL LETTERHEAD]
July 7, 1998
Board of Directors
Ranger Equity Holdings Corporation
One Richmond Square
Suite 230E
Providence, Rhode Island 02906
Members of the Board:
We understand that Ranger Equity Holdings Corporation ("Ranger") and Chancellor
Media Corporation ("Chancellor") have entered into an Agreement and Plan of
Merger, dated as of July 7, 1998 (the "Merger Agreement"), which provides, among
other things, for the merger of Ranger with and into Chancellor with Chancellor
as the surviving corporation (the "Merger"). Pursuant to the Merger, each issued
and outstanding share of common stock, $0.01 par value, of Ranger (the "Ranger
Common Stock"), other than shares of Ranger Common Stock held as treasury shares
by Ranger and other dissenting shares, shall be converted into the right to
receive 0.0300 shares of common stock, $0.01 par value, of Chancellor (the
"Merger Consideration"). The terms and conditions of the Merger are more fully
set forth in the Merger Agreement.
You have asked us to render an opinion as to whether, as of the date hereof, the
Merger Consideration is fair, from a financial point of view, to the
stockholders of Ranger. We have not been requested to opine as to, and our
opinion does not in any manner address the underlying business decision to
proceed with or effect the Merger.
For purposes of the opinion set forth herein, we have:
1. reviewed the Merger Agreement, the Disclosure Letter of Ranger, the
Disclosure Letter of Chancellor and the Voting Agreement among Ranger
and Chancellor, all dated July 7, 1998;
2. analyzed the structure of the Merger;
3. analyzed the value of the Merger Consideration against publicly
available information of other transactions that we deemed relevant;
4. analyzed the value of the Merger Consideration using the trading values
of television broadcasting companies that we deemed relevant;
5. reviewed Ranger financial information, including financial projections,
and operating information furnished to us by representatives of Ranger;
6. performed a discounted cash flow analysis of Ranger;
7. discussed the structure of the Merger as well as the business,
operations and prospects of Ranger with representatives of Ranger;
<PAGE> 619
8. discussed the recent and near-term prospects, both business and
financial, for Chancellor, as well as the capital structure of
Chancellor with representatives of Chancellor;
9. reviewed certain publicly available financial and other information on
Chancellor; and
10. considered such other factors as we have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information supplied and otherwise made available to us
by representatives of Ranger and Chancellor for purposes of this opinion and
have further relied upon the assurances of the representatives of Ranger and
Chancellor that they are not aware of any facts or circumstances that would make
such information inaccurate or misleading.
With respect to the financial projections of Ranger that have been furnished to
us, upon advice of the representatives of Ranger, we have assumed such
projections have been reasonably prepared on a basis reflecting the best
currently available estimates and good faith judgements of the management of
Ranger as to the future financial performance of Ranger and we relied upon such
projections in arriving at our opinion. We requested but were not provided with
financial projections for Chancellor. In arriving at our opinion, we have not
conducted a physical inspection of Ranger or Chancellor nor have we undertaken
an independent appraisal of the assets of Ranger or of the assets of Chancellor
nor are we expressing an opinion as to any aspect of the Merger other than the
fairness to the stockholders of Ranger of the Merger Consideration from a
financial point of view. In addition, we have assumed the Merger will be
consummated in accordance with the terms and conditions set forth in the Merger
Agreement. Our opinion is necessarily based on financial, economic, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof. We note that Robert F. Greenhill, Chairman of Greenhill &
Co., LLC owns 2 million common shares of Ranger, representing 0.3% of the fully
diluted common shares outstanding and that Greenhill & Co., LLC has acted in the
past as financial advisor to Chancellor with respect to matters unrelated to the
Merger.
It is understood that this letter is exclusively for the information of the
Board of Directors of Ranger and is rendered to the Board of Directors in
connection with its consideration of the Merger and may not be used for any
other purpose without our prior written consent, except that this opinion may be
included in its entirety in any filing made by Ranger with the Securities and
Exchange Commission. This opinion is not intended to be and does not constitute
a recommendation to the Board of Directors of Ranger as to whether it should
approve the Merger. Based upon and subject to the foregoing, we are of the
opinion on the date hereof that the Merger Consideration is fair, from a
financial point of view, to the stockholders of Ranger.
Very truly yours,
GREENHILL & CO., LLC
By: /s/ SCOTT L. BOK
--------------------------------------
Name: Scott L. Bok
Title: Managing Director
<PAGE> 620
ANNEX V
SECTION 262
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
Appraisal Rights. (a) Any stockholder of a corporation of this State who holds
shares of stock on the date of the making of a demand pursuant to subsection (d)
of this section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in favor
of the merger or consolidation nor consented thereto in writing pursuant to
sec.228 of this title shall be entitled to an appraisal by the Court of Chancery
of the fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series of
stock of a constituent corporation in a merger or consolidation to be effected
pursuant to sec.251 (other than a merger effected pursuant to sec.251(g) of this
title), sec.252, sec.254, sec.257, sec.258, sec.263 or sec.264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof:
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be
V-1
<PAGE> 621
either listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by
the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts described
in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or consented to the
merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to sec.228 or
sec.253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are
V-2
<PAGE> 622
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of
the merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the effective
date of the merger or consolidation notifying each of the holders of any
class or series of stock of such constituent corporation that are entitled
to appraisal rights of the effective date of the merger or consolidation or
(ii) the surviving or resulting corporation shall send such a second notice
to all such holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be
sent to each stockholder who is entitled to appraisal rights and who has
demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice
that such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more than
10 days prior to the date the notice is given, provided, that if the notice
is given on or after the effective date of the merger or consolidation, the
record date shall be such effective date. If no record date is fixed and
the notice is given prior to the effective date, the record date shall be
the close of business on the day next preceding the day on which the notice
is given.
(e) Within 120 days after the effective date of the merger or consolidation, the
surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
V-3
<PAGE> 623
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholder
who have complied with this section and who have become entitled to appraisal
rights. The Court may require the stockholders who have demanded an appraisal
for their shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court shall
appraise the shares, determining their fair value exclusive of any element of
value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares, together
with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
V-4
<PAGE> 624
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(1) The shares of the surviving or resulting corporation to which the shares of
such objecting stockholders would have been converted had they assented to the
merger or consolidation shall have the status of authorized and unissued shares
of the surviving or resulting corporation.
V-5
<PAGE> 625
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware ("DGCL")
empowers a Delaware corporation to indemnify any person who is, or is threatened
to be made, a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation) by reason of the fact that
such person is or was an officer or director of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee or
agent of another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided that he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. A Delaware corporation may
indemnify officers and directors in an action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which he actually and reasonably incurred in
connection therewith.
Chancellor Media's Amended and Restated Certificate of Incorporation provides
that no director of the Company shall be liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
Chancellor Media or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DGCL, or (iv) for any transaction from which the
director derived an improper personal benefit.
Chancellor Media's Bylaws provide that Chancellor Media shall indemnify every
person who is or was a party or is or was threatened to be made a party to any
action suit, or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or officer of
the corporation or, while a director or officer or employee of the corporation,
is or was serving at the request of the corporation as a director, officer,
employee, agent or trustee of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonable incurred by him in connection with such action, suit or proceeding,
to the full extent permitted by applicable law.
II-1
<PAGE> 626
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
A. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.11(h) -- Agreement and Plan of Merger by and among Pyramid
Communications, Inc., Evergreen Media Corporation and
Evergreen Media/Pyramid Corporation dated as of July 14,
1995 (see table of contents for list of omitted exhibits
and schedules).
2.11A(i) -- Amendment to Plan and Agreement of Merger by and among
Pyramid Communications, Inc., Evergreen Media Corporation
and Evergreen Media/Pyramid Corporation dated September
7, 1995.
2.11B(i) -- Amendment to Plan and Agreement of Merger by and among
Pyramid Communications, Inc., Evergreen Media Corporation
and Evergreen Media/Pyramid Corporation dated January 11,
1996.
2.12(j) -- Purchase Agreement between Fairbanks Communications, Inc.
and Evergreen Media Corporation dated October 12, 1995
(see table of contents for list of omitted exhibits and
schedules).
2.13(n) -- Option Agreement dated as of January 9, 1996 between
Chancellor Broadcasting Company and Evergreen Media
Corporation (including Form of Advertising Brokerage
Agreement and Form of Asset Purchase Agreement).
2.14(o) -- Asset Purchase Agreement dated April 4, 1996 between
American Radio Systems Corporation and Evergreen Media
Corporation of Buffalo (see table of contents for list of
omitted exhibits and schedules).
2.15(o) -- Asset Purchase Agreement dated April 11, 1996 between
Mercury Radio Communications, L.P. and Evergreen Media
Corporation of Los Angeles, Evergreen Media/Pyramid
Holdings Corporation, WHTT (AM) License Corp. and WHTT
(FM) License Corp. (see table of contents for list of
omitted exhibits and schedules).
2.16(o) -- Asset Purchase Agreement dated April 19, 1996 between
Crescent Communications L.P. and Evergreen Media
Corporation of Los Angeles (see table of contents for
list of omitted exhibits and schedules).
2.17(p) -- Asset Purchase Agreement dated June 13, 1996 between
Evergreen Media Corporation of Los Angeles and Greater
Washington Radio, Inc. (see table of contents for list of
omitted exhibits and schedules).
2.18(p) -- Asset Exchange Agreement dated June 13, 1996 among
Evergreen Media Corporation of Los Angeles, Evergreen
Media Corporation of the Bay State, WKLB License Corp.,
Greater Media Radio, Inc. and Greater Washington Radio,
Inc. (see table of contents for list of omitted exhibits
and schedules).
2.19(p) -- Purchase Agreement dated June 27, 1996 between WEDR,
Inc., and Evergreen Media Corporation of Los Angeles (See
table of contents for list of omitted schedules).
</TABLE>
II-2
<PAGE> 627
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.20(p) -- Time Brokerage Agreement dated July 10, 1996 by and
between Evergreen Media Corporation of Detroit, as
Licensee, and Kidstar Interactive Media Incorporated, as
Time Broker.
2.21(p) -- Asset Purchase Agreement dated July 15, 1996 by and among
Century Chicago Broadcasting L.P., Century Broadcasting
Corporation, Evergreen Media Corporation of Los Angeles
and Evergreen Media Corporation of Chicago.
2.22(p) -- Asset Purchase Agreement dated August 12, 1996 by and
among Chancellor Broadcasting Company, Shamrock
Broadcasting, Inc. and Evergreen Media Corporation of the
Great Lakes.
2.23(p) -- Asset Purchase Agreement dated as of August 12, 1996
between Secret Communications Limited Partnership and
Evergreen Media Corporation of Los Angeles (WQRS-FM) (See
table of contents for list of omitted exhibits and
schedules).
2.24(p) -- Asset Purchase Agreement dated as of August 12, 1996
between Secret Communications Limited Partnership and
Evergreen Media Corporation of Los Angeles (See table of
contents for list of omitted schedules).
2.25(q) -- Letter of intent dated August 27, 1996 between EZ
Communications, Inc. and Evergreen Media Corporation.
2.26(q) -- Asset Purchase Agreement dated September 19, 1996 between
Beasley-FM Acquisition Corp., WDAS License Limited
Partnership and Evergreen Media Corporation of Los
Angeles.
2.27(q) -- Asset Purchase Agreement dated September 19, 1996 between
The Brown Organization and Evergreen Media Corporation of
Los Angeles.
2.28(r) -- Stock Purchase Agreement by and between Viacom
International Inc. and Evergreen Media Corporation of Los
Angeles, dated February 16, 1997 (See table of contents
for omitted schedules and exhibits).
2.29(r) -- Agreement and Plan of Merger, by and among Evergreen
Media Corporation, Chancellor Broadcasting Company and
Chancellor Radio Broadcasting Company, dated as of
February 19, 1997.
</TABLE>
II-3
<PAGE> 628
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.30(r) -- Stockholders Agreement, by and among Chancellor
Broadcasting Company, Evergreen Media Corporation, Scott
K. Ginsburg (individually and as custodian for certain
shares held by his children), HM2/Chancellor, L.P.,
Hicks, Muse, Tate & First Equity Fund 11, L.P., HM2/HMW,
L.P., The Chancellor Business Trust, HM2/HMD Sacramento
GP, L.P., Thomas O. Hicks, as Trustee of the William Cree
Hicks 1992 Irrevocable Trust, Thomas O. Hicks, as Trustee
of the Catherine Forgave Hicks 1993 Irrevocable Trust,
Thomas O. Hicks, as Trustee of the John Alexander Hicks
1984 Trust, Thomas O. Hicks, as Trustee of the Mack
Hardin Hicks 1984 Trust, Thomas O. Hicks, as Trustee of
Robert Bradley Hicks 1984 Trust, Thomas O. Hicks, as
Trustee of the Thomas O. Hicks, Jr. 1984 Trust, Thomas O.
Hicks and H. Rand Reynolds, as Trustees for the Muse
Children's GS Trust, and Thomas O. Hicks, dated as of
February 19, 1997.
2.31(r) -- Joint Purchase Agreement, by and among Chancellor Radio
Broadcasting Company, Chancellor Broadcasting Company,
Evergreen Media Corporation of Los Angeles, and Evergreen
Media Corporation, dated as of February 19, 1997.
2.32(s) -- Asset Exchange Agreement,by and among EZ Communications,
Inc., Professional Broadcasting Incorporated, EZ
Philadelphia, Inc., Evergreen Media Corporation of Los
Angeles, Evergreen Media Corporation of Charlotte,
Evergreen Media Corporation of the East, Evergreen Media
Corporation of Carolinaland, WBAV/ WBAV-FM/WPEG License
Corp. and WRFX License Corp., dated as of December 5,
1996 (See table of contents for list of omitted
schedules).
2.33(s) -- Asset Purchase Agreement, by and among EZ Communications,
Inc., Professional Broadcasting Incorporated, EZ
Charlotte, Inc., Evergreen Media Corporation of Los
Angeles, Evergreen Media Corporation of the East and
Evergreen Media Corporation of Carolinaland, dated as of
December 5, 1996 (See table of contents for list of
omitted schedules).
2.34(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: WGCI-AM and WGCI-FM), dated as of April
4, 1997 (see table of contents for list of omitted
schedules and exhibits).
2.35(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: KKBQ-AM and KKBQ-FM), dated as of April
4, 1997 (see table of contents for list of omitted
schedules and exhibits).
2.36(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: KHKS-FM), dated as of April 4, 1997 (see
table of contents for list of omitted schedules and
exhibits).
</TABLE>
II-4
<PAGE> 629
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.41(y) -- Amended and Restated Agreement and Plan of Merger among
Chancellor Broadcasting Company, Chancellor Radio
Broadcasting Company, Evergreen Media Corporation,
Evergreen Mezzanine Holdings Corporation and Evergreen
Media Corporation of Los Angeles, dated as of February
19, 1997, amended and restated as of July 31, 1997.
2.42(gg) -- Option Agreement, by and among Evergreen Media
Corporation, Chancellor Broadcasting Company, Bonneville
International Corporation and Bonneville Holding Company,
dated as of August 6, 1997.
2.43(ss) -- Letter Agreement, dated February 20, 1998, between CMCLA
and Capstar Broadcasting Corporation.
2.44(yy) -- Amendment No. 1, dated May 19, 1998, to Letter Agreement
dated February 20, 1998, between CMCLA and Capstar
Broadcasting Corporation.
2.45(yy) -- Unit and Stock Purchase Agreement by and among CMCLA,
Martin Media, L.P., Martin & MacFarlane, Inc., Nevada
Outdoor Systems, Inc., MW Sign Corp. and certain sellers
named therein, dated as of June 19, 1998 (see table of
contents for list of omitted schedules and exhibits).
2.46(yy) -- Agreement and Plan of Merger between Chancellor Media
Corporation and Ranger Equity Holdings Corporation dated
as of July 7, 1998.
2.47(yy) -- Asset Purchase Agreement: dated August 11, 1998, between
Chancellor Media Corporation of Los Angeles and
Independent Group Limited Partnership.
2.48(yy) -- Asset Purchase Agreement, dated August 11, 1998, between
Chancellor Media Corporation of Los Angeles and Zapis
Communications Corporation.
2.49(yy) -- Stock Purchase Agreement, dated August 11, 1998, among
Chancellor Media Corporation of Los Angeles, Young Ones,
Inc., Zebra Broadcasting Corporation and the Sellers
named therein.
2.50(yy) -- Stock Purchase Agreement, dated August 11, 1998, among
Chancellor Media Corporation of Los Angeles, ML Media
Partners LP., Wincom Broadcasting Corporation and WIN
Communications, Inc.
2.51(yy) -- Stock Purchase and Merger Agreement, dated July 9, 1998,
by and among Chancellor Media Corporation, Chancellor
Mexico LLC, Grupo Radio Centro, S.A. De C.V., and the
Selling Shareholders.
2.52(zz) -- Asset Purchase Agreement, dated August 30, 1998, by and
among Chancellor Media Corporation of Los Angeles,
Whiteco Industries Inc. and Metro Management Associates.
</TABLE>
II-5
<PAGE> 630
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
3.1C(ss) -- Amended and Restated Certificate of Incorporation of
Chancellor Media Corporation.
3.2B(ss) -- Amended and Restated Bylaws of Chancellor Media.
4.10(t) -- Second Amended and Restated Loan Agreement dated as of
April 25, 1997 among Evergreen Media Corporation of Los
Angeles, the financial institutions whose names appear as
Lenders on the signature pages thereof (the "Lenders"),
Toronto Dominion Securities, Inc., as Arranging Agent,
The Bank of New York and Bankers Trust Company, as
Co-Syndication Agents, NationsBank of Texas, N.A. and
Union Bank of California, as Co-Documentation Agents, and
Toronto Dominion (Texas), Inc., as Administrative Agent
for the Lenders, together with certain collateral
documents attached thereto as exhibits, including
Assignment of Partnership Interests, Assignment of Trust
Interests, Borrower's Pledge Agreement, Parent Company
Guaranty, Stock Pledge Agreement, Subsidiary Guaranty and
Subsidiary Pledge Agreement (see table of contents for
list of omitted schedules and exhibits).
4.11(z) -- First Amendment to Second Amended and Restated Loan
Agreement, dated June 26, 1997, among Evergreen Media
Corporation of Los Angeles, the Lenders, the Agents and
the Administrative Agent.
4.15(aa) -- Indenture, dated as of February 14, 1996, governing the
9 3/8% Senior Subordinated Notes due 2004 of CMCLA.
4.16(bb) -- First Supplemental Indenture, dated as of February 14,
1996, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of CMCLA.
4.17(cc) -- Indenture, dated as of February 26, 1996, governing the
12 1/4% Subordinated Exchange Debentures due 2008 of
CMCLA.
4.18(dd) -- Indenture, dated as of January 23, 1997, governing the
12% Subordinated Exchange Debentures due 2009 of CMCLA.
4.19(ee) -- Indenture, dated as of June 24, 1997, governing the
8 3/4% Senior Subordinated Notes due 2007 of CMCLA.
4.21(ff) -- Specimen of the 12 1/4% Series A Senior Cumulative
Exchangeable Preferred Stock Certificate of CMCLA.
4.22(ff) -- Specimen of the 12% Exchangeable Preferred Stock
Certificate of CMCLA.
4.23(ff) -- Form of Certificate of Designation for the 12 1/4% Series
A Senior Cumulative Exchangeable Preferred Stock of
CMCLA.
4.24(ff) -- Form of Certificate of Designation for the 12%
Exchangeable Preferred Stock of CMCLA.
4.25(pp) -- Second Amendment to Second Amended and Restated Loan
Agreement, dated August 7, 1997, among Evergreen Media
Corporation of Los Angeles, the Lenders, the Agents and
the Administrative Agent.
</TABLE>
II-6
<PAGE> 631
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4.26(hh) -- Second Supplemental Indenture, dated as of April 15,
1997, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of CMCLA.
4.27(pp) -- Third Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of CMCLA.
4.28(pp) -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated June 24, 1997, governing the
8 3/4% Senior Subordinated Notes due 2007 of CMCLA.
4.29(pp) -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated February 26, 1997, governing
the 12 1/4% Subordinated Exchange Debentures due 2008 of
CMCLA.
4.30(pp) -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated January 23, 1997, governing
the 12% Subordinated Exchange Debentures due 2009 of
CMCLA.
4.34(uu) -- Amended and Restated Indenture, dated as of October 28,
1997, governing the 10 1/2% Senior Subordinated Notes due
2007 of CMCLA.
4.35(uu) -- Second Supplement Indenture, dated as of October 28,
1997, to the Amended and Restated Indenture dated October
28, 1997 governing the 10 1/2% Senior Subordinated Notes
due 2007 of CMCLA.
4.36(uu) -- Third Amendment to Second Amended and Restated Loan
Agreement, dated October 28, 1997, among CMCLA, the
Lenders, the Agents and the Administrative Agent.
4.37(uu) -- Fourth Amendment to Second Amended and Restated Loan
Agreement, dated February 10, 1998, among CMCLA, the
Lenders, the Agents and the Administrative Agent.
4.38(vv) -- Indenture, dated as of December 22, 1997, governing the
8 1/8% Senior Subordinated Notes due 2007 of CMCLA.
4.39(ww) -- Fifth Amendment to Second Amended and Restated Loan
Agreement, dated May 1, 1998, among CMCLA, the Lenders,
the Agents and the Administrative Agent.
4.40(yy) -- Sixth Amendment to Second Amended and Restated Loan
Agreement, dated July 31, 1998, among CMCLA, the Lenders,
the Agents and the Administrative Agent.
4.41(zz) -- Indenture, dated as of September 30, 1998, governing the
9% Senior Subordinated Notes due 2008 of CMCLA.
4.42(aaa) -- Seventh Amendment to Second Amended and Restated Loan
Agreement, dated November 9, 1998, among CMCLA, the
Lenders, the Agents and the Administrative Agent.
4.43(zz) -- Indenture, dated as of November 17, 1998, governing the
8% Notes due 2008 of CMCLA.
5.1* -- Opinion of Weil, Gotshal & Manges LLP.
8.1* -- Opinion regarding certain tax matters of Weil, Gotshal &
Manges LLP.
</TABLE>
II-7
<PAGE> 632
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
8.2* -- Opinion regarding certain tax matters of Vinson & Elkins
L.L.P.
10.23(xx) -- Amended and Restated Chancellor Media Corporation Stock
Option Plan for Non-employee Directors.
10.26(n) -- Employment Agreement dated February 9, 1996 by and
between Evergreen Media Corporation and Kenneth J.
O'Keefe.
10.28(o) -- 1995 Stock Option Plan for executive officers and key
employees of Evergreen Media Corporation.
10.30(pp) -- First Amendment to Employment Agreement dated March 1,
1997 by and between Evergreen Media Corporation and
Kenneth J. O'Keefe.
10.31(pp) -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and Scott K. Ginsburg.
10.32(pp) -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and James de Castro.
10.33(pp) -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and Matthew E. Devine.
10.34(pp) -- Second Amendment to Employment Agreement dated September
4, 1997 by and among Evergreen Media Corporation,
Evergreen Media Corporation of Los Angeles and Kenneth J.
O'Keefe.
10.35(ii) -- Employment Agreement dated February 14, 1996 by and among
Chancellor Broadcasting Company, Chancellor Radio
Broadcasting Company and Steven Dinetz.
10.36(jj) -- Chancellor Broadcasting Company 1996 Stock Award Plan.
10.37(kk) -- Chancellor Holdings Corp. 1994 Director Stock Option
Plan.
10.38(ll) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Steven Dinetz.
10.39(mm) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Eric W. Neuman.
10.40(nn) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Marvin Dinetz.
10.41(oo) -- Stock Option Grant Letter dated February 14, 1997 from
Chancellor Broadcasting Company to Carl M. Hirsch.
10.44(vv) -- Agreement dated April 20, 1998 by and among Chancellor
Media Corporation, Chancellor Media Corporation of Los
Angeles and Scott K. Ginsburg.
10.45(vv) -- Employment Agreement dated April 29, 1998 by and among
Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and Jeffrey A. Marcus.
10.46(yy) -- Chancellor Media Corporation 1998 Stock Option Plan.
10.47(yy) -- Voting Agreement, among Chancellor Media Corporation and
Ranger Equity Partners, L.P. dated as of July 7, 1998.
</TABLE>
II-8
<PAGE> 633
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.48(zz) -- Employment Agreement, dated as of May 18, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and James E. de Castro.
10.49(zz) -- Employment Agreement, dated as of May 18, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and Matthew E. Devine.
10.50(zz) -- Employment Agreement, dated as of June 1, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and Eric C. Neuman.
10.51(zz) -- Employment Agreement, dated as of August 18, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and James A. McLaughlin, Jr.
10.52(bbb) -- Agreement, dated as of January 6, 1999, among Chancellor
Media Corporation, Chancellor Media Corporation of Los
Angeles, Matthew E. Devine and Vicki Devine.
10.53* -- Amended and Restated Employment Agreement, dated as of
October 1, 1998, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and Jeffrey A. Marcus.
10.54* -- Amended and Restated Employment Agreement, dated as of
October 1, 1998, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and James E. de Castro.
10.55* -- Amended and Restated Employment Agreement, dated as of
October 1, 1998, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and Eric C. Neuman.
10.56* -- Employment Agreement, dated as of October 1, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and Thomas P. McMillin.
10.57* -- Amendment No. 1 to Employment Agreement, dated as of
January 6, 1999, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and Thomas P. McMillin.
10.58* -- Amended and Restated Employment Agreement, dated as of
October 1, 1998, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and James A. McLaughlin, Jr.
12.1* -- Chancellor Media Corporation Computation of Ratio of
Earnings to Combined Fixed Charges and Preferred Stock
Dividends.
21.1* -- Subsidiaries of Chancellor Media Corporation.
23.1 -- Consent of Weil, Gotshal & Manges LLP (included as part
of their opinion listed as Exhibit 5.1).
23.2* -- Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.3* -- Consent of KPMG LLP, independent accountants.
23.4* -- Consent of PricewaterhouseCoopers LLP, independent
accountants.
</TABLE>
II-9
<PAGE> 634
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
23.5* -- Consent of KPMG LLP, independent accountants.
23.6* -- Consent of Arthur Andersen LLP, independent accountants.
23.7* -- Consent of Ernst & Young LLP, independent accountants.
23.8* -- Consent of BDO Seidman, LLP, independent accountants.
23.9* -- Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.10* -- Consent of Ernst & Young LLP, independent accountants.
23.11* -- Consent of Ernst & Young LLP, independent accountants.
23.12* -- Consent of Arthur Andersen LLP, independent accountants.
23.13* -- Consent of Barbich Longcrier Hooper & King Accountancy
Corporation, independent auditors.
23.14* -- Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.15* -- Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.16* -- Consent of Wasserstein Perella & Co., Inc., financial
advisor to the Special Committee of the Board of
Directors of Chancellor Media.
23.17* -- Consent of Morgan Stanley & Co. Incorporated, financial
advisor to the Board of Directors of Chancellor Media.
23.18* -- Consent of Greenhill & Co., LLC, financial advisor to the
Board of Directors of LIN.
23.19* -- Consent of Vinson & Elkins L.L.P.
24.1 -- Powers of Attorney (included on signature pages).
99.1* -- Certificate of Incorporation of Ranger Equity Holdings
Corporation.
99.2* -- Bylaws of Ranger Equity Holdings Corporation.
</TABLE>
- ---------------
* Filed herewith.
+ To be filed by amendment.
(a) Incorporated by reference to the identically numbered exhibit to the
Registration Statement on Form S-1, as amended (Reg. No. 33-60036), of
Evergreen Media Corporation ("Evergreen").
(f) Incorporated by reference to the identically numbered exhibit to
Evergreen's Registration Statement on Form S-4, as amended (Reg. No.
33-89838).
(h) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated July 14, 1995.
(i) Incorporated by reference to the identically numbered exhibit to
Evergreens Current Report on Form 8-K dated January 17, 1996.
(j) Incorporated by reference to the identically numbered exhibit to
Evergreens Quarterly Report on Form 10-Q for the quarterly period ending
June 30, 1995.
(k) Incorporated by reference to the identically numbered exhibit to
Evergreen's Registration Statement on Form S-1, as amended (Reg. No.
33-69752).
(n) Incorporated by reference to the identically numbered exhibit to
Evergreen's Annual Report on Form 10-K for the fiscal year ended December
31, 1995.
(o) Incorporated by reference to the identically numbered exhibit to
Evergreen's Quarterly Report on Form 10-Q for the quarterly period ending
March 31, 1996.
II-10
<PAGE> 635
(p) Incorporated by reference to the identically numbered exhibit to
Evergreen's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1996.
(q) Incorporated by reference to the identically numbered exhibit to
Evergreen's Registration Statement on Form S-3, as amended (Reg. No.
333-12453).
(r) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated February 16, 1997 and filed
March 9, 1997.
(s) Incorporated by reference to the identically numbered exhibit to
Evergreen's Annual Report on Form 10-K for the fiscal year ended December
31, 1996.
(t) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated April 1, 1997 and filed May
9, 1997.
(y) Incorporated by reference to the identically numbered exhibit of
Evergreen's Registration Statement on Form S-4, filed August 1, 1997.
(z) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated July 7, 1997 and filed July
31, 1997.
(aa) Incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company, as filed on February 29, 1996.
(bb) Incorporated by reference to Exhibit 4.5 to the Annual Report on Form 10-K
of Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company
and Chancellor Broadcasting Licensee Company for the fiscal year ended
December 31, 1995.
(cc) Incorporated by reference to Exhibit 4.6 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company, as filed on February 29, 1996.
(dd) Incorporated by reference to Exhibit 4.7 to the Current Report on Form 8-K
of Chancellor Radio Broadcasting Company, as filed on February 6, 1997.
(ee) Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company as filed on July 17, 1997.
(ff) Incorporated by reference to the identically-numbered exhibit to the
Registration Statement on Form S-4 (Reg. No. 333-32259), dated July 29,
1997, as amended, of Evergreen Media Corporation of Los Angeles ("EMCLA").
(gg) Incorporated by reference to the identically numbered exhibit to the
Quarterly Report on Form 10-Q of Evergreen and EMCLA for the quarterly
period ending June 30, 1997.
(hh) Incorporated by reference to Exhibit 4.8 to the Quarterly Report on Form
10-Q of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company for the quarterly period ending March 31, 1997.
(ii) Incorporated by reference to Exhibit 10.6 to Chancellor Broadcasting
Company's Registration Statement on Form S-1 (Reg. No. 333-02782) filed
February 9, 1996.
(jj) Incorporated by reference to Exhibit 4.22 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(kk) Incorporated by reference to Exhibit 4.23 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(ll) Incorporated by reference to Exhibit 4.24 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(mm) Incorporated by reference to Exhibit 4.25 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(nn) Incorporated by reference to Exhibit 4.26 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(oo) Incorporated by reference to Exhibit 4.27 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
II-11
<PAGE> 636
(pp) Incorporated by reference to the identically numbered exhibit to the
CMCLA's Registration Statement on Form S-4 (Reg. No. 333-36451), dated
September 26, 1997, as amended.
(ss) Incorporated by reference to the identically numbered exhibit to the
Current Report on Form 8-K of Chancellor Media and CMCLA, dated as of
February 23, 1998 and filed as of February 27, 1998.
(tt) Incorporated by reference to the identically numbered exhibit to the
Annual Report on Form 10-K of Chancellor Media and the CMCLA for the
fiscal year ended December 31, 1997.
(uu) Incorporated by reference to the identically numbered exhibit to the
Annual Report on Form 10-K of Chancellor and CMCLA for the fiscal year
ended December 31, 1997.
(vv) Incorporated by reference to the identically numbered exhibit to CMCLA's
Registration Statement on Form S-4 (Reg. No. 333-50739), dated April 22,
1998, as amended.
(ww) Incorporated by reference to the identically numbered exhibit to the
Quarterly Report on Form 10-Q of Chancellor Media and CMCLA for the
quarterly period ending March 31, 1998.
(xx) Incorporated by reference to Exhibit 4.41 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-53179), dated May 20,
1998.
(yy) Incorporated-by reference to the identically numbered exhibit to the
Quarterly Report on Form 10-Q of Chancellor Media and CMCLA for the
quarterly period ending June 30, 1998.
(zz) Incorporated by reference to Exhibit 4.41 to CMCLA's Registration
Statement on Form S-4 (Reg. No. 333-66971), initially filed November 9,
1998, as amended.
(aaa) Incorporated by reference to Exhibit 4.42 to the Quarterly Report on Form
10-Q of Chancellor Media and CMCLA for the quarterly period ending
September 30, 1998.
(bbb) Incorporated by reference to the identically numbered exhibit to the
Current Report on Form 8-K of Chancellor Media and CMCLA, dated as of
January 7, 1999 and filed as of January 7, 1999.
The Company hereby agrees to furnish supplementary a copy of any omitted
schedule or exhibit to the Commission upon request.
B. Financial Statement Schedules
All schedules have been omitted since the required information is either not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements or the notes thereto.
C. Fairness Opinions
See Annex II, III and IV of the joint proxy statement/prospectus.
ITEM 22. UNDERTAKINGS.
A. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 20 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expense incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted against the
II-12
<PAGE> 637
registrant by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
B. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
C. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
D. (1) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed pursuant
to paragraph (1) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act of 1933, as amended, and
is used in connection with an offering of securities subject to Rule 415, will
be filed as a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-13
<PAGE> 638
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on February 9, 1999.
CHANCELLOR MEDIA CORPORATION
By: /s/ JEFFREY A. MARCUS
------------------------------------
Jeffrey A. Marcus
Chief Executive Officer and
President
POWERS OF ATTORNEY
Each person whose signature appears below constitutes and appoints Jeffrey A.
Marcus and Thomas P. McMillin, and each of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for such person and in his name, place and stead, in any and all capacities, to
sign any or all further amendments, including post-effective amendments, to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue thereof.
Pursuant to the requirements of the Securities and Exchange Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ THOMAS O. HICKS Chairman of the Board February 9, 1999
- ---------------------------------------------
Thomas O. Hicks
/s/ JEFFREY A. MARCUS Chief Executive Officer, February 9, 1999
- --------------------------------------------- President and Director
Jeffrey A. Marcus (Principal Executive
Officer)
/s/ JAMES E. DE CASTRO Chief Operating Officer February 9, 1999
- --------------------------------------------- and Director
James E. de Castro
</TABLE>
II-14
<PAGE> 639
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ THOMAS P. MCMILLIN Senior Vice President and February 9, 1999
- --------------------------------------------- Chief Financial Officer
Thomas P. McMillin (Principal Financial
Officer and Principal
Accounting Officer)
/s/ THOMAS J. HODSON Director February 9, 1999
- ---------------------------------------------
Thomas J. Hodson
/s/ PERRY J. LEWIS Director February 9, 1999
- ---------------------------------------------
Perry J. Lewis
/s/ JOHN H. MASSEY Director February 9, 1999
- ---------------------------------------------
John H. Massey
/s/ MICHAEL J. LEVITT Director February 9, 1999
- ---------------------------------------------
Michael J. Levitt
/s/ LAWRENCE D. STUART, JR. Director February 9, 1999
- ---------------------------------------------
Lawrence D. Stuart, Jr.
/s/ STEVEN DINETZ Director February 9, 1999
- ---------------------------------------------
Steven Dinetz
/s/ VERNON E. JORDAN, JR. Director February 9, 1999
- ---------------------------------------------
Vernon E. Jordan, Jr.
/s/ J. OTIS WINTERS Director February 9, 1999
- ---------------------------------------------
J. Otis Winters
</TABLE>
II-15
<PAGE> 640
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.11(h) -- Agreement and Plan of Merger by and among Pyramid
Communications, Inc., Evergreen Media Corporation and
Evergreen Media/Pyramid Corporation dated as of July 14,
1995 (see table of contents for list of omitted exhibits
and schedules).
2.11A(i) -- Amendment to Plan and Agreement of Merger by and among
Pyramid Communications, Inc., Evergreen Media Corporation
and Evergreen Media/Pyramid Corporation dated September
7, 1995.
2.11B(i) -- Amendment to Plan and Agreement of Merger by and among
Pyramid Communications, Inc., Evergreen Media Corporation
and Evergreen Media/Pyramid Corporation dated January 11,
1996.
2.12(j) -- Purchase Agreement between Fairbanks Communications, Inc.
and Evergreen Media Corporation dated October 12, 1995
(see table of contents for list of omitted exhibits and
schedules).
2.13(n) -- Option Agreement dated as of January 9, 1996 between
Chancellor Broadcasting Company and Evergreen Media
Corporation (including Form of Advertising Brokerage
Agreement and Form of Asset Purchase Agreement).
2.14(o) -- Asset Purchase Agreement dated April 4, 1996 between
American Radio Systems Corporation and Evergreen Media
Corporation of Buffalo (see table of contents for list of
omitted exhibits and schedules).
2.15(o) -- Asset Purchase Agreement dated April 11, 1996 between
Mercury Radio Communications, L.P. and Evergreen Media
Corporation of Los Angeles, Evergreen Media/Pyramid
Holdings Corporation, WHTT (AM) License Corp. and WHTT
(FM) License Corp. (see table of contents for list of
omitted exhibits and schedules).
2.16(o) -- Asset Purchase Agreement dated April 19, 1996 between
Crescent Communications L.P. and Evergreen Media
Corporation of Los Angeles (see table of contents for
list of omitted exhibits and schedules).
2.17(p) -- Asset Purchase Agreement dated June 13, 1996 between
Evergreen Media Corporation of Los Angeles and Greater
Washington Radio, Inc. (see table of contents for list of
omitted exhibits and schedules).
2.18(p) -- Asset Exchange Agreement dated June 13, 1996 among
Evergreen Media Corporation of Los Angeles, Evergreen
Media Corporation of the Bay State, WKLB License Corp.,
Greater Media Radio, Inc. and Greater Washington Radio,
Inc. (see table of contents for list of omitted exhibits
and schedules).
2.19(p) -- Purchase Agreement dated June 27, 1996 between WEDR,
Inc., and Evergreen Media Corporation of Los Angeles (See
table of contents for list of omitted schedules).
2.20(p) -- Time Brokerage Agreement dated July 10, 1996 by and
between Evergreen Media Corporation of Detroit, as
Licensee, and Kidstar Interactive Media Incorporated, as
Time Broker.
2.21(p) -- Asset Purchase Agreement dated July 15, 1996 by and among
Century Chicago Broadcasting L.P., Century Broadcasting
Corporation, Evergreen Media Corporation of Los Angeles
and Evergreen Media Corporation of Chicago.
</TABLE>
<PAGE> 641
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.22(p) -- Asset Purchase Agreement dated August 12, 1996 by and
among Chancellor Broadcasting Company, Shamrock
Broadcasting, Inc. and Evergreen Media Corporation of the
Great Lakes.
2.23(p) -- Asset Purchase Agreement dated as of August 12, 1996
between Secret Communications Limited Partnership and
Evergreen Media Corporation of Los Angeles (WQRS-FM) (See
table of contents for list of omitted exhibits and
schedules).
2.24(p) -- Asset Purchase Agreement dated as of August 12, 1996
between Secret Communications Limited Partnership and
Evergreen Media Corporation of Los Angeles (See table of
contents for list of omitted schedules).
2.25(q) -- Letter of intent dated August 27, 1996 between EZ
Communications, Inc. and Evergreen Media Corporation.
2.26(q) -- Asset Purchase Agreement dated September 19, 1996 between
Beasley-FM Acquisition Corp., WDAS License Limited
Partnership and Evergreen Media Corporation of Los
Angeles.
2.27(q) -- Asset Purchase Agreement dated September 19, 1996 between
The Brown Organization and Evergreen Media Corporation of
Los Angeles.
2.28(r) -- Stock Purchase Agreement by and between Viacom
International Inc. and Evergreen Media Corporation of Los
Angeles, dated February 16, 1997 (See table of contents
for omitted schedules and exhibits).
2.29(r) -- Agreement and Plan of Merger, by and among Evergreen
Media Corporation, Chancellor Broadcasting Company and
Chancellor Radio Broadcasting Company, dated as of
February 19, 1997.
2.30(r) -- Stockholders Agreement, by and among Chancellor
Broadcasting Company, Evergreen Media Corporation, Scott
K. Ginsburg (individually and as custodian for certain
shares held by his children), HM2/Chancellor, L.P.,
Hicks, Muse, Tate & First Equity Fund 11, L.P., HM2/HMW,
L.P., The Chancellor Business Trust, HM2/HMD Sacramento
GP, L.P., Thomas O. Hicks, as Trustee of the William Cree
Hicks 1992 Irrevocable Trust, Thomas O. Hicks, as Trustee
of the Catherine Forgave Hicks 1993 Irrevocable Trust,
Thomas O. Hicks, as Trustee of the John Alexander Hicks
1984 Trust, Thomas O. Hicks, as Trustee of the Mack
Hardin Hicks 1984 Trust, Thomas O. Hicks, as Trustee of
Robert Bradley Hicks 1984 Trust, Thomas O. Hicks, as
Trustee of the Thomas O. Hicks, Jr. 1984 Trust, Thomas O.
Hicks and H. Rand Reynolds, as Trustees for the Muse
Children's GS Trust, and Thomas O. Hicks, dated as of
February 19, 1997.
2.31(r) -- Joint Purchase Agreement, by and among Chancellor Radio
Broadcasting Company, Chancellor Broadcasting Company,
Evergreen Media Corporation of Los Angeles, and Evergreen
Media Corporation, dated as of February 19, 1997.
</TABLE>
<PAGE> 642
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.32(s) -- Asset Exchange Agreement,by and among EZ Communications,
Inc., Professional Broadcasting Incorporated, EZ
Philadelphia, Inc., Evergreen Media Corporation of Los
Angeles, Evergreen Media Corporation of Charlotte,
Evergreen Media Corporation of the East, Evergreen Media
Corporation of Carolinaland, WBAV/ WBAV-FM/WPEG License
Corp. and WRFX License Corp., dated as of December 5,
1996 (See table of contents for list of omitted
schedules).
2.33(s) -- Asset Purchase Agreement, by and among EZ Communications,
Inc., Professional Broadcasting Incorporated, EZ
Charlotte, Inc., Evergreen Media Corporation of Los
Angeles, Evergreen Media Corporation of the East and
Evergreen Media Corporation of Carolinaland, dated as of
December 5, 1996 (See table of contents for list of
omitted schedules).
2.34(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: WGCI-AM and WGCI-FM), dated as of April
4, 1997 (see table of contents for list of omitted
schedules and exhibits).
2.35(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: KKBQ-AM and KKBQ-FM), dated as of April
4, 1997 (see table of contents for list of omitted
schedules and exhibits).
2.36(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: KHKS-FM), dated as of April 4, 1997 (see
table of contents for list of omitted schedules and
exhibits).
2.41(y) -- Amended and Restated Agreement and Plan of Merger among
Chancellor Broadcasting Company, Chancellor Radio
Broadcasting Company, Evergreen Media Corporation,
Evergreen Mezzanine Holdings Corporation and Evergreen
Media Corporation of Los Angeles, dated as of February
19, 1997, amended and restated as of July 31, 1997.
2.42(gg) -- Option Agreement, by and among Evergreen Media
Corporation, Chancellor Broadcasting Company, Bonneville
International Corporation and Bonneville Holding Company,
dated as of August 6, 1997.
2.43(ss) -- Letter Agreement, dated February 20, 1998, between CMCLA
and Capstar Broadcasting Corporation.
2.44(yy) -- Amendment No. 1, dated May 19, 1998, to Letter Agreement
dated February 20, 1998, between CMCLA and Capstar
Broadcasting Corporation.
2.45(yy) -- Unit and Stock Purchase Agreement by and among CMCLA,
Martin Media, L.P., Martin & MacFarlane, Inc., Nevada
Outdoor Systems, Inc., MW Sign Corp. and certain sellers
named therein, dated as of June 19, 1998 (see table of
contents for list of omitted schedules and exhibits).
2.46(yy) -- Agreement and Plan of Merger between Chancellor Media
Corporation and Ranger Equity Holdings Corporation dated
as of July 7, 1998.
</TABLE>
<PAGE> 643
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.47(yy) -- Asset Purchase Agreement: dated August 11, 1998, between
Chancellor Media Corporation of Los Angeles and
Independent Group Limited Partnership.
2.48(yy) -- Asset Purchase Agreement, dated August 11, 1998, between
Chancellor Media Corporation of Los Angeles and Zapis
Communications Corporation.
2.49(yy) -- Stock Purchase Agreement, dated August 11, 1998, among
Chancellor Media Corporation of Los Angeles, Young Ones,
Inc., Zebra Broadcasting Corporation and the Sellers
named therein.
2.50(yy) -- Stock Purchase Agreement, dated August 11, 1998, among
Chancellor Media Corporation of Los Angeles, ML Media
Partners LP., Wincom Broadcasting Corporation and WIN
Communications, Inc.
2.51(yy) -- Stock Purchase and Merger Agreement, dated July 9, 1998,
by and among Chancellor Media Corporation, Chancellor
Mexico LLC, Grupo Radio Centro, S.A. De C.V., and the
Selling Shareholders.
2.52(zz) -- Asset Purchase Agreement, dated August 30, 1998, by and
among Chancellor Media Corporation of Los Angeles,
Whiteco Industries Inc. and Metro Management Associates.
3.1C(ss) -- Amended and Restated Certificate of Incorporation of
Chancellor Media Corporation.
3.2B(ss) -- Amended and Restated Bylaws of Chancellor Media.
4.10(t) -- Second Amended and Restated Loan Agreement dated as of
April 25, 1997 among Evergreen Media Corporation of Los
Angeles, the financial institutions whose names appear as
Lenders on the signature pages thereof (the "Lenders"),
Toronto Dominion Securities, Inc., as Arranging Agent,
The Bank of New York and Bankers Trust Company, as
Co-Syndication Agents, NationsBank of Texas, N.A. and
Union Bank of California, as Co-Documentation Agents, and
Toronto Dominion (Texas), Inc., as Administrative Agent
for the Lenders, together with certain collateral
documents attached thereto as exhibits, including
Assignment of Partnership Interests, Assignment of Trust
Interests, Borrower's Pledge Agreement, Parent Company
Guaranty, Stock Pledge Agreement, Subsidiary Guaranty and
Subsidiary Pledge Agreement (see table of contents for
list of omitted schedules and exhibits).
4.11(z) -- First Amendment to Second Amended and Restated Loan
Agreement, dated June 26, 1997, among Evergreen Media
Corporation of Los Angeles, the Lenders, the Agents and
the Administrative Agent.
4.15(aa) -- Indenture, dated as of February 14, 1996, governing the
9 3/8% Senior Subordinated Notes due 2004 of CMCLA.
4.16(bb) -- First Supplemental Indenture, dated as of February 14,
1996, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of CMCLA.
4.17(cc) -- Indenture, dated as of February 26, 1996, governing the
12 1/4% Subordinated Exchange Debentures due 2008 of
CMCLA.
4.18(dd) -- Indenture, dated as of January 23, 1997, governing the
12% Subordinated Exchange Debentures due 2009 of CMCLA.
</TABLE>
<PAGE> 644
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4.19(ee) -- Indenture, dated as of June 24, 1997, governing the
8 3/4% Senior Subordinated Notes due 2007 of CMCLA.
4.21(ff) -- Specimen of the 12 1/4% Series A Senior Cumulative
Exchangeable Preferred Stock Certificate of CMCLA.
4.22(ff) -- Specimen of the 12% Exchangeable Preferred Stock
Certificate of CMCLA.
4.23(ff) -- Form of Certificate of Designation for the 12 1/4% Series
A Senior Cumulative Exchangeable Preferred Stock of
CMCLA.
4.24(ff) -- Form of Certificate of Designation for the 12%
Exchangeable Preferred Stock of CMCLA.
4.25(pp) -- Second Amendment to Second Amended and Restated Loan
Agreement, dated August 7, 1997, among Evergreen Media
Corporation of Los Angeles, the Lenders, the Agents and
the Administrative Agent.
4.26(hh) -- Second Supplemental Indenture, dated as of April 15,
1997, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of CMCLA.
4.27(pp) -- Third Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of CMCLA.
4.28(pp) -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated June 24, 1997, governing the
8 3/4% Senior Subordinated Notes due 2007 of CMCLA.
4.29(pp) -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated February 26, 1997, governing
the 12 1/4% Subordinated Exchange Debentures due 2008 of
CMCLA.
4.30(pp) -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated January 23, 1997, governing
the 12% Subordinated Exchange Debentures due 2009 of
CMCLA.
4.34(uu) -- Amended and Restated Indenture, dated as of October 28,
1997, governing the 10 1/2% Senior Subordinated Notes due
2007 of CMCLA.
4.35(uu) -- Second Supplement Indenture, dated as of October 28,
1997, to the Amended and Restated Indenture dated October
28, 1997 governing the 10 1/2% Senior Subordinated Notes
due 2007 of CMCLA.
4.36(uu) -- Third Amendment to Second Amended and Restated Loan
Agreement, dated October 28, 1997, among CMCLA, the
Lenders, the Agents and the Administrative Agent.
4.37(uu) -- Fourth Amendment to Second Amended and Restated Loan
Agreement, dated February 10, 1998, among CMCLA, the
Lenders, the Agents and the Administrative Agent.
4.38(vv) -- Indenture, dated as of December 22, 1997, governing the
8 1/8% Senior Subordinated Notes due 2007 of CMCLA.
4.39(ww) -- Fifth Amendment to Second Amended and Restated Loan
Agreement, dated May 1, 1998, among CMCLA, the Lenders,
the Agents and the Administrative Agent.
4.40(yy) -- Sixth Amendment to Second Amended and Restated Loan
Agreement, dated July 31, 1998, among CMCLA, the Lenders,
the Agents and the Administrative Agent.
</TABLE>
<PAGE> 645
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4.41(zz) -- Indenture, dated as of September 30, 1998, governing the
9% Senior Subordinated Notes due 2008 of CMCLA.
4.42(aaa) -- Seventh Amendment to Second Amended and Restated Loan
Agreement, dated November 9, 1998, among CMCLA, the
Lenders, the Agents and the Administrative Agent.
4.43(zz) -- Indenture, dated as of November 17, 1998, governing the
8% Notes due 2008 of CMCLA.
5.1* -- Opinion of Weil, Gotshal & Manges LLP.
8.1* -- Opinion regarding certain tax matters of Weil, Gotshal &
Manges LLP.
8.2* -- Opinion regarding certain tax matters of Vinson & Elkins
L.L.P.
10.23(xx) -- Amended and Restated Chancellor Media Corporation Stock
Option Plan for Non-employee Directors.
10.26(n) -- Employment Agreement dated February 9, 1996 by and
between Evergreen Media Corporation and Kenneth J.
O'Keefe.
10.28(o) -- 1995 Stock Option Plan for executive officers and key
employees of Evergreen Media Corporation.
10.30(pp) -- First Amendment to Employment Agreement dated March 1,
1997 by and between Evergreen Media Corporation and
Kenneth J. O'Keefe.
10.31(pp) -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and Scott K. Ginsburg.
10.32(pp) -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and James de Castro.
10.33(pp) -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and Matthew E. Devine.
10.34(pp) -- Second Amendment to Employment Agreement dated September
4, 1997 by and among Evergreen Media Corporation,
Evergreen Media Corporation of Los Angeles and Kenneth J.
O'Keefe.
10.35(ii) -- Employment Agreement dated February 14, 1996 by and among
Chancellor Broadcasting Company, Chancellor Radio
Broadcasting Company and Steven Dinetz.
10.36(jj) -- Chancellor Broadcasting Company 1996 Stock Award Plan.
10.37(kk) -- Chancellor Holdings Corp. 1994 Director Stock Option
Plan.
10.38(ll) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Steven Dinetz.
10.39(mm) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Eric W. Neuman.
10.40(nn) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Marvin Dinetz.
10.41(oo) -- Stock Option Grant Letter dated February 14, 1997 from
Chancellor Broadcasting Company to Carl M. Hirsch.
</TABLE>
<PAGE> 646
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.44(vv) -- Agreement dated April 20, 1998 by and among Chancellor
Media Corporation, Chancellor Media Corporation of Los
Angeles and Scott K. Ginsburg.
10.45(vv) -- Employment Agreement dated April 29, 1998 by and among
Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and Jeffrey A. Marcus.
10.46(yy) -- Chancellor Media Corporation 1998 Stock Option Plan.
10.47(yy) -- Voting Agreement, among Chancellor Media Corporation and
Ranger Equity Partners, L.P. dated as of July 7, 1998.
10.48(zz) -- Employment Agreement, dated as of May 18, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and James E. de Castro.
10.49(zz) -- Employment Agreement, dated as of May 18, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and Matthew E. Devine.
10.50(zz) -- Employment Agreement, dated as of June 1, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and Eric C. Neuman.
10.51(zz) -- Employment Agreement, dated as of August 18, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and James A. McLaughlin, Jr.
10.52(bbb) -- Agreement, dated as of January 6, 1999, among Chancellor
Media Corporation, Chancellor Media Corporation of Los
Angeles, Matthew E. Devine and Vicki Devine.
10.53* -- Amended and Restated Employment Agreement, dated as of
October 1, 1998, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and Jeffrey A. Marcus.
10.54* -- Amended and Restated Employment Agreement, dated as of
October 1, 1998, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and James E. de Castro.
10.55* -- Amended and Restated Employment Agreement, dated as of
October 1, 1998, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and Eric C. Neuman.
10.56* -- Employment Agreement, dated as of October 1, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and Thomas P. McMillin.
10.57* -- Amendment No. 1 to Employment Agreement, dated as of
January 6, 1999, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and Thomas P. McMillin.
10.58* -- Amended and Restated Employment Agreement, dated as of
October 1, 1998, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and James A. McLaughlin, Jr.
12.1* -- Chancellor Media Corporation Computation of Ratio of
Earnings to Combined Fixed Charges and Preferred Stock
Dividends.
21.1* -- Subsidiaries of Chancellor Media Corporation.
</TABLE>
<PAGE> 647
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
23.1 -- Consent of Weil, Gotshal & Manges LLP (included as part
of their opinion listed as Exhibit 5.1).
23.2* -- Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.3* -- Consent of KPMG LLP, independent accountants.
23.4* -- Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.5* -- Consent of KPMG LLP, independent accountants.
23.6* -- Consent of Arthur Andersen LLP, independent accountants.
23.7* -- Consent of Ernst & Young LLP, independent accountants.
23.8* -- Consent of BDO Seidman, LLP, independent accountants.
23.9* -- Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.10* -- Consent of Ernst & Young LLP, independent accountants.
23.11* -- Consent of Ernst & Young LLP, independent accountants.
23.12* -- Consent of Arthur Andersen LLP, independent accountants.
23.13* -- Consent of Barbich Longcrier Hooper & King Accountancy
Corporation, independent auditors.
23.14* -- Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.15* -- Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.16* -- Consent of Wasserstein Perella & Co., Inc., financial
advisor to the Special Committee of the Board of
Directors of Chancellor Media.
23.17* -- Consent of Morgan Stanley & Co. Incorporated, financial
advisor to the Board of Directors of Chancellor Media.
23.18* -- Consent of Greenhill & Co., LLC, financial advisor to the
Board of Directors of LIN.
23.19* -- Consent of Vinson & Elkins L.L.P.
24.1 -- Powers of Attorney (included on signature pages).
99.1* -- Certificate of Incorporation of Ranger Equity Holdings
Corporation.
99.2* -- Bylaws of Ranger Equity Holdings Corporation.
</TABLE>
- ---------------
* Filed herewith.
+ To be filed by amendment.
(a) Incorporated by reference to the identically numbered exhibit to the
Registration Statement on Form S-1, as amended (Reg. No. 33-60036), of
Evergreen Media Corporation ("Evergreen").
(f) Incorporated by reference to the identically numbered exhibit to
Evergreen's Registration Statement on Form S-4, as amended (Reg. No.
33-89838).
(h) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated July 14, 1995.
(i) Incorporated by reference to the identically numbered exhibit to
Evergreens Current Report on Form 8-K dated January 17, 1996.
(j) Incorporated by reference to the identically numbered exhibit to
Evergreens Quarterly Report on Form 10-Q for the quarterly period ending
June 30, 1995.
(k) Incorporated by reference to the identically numbered exhibit to
Evergreen's Registration Statement on Form S-1, as amended (Reg. No.
33-69752).
<PAGE> 648
(n) Incorporated by reference to the identically numbered exhibit to
Evergreen's Annual Report on Form 10-K for the fiscal year ended December
31, 1995.
(o) Incorporated by reference to the identically numbered exhibit to
Evergreen's Quarterly Report on Form 10-Q for the quarterly period ending
March 31, 1996.
(p) Incorporated by reference to the identically numbered exhibit to
Evergreen's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1996.
(q) Incorporated by reference to the identically numbered exhibit to
Evergreen's Registration Statement on Form S-3, as amended (Reg. No.
333-12453).
(r) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated February 16, 1997 and filed
March 9, 1997.
(s) Incorporated by reference to the identically numbered exhibit to
Evergreen's Annual Report on Form 10-K for the fiscal year ended December
31, 1996.
(t) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated April 1, 1997 and filed May
9, 1997.
(y) Incorporated by reference to the identically numbered exhibit of
Evergreen's Registration Statement on Form S-4, filed August 1, 1997.
(z) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated July 7, 1997 and filed July
31, 1997.
(aa) Incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company, as filed on February 29, 1996.
(bb) Incorporated by reference to Exhibit 4.5 to the Annual Report on Form 10-K
of Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company
and Chancellor Broadcasting Licensee Company for the fiscal year ended
December 31, 1995.
(cc) Incorporated by reference to Exhibit 4.6 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company, as filed on February 29, 1996.
(dd) Incorporated by reference to Exhibit 4.7 to the Current Report on Form 8-K
of Chancellor Radio Broadcasting Company, as filed on February 6, 1997.
(ee) Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company as filed on July 17, 1997.
(ff) Incorporated by reference to the identically-numbered exhibit to the
Registration Statement on Form S-4 (Reg. No. 333-32259), dated July 29,
1997, as amended, of Evergreen Media Corporation of Los Angeles ("EMCLA").
(gg) Incorporated by reference to the identically numbered exhibit to the
Quarterly Report on Form 10-Q of Evergreen and EMCLA for the quarterly
period ending June 30, 1997.
(hh) Incorporated by reference to Exhibit 4.8 to the Quarterly Report on Form
10-Q of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company for the quarterly period ending March 31, 1997.
(ii) Incorporated by reference to Exhibit 10.6 to Chancellor Broadcasting
Company's Registration Statement on Form S-1 (Reg. No. 333-02782) filed
February 9, 1996.
(jj) Incorporated by reference to Exhibit 4.22 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(kk) Incorporated by reference to Exhibit 4.23 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(ll) Incorporated by reference to Exhibit 4.24 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(mm) Incorporated by reference to Exhibit 4.25 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
<PAGE> 649
(nn) Incorporated by reference to Exhibit 4.26 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(oo) Incorporated by reference to Exhibit 4.27 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(pp) Incorporated by reference to the identically numbered exhibit to the
CMCLA's Registration Statement on Form S-4 (Reg. No. 333-36451), dated
September 26, 1997, as amended.
(ss) Incorporated by reference to the identically numbered exhibit to the
Current Report on Form 8-K of Chancellor Media and CMCLA, dated as of
February 23, 1998 and filed as of February 27, 1998.
(tt) Incorporated by reference to the identically numbered exhibit to the
Annual Report on Form 10-K of Chancellor Media and the CMCLA for the
fiscal year ended December 31, 1997.
(uu) Incorporated by reference to the identically numbered exhibit to the
Annual Report on Form 10-K of Chancellor and CMCLA for the fiscal year
ended December 31, 1997.
(vv) Incorporated by reference to the identically numbered exhibit to CMCLA's
Registration Statement on Form S-4 (Reg. No. 333-50739), dated April 22,
1998, as amended.
(ww) Incorporated by reference to the identically numbered exhibit to the
Quarterly Report on Form 10-Q of Chancellor Media and CMCLA for the
quarterly period ending March 31, 1998.
(xx) Incorporated by reference to Exhibit 4.41 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-53179), dated May 20,
1998.
(yy) Incorporated-by reference to the identically numbered exhibit to the
Quarterly Report on Form 10-Q of Chancellor Media and CMCLA for the
quarterly period ending June 30, 1998.
(zz) Incorporated by reference to Exhibit 4.41 to CMCLA's Registration
Statement on Form S-4 (Reg. No. 333-66971), initially filed November 9,
1998, as amended.
(aaa) Incorporated by reference to Exhibit 4.42 to the Quarterly Report on Form
10-Q of Chancellor Media and CMCLA for the quarterly period ending
September 30, 1998.
(bbb) Incorporated by reference to the identically numbered exhibit to the
Current Report on Form 8-K of Chancellor Media and CMCLA, dated as of
January 7, 1999 and filed as of January 7, 1999.
<PAGE> 1
EXHIBIT 5.1
[WEIL, GOTSHAL & MANGES LLP LETTERHEAD]
February 17, 1999
Chancellor Media Corporation
300 Crescent Court, Suite 600
Dallas, Texas 75201
Ladies and Gentlemen:
We have acted as counsel to Chancellor Media Corporation, a Delaware corporation
(the "Company"), in connection with the preparation and filing by the Company
with the Securities and Exchange Commission of a Registration Statement on Form
S-4 (No. 333- ) (as amended, the "Registration Statement") under the
Securities Act of 1933, as amended, relating to the proposed offering of up to
16,179,645 shares of the common stock, $0.01 par value, of the Company (the
"Shares"), pursuant to an Agreement and Plan of Merger (the "Merger Agreement"),
dated as of July 7, 1998, by and between the Company and Ranger Equity Holdings
Corporation, a Delaware corporation ("LIN"). The Shares are to be issued to the
stockholders of LIN in accordance with terms of the Merger Agreement in exchange
for each such stockholder's shares of common stock, $0.01 par value ("LIN Common
Stock"), of LIN.
In so acting, we have examined originals or copies, certified or otherwise
identified to our satisfaction, of the Amended and Restated Certificate of
Incorporation of the Company, as amended (the "Charter"), and such corporate
records, agreements, documents and other instruments, and such certificates or
comparable documents of public officials and of officers and representatives of
the Company, and have made such inquiries of such officers and representatives
as we have deemed relevant and necessary as a basis for the opinions hereinafter
set forth.
In such examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such latter documents. As to all questions of
fact material to this opinion that have not been independently established, we
have relied upon certificates or comparable documents of officers and
representatives of the Company.
Based on the foregoing, and subject to the qualifications stated herein, we are
of the opinion that:
1. The Company is a corporation validly existing and in good standing
under the laws of the State of Delaware.
2. The Shares have been duly authorized and, when issued and delivered
to the stockholders of LIN in exchange for shares of LIN Common Stock in
accordance with the terms of the Merger Agreement, will be validly issued,
fully paid and nonassessable.
<PAGE> 2
Chancellor Media Corporation
February 17, 1999
Page 2
The opinions expressed herein are limited to the corporate laws of the State of
Delaware and we express no opinion as to the effect on the matters covered by
this letter of the laws of any other jurisdiction.
We hereby consent to the filing of this letter as an exhibit to the Registration
Statement and to the reference to this firm under the caption "Legal Matters" in
the Prospectus forming a part of the Registration Statement.
Very truly yours,
/s/ WEIL, GOTSHAL & MANGES LLP
<PAGE> 1
EXHIBIT 8.1
[Weil, Gotshal & Manges, LLP]
February 17, 1999
Chancellor Media Corporation
300 Crescent Court
Suite 600
Dallas, Texas 75201
Ladies & Gentlemen:
You have requested our opinion regarding certain federal
income tax consequences of the merger (the "Merger") of Ranger Equity Holdings
Corporation, a Delaware corporation ("LIN"), with and into Chancellor Media
Corporation, a Delaware corporation ("Chancellor").
In formulating our opinion, we have examined such documents as
we deemed appropriate, including the Agreement and Plan of Merger dated as of
July 7, 1998 (the "Merger Agreement"), between LIN and Chancellor, the Proxy
Statement (the "Proxy Statement") filed by Chancellor with the Securities and
Exchange Commission (the "SEC") and the Registration Statement filed on Form
S-4, as filed by Chancellor with the SEC on February 17, 1999, in which the
Proxy Statement is included as a prospectus (with all the amendments thereto,
the "Registration Statement"). In addition, we have obtained such additional
information as we deemed relevant and necessary through consultation with
various officers and representatives of Chancellor and LIN.
Our opinion set forth below assumes (1) the accuracy of the
statements and facts concerning the Merger set forth in the Merger Agreement,
the Proxy Statement and the Registration Statement, (2) the consummation of the
Merger in the manner contemplated by, and in accordance with the terms set forth
in, the Merger Agreement, the Proxy Statement and the Registration Statement,
and (3) the accuracy of (i) the factual representations made by Chancellor which
are set forth in the Certificate delivered to us by Chancellor, dated the date
hereof; (ii) the factual representations made by LIN which are set forth in the
Certificate delivered to us by LIN, dated the date hereof and (iii) the factual
representations made by Ranger Equity Partners, L.P. which are set forth in the
Certificate delivered to us by Ranger Equity Partners, L.P., dated the date
hereof.
<PAGE> 2
Chancellor Media Corporation
Page 2
Based upon the facts and statements set forth above, our
examination and review of the documents referred to above and subject to the
assumptions set forth above, we are of the opinion that for federal income tax
purposes:
1. The Merger will constitute a reorganization within
the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code").
2. Each of Chancellor and LIN will be a party to the
reorganization within the meaning of Section 368(b) of
the Code.
3. No gain or loss will be recognized by Chancellor or LIN
as a result of the Merger.
Our opinion is based on current provisions of the Code, the
Treasury Regulations promulgated thereunder, published pronouncements of the
Internal Revenue Service and case law, any of which may be changed at any time
with retroactive effect. Any change in applicable laws or facts and
circumstances surrounding the Merger or any inaccuracy of the statements, facts,
assumptions and representations on which we have relied, may affect the validity
of the opinion set forth herein. We assume no responsibility to inform you of
any such change or inaccuracy that may occur or come to our attention.
Very truly yours,
/s/ WEIL, GOTSHAL & MANGES LLP
<PAGE> 1
EXHIBIT 8.2
[VINSON & ELKINS LETTERHEAD]
February 17, 1999
Ranger Equity Holdings Corporation
4 Richmond Square, Suite 200
Providence, Rhode Island 02906
Ladies and Gentlemen:
You have requested our opinion with respect to certain federal income
tax consequences of the merger (the "Merger") of Ranger Equity Holdings
Corporation ("LIN") with and into Chancellor Media Corporation ("Chancellor
Media") pursuant to an Agreement and Plan of Merger dated as of July 7, 1998
(the "Merger Agreement"). Defined terms used in the Merger Agreement have the
same meaning when used herein, unless otherwise defined herein.
In rendering this opinion, we have examined and are relying upon
(without any independent investigation or review thereof) the truth and accuracy
at all relevant times of the statements, covenants, and factual representations
contained in (i) the Merger Agreement (including all disclosure schedules
thereto), (ii) the Joint Proxy Statement/Prospectus (which was included in the
registration statement on Form S-4, as amended, filed jointly by Chancellor
Media and LIN with the Securities and Exchange Commission (the "Registration
Statement")), and (iii) the Ranger Equity Holdings Corporation Certificate dated
the date hereof provided to us by LIN, the Chancellor Media Corporation
Certificate dated the date hereof provided to us by Chancellor Media and the
Stockholder Certificate dated the date hereof provided to us by Ranger Equity
Partners, L.P. Any inaccuracy in any of the aforementioned statements, factual
representations, and assumptions could adversely affect our opinion.
On the basis of the foregoing, and subject to the limitations set forth
below, it is our opinion that, under presently applicable federal income tax
law, the Merger will be treated as a reorganization within the meaning of
section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and LIN and Chancellor Media will each be a party to that reorganization within
the meaning of Section 368(b) of the Code. As a result, the following U.S.
federal income tax consequences will occur:
<PAGE> 2
Ranger Equity Holdings Corporation
February 17, 1999
Page 2
(a) no gain or loss will be recognized by LIN in connection
with the Merger;
(b) no gain or loss will be recognized by holders of LIN
Common Stock solely by reason of their receipt, in the Merger, of
Chancellor Media Common Stock in exchange therefor;
(c) gain or loss, if any, will be recognized by holders of LIN
Common Stock upon the receipt of cash in lieu of fractional shares of
Chancellor Media Common Stock. A holder of LIN Common Stock who
receives cash in lieu of a fractional share interest in Chancellor
Media Common Stock will be treated as having received such fractional
share interest from Chancellor Media in the Merger. The cash received
by such shareholder in lieu of the fractional share interest in
Chancellor Media Common Stock will be treated as received in exchange
for such fractional share interest, and gain or loss will be recognized
measured by the difference between the amount of cash received and the
portion of the basis of the shares of Chancellor Media Common Stock
allocable to such fractional share interest. Such gain or loss will be
capital gain or loss if the LIN Common Stock is held by the shareholder
as a capital asset at the Effective Time;
(d) the tax basis of the Chancellor Media Common Stock
received in the Merger by a LIN stockholder in exchange for his or her
LIN Common Stock will be the same as such stockholder's tax basis in
the LIN Common Stock surrendered in exchange therefor, reduced by any
tax basis allocable to a fractional share interest in Chancellor Media
Common Stock for which cash is received;
(e) the holding period of the Chancellor Media Common Stock
received by a LIN stockholder will include the period during which the
LIN Common Stock surrendered in exchange therefor was held, provided
that such LIN Common Stock is held by such LIN stockholder as a capital
asset within the meaning of Section 1221 of the Code at the Effective
Time; and
(f) cash received by a holder of LIN Common Stock as a result
of an exercise of dissenters' rights of appraisal will be treated as
having been received by such shareholder as a distribution in
redemption of his or her LIN Common Stock, subject to the provisions
and limitations of section 302 of the Code. If, as a result of such
distribution, a shareholder owns no Chancellor Media Common Stock
either directly or through the application of section 318(a) of the
Code, the redemption will be a complete termination of interest within
the meaning of section 302(b)(3) of the Code and such cash will be
treated as a distribution in exchange for his or her LIN Common Stock,
as provided in
<PAGE> 3
Ranger Equity Holdings Corporation
February 17, 1999
Page 3
section 302(a) of the Code. In such event, gain (or subject to the
limitations of section 267 of the Code) loss will be realized and
recognized by such shareholder in an amount equal to the difference
between the amount of such cash and the adjusted basis of the shares of
LIN Common Stock surrendered. Such gain or loss will be capital gain or
loss if the LIN Common Stock is held by the shareholder as a capital
asset at the Effective Time.
Our opinion is based on our interpretation of the Code,
applicable Treasury regulations, judicial authority, and administrative
rulings and practice, all as in effect as of the date hereof. There can
be no assurance that future legislative, judicial or administrative
changes or interpretations will not adversely affect the accuracy or
applicability of the conclusions set forth herein. We do not undertake
to advise you as to any such future changes or interpretations unless
we are specifically retained to do so. Our opinion will not be binding
upon the Internal Revenue Service or the courts, and neither will be
precluded from adopting a contrary position.
No opinion is expressed as to any matter not specifically
addressed above, including, without limitation, the tax consequences of
the Merger under any foreign, state, or local tax law. Moreover, tax
consequences which are different from or in addition to those described
herein may apply to holders of LIN Common Stock who are subject to
special treatment under the U.S. federal income tax laws, such as
persons who acquired their shares pursuant to the exercise of employee
stock options or otherwise as compensation or who are not citizens or
residents of the United States. Such persons are advised to consult
their own tax advisors with specific reference to their particular
circumstances.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement. In giving this consent, we do not hereby
admit that we are within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 and the rules
and regulations of the Securities and Exchange Commission promulgated
thereunder.
Very truly yours,
/s/ Vinson & Elkins L.L.P.
<PAGE> 1
EXHIBIT 10.53
----------------
EXECUTION COPY
----------------
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
BETWEEN
CHANCELLOR MEDIA CORPORATION
AND
JEFFREY A. MARCUS
This Amended and Restated Employment Agreement (this
"Agreement") is made and entered into this 1st day of October, 1998 (the
"Execution Date"), to be effective as of June 1, 1998 (the "Effective Date"),
between Chancellor Media Corporation, a Delaware corporation (the "Company"),
and Chancellor Media Corporation of Los Angeles, a Delaware corporation ("Los
Angeles") and Jeffrey A. Marcus (the "Executive"), residing at 6801 Turtle Creek
Blvd., Dallas, Texas 75205.
W I T N E S S E T H:
WHEREAS, the Company and the Executive entered into an
Employment Agreement between the Company and the Executive on April 29, 1998
(the "Original Execution Date"), to be effective as of June 1, 1998 (the
"Original Employment Agreement"); and
WHEREAS, the Company and the Executive desire to modify and
clarify certain provisions of such Original Employment Agreement by amending and
restating the Original Employment Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and obligations hereinafter set forth, the parties agree as
follows:
1. DEFINITIONS
The following terms used in this Agreement shall have the
meaning specified below unless the context clearly indicates the contrary:
"Annual Bonus" shall mean the annual incentive bonus payable
to the Executive described in Section 4.
"Average Bonus" shall mean the greater of (a) (i) the total of
the Annual Bonuses paid hereunder with respect to the Employment Term, divided
by (ii) the length of such portion of the Employment Term in years (including
fractions) as falls on or prior to the last December 31 thereof and (b) Two
Million Dollars ($2,000,000).
"Base Salary" shall mean the annual base salary payable to the
Executive at the rate set forth in Section 4.
"Board" shall mean the Board of Directors of the Company.
<PAGE> 2
"Capstar" shall mean Capstar Broadcasting Corporation, a
Delaware corporation.
"Capstar Merger" shall mean the proposed merger of the Company
with and into a subsidiary of Capstar, subsequent to which Capstar will change
its name to Chancellor Media Corporation.
"Cause" shall mean the Executive's (a) habitual neglect of his
material duties or failure to perform his material obligations under this
Agreement, (b) refusal or failure to follow lawful directives of the Board, (c)
commission of an act of fraud, theft or embezzlement, or (d) conviction of a
felony or other crime involving moral turpitude; provided, however, that the
Company shall give the Executive written notice of any actions alleged to
constitute Cause under subsections (a) and (b) above, and the Executive shall
have a reasonable opportunity (as specified by the Compensation Committee) to
cure any such alleged Cause.
"Change in Control" shall mean (a) the sale, lease or other
transfer of all or substantially all of the assets of the Company to any person
or group (as such term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended); (b) the adoption by the stockholders of the Company of
a plan relating to the liquidation or dissolution of the Company; (c) the merger
or consolidation of the Company with or into another entity or the merger of
another entity into the Company or any subsidiary thereof with the effect that
immediately after such transaction the stockholders of the Company immediately
prior to such transaction (or their Related Parties) directly and indirectly
hold less than fifty percent (50%) of the total voting power of all securities
generally entitled to vote in the election of directors, managers or trustees of
the entity surviving such merger or consolidation; (d) the acquisition by any
person or group of more than fifty percent (50%) of the direct and indirect
voting power of all securities of the Company generally entitled to vote in the
election of directors of the Company; or (e) the majority of the Board is
composed of members who (i) have served less than twelve (12) months and (ii)
were not approved by a majority of the Board at the time of their election or
appointment.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Common Stock" shall mean $0.01 par value common stock of the
Company.
"Compensation Committee" shall mean the Compensation Committee
of the Board.
"Consumer Price Index" shall mean the Consumer Price Index for
All Urban Consumers (1982-84=100) for all cities as reported by the United
States Bureau of Labor Statistics.
"Contract Year" shall mean each twelve (12) consecutive month
period during the Employment Term, which begins on the Effective Date and each
annual anniversary thereof.
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"Employment Inducements" shall mean any compensation,
including, without limitation, signing bonuses and stock options, that are paid
or granted to other senior officers of the Company in connection with such
officers' initial hiring by the Company, or in connection with the extension of
the term of such senior officers' employment agreements with the Company.
"Employment Term" shall mean the period beginning on the
Effective Date and ending on the close of business on the effective date of the
Executive's termination of employment with the Company.
"Excise Tax" shall mean the taxes imposed by Code Section
4999.
"Expiration Date" shall have the meaning ascribed to such term
in Section 2.
"Good Reason" shall mean (a) the Company's material breach of
any provision hereof, (b) any adverse change in the Executive's job
responsibilities, duties, functions, status, offices, title, perquisites or
support staff, (c) relocation of the Executive's regular work address without
his consent, (d) the Executive's failure, at any time, to be permitted to serve
as a member of the Board or (e) a Change in Control, provided, however, that the
Executive shall give the Company written notice of any actions (other than those
set out in subsections (c) (only as it relates to a location outside of the
Dallas/Fort Worth area), (d) or (e) above) alleged to constitute Good Reason and
the Company shall have a reasonable opportunity to cure any such alleged Good
Reason.
"MCC" shall have the meaning ascribed to such term in Section
3(c)(ii).
"New Chancellor" shall mean, from and after the consummation
of the Capstar Merger, Chancellor Media Corporation, a Delaware corporation, as
successor by name change to Capstar.
"Option Agreement" shall mean the agreement between the
Executive and the Company pursuant to which any Option is granted to the
Executive.
"Option Plan" shall mean the 1998 Chancellor Media Corporation
Stock Option Plan, as amended from time to time, and any successor thereto.
"Options" shall mean the non-qualified stock options to be
granted to the Executive hereunder.
"Permanent Disability" shall mean the Executive's inability to
perform the duties contemplated by this Agreement by reason of a physical or
mental disability or infirmity which has continued for more than ninety (90)
working days (excluding vacation) in any twelve (12) consecutive month period as
determined by the Board. The Executive agrees to submit such medical evidence
regarding such disability or infirmity as is reasonably requested by the Board.
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<PAGE> 4
"Related Parties" shall mean with respect to any person (a)
the spouse and lineal ascendants and descendants of such person, and any sibling
of any of such persons and (b) any trust, corporation, partnership or other
entity, the beneficiaries, stockholders, partners, owners or persons
beneficially holding an eighty percent (80%) or more controlling interest of
which consist of persons referred to in subsection (a) above.
"Termination of Employment" shall mean the first to occur of
the following events:
(a) the date of death of the Executive;
(b) the effective date specified in the Company's
written notice to the Executive of the termination of his
employment as a result of his Permanent Disability, which
effective date shall not be earlier than the ninety-first
(91st) working day (excluding vacation) following the
commencement of the Executive's inability to perform his
duties hereunder;
(c) the effective date specified in the Company's
written notice to the Executive of the Company's termination
of his employment without Cause;
(d) the effective date specified in the Company's
written notice to the Executive of the Company's termination
of his employment for Cause;
(e) the effective date specified in the Executive's
written notice to the Company of the Executive's termination
of his employment for Good Reason;
(f) the effective date specified in the Executive's
written notice to the Company of the Executive's termination
of his employment without Good Reason; and
(g) the date the Executive's employment terminates
pursuant to Section 2.
"Termination without Cause" shall mean a termination by the
Company of the Executive's employment without Cause.
2. EMPLOYMENT
The Executive's Employment Term shall become effective and
begin as of the Effective Date hereof, and shall continue until the close of
business on the fifth (5th) anniversary of the Effective Date (the "Expiration
Date"), unless the Executive's employment is earlier terminated pursuant to a
Termination of Employment. The Executive will serve the Company subject to the
general supervision, advice and direction of the Board and upon the terms and
conditions set forth in this Agreement.
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<PAGE> 5
3. TITLE AND DUTIES
(a) The Executive's job title shall be President and Chief
Executive Officer of the Company. During the Employment Term the Executive shall
have such authority and duties as are usual and customary for such position, and
shall perform such other services and duties as the Board may from time to time
designate consistent with such position, including, without limitation, general
charge of the Company's business and the strategic direction of the Company's
business, subject to the direction and control of the Board. Throughout the
Employment Term, the Company shall also nominate the Executive to serve as a
member of the Board and upon such nomination Executive shall agree to so serve.
(b) The Executive shall report solely to the Board. All senior
officers of the Company shall report directly or indirectly through other senior
officers, to the Executive, and the Executive shall be responsible for reviewing
the performance of other senior officers of the Company, and shall from time to
time advise the Board of his recommendations for any adjustments to the salaries
of and bonus payments to such officers. The Executive shall be responsible for
and, subject to discussion with and ratification by the Board, have the
authority to enter into, employment contracts on behalf of the Company with
other executives of the Company.
(c) The Executive shall devote his best efforts and such
business time to the business affairs of the Company as may be reasonably
necessary for the discharge of his duties as President and Chief Executive
Officer. The Executive may not engage in any other venture which is directly or
indirectly in conflict or competition with the then existing business of the
Company, nor may the Executive accept employment with any other individual or
other entity; provided, however, the Executive may devote reasonable time and
attention to:
(i) serving as a director of, or member of
a committee of the directors of, any not-for-profit organization, or
engaging in other charitable or community activities;
(ii) serving as (A) Chairman, President and
Chief Executive Officer of Marcus Cable Company, L.L.C., and any of its
affiliated companies ("MCC") and (B) an officer, director and
stockholder of Marcus Cable Properties, Inc., the ultimate general
partner of MCC; provided, however, the Executive shall no longer serve
as President and Chief Executive Officer of MCC following the earlier
to occur of (i) six (6) months after the Original Execution Date
(subject to an additional six (6) month extension at the reasonable
discretion of the Chairman of the Board), or (ii) a replacement
President and Chief Executive Officer of MCC is appointed; and
(iii) serving as a member of the board of
directors (or other governing body) of MCC (or any successor entity)
and other corporations and organizations, so long as such activities do
not interfere unreasonably with the Executive's duties hereunder.
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<PAGE> 6
4. COMPENSATION AND BENEFITS
(a) Base Compensation. Subject to Section 4(c) hereof, during
the Employment Term, the Company shall pay the Executive, in installments
according to the Company's regular payroll practice, Base Salary at the annual
rate of One Million One Hundred Twenty-Five Thousand Dollars ($1,125,000) for
the first (1st) Contract Year; and subject to increase for each subsequent
Contract Year an amount equal to the product of
(i) the Base Salary for the immediately
preceding Contract Year; and
(ii) the ratio of the Consumer Price Index
for the last complete calendar month in such preceding Contract Year to
the Consumer Price Index for the same month in the year preceding such
preceding Contract Year
; provided, however, that in no event shall the Base Salary in any subsequent
Contract Year be less than the Base Salary in the immediately preceding Contract
Year.
(b) Annual Incentive Bonus. Subject to Section 4(c) hereof,
the Executive shall be entitled to an Annual Bonus for each calendar year of
which he is employed hereunder on the last day thereof and also for the calendar
year, if any, in which this contract expires pursuant to Section 2. Such Annual
Bonus for any such calendar year shall be as determined by the Compensation
Committee in its reasonable discretion; provided, however, the Annual Bonus
shall in no event be less than Two Million Dollars ($2,000,000) nor greater than
Four Million Dollars ($4,000,000); provided, further, the Annual Bonus for any
partial calendar year shall be adjusted pro rata for the portion of the calendar
year contained within the Employment Term. The Executive's Annual Bonus earned
with respect to each calendar year shall be paid at the same time as annual
incentive bonuses with respect to that calendar year are paid to other senior
executives of the Company generally, but in no event later than March 31 of the
following calendar year.
(c) Agreed Salary Adjustment. Notwithstanding the provisions
of Sections 4(a) and 4(b) hereinabove, in the event any other employee of the
Company shall be paid total gross cash compensation (exclusive of Employment
Inducements) in any calendar year after the Original Execution Date that is
greater than eighty percent (80%) of the total gross cash compensation in such
calendar year paid to the Executive pursuant to Sections 4(a) and 4(b)
hereinabove (the "Agreed Ratio"), the amounts paid to the Executive pursuant to
Sections 4(a) and 4(b) hereinabove, shall be increased so that such employee's
total gross cash compensation does not exceed the Agreed Ratio.
(d) Stock Options.
(i) On the Original Execution Date hereof
the Executive shall be granted Options to purchase One Million Two
Hundred Fifty Thousand (1,250,000) shares of Common Stock.
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<PAGE> 7
(ii) All Options described in paragraph (i)
above shall be granted subject to the following terms and conditions:
(A) the Options shall be granted under and subject to the Option Plan;
(B) the exercise price of the Options shall be $42.125 per share (the
price per share at the close of trading on April 28, 1998); (C)
one-half of the Options under paragraph (i) shall be vested on the date
of grant, and one-half of the Options under paragraph (i) shall be
vested on the eighteenth (18th) month anniversary of the date of the
grant if and to the extent that a Termination of Employment has not
occurred, provided that in the event of a Termination of Employment by
the Executive for Good Reason or a Termination of Employment by the
Company other than for Cause, all such Options shall vest and become
exercisable on the date of such Termination of Employment; (D) each
Option shall be exercisable for the ten (10) year period following the
date of the grant; and (E) each Option shall be evidenced by, and
subject to, an Option Agreement.
(iii) Subject to paragraph (vi) hereinbelow,
on the Effective Date and each of the first four anniversaries thereof
on which the Executive remains employed hereunder, the Executive shall
be granted Options to purchase Two Hundred Thousand (200,000) shares of
Common Stock. In the event the Executive's employment hereunder is
terminated by the Company without Cause or by the Executive for Good
Reason prior to the Expiration Date, the Executive shall be granted, as
of the date of such Termination of Employment, a number of Options
equal to One Million (1,000,000) minus the number of Options previously
granted pursuant to the immediately preceding sentence. If the
Employment Term continues beyond the Expiration Date, the Compensation
Committee shall have the discretion to grant additional Options to the
Executive with respect to such continued employment.
(iv) All Options described in paragraph
(iii) above shall be granted subject to the following terms and
conditions: (A) the Options shall be granted under and subject to the
Option Plan; (B) the exercise price of the Options issued on the
Effective Date shall be $41.50 (the price per share at the close of
trading on June 1, 1998) and all other options described in paragraph
(iii) shall have an exercise price equal to the last reported sale
price of the Common Stock on the Nasdaq National Market System (or
other principal trading market for the Common Stock) at the close of
the trading day immediately preceding the date as of which the grant is
made; provided, however, that with respect to any Options the grant of
which is accelerated because the Executive's employment is terminated
either by the Company or the Executive as a result of a Change in
Control, the exercise price of such Options shall be the lower of (x)
the exercise price equal to the average last reported sale price in the
Nasdaq National Market System (or other principal trading market for
the Common Stock) for the 30 trading days prior to the ten trading days
ending at the close of the trading day immediately preceding the date
any announcement of such Change in Control is made and (y) an exercise
price equal to the last reported sale price of the Common Stock on the
Nasdaq National Market System (or other principal trading market for
the Common Stock) at the close of the trading day immediately preceding
the
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<PAGE> 8
date as of which the grant is made; (C) each Option shall be vested on
the date of grant; (D) each Option shall be exercisable for the ten
(10) year period following the date of the grant; and (E) each Option
shall be evidenced by, and subject to, an Option Agreement.
(v) The Option Agreements shall specify that
such Options shall remain exercisable for the periods described in
paragraphs (ii) and (iv) above notwithstanding any Termination of
Employment.
(vi) Notwithstanding the provisions of
paragraph (iii) hereinabove, in the event any other employee of the
Company shall be granted Options (exclusive of Employment Inducements)
in any calendar year that are greater than eighty percent (80%) of the
total Options in such calendar year granted to the Executive (the
"Agreed Option Ratio"), the Options granted to the Executive pursuant
to paragraph (iii) hereinabove, shall be increased so that the grant of
such Options (exclusive of Employment Inducements) to such other
employee does not exceed the Agreed Option Ratio.
(e) Vacation. During each complete twelve (12) month period of
the Employment Term, the Executive shall be entitled to no fewer than four (4)
weeks of paid vacation (unless, based on his length of service with the Company
and his position with the Company, the Executive is entitled to a greater number
of weeks of paid vacation under the Company's generally applicable vacation
policy, as determined by the Compensation Committee).
(f) Employee Benefit Plans. During the Employment Term, the
Executive shall be entitled to participate in all pension, profit sharing and
other retirement plans, all incentive compensation plans and all group health,
hospitalization and disability insurance plans and other employee welfare
benefit plans (in the case of any group health, hospitalization and disability
plans and other employee welfare benefit plans currently provided to the
Executive by MCC, after the Executive no longer participates in such plan or
plans) in which other senior executives of the Company may participate, on terms
and conditions no less favorable than those which apply to such other senior
executives of the Company.
(g) Company Payment of Health Benefit Coverage. During the
Employment Term, the Company shall pay the amount of premiums or other cost
incurred for coverage of the Executive and his eligible spouse and dependent
family members under the applicable Company health benefits arrangement
(consistent with the terms of such arrangement).
(h) Life Insurance Policy. In addition to the insurance
coverage contemplated by Section 4(f), during the Employment Term, the Company
shall maintain in effect term life insurance coverage for the Executive with a
death benefit of at least Five Hundred Thousand Dollars ($500,000), subject to
the Executive's insurability at standard rates and with the beneficiary or
beneficiaries thereof designated by the Executive. Notwithstanding Section 9 of
this Agreement, such life insurance policy or policies may be assigned to a
trust for the benefit of any beneficiary designated by the Executive.
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<PAGE> 9
(i) Automobile and Parking Allowance. During the Employment
Term, the Company shall (A) (i) either provide the Executive with, or pay or
reimburse the Executive for his purchase or lease of a luxury automobile
selected by the Executive with a retail sales price of not more than One Hundred
Thousand Dollars ($100,000), which automobile may be traded, in Executive's
discretion, every two (2) years during the Employment Term, and (ii) pay all
insurance and all other expenses related to the business operation of such
automobile, and (B) provide the Executive with a parking space at the
Executive's offices maintained in Dallas County, Texas.
(j) Use of Company Aircraft. During the Employment Term, the
Company shall provide the Executive with (i) priority use of aircraft operated
by or for the Company which shall be equal to or better than the quality of a
Gulfstream IVSP airplane (the "Company Aircraft"), for all business uses, and
(ii) subject at all times to the Company's priority for business purposes,
unlimited priority use of the Company Aircraft for personal use at the then most
favorable applicable hourly charge being charged to other users of the Company
Aircraft. During each calendar year during which the Executive is employed by
the Company the first $100,000 of personal use aircraft charges will not be paid
by the Executive but will be included as income to Executive on Executive's
annual W-2 Wage Tax Statement from the Company. The foregoing $100,000 amount
shall be pro-rated for any calendar year during which the Executive is employed
only for a portion of such calendar year.
(k) Office Facilities. As soon as practicable after the
Effective Date, and at all times during the Employment Term, the Company shall
(to the extent practicable) provide the Executive with office space in the same
building as the offices of Hicks, Muse, Tate & Furst Incorporated, or, if such
office space is not available, in a comparable location of the Executive's
choosing. Such office space shall be of a layout and include furnishings that
are similar to offices utilized by presidents and chief executive officers of
comparable companies in the area, and shall include private bathroom facilities.
Notwithstanding anything to the contrary in this Agreement, upon termination of
Executive's employment hereunder, Executive shall have the option to purchase
any or all of his office furnishings at their cost, net of any depreciation
through Executive's termination date.
(l) Execution Bonus. Within fifteen (15) days after the
execution and delivery of the Original Employment Agreement, the Company shall
pay to the Executive a one-time execution bonus in the gross amount of One
Million Dollars ($1,000,000).
(m) Other Benefits. During the Employment Term, the Company
shall provide the Executive with, or pay or reimburse the Executive for:
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(i) the cost incurred for membership of the
Executive in a metropolitan lunch club of the Executive's choosing, and
for membership of the Executive and his spouse and dependent family
members in the athletic club of the Executive's choosing and in the
country club of the Executive's choosing.
(ii) the actual cost for year-round personal
security services that are, in the Executive's reasonable judgment,
necessary or desirable to ensure the safety and security of the
Executive and the Executive's family.
(iii) the actual cost of annual preparation
of the Executive's federal income tax returns.
(iv) the actual cost of two (2) secretaries
or assistants at an aggregate annual gross salary for both such persons
of approximately One Hundred Twenty Seven Thousand Dollars ($127,000)
and one (1) personal accountant at a gross salary of approximately
Sixty-One Thousand Dollars ($61,000), subject in all cases to annual
salary increases consistent with those available to the other members
of the Company's support staff.
(n) Most Favored Benefits. If the Company shall provide
employment related benefits (including, without limitation, benefits of the type
referred to by clauses (a) through (k) and clause (m) of this Section 4) in an
aggregate amount greater than or on more favorable terms and conditions (on an
aggregate basis) as are granted to any other senior executive of the Company,
the Executive shall be provided such benefits in substantially comparable amount
and/or under the substantially comparable terms and conditions, as applicable,
on an aggregate basis.
5. REIMBURSEMENT OF EXPENSES
In addition to the compensation provided for under Section 4
hereof, upon submission of proper vouchers, the Company will pay or reimburse
the Executive for all normal and reasonable travel and entertainment expenses
incurred by the Executive during the Employment Term in connection with the
Executive's responsibilities to the Company. The Company shall also reimburse
the Executive for all reasonable attorneys' fees incurred in connection with the
negotiation and execution of this Agreement.
6. TERMINATION BENEFITS
(a) Upon the termination of the Executive's employment with
the Company for any reason, the Company shall provide the Executive (or, in the
case of his death, his estate or other legal representative), any Annual Bonus
earned but not yet paid with respect to the preceding calendar year, all
benefits due him under the Company's benefits plans and policies for his
services rendered to the Company prior to the date of such termination
(according to the terms of such plans and policies), and, not later than ninety
(90) days after such termination, in a lump sum, all Base Salary earned through
the date of such termination. The Executive shall be entitled to the payments
and benefits described below only as each is applicable to such termination of
employment.
(b) In the event that the Executive's employment hereunder is
terminated by the Company without Cause or by the Executive for Good Reason (but
not
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by reason of expiration or non-renewal of this Agreement), and subject to the
last sentence of this subsection (b), the Company shall make a one-time cash
payment to the Executive in a gross amount such that the net payments retained
by the Executive after payment of any applicable Excise Tax with respect to such
payment, and the payment of any income taxes on the amount over Six Million Two
Hundred Fifty Thousand Dollars ($6,250,000) that is so grossed-up and paid to
the Executive on account of any applicable Excise Tax, shall equal Six Million
Two Hundred Fifty Thousand Dollars ($6,250,000). Such payment shall be made at
the time of any such termination without Cause or within thirty (30) days of any
such resignation for Good Reason. Such payment shall be in full satisfaction of
all obligations of the Company to the Executive hereunder (other than those
obligations set forth in Sections 4(d) and 6(a)) and shall be conditioned on the
Executive giving a general release of the Company and affiliates in the form
used generally by the Company in the case of the termination of employment of
senior executives.
(c) Notwithstanding the provisions of Section 6(b)
hereinabove, in the event the Company shall at any time after the Original
Execution Date agree to pay cash termination benefits to any other employee of
the Company that are greater than eighty percent (80%) of the cash termination
benefits agreed to be paid to the Executive pursuant to Section 6(b) hereinabove
(the "Agreed Termination Ratio"), the amounts agreed to be paid to the Executive
pursuant to Section 6(b) hereinabove, shall be increased so that such employee's
cash termination benefits do not exceed the Agreed Termination Ratio.
(d) (i) In the event that the Executive elects
to terminate his employment hereunder other than for Good
Reason, the Company, in consideration for the Executive's
agreement in Section 7(b), shall continue to pay him his Base
Salary as set forth in Section 4(a) through the fifth (5th)
anniversary of the Effective Date.
(ii) In addition, in such event, the Company
may, by written notice to the Executive given no later than
fifteen (15) days following his termination of employment,
elect to require the Executive to observe the provisions of
Section 7(c) hereof. In such event, the Company shall, on the
last day of each calendar year through December 31, 2003 make
a payment to him equal to his Average Bonus, and on the last
day of the calendar year which includes the Expiration Date
make a payment to him equal to the product of his Average
Bonus and the fraction of such calendar year which precedes
the Expiration Date.
(e) In the event that the Executive's employment is terminated
by reason of expiration or non-renewal of this Agreement the Company shall make
a (1) one-time cash payment to the Executive equal to two (2) times the amount
of his annual Base Salary payable for the Contract Year ending on (or in which
falls) the date of Termination of Employment. Such payment shall be made at the
time of such Termination of Employment. Such payment shall be in full
satisfaction of all obligations of the Company to the Executive hereunder (other
than those obligations set forth in
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Sections 4(d) and 6(a)) and shall be conditioned on the Executive giving a
general release of the Company and affiliates in the form used generally by the
Company in the case of the termination of employment of senior executives.
(f) In the event of any Termination of Employment, the
Executive shall not be required to seek other employment to mitigate damages,
and any income earned by the Executive from other employment or self-employment
shall not be offset against any obligations of the Company to the Executive
under this Agreement.
7. PROTECTED INFORMATION; PROHIBITED SOLICITATION
(a) The Executive hereby recognizes and acknowledges that
during the course of his employment by the Company, the Company will furnish,
disclose or make available to the Executive confidential or proprietary
information related to the Company's business, including, without limitation,
customer lists, ideas and formatting and programming concepts and plans, that
such confidential or proprietary information has been developed and will be
developed through the Company's expenditure of substantial time and money, and
that all such confidential information could be used by the Executive and others
to compete with the Company. The Executive hereby agrees that all such
confidential or proprietary information shall constitute trade secrets, and
further agrees to use such confidential or proprietary information only for the
purpose of carrying out his duties with the Company and not to disclose such
information unless required to do so by subpoena or other legal process. No
information otherwise in the public domain (other than by an act of the
Executive in violation hereof) shall be considered confidential.
The Executive further agrees that all memoranda, notices,
files, records and other documents concerning the business of the Company, made
or compiled by the Executive during the period of his employment or made
available to him, shall be the Company's property and shall be delivered to the
Company upon its request therefor and in any event upon the termination of the
Executive's employment with the Company, provided, however, that the Executive
shall be permitted to retain copies of personal correspondence generated or
received by him during the Employment Term, subject to the use restrictions of
this Section 7(a).
(b) The Executive hereby agrees, in consideration of his
employment hereunder and in view of the confidential position to be held by the
Executive hereunder, that after any Termination of Employment, and through the
Expiration Date the Executive will not directly or indirectly induce any
employee of any of the Protected Companies (as defined below) to terminate such
employment or to become employed by any other radio broadcasting station.
(c) Should the Company make the election set forth in Section
6(d)(ii), the Executive further agrees that, from and after the Termination of
Employment and through the Expiration Date, he shall not be employed by or
perform activities on behalf of, or have an ownership interest in, (i) any radio
or television broadcasting station serving the same "Area of Dominant Influence"
(as reported by Arbitron) as any of the
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radio or television broadcasting stations owned by the Company or its
subsidiaries or affiliates, or the subsidiaries or affiliates of the Company's
direct or indirect stockholders (collectively the "Protected Companies"), or
(ii) any person, firm, corporation or other entity, or in connection with any
business enterprise, that is directly or indirectly engaged in any of the
business activities in which the Protected Companies have significant
involvement (collectively, the "Competing Business Areas"), in each case at the
effective time of such Termination of Employment (other than beneficial
ownership of up to five percent (5%) of the outstanding voting stock of a
publicly traded company that owns such a competitor); provided, however, the
foregoing shall not prohibit the Executive from being employed by or performing
activities on behalf of, or having an ownership interest in, any entity that
principally is in the business of owning or operating cable television systems
or otherwise providing multi-channel video service, two-way return interactive
high speed data service, or telephony service.
(d) The restrictions in this Section 7, to the extent
applicable, shall survive the termination of this Agreement and shall be in
addition to any restrictions imposed upon the Executive by statute or at common
law.
(e) The parties hereby acknowledge that the restrictions in
this Section 7 have been specifically negotiated and agreed to by the parties
hereto and are limited only to those restrictions necessary to protect the
Protected Companies from unfair competition. The parties hereby agree that if
the scope or enforceability of any provision, paragraph or subparagraph of this
Section 7 is in any way disputed at any time, and should a court find that such
restrictions are overly broad, the court may modify and enforce the covenant to
the extent that it believes to be reasonable under the circumstances. Each
provision, paragraph and subparagraph of this Section 7 is separable from every
other provision, paragraph, and subparagraph and constitutes a separate and
distinct covenant. The Executive acknowledges that the Protected Companies
operate in major and medium sized markets throughout the United States and that
the effect of Section 7(c) may be to prevent him from working in the Competing
Business Areas after his termination of employment hereunder.
8. INJUNCTIVE RELIEF
The Executive hereby expressly acknowledges that any breach or
threatened breach by the Executive of any of the terms set forth in Section 7 of
this Agreement may result in significant and continuing injury to the Company,
the monetary value of which would be impossible to establish. Therefore, the
Executive agrees that the Company shall be entitled to apply for injunctive
relief in a court of appropriate jurisdiction.
The provisions of this Section 8 shall survive the Employment Term.
9. PARTIES BENEFITED; ASSIGNMENTS
This Agreement shall be binding upon the Executive, his heirs
and his personal representative or representatives, and upon the Company and Los
Angeles and their respective successors and assigns. Neither this Agreement nor
any rights or obligations hereunder may be assigned by the Executive, other than
by will or by the laws
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of descent and distribution. From and after consummation of the Capstar Merger,
all rights and obligations of the Company under this Agreement shall be assigned
to and assumed by the New Chancellor. The consummation of the Capstar Merger
shall not constitute a Change in Control.
10. NOTICES
Any notice required or permitted by this Agreement shall be in
writing, sent by registered or certified mail, return receipt requested,
addressed to the Board and the Company at its then principal office, or to the
Executive at the address set forth in the preamble, as the case may be, or to
such other address or addresses as any party hereto may from time to time
specify in writing for the purpose in a notice given to the other parties in
compliance with this Section 10. Notices shall be deemed given when received.
11. GOVERNING LAW
This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of Texas, without regard to conflict of
law principles.
12. INDEMNIFICATION AND INSURANCE; LEGAL EXPENSES
The Company shall indemnify the Executive to the fullest
extent permitted by the laws of the State of Delaware, as in effect at the time
of the subject act or omission, and shall advance to the Executive reasonable
attorneys' fees and expenses as such fees and expenses are incurred (subject to
an undertaking from the Executive to repay such advances if it shall be finally
determined by a judicial decision which is not subject to further appeal that
the Executive was not entitled to the reimbursement of such fees and expenses)
and he will be entitled to the protection of any insurance policies the Company
may elect to maintain generally for the benefit of its directors and officers
("Directors and Officers Insurance") against all costs, charges and expenses
incurred or sustained by him in connection with any action, suit or proceeding
to which he may be made a party by reason of his being or having been a
director, officer or employee of the Company or any of its subsidiaries or his
serving or having served any other enterprise as a director, officer or employee
at the request of the Company (other than any dispute, claim or controversy
arising under or relating to this Agreement). The Company covenants to maintain
during the Employment Term for the benefit of the Executive (in his capacity as
an officer and director of the Company) Directors and Officers Insurance
providing benefits to the Executive no less favorable, taken as a whole, than
the benefits provided to the Executive by the Directors and Officers Insurance
maintained by the Company on the date hereof; provided, however, that the Board
may elect to terminate Directors and Officers Insurance for all officers and
directors, including the Executive, if the Board determines in good faith that
such insurance is not available or is available only at unreasonable expense.
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13. REPRESENTATIONS AND WARRANTIES OF THE EXECUTIVE
The Executive represents and warrants to the Company that (a)
the Executive is under no contractual or other restriction which is inconsistent
with the execution of this Agreement, the performance of his duties hereunder or
the other rights of Company hereunder, and (b) the Executive is under no
physical or mental disability that would hinder the performance of his duties
under this Agreement.
14. DISPUTES
Any dispute or controversy arising under, out of, in
connection with or in relation to this Agreement shall, at the election and upon
written demand of either the Executive or the Company, be finally determined and
settled by arbitration in the city of the Company's headquarters in accordance
with the rules and procedures of the American Arbitration Association, and
judgment upon the award may be entered in any court having jurisdiction thereof.
The Company shall pay the costs and expenses of such arbitration and the fees of
the Executive's counsel and experts unless the finder of fact determines that
the Company is the prevailing party in such arbitration.
15. FACILITY OF PAYMENT
All cash payments to be made by the Company to or on behalf of
the Executive hereunder shall be an obligation of and made by Los Angeles.
16. MISCELLANEOUS
The provisions of this Agreement shall survive the termination
of the Executive's employment with the Company. This Agreement contains the
entire agreement of the parties relating to the subject matter hereof. This
Agreement supersedes any prior written or oral agreements or understandings
between the parties relating to the subject matter hereof. No modification or
amendment of this Agreement shall be valid unless in writing and signed by or on
behalf of the parties hereto. A waiver of the breach of any term or condition of
this Agreement shall not be deemed to constitute a waiver of any subsequent
breach of the same or any other term or condition. This Agreement is intended to
be performed in accordance with, and only to the extent permitted by, all
applicable laws, ordinances, rules and regulations. If any provision of this
Agreement, or the application thereof to any person or circumstance, shall, for
any reason and to any extent, be held invalid or unenforceable, such invalidity
and unenforceability shall not affect the remaining provisions hereof and the
application of such provisions to other persons or circumstances, all of which
shall be enforced to the greatest extent permitted by law. The compensation
provided to the Executive pursuant to this Agreement shall be subject to any
withholdings and deductions required by any applicable tax laws. Any amounts
payable under this Agreement to the Executive after the death of the Executive
shall be paid to the Executive's estate or legal representative. The headings in
this Agreement are inserted for convenience of reference only and shall not be a
part of or control or affect the meaning of any provision hereof.
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IN WITNESS WHEREOF, the parties have duly executed and
delivered this Agreement as of the date first written above.
CHANCELLOR MEDIA CORPORATION
CHANCELLOR MEDIA CORPORATION OF
LOS ANGELES
By: /s/ THOMAS O. HICKS
-----------------------------------------
Thomas O. Hicks
Chairman of the Board
/s/ JEFFREY A. MARCUS
--------------------------------------------
Jeffrey A. Marcus
<PAGE> 1
EXHIBIT 10.54
----------------
EXECUTION COPY
----------------
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
BETWEEN
CHANCELLOR MEDIA CORPORATION
AND
JAMES E. DE CASTRO
This Amended and Restated Employment Agreement (this
"Agreement") is made and entered into this 1st day of October, 1998 (the
"Execution Date"), to be effective as of April 17, 1998 (the "Effective Date"),
between Chancellor Media Corporation, a Delaware corporation (the "Company"),
Chancellor Media Corporation of Los Angeles, a Delaware corporation ("Los
Angeles") and James E. de Castro (the "Executive"), residing at 1025 Seneca
Road, Wilmette, Illinois 60091.
W I T N E S S E T H:
WHEREAS, the Company and the Executive entered into an
Employment Agreement between the Company and the Executive on May 18, 1998, to
be effective as of April 17, 1998 (the "Prior Employment Agreement"); and
WHEREAS, the Company and the Executive desire to modify and
clarify certain provisions of such Prior Employment Agreement by amending and
restating the Prior Employment Agreement;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and obligations hereinafter set forth, the parties agree as
follows:
1. DEFINITIONS
The following terms used in this Agreement shall have the
meaning specified below unless the context clearly indicates the contrary:
"Annual Bonus" shall mean the annual incentive bonus payable
to the Executive described in Section 4.
"Average Bonus" shall mean the greater of (a) (i) the total of
the Annual Bonuses paid hereunder with respect to the Employment Term, divided
by (ii) the length of such portion of the Employment Term in years (including
fractions) as falls on or prior to the last December 31 thereof and (b) One
Million Six Hundred Thousand Dollars ($1,600,000).
"Base Salary" shall mean the annual base salary payable to the
Executive at the rate set forth in Section 4.
"Board" shall mean the Board of Directors of the Company.
<PAGE> 2
"Broadcast Cash Flow" for any accounting period shall mean
station operating income for such accounting period for the stations owned or
operated by the Company as of the last day of such accounting period on a
consolidated basis excluding depreciation, amortization and corporate, general
and administrative expenses, calculated in a manner consistent with the
presentation of "broadcast cash flow" in the Company's periodic reports filed
with the Securities Exchange Commission.
"Broadcast Cash Flow Target" for any accounting period shall
mean one hundred five percent (105%) of the station operating income for the
corresponding accounting period falling twelve months earlier on a consolidated
basis, excluding depreciation, amortization and corporate, general and
administrative expenses, calculated in a manner consistent with the presentation
of "broadcast cash flow" in the Company's periodic reports filed with the
Securities Exchange Commission, with respect to the stations owned or operated
by the Company as of the last day of the accounting period for which the
Broadcast Cash Flow Target is calculated.
"Capstar" shall mean Capstar Broadcasting Corporation, a
Delaware corporation, which entity shall become the Company for purposes herein
upon the consummation of the Capstar Merger.
"Capstar Merger" shall mean the proposed merger of the Company
with and into a subsidiary of Capstar, subsequent to which Capstar will change
its name to Chancellor Media Corporation.
"Cause" shall mean the Executive's (a) habitual neglect of his
material duties or failure to perform his material obligations under this
Agreement, (b) refusal or failure to follow lawful directives of the Board, (c)
commission of an act of fraud, theft or embezzlement, or (d) conviction of a
felony or other crime involving moral turpitude; provided, however, that the
Company shall give the Executive written notice of any actions alleged to
constitute Cause under subsections (a) and (b) above, and the Executive shall
have a reasonable opportunity (as specified by the Compensation Committee) to
cure any such alleged Cause.
"Change in Control" shall mean (a) the sale, lease or other
transfer of all or substantially all of the assets of the Company to any person
or group (as such term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended); (b) the adoption by the stockholders of the Company of
a plan relating to the liquidation or dissolution of the Company; (c) the merger
or consolidation of the Company with or into another entity or the merger of
another entity into the Company or any subsidiary thereof with the effect that
immediately after such transaction the stockholders of the Company immediately
prior to such transaction (or their Related Parties) directly and indirectly
hold less than fifty percent (50%) of the total voting power of all securities
generally entitled to vote in the election of directors, managers or trustees of
the entity surviving such merger or consolidation; (d) the acquisition by any
person or group of more than fifty percent (50%) of the direct and indirect
voting power of all securities of the Company generally entitled to vote in the
election of directors of the Company; or (e) the majority of the Board is
composed of members who (i) have served less than twelve (12)
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months and (ii) were not approved by a majority of the Board at the time of
their election or appointment.
"Change in Operations" shall mean a change in the business
operating strategies of the Company (e.g. material cost controls or other
material restrictions on the Company's ability to increase its gross revenues)
which are imposed upon the Executive without his consent, and, in his reasonable
judgement, are fundamentally different from the business operating strategies in
effect at the Company on the Effective Date; provided, however, any expansion of
the Company's business into other media businesses, including, without
limitation, radio stations in small- or medium-sized markets, television,
outdoor advertising, and international media opportunities, shall not constitute
a Change in Operations. Any dispute as to whether a Change of Operations has
occurred shall be resolved pursuant to Section 14.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Common Stock" shall mean $0.01 par value common stock of the
Company.
"Compensation Committee" shall mean the Compensation Committee
of the Board.
"Consumer Price Index" shall mean the Consumer Price Index for
All Urban Consumers (1982-84=100) for all cities as reported by the United
States Bureau of Labor Statistics.
"Contract Year" shall mean each twelve (12) consecutive month
period during the Employment Term which begins on the Effective Date and each
annual anniversary thereof.
"Employment Inducements" shall mean any compensation,
including, without limitation, signing bonuses and stock options, that are paid
or granted to senior officers of the Company in connection with such officers'
initial hiring by the Company, or in connection with any amendments to or
extensions of the term of such senior officers' employment agreements with the
Company.
"Employment Term" shall mean the period beginning on the
Effective Date and ending on the close of business on the effective date of the
Executive's termination of employment with the Company.
"Excise Tax" shall mean the taxes imposed by Code Section
4999.
"Expiration Date" shall have the meaning ascribed to such term
in Section 2.
"Good Reason" shall mean (a) the Company's material breach of
any provision hereof, (b) the Executive no longer directly reporting to Jeffrey
A. Marcus or Thomas O. Hicks, (c) any adverse change in the Executive's job
responsibilities, duties,
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functions, status, offices, title, perquisites or support staff, (d) relocation
of the Executive's regular work address by more than ten (10) miles without his
consent, (e) a Change in Operations, (f) the Executive's failure, at any time,
to be permitted to serve as a member of the Board or (g) a Change in Control;
provided, however, that the Executive shall give the Company written notice of
any actions (other than those set out in subsections (e) or (g) above) alleged
to constitute Good Reason and the Company shall have a reasonable opportunity to
cure any such alleged Good Reason.
"New Chancellor" shall mean, from and after the consummation
of the Capstar Merger, Chancellor Media Corporation, a Delaware corporation, as
successor by name change to Capstar.
"Option Agreement" shall mean the agreement between the
Executive and the Company pursuant to which any Option is granted to the
Executive.
"Option Plan" shall mean the 1998 Chancellor Media Corporation
Non-Qualified Stock Option Plan, as amended from time to time, and any successor
thereto.
"Options" shall mean the non-qualified stock options to be
granted to the Executive hereunder.
"Permanent Disability" shall mean the Executive's inability to
perform the duties contemplated by this Agreement by reason of a physical or
mental disability or infirmity which has continued for more than ninety (90)
working days (excluding vacation) in any twelve (12) consecutive month period as
determined by the Board. The Executive agrees to submit such medical evidence
regarding such disability or infirmity as is reasonably requested by the Board.
"Prior Employment Agreement" shall be as defined in the
Recitals to this Agreement.
"Related Parties" shall mean with respect to any person (a)
the spouse and lineal ascendants and descendants of such person, and any sibling
of any of such persons and (b) any trust, corporation, partnership or other
entity, the beneficiaries, stockholders, partners, owners or persons
beneficially holding an eighty percent (80%) or more controlling interest of
which consist of persons referred to in subsection (a) above.
"Termination of Employment" shall mean the first to occur of
the following events:
(a) the date of death of the Executive;
(b) the effective date specified in the Company's
written notice to the Executive of the termination of his
employment as a result of his Permanent Disability, which
effective date shall not be earlier than the ninety-first
(91st) working day (excluding vacation) following the
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<PAGE> 5
commencement of the Executive's inability to perform his
duties hereunder;
(c) the effective date specified in the Company's
written notice to the Executive of the Company's termination
of his employment without Cause;
(d) the effective date specified in the Company's
written notice to the Executive of the Company's termination
of his employment for Cause;
(e) the effective date specified in the Executive's
written notice to the Company of the Executive's termination
of his employment for Good Reason;
(f) the effective date specified in the Executive's
written notice to the Company of the Executive's termination
of his employment without Good Reason; and
(g) the date the Executive's employment terminates
pursuant to Section 2.
"Termination without Cause" shall mean a termination by the
Company of the Executive's employment without Cause.
2. EMPLOYMENT
The Company agrees to continue the employment of the
Executive, and the Executive agrees to continue to provide services to the
Company from the date of this Agreement until the close of business on the fifth
(5th) anniversary of the Effective Date (the "Expiration Date"), unless the
Executive's employment is earlier terminated pursuant to a Termination of
Employment. The Executive will serve the Company subject to the general
supervision, advice and direction of the Board and the Chief Executive Officer
and upon the terms and conditions set forth in this Agreement.
3. TITLE AND DUTIES
(a) The Executive's job title shall be President of Chancellor
Radio Group, a division of the Company. During the Employment Term, the
Executive shall have primary executive authority over the Company's operations
in radio in all markets and such other authority and duties as are usual and
customary for such position, and shall perform such additional services and
duties as the Board may from time to time designate consistent with such
position. Throughout the Employment Term, the Company shall also nominate the
Executive to serve as a member of the Board and upon such nomination Executive
shall agree to so serve.
(b) The Executive shall report solely to the Chief Executive
Officer of the Company. All other senior radio operating executives of the
Company shall report
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<PAGE> 6
directly to the Executive, and the Executive shall be responsible for reviewing
the performance of such senior radio operating executives of the Company.
(c) The Executive shall devote his full business time and best
efforts to the business affairs of the Company; however, the Executive may
devote reasonable time and attention to:
(i) serving as a director of, or member of a
committee of the directors of, any not-for-profit organization
or engaging in other charitable or community activities; and
(ii) serving as a director of, or member of a
committee of the directors of, the corporations or
organizations for which the Executive presently serves in such
capacity, and such other corporations and organizations that
the Board may from time to time approve in the future.
4. COMPENSATION AND BENEFITS
(a) Base Compensation. During the Employment Term, the Company
shall pay the Executive, in installments according to the Company's regular
payroll practice, Base Salary at the annual rate of Nine Hundred Thousand
Dollars ($900,000) for the first (1st) Contract Year; and subject to increase
for each subsequent Contract Year an amount equal to the product of
(i) the Base Salary for the immediately preceding
Contract Year; and
(ii) the ratio of the Consumer Price Index for the
last complete calendar month in such preceding Contract Year
to the Consumer Price Index for the same month in the year
preceding such preceding Contract Year
; provided, however, that in no event shall the Base Salary for any subsequent
Contract Year be less than the Base Salary in the immediately preceding Contract
Year.
(b) Annual Incentive Bonus. The Executive shall be entitled to
an Annual Bonus for each calendar year during which he is employed hereunder.
Such Annual Bonus for any such calendar year shall be equal to five percent (5%)
of the excess, if any, of Broadcast Cash Flow for the portion of such calendar
year during which the Executive is employed over the Broadcast Cash Flow Target
for such portion of such calendar year, but in no event more than Three Million
Dollars ($3,000,000) in any calendar year or, for the calendar year, if any, in
which this contract terminates, the product of Three Million Dollars
($3,000,000) and the fraction of such calendar year which precedes the date of
such termination. The Executive's Annual Bonus earned with respect to each
calendar year shall be paid at the same time as annual incentive bonuses with
respect to that calendar year are paid to other senior executives of the Company
generally, but in no event later than March 31 of the following calendar year.
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<PAGE> 7
(c) Stock Options.
(i) On the Effective Date and each of the first four
(4) anniversaries thereof on which the Executive remains
employed hereunder, the Executive shall be granted an Option
to purchase One Hundred Sixty Thousand (160,000) shares of
Common Stock. In the event the Executive's employment
hereunder is terminated by the Company without Cause or by the
Executive for Good Reason prior to the Expiration Date, the
Executive shall be granted, as of the date of such Termination
of Employment, a number of Options equal to Eight Hundred
Thousand (800,000) minus the number of Options previously
granted pursuant to the immediately preceding sentence.
(ii) All Options described in paragraph (i) above
shall be granted subject to the following terms and
conditions: (A) the Options shall be granted under and subject
to the Option Plan; (B) the exercise price of the Options
issued on the Effective Date shall be $41.50 and all other
options described in paragraph (i) shall have an exercise
price equal to the last reported sale price of the Common
Stock on the Nasdaq National Market System (or other principal
trading market for the Common Stock) at the close of the
trading day immediately preceding the date as of which the
grant is made; provided, however, that with respect to any
Options the grant of which is accelerated because the
Executive's employment is terminated either by the Company or
the Executive as a result of a Change in Control, the exercise
price of such Options shall be the lower of (x) the exercise
price equal to the average last reported sale price on the
Nasdaq National Market System (or other principal trading
market for the Common Stock) for the 30 trading days prior to
the ten trading days ending at the close of the trading day
immediately preceding the date any announcement of such Change
in Control is made and (y) an exercise price equal to the last
reported sale price of the Common Stock on the Nasdaq National
Market System (or other principal trading market for the
Common Stock) at the close of the trading day immediately
preceding the date as of which the grant is made; (C) each
Option shall be vested on the date of grant; (D) each Option
shall be exercisable for the ten (10) year period following
the date of grant; (E) each Option shall be evidenced by, and
subject to, an Option Agreement; and (F) the number of shares
granted shall be subject to adjustment for any subsequent
stock splits.
(iii) The Option Agreements shall specify that such
Options shall remain exercisable for the periods described in
paragraph (ii) above notwithstanding any Termination of
Employment.
(d) Vacation. During each complete twelve (12) month period of
the Employment Term, the Executive shall be entitled to no fewer than four (4)
weeks of paid vacation (unless, based on his length of service with the Company
and his position with the Company, the Executive is entitled to a greater number
of weeks of paid
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vacation under the Company's generally applicable vacation policy, as determined
by the Compensation Committee).
(e) Employee Benefit Plans. During the Employment Term, the
Executive shall be entitled to participate in all pension, profit sharing and
other retirement plans, all incentive compensation plans and all group health,
hospitalization and disability insurance plans and other employee welfare
benefit plans in which other senior executives of the Company may participate on
terms and conditions no less favorable than those which apply to such other
senior executives of the Company.
(f) Company Payment of Health Benefit Coverage. During the
Employment Term, the Company shall pay the amount of premiums or other cost
incurred for coverage of the Executive and his eligible spouse and dependent
family members under the applicable Company health benefits arrangement
(consistent with the terms of such arrangement).
(g) Life Insurance Policy. In addition to the insurance
coverage contemplated by Section 4(e), during the Employment Term, the Company
shall maintain in effect term life insurance coverage for the Executive with a
death benefit of at least Five Hundred Thousand Dollars ($500,000), subject to
the Executive's insurability at standard rates and with the beneficiary or
beneficiaries thereof designated by the Executive. Notwithstanding Section 9 of
this Agreement, such life insurance policy or policies may be assigned to a
trust for the benefit of any beneficiary designated by the Executive.
(h) Automobile and Parking Allowance; Other Benefits.
(i) During the Employment Term, the Company shall
either provide the Executive with, or pay or reimburse the
Executive for (A) his purchase or lease of an automobile of
the size and class of the Executive's current Company-provided
automobile; and (B) parking space at the Company's corporate
office maintained in Chicago, Illinois; and
(ii) During the Employment Term, the Company shall
provide the Executive with, or pay or reimburse the Executive
for, the cost incurred for membership of the Executive and his
spouse and dependent family members in the athletic club of
Executive's choosing and in the country club of Executive's
choosing.
(i) Most Favored Benefits. If the Company shall provide
employment related benefits (including, without limitation, benefits of the type
referred to by clauses (a) through (h) of this Section 4) in an aggregate amount
greater than or on more favorable terms and conditions (on an aggregate basis)
as are granted to any other senior executive of the Company (except for
Employment Inducements and benefits provided to the Chief Executive Officer of
the Company), the Executive shall be provided such benefits in substantially
comparable amount and/or under the substantially comparable terms and
conditions, as applicable, on an aggregate basis.
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(j) Execution Bonuses. The Executive shall be paid or granted,
as the case may be, the following Employment Inducements:
(i) Within fifteen (15) days after the execution and
delivery of the Prior Employment Agreement, the Company shall
pay to the Executive a one-time execution bonus in the gross
amount of One Million Dollars ($1,000,000);
(ii) Within thirty (30) days after the execution and
delivery of the Prior Employment Agreement, the Company shall
make a one-time cash payment to the Executive in a gross
amount such that the net payments retained by the Executive
after payment of any Excise Tax with respect to such payment
shall equal Five Million Dollars ($5,000,000); and
(iii) The Executive shall be granted an option to
purchase Eight Hundred Thousand (800,000) shares of Common
Stock (collectively, the "Execution Options"), subject to the
following terms and conditions: (A) the Execution Options
shall be granted under and subject to the Option Plan; (B) the
exercise price of the Execution Options shall be $42.125 per
share (the price per share at the close of trading on April
28, 1998); (C) the Executive Options shall be vested on the
date of grant; (D) each Executive Option shall be exercisable
for the ten (10) year period following the date of grant; and
(E) each Executive Option shall be evidenced by, and subject
to, an Option Agreement.
(iv) The Option Agreements shall specify that such
Options shall remain exercisable for the periods described in
paragraph (iii) above notwithstanding any Termination of
Employment.
5. REIMBURSEMENT OF EXPENSES
In addition to the compensation provided for under Section 4
hereof, upon submission of proper vouchers, the Company will pay or reimburse
the Executive for all normal and reasonable travel and entertainment expenses
incurred by the Executive during the Employment Term in connection with the
Executive's responsibilities to the Company.
6. TERMINATION BENEFITS
(a) Upon the termination of the Executive's employment with
the Company for any reason, the Company shall provide the Executive (or, in the
case of his death, his estate or other legal representative), (i) any Annual
Bonus earned but not yet paid with respect to the preceding calendar year, (ii)
all benefits due him under the Company's benefits plans and policies for his
services rendered to the Company prior to the date of such termination
(according to the terms of such plans and policies), (iii) not later than ninety
(90) days after such termination, in a lump sum, all Base Salary earned through
the date of such termination, and (iv) not later than ninety (90) days after
such
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<PAGE> 10
termination, in a lump sum, any Annual Bonus earned with respect to that portion
of the calendar year prior to such termination.
(b) In the event that the Executive's employment hereunder is
terminated by the Company without Cause or by the Executive for Good Reason (but
not by reason of expiration or non-renewal of this Agreement), and subject to
the last sentence of this subsection (b), the Company shall make a one-time cash
payment to the Executive in a gross amount such that the net payments retained
by the Executive after payment of any applicable Excise Tax with respect to such
payment, and the payment of any income taxes on the amount over Five Million
Dollars ($5,000,000) that is so grossed-up and paid to the Executive on account
of any applicable Excise Tax, shall equal Five Million Dollars ($5,000,000).
Such payment shall be made at the time of any such termination without Cause or
within thirty (30) days of any such resignation for Good Reason. Such payment
shall be in full satisfaction of all obligations of the Company to Executive
hereunder (other than those obligations set forth in Sections 4(c), 4(j)(iii)
and 6(a)) and shall be conditioned on Executive giving a general release of the
Company and affiliates in the form used generally by the Company in the case of
the termination of employment of senior executives.
(c) (i) In the event that the Executive elects to
terminate his employment hereunder other than for Good
Reason, the Company, in consideration for the Executive's
agreement in Section 7(b), shall continue to pay him his Base
Salary as set forth in Section 4(a) through the fifth (5th)
anniversary of the Effective Date.
(ii) In addition, in such event, the Company may, by
written notice to the Executive given no later than fifteen
(15) days following his termination of employment, elect to
require the Executive to observe the provisions of Section
7(c) hereof. In such event, the Company shall, on the last day
of each calendar year through December 31, 2002 make a payment
to him equal to his Average Bonus, and on the last day of the
calendar year ending December 31, 2003 make a payment to him
equal to the product of his Average Bonus and the fraction of
such calendar year which precedes the Expiration Date.
(d) In the event that the Executive's employment is terminated
by reason of expiration or non-renewal of this Agreement the Company shall make
a (1) one time cash payment to the Executive equal to two (2) times the amount
of his annual Base Salary payable for the Contract Year ending on (or in which
falls) the date of Termination of Employment. Such payment shall be made at the
time of such Termination of Employment. Such payment shall be in full
satisfaction of all obligations of the Company to the Executive hereunder (other
than those obligations set forth in subsection (a)) and shall be conditioned on
the Executive giving a general release of the Company and affiliates in the form
used generally by the Company in the case of the termination of employment of
senior executives.
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(e) In the event of any Termination of Employment, the
Executive shall not be required to seek other employment to mitigate damages,
and any income earned by the Executive from other employment or self-employment
shall not be offset against any obligations of the Company to the Executive
under this Agreement.
7. PROTECTED INFORMATION; PROHIBITED SOLICITATION
(a) The Executive hereby recognizes and acknowledges that
during the course of his employment by the Company, the Company will furnish,
disclose or make available to the Executive confidential or proprietary
information related to the Company's business, including, without limitation,
customer lists, ideas and formatting and programming concepts and plans, that
such confidential or proprietary information has been developed and will be
developed through the Company's expenditure of substantial time and money, and
that all such confidential information could be used by the Executive and others
to compete with the Company. The Executive hereby agrees that all such
confidential or proprietary information shall constitute trade secrets, and
further agrees to use such confidential or proprietary information only for the
purpose of carrying out his duties with the Company and not to disclose such
information unless required to do so by subpoena or other legal process. No
information otherwise in the public domain (other than by an act of the
Executive in violation hereof) shall be considered confidential.
The Executive further agrees that all memoranda, notices,
files, records and other documents concerning the business of the Company, made
or compiled by the Executive during the period of his employment or made
available to him, shall be the Company's property and shall be delivered to the
Company upon its request therefor and in any event upon the termination of the
Executive's employment with the Company, provided, however, that the Executive
shall be permitted to retain copies of personal correspondence generated or
received by him during the Employment Term, subject to the use restrictions of
this Section 7(a).
(b) The Executive hereby agrees, in consideration of his
employment hereunder and in view of the confidential position to be held by the
Executive hereunder, that after any Termination of Employment, and through the
Expiration Date the Executive will not directly or indirectly induce any
employee of any of the Protected Companies (as defined below) to terminate such
employment or to become employed by any other radio broadcasting station.
(c) Should the Company make the election set forth in Section
6(c)(ii), the Executive further agrees that, from and after the Termination of
Employment and through the Expiration Date, he shall not be employed by or
perform activities on behalf of, or have an ownership interest in, (i) any radio
or television broadcasting station serving the same "Area of Dominant Influence"
(as reported by Arbitron) as any of the radio or television broadcasting
stations owned by the Company or its subsidiaries or affiliates, or the
subsidiaries or affiliates of any of the Company's direct or indirect
stockholders owning more than twenty percent (20%) of the Company (collectively
the "Protected Companies"), or (ii) any person, firm, corporation or other
entity, or in
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connection with any business enterprise, that is directly or indirectly engaged
in any of the radio, television, outdoor advertising or related business
activities in which the Company and its subsidiaries or the Protected Companies
have significant involvement (collectively, the "Competing Business Areas"), in
each case at the effective time of such Termination of Employment (other than
beneficial ownership of up to five percent (5%) of the outstanding voting stock
of a publicly traded company that owns such a competitor).
(d) The restrictions in this Section 7, to the extent
applicable, shall survive the termination of this Agreement and shall be in
addition to any restrictions imposed upon the Executive by statute or at common
law.
(e) The parties hereby acknowledge that the restrictions in
this Section 7 have been specifically negotiated and agreed to by the parties
hereto and are limited only to those restrictions necessary to protect the
Protected Companies from unfair competition. The parties hereby agree that if
the scope or enforceability of any provision, paragraph or subparagraph of this
Section 7 is in any way disputed at any time, and should a court find that such
restrictions are overly broad, the court may modify and enforce the covenant to
the extent that it believes to be reasonable under the circumstances. Each
provision, paragraph and subparagraph of this Section 7 is separable from every
other provision, paragraph, and subparagraph and constitutes a separate and
distinct covenant. The Executive acknowledges that the Protected Companies
operate in major and medium sized markets throughout the United States and that
the effect of Section 7(c) may be to prevent him from working in the Competing
Business Areas after his termination of employment hereunder.
8. INJUNCTIVE RELIEF
The Executive hereby expressly acknowledges that any breach or
threatened breach by the Executive of any of the terms set forth in Section 7 of
this Agreement may result in significant and continuing injury to the Company,
the monetary value of which would be impossible to establish. Therefore, the
Executive agrees that the Company shall be entitled to apply for injunctive
relief in a court of appropriate jurisdiction.
The provisions of this Section 8 shall survive the Employment Term.
9. PARTIES BENEFITED; ASSIGNMENTS
This Agreement shall be binding upon the Executive, his heirs
and his personal representative or representatives, and upon the Company and Los
Angeles and their respective successors and assigns. Neither this Agreement nor
any rights or obligations hereunder may be assigned by the Executive, other than
by will or by the laws of descent and distribution. From and after the
consummation of the Capstar Merger, all rights and obligations of the Company
under this Agreement shall be assigned to and assumed by the New Chancellor and
the term Company shall mean New Chancellor. The consummation of the Capstar
Merger shall not constitute a Change in Control.
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10. NOTICES
Any notice required or permitted by this Agreement shall be in
writing, sent by registered or certified mail, return receipt requested,
addressed to the Board and the Company at its then principal office, or to the
Executive at the address set forth in the preamble, as the case may be, or to
such other address or addresses as any party hereto may from time to time
specify in writing for the purpose in a notice given to the other parties in
compliance with this Section 10. Notices shall be deemed given when received.
11. GOVERNING LAW
This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of Texas, without regard to conflict of
law principles.
12. INDEMNIFICATION AND INSURANCE; LEGAL EXPENSES
The Company shall indemnify the Executive to the fullest
extent permitted by the laws of the State of Delaware, as in effect at the time
of the subject act or omission, and shall advance to the Executive reasonable
attorneys' fees and expenses as such fees and expenses are incurred (subject to
an undertaking from the Executive to repay such advances if it shall be finally
determined by a judicial decision which is not subject to further appeal that
the Executive was not entitled to the reimbursement of such fees and expenses)
and he will be entitled to the protection of any insurance policies the Company
may elect to maintain generally for the benefit of its directors and officers
("Directors and Officers Insurance") against all costs, charges and expenses
incurred or sustained by him in connection with any action, suit or proceeding
to which he may be made a party by reason of his being or having been a
director, officer or employee of the Company or any of its subsidiaries or his
serving or having served any other enterprise as a director, officer or employee
at the request of the Company (other than any dispute, claim or controversy
arising under or relating to this Agreement). The Company covenants to maintain
during the Employment Term for the benefit of the Executive (in his capacity as
an officer and director of the Company) Directors and Officers Insurance
providing benefits to the Executive no less favorable, taken as a whole, than
the benefits provided to the Executive by the Directors and Officers Insurance
maintained by the Company on the date hereof; provided, however, that the Board
may elect to terminate Directors and Officers Insurance for all officers and
directors, including the Executive, if the Board determines in good faith that
such insurance is not available or is available only at unreasonable expense.
13. REPRESENTATIONS AND WARRANTIES OF THE EXECUTIVE
The Executive represents and warrants to the Company that (a)
the Executive is under no contractual or other restriction which is inconsistent
with the execution of this Agreement, the performance of his duties hereunder or
the other rights of Company hereunder, and (b) the Executive is under no
physical or mental disability that would hinder the performance of his duties
under this Agreement.
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<PAGE> 14
14. DISPUTES
Any dispute or controversy arising under, out of, in
connection with or in relation to this Agreement shall, at the election and upon
written demand of either the Executive or the Company, be finally determined and
settled by arbitration in the city of the Company's headquarters in accordance
with the rules and procedures of the American Arbitration Association, and
judgment upon the award may be entered in any court having jurisdiction thereof.
The Company shall pay the costs and expenses of such arbitration and the fees of
the Executive's counsel and experts unless the finder of fact determines that
the Company is the prevailing party in such arbitration.
15. FACILITY OF PAYMENT
All cash payments to be made by the Company to or on behalf of
the Executive hereunder shall be an obligation of and made by Los Angeles.
16. PRIOR EMPLOYMENT AGREEMENT
This Agreement shall supersede and replace in its entirety the
Prior Employment Agreement and, except as specifically described herein, all of
the Executive's and the Company's rights and obligations under the Prior
Employment Agreement are extinguished upon the effectiveness of this Agreement,
and the Executive acknowledges and agrees that he shall have no rights under the
Prior Employment Agreement, including, without limitation, any rights under
Section 6 of the Prior Employment Agreement. The Executive hereby withdraws any
and all termination notices previously delivered in connection with the Prior
Employment Agreement.
17. MISCELLANEOUS
The provisions of this Agreement shall survive the termination
of the Executive's employment with the Company. This Agreement contains the
entire agreement of the parties relating to the subject matter hereof. This
Agreement supersedes any prior written or oral agreements or understandings
between the parties relating to the subject matter hereof. No modification or
amendment of this Agreement shall be valid unless in writing and signed by or on
behalf of the parties hereto. A waiver of the breach of any term or condition of
this Agreement shall not be deemed to constitute a waiver of any subsequent
breach of the same or any other term or condition. This Agreement is intended to
be performed in accordance with, and only to the extent permitted by, all
applicable laws, ordinances, rules and regulations. If any provision of this
Agreement, or the application thereof to any person or circumstance, shall, for
any reason and to any extent, be held invalid or unenforceable, such invalidity
and unenforceability shall not affect the remaining provisions hereof and the
application of such provisions to other persons or circumstances, all of which
shall be enforced to the greatest extent permitted by law. The compensation
provided to the Executive pursuant to this Agreement shall be subject to any
withholdings and deductions required by any applicable tax laws. Any amounts
payable under this Agreement to the Executive after the death of the Executive
shall be paid to the Executive's estate or legal representative. The headings in
this
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Agreement are inserted for convenience of reference only and shall not be a
part of or control or affect the meaning of any provision hereof.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have duly executed and
delivered this Agreement as of the date first written above.
CHANCELLOR MEDIA CORPORATION
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES
By: /s/ JEFFREY A. MARCUS
---------------------------------------------
Jeffrey A. Marcus
President and Chief Executive Officer
/s/ JAMES E. DE CASTRO
------------------------------------------------
James E. de Castro
<PAGE> 1
EXHIBIT 10.55
----------------
EXECUTION COPY
----------------
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
BETWEEN
CHANCELLOR MEDIA CORPORATION
AND
ERIC C. NEUMAN
This Employment Agreement (this "Agreement") is made and
entered into as of October 1, 1998 (the "Agreement Date"), to be effective as of
July 1, 1998 (the "Effective Date"), between Chancellor Media Corporation, a
Delaware corporation (the "Company"), Chancellor Media Corporation of Los
Angeles, a Delaware corporation ("Los Angeles"), and Eric C. Neuman (the
"Executive"), residing at 3608 Greenbriar Drive, Dallas, Texas 75225.
W I T N E S S E T H:
WHEREAS, the Company and the Executive entered into an
Employment Agreement between the Company and the Executive on June 1, 1998 (the
"Original Agreement Date"), to be effective as of July 1, 1998 (the "Prior
Employment Agreement"); and
WHEREAS, the Company and the Executive desire to modify and
clarify certain provisions of such Prior Employment Agreement by amending and
restating the Prior Employment Agreement;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and obligations hereinafter set forth, the parties agree as
follows:
1. DEFINITIONS
The following terms used in this Agreement shall have the
meaning specified below unless the context clearly indicates the contrary:
"Annual Bonus" shall mean the annual incentive bonus payable
to the Executive described in Section 4.
"Average Bonus" shall mean the greater of (a) (i) the total of
the Annual Bonuses paid hereunder with respect to the Employment Term, divided
by (ii) the length of such portion of the Employment Term in years (including
fractions) as falls on or prior to the last December 31 thereof and (b) One
Million Dollars ($1,000,000).
"Base Salary" shall mean the annual base salary payable to the
Executive at the rate set forth in Section 4.
"Board" shall mean the Board of Directors of the Company.
<PAGE> 2
"Capstar" shall mean Capstar Broadcasting Corporation, a
Delaware corporation.
"Capstar Merger" shall mean the proposed merger of the Company
with and into a subsidiary of Capstar, subsequent to which Capstar will change
its name to Chancellor Media Corporation.
"Cause" shall mean the Executive's (a) habitual neglect of his
material duties or failure to perform his material obligations under this
Agreement, (b) refusal or failure to follow lawful directives of the Board, (c)
commission of an act of fraud, theft or embezzlement, or (d) conviction of a
felony or other crime involving moral turpitude; provided, however, that the
Company shall give the Executive written notice of any actions alleged to
constitute Cause under subsections (a) and (b) above, and the Executive shall
have a reasonable opportunity (as specified by the Compensation Committee) to
cure any such alleged Cause.
"Change in Control" shall mean (a) the sale, lease or other
transfer of all or substantially all of the assets of the Company to any person
or group (as such term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended); (b) the adoption by the stockholders of the Company of
a plan relating to the liquidation or dissolution of the Company; (c) the merger
or consolidation of the Company with or into another entity or the merger of
another entity into the Company or any subsidiary thereof with the effect that
immediately after such transaction the stockholders of the Company immediately
prior to such transaction (or their Related Parties) directly and indirectly
hold less than fifty percent (50%) of the total voting power of all securities
generally entitled to vote in the election of directors, managers or trustees of
the entity surviving such merger or consolidation; (d) the acquisition by any
person or group of more than fifty percent (50%) of the direct and indirect
voting power of all securities of the Company generally entitled to vote in the
election of directors of the Company; or (e) the majority of the Board is
composed of members who (i) have served less than twelve (12) months and (ii)
were not approved by a majority of the Board at the time of their election or
appointment.
"Change in Operations" shall mean a change in the business
operating strategies of the Company (e.g., material cost controls or other
material restrictions on the Company's ability to increase its gross revenues)
which are imposed upon the Executive without his consent, and, in his reasonable
judgement, are fundamentally different from the business operating strategies in
effect at the Company on the Effective Date; provided, however, any expansion of
the Company's business into other media businesses, including, without
limitation, radio stations in small- or medium-sized markets, television,
outdoor advertising, and international media opportunities, shall not constitute
a Change in Operations. Any dispute as to whether a Change of Operations has
occurred shall be resolved pursuant to Section 14.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
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<PAGE> 3
"Common Stock" shall mean $0.01 par value common stock of the
Company.
"Compensation Committee" shall mean the Compensation Committee
of the Board.
"Consumer Price Index" shall mean the Consumer Price Index for
All Urban Consumers (1982-84=100) for all cities as reported by the United
States Bureau of Labor Statistics.
"Contract Year" shall mean each twelve (12) consecutive month
period during the Employment Term which begins on the Effective Date and each
annual anniversary thereof.
"Employment Inducements" shall mean any compensation,
including, without limitation, signing bonuses and stock options, that are paid
or granted to senior officers of the Company in connection with such officers'
initial hiring by the Company, or in connection with any amendments to or
extensions of the term of such senior officers' employment agreements with the
Company.
"Employment Term" shall mean the period beginning on the
Effective Date and ending on the close of business on the effective date of the
Executive's termination of employment with the Company.
"Excise Tax" shall mean the taxes imposed by Code Section
4999.
"Expiration Date" shall have the meaning ascribed to such term
in Section 2.
"Good Reason" shall mean (a) the Company's material breach of
any provision hereof, (b) the Executive no longer directly reporting to Jeffrey
A. Marcus or Thomas O. Hicks, (c) any adverse change in the Executive's job
responsibilities, duties, functions, status, offices, title, perquisites or
support staff, (d) relocation of the Executive's regular work address by more
than twenty (20) miles without his consent, (e) a Change in Operations, or (f) a
Change in Control; provided, however, that the Executive shall give the Company
written notice of any actions (other than those set out in subsections (e) or
(f) above) alleged to constitute Good Reason and the Company shall have a
reasonable opportunity to cure any such alleged Good Reason.
"New Chancellor" shall mean, from and after the consummation
of the Capstar Merger, Chancellor Media Corporation, a Delaware corporation, as
successor by name change to Capstar.
"Option Agreement" shall mean the agreement between the
Executive and the Company pursuant to which any Option is granted to the
Executive.
"Option Plan" shall mean the 1998 Chancellor Media Corporation
Non-Qualified Stock Option Plan, as amended from time to time, and any successor
thereto.
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<PAGE> 4
"Options" shall mean the non-qualified stock options to be
granted to the Executive hereunder.
"Permanent Disability" shall mean the Executive's inability to
perform the duties contemplated by this Agreement by reason of a physical or
mental disability or infirmity which has continued for more than ninety (90)
working days (excluding vacation) in any twelve (12) consecutive month period as
determined by the Board. The Executive agrees to submit such medical evidence
regarding such disability or infirmity as is reasonably requested by the Board.
"Related Parties" shall mean with respect to any person (a)
the spouse and lineal ascendants and descendants of such person, and any sibling
of any of such persons and (b) any trust, corporation, partnership or other
entity, the beneficiaries, stockholders, partners, owners or persons
beneficially holding an eighty percent (80%) or more controlling interest of
which consist of persons referred to in subsection (a) above.
"Termination of Employment" shall mean the first to occur of
the following events:
(a) the date of death of the Executive;
(b) the effective date specified in the Company's
written notice to the Executive of the termination of his
employment as a result of his Permanent Disability, which
effective date shall not be earlier than the ninety-first
(91st) working day (excluding vacation) following the
commencement of the Executive's inability to perform his
duties hereunder;
(c) the effective date specified in the Company's
written notice to the Executive of the Company's termination
of his employment without Cause;
(d) the effective date specified in the Company's
written notice to the Executive of the Company's termination
of his employment for Cause;
(e) the effective date specified in the Executive's
written notice to the Company of the Executive's termination
of his employment for Good Reason;
(f) the effective date specified in the Executive's
written notice to the Company of the Executive's termination
of his employment without Good Reason; and
(g) the date the Executive's employment terminates
pursuant to Section 2.
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"Termination without Cause" shall mean a termination by the
Company of the Executive's employment without Cause.
2. EMPLOYMENT
The Company agrees to continue the employment of the
Executive, and the Executive agrees to continue to provide services to the
Company from the date of this Agreement until the close of business on the fifth
(5th) anniversary of the Effective Date (the "Expiration Date"), unless the
Executive's employment is earlier terminated pursuant to a Termination of
Employment. The Executive will serve the Company subject to the general
supervision, advice and direction of the Board and the Chief Executive Officer
and upon the terms and conditions set forth in this Agreement.
3. TITLE AND DUTIES
(a) The Executive's job title shall be Senior Vice President -
Strategic Development of the Company (and any new multi-media company formed
with the Company). During the Employment Term, the Executive shall have such
authority and duties as are usual and customary for such position, and shall
perform such additional services and duties as the Board may from time to time
designate consistent with such position.
(b) The Executive shall report solely to the Chief Executive
Officer. Certain other senior officers of the Company, designated from time to
time by the Chief Executive Officer, may report, directly or indirectly through
other senior officers designated from time to time by the Chief Executive
Officer, to the Executive, and the Executive shall be responsible for reviewing
the performance of such senior officers of the Company.
(c) The Executive shall devote his full business time and best
efforts to the business affairs of the Company; however, the Executive may
devote reasonable time and attention to:
(i) serving as a director of, or member of a
committee of the directors of, any not-for-profit
organization, or engaging in other charitable or community
activities; and
(ii) serving as a director of, or member of a
committee of the directors of, the corporations or
organizations for which the Executive presently serves in such
capacity, and such other corporations and organizations that
the Board may from time to time approve in the future;
provided, that except as specified above, the Executive may
not accept employment with any other individual or other
entity, or engage in any other venture which is indirectly or
directly in conflict or competition with the then existing
business of the Company.
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4. COMPENSATION AND BENEFITS
(a) Base Compensation. During the Employment Term, the Company
shall pay the Executive, in installments according to the Company's regular
payroll practice, Base Salary at the annual rate of Five Hundred Thousand
Dollars ($500,000) for the first (1st) Contract Year with increases of Twenty
Five Thousand Dollars ($25,000) per year for each subsequent Contract Year.
(b) Annual Incentive Bonus. The Executive shall be entitled to
an Annual Bonus for each calendar year during which he is employed hereunder.
Such Annual Bonus for any such calendar year shall be as determined by the
Compensation Committee in its reasonable discretion, as recommended by the Chief
Executive Officer of the Company; provided, however, the Annual Bonus shall in
no event be less than Five Hundred Thousand Dollars ($500,000) nor greater than
One Million Five Hundred Thousand Dollars ($1,500,000); provided, further, that
the Annual Bonus for any partial calendar year shall be adjusted pro rata for
the portion of the calendar year contained within the Employment Term. The
Executive's Annual Bonus earned with respect to each calendar year shall be paid
at the same time as annual incentive bonuses with respect to that calendar year
are paid to other senior executives of the Company generally, but in no event
later than March 31 of the following calendar year.
(c) Stock Options.
(i) On the Original Agreement Date and each of the
first four (4) anniversaries of the Effective Date on which
the Executive remains employed hereunder, the Executive shall
be granted an Option to purchase One Hundred Thousand
(100,000) shares of Common Stock. In the event the Executive's
employment hereunder is terminated by the Company without
Cause or by the Executive for Good Reason prior to the
Expiration Date, the Executive shall be granted, as of the
date of such Termination of Employment, a number of Options
equal to Five Hundred Thousand (500,000) minus the number of
Options previously granted pursuant to the immediately
preceding sentence.
(ii) All Options described in paragraph (i) above
shall be granted subject to the following terms and
conditions: (A) the Options shall be granted under and subject
to the Option Plan; (B) the exercise price of the Options
shall be, (1) in the case of the Options granted on the
Original Agreement Date, $42.3125 per share and (2) in the
case of the Options granted thereafter, the last reported sale
price of the Common Stock on the Nasdaq National Market System
(or other principal trading market for the Common Stock) at
the close of the trading day immediately preceding the date as
of which the grant is made; provided, however, that with
respect to any Options the grant of which is accelerated
because the Executive's employment is terminated either by the
Company or the Executive as a result of a Change in Control,
the exercise price of such Options shall be the lower of (x)
the exercise price equal to the average last reported sale
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price on the Nasdaq National Market System (or other principal
trading market for the Common Stock) for the 30 trading days
prior to the ten trading days ending at the close of the
trading day immediately preceding the date any announcement of
such Change in Control is made and (y) an exercise price equal
to the last reported sale price of the Common Stock on the
Nasdaq National Market System (or other principal trading
market for the Common Stock) at the close of the trading day
immediately preceding the date as of which the grant is made;
(C) each Option shall be vested on the date of grant; (D) each
Option shall be exercisable for the ten (10) year period
following the date of grant; (E) each Option shall be
evidenced by, and subject to, an Option Agreement; and (F) the
number of shares granted shall be subject to adjustment for
any subsequent stock splits.
(iii) The Option Agreements shall specify that such
Options shall remain exercisable for the periods described in
paragraph (ii) above notwithstanding any Termination of
Employment.
(d) Vacation. During each complete twelve (12) month period of
the Employment Term, the Executive shall be entitled to no fewer than four (4)
weeks of paid vacation (unless, based on his length of service with the Company
and his position with the Company, the Executive is entitled to a greater number
of weeks of paid vacation under the Company's generally applicable vacation
policy, as determined by the Compensation Committee).
(e) Employee Benefit Plans. During the Employment Term, the
Executive shall be entitled to participate in all pension, profit sharing and
other retirement plans, all incentive compensation plans and all group health,
hospitalization and disability insurance plans and other employee welfare
benefit plans in which other senior executives of the Company may participate on
terms and conditions no less favorable than those which apply to such other
senior executives of the Company.
(f) Company Payment of Health Benefit Coverage. During the
Employment Term, the Company shall pay the amount of premiums or other cost
incurred for coverage of the Executive and his eligible spouse and dependent
family members under the applicable Company health benefits arrangement
(consistent with the terms of such arrangement).
(g) Life Insurance Policy. In addition to the insurance
coverage contemplated by Section 4(e), during the Employment Term, the Company
shall maintain in effect term life insurance coverage for the Executive with a
death benefit of at least Five Hundred Thousand Dollars ($500,000), subject to
the Executive's insurability at standard rates and with the beneficiary or
beneficiaries, thereof designated by the Executive. Notwithstanding Section 9 of
this Agreement, such life insurance policy or policies may be assigned to a
trust for the benefit of any beneficiary designated by the Executive.
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(h) Automobile and Parking Allowance; Other Benefits.
(i) During the Employment Term, the Company shall
either provide the Executive with, or pay or reimburse the
Executive for (A) his purchase or lease of an automobile
selected by the Executive with a retail sales price of not
more than Seventy Thousand Dollars ($70,000); and (B) parking
space at the Company's corporate office maintained in Dallas,
Texas.
(ii) During the Employment Term, the Company shall
provide the Executive with, or pay or reimburse the Executive
for, the cost incurred for membership of the Executive and his
spouse and dependent family members in the athletic club of
Executive's choosing and in the country club of Executive's
choosing.
(i) Most Favored Benefits. If the Company shall provide
employment related benefits (including, without limitation, benefits of the type
referred to by clauses (a) through (h) of this Section 4) in an aggregate amount
greater than or on more favorable terms and conditions (on an aggregate basis)
as are granted to any other senior executive of the Company (except for
Employment Inducements and benefits provided to the Chief Executive Officer or
Chief Financial Officer of the Company, the President of Chancellor Radio Group,
a division of the Company, and the Vice Chairman of New Chancellor), the
Executive shall be provided such benefits in substantially comparable amount
and/or under the substantially comparable terms and conditions, as applicable,
on an aggregate basis.
(j) Execution Bonus. The Executive shall be granted, as an
Employment Inducement, an option to purchase Three Hundred Thousand (300,000)
shares of Common Stock (the "Execution Options"), subject to the following terms
and conditions: (A) the Execution Options shall be granted under and subject to
the Option Plan; (B) the exercise price of the Execution Options shall be
$42.3125 per share; (C) the Execution Options shall be vested on the date of
grant; (D) each Execution Option shall be exercisable for the ten (10) year
period following the date of grant; and (E) each Execution Option shall be
evidenced by, and subject to, an Option Agreement. The Option Agreements shall
specify that such Options shall remain exercisable for the periods described in
this paragraph (j) notwithstanding any Termination of Employment.
5. REIMBURSEMENT OF EXPENSES
In addition to the compensation provided for under Section 4
hereof, upon submission of proper vouchers, the Company will pay or reimburse
the Executive for all normal and reasonable travel and entertainment expenses
incurred by the Executive during the Employment Term in connection with the
Executive's responsibilities to the Company.
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6. TERMINATION BENEFITS
(a) Upon the termination of the Executive's employment with
the Company for any reason, the Company shall provide the Executive (or, in the
case of his death, his estate or other legal representative), (i) any Annual
Bonus earned but not yet paid with respect to the preceding calendar year, (ii)
all benefits due him under the Company's benefits plans and policies for his
services rendered to the Company prior to the date of such termination
(according to the terms of such plans and policies), (iii) not later than ninety
(90) days after such termination, in a lump sum, all Base Salary earned through
the date of such termination, and (iv) not later than ninety (90) days after
such termination, in a lump sum, any Annual Bonus earned with respect to that
portion of the calendar year prior to such termination.
(b) In the event that the Executive's employment hereunder is
terminated by the Company without Cause or by the Executive for Good Reason (but
not by reason of expiration or non-renewal of this Agreement), and subject to
the last sentence of this subsection (b), the Company shall make a one-time cash
payment to the Executive in a gross amount such that the net payments retained
by the Executive after payment of any applicable Excise Tax with respect to such
payment shall equal Two Million Dollars ($2,000,000). Such payment shall be made
at the time of any such termination without Cause or within thirty (30) days of
any such resignation for Good Reason. Such payment shall be in full satisfaction
of all obligations of the Company to Executive hereunder (other than those
obligations set forth in Sections 4(c), 4(j) and 6(a)) and shall be conditioned
on Executive giving a general release of the Company and affiliates in the form
used generally by the Company in the case of the termination of employment of
senior executives.
(c) (i) In the event that the Executive elects to terminate
his employment hereunder other than for Good Reason, the Company, in
consideration for the Executive's agreement in Section 7(b), shall continue to
pay him his Base Salary as set forth in Section 4(a) through the earlier of (A)
the fifth (5th) anniversary of the Effective Date or (B) the second (2nd)
anniversary of such termination of employment (the earlier of such dates, the
"Cessation Date").
(ii) In addition, in such event, the Company may, by
written notice to the Executive given no later than 15 days
following his termination of employment, elect to require the
Executive to observe the provisions of Section 7(c) hereof. In
such event, the Company shall, on the last day of each
calendar year preceding the Cessation Date make a payment to
him equal to his Average Bonus, and on the last day of the
calendar year which includes the Cessation Date make a payment
to him equal to the product of his Average Bonus and the
fraction of such calendar year which precedes the Cessation
Date.
(d) In the event that the Executive's employment is terminated
by reason of expiration or non-renewal of this Agreement the Company shall make
a one-time cash payment to the Executive equal to two (2) times the amount of
his annual Base
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Salary payable for the Contract Year ending on (or in which falls) the date of
Termination of Employment. Such payment shall be made at the time of such
Termination of Employment. Such payment shall be in full satisfaction of all
obligations of the Company to the Executive hereunder (other than those
obligations set forth in subsection (a)) and shall be conditioned on the
Executive giving a general release of the Company and affiliates in the form
used generally by the Company in the case of the termination of employment of
senior executives.
(e) In the event of any Termination of Employment, the
Executive shall not be required to seek other employment to mitigate damages,
and any income earned by the Executive from other employment or self-employment
shall not be offset against any obligations of the Company to the Executive
under this Agreement.
7. PROTECTED INFORMATION; PROHIBITED SOLICITATION
(a) The Executive hereby recognizes and acknowledges that
during the course of his employment by the Company, the Company will furnish,
disclose or make available to the Executive confidential or proprietary
information related to the Company's business, including, without limitation,
customer lists, ideas and formatting and programming concepts and plans, that
such confidential or proprietary information has been developed and will be
developed through the Company's expenditure of substantial time and money, and
that all such confidential information could be used by the Executive and others
to compete with the Company. The Executive hereby agrees that all such
confidential or proprietary information shall constitute trade secrets, and
further agrees to use such confidential or proprietary information only for the
purpose of carrying out his duties with the Company and not to disclose such
information unless required to do so by subpoena or other legal process. No
information otherwise in the public domain (other than by an act of the
Executive in violation hereof) shall be considered confidential.
The Executive further agrees that all memoranda, notices,
files, records and other documents concerning the business of the Company, made
or compiled by the Executive during the period of his employment or made
available to him, shall be the Company's property and shall be delivered to the
Company upon its request therefor and in any event upon the termination of the
Executive's employment with the Company, provided, however, that the Executive
shall be permitted to retain copies of personal correspondence generated or
received by him during the Employment Term, subject to the use restrictions of
this Section 7(a).
(b) The Executive hereby agrees, in consideration of his
employment hereunder and in view of the confidential position to be held by the
Executive hereunder, that after any Termination of Employment, and through the
Expiration Date the Executive will not directly or indirectly induce any
employee of any of the Protected Companies (as defined below) to terminate such
employment or to become employed by any other media company.
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(c) Should the Company make the election set forth in Section
6(c)(ii), the Executive further agrees that, from and after the Termination of
Employment and through the Expiration Date, he shall not be employed by or
perform activities on behalf of, or have an ownership interest in, (i) any radio
or television broadcasting station serving the same "Area of Dominant Influence"
(as reported by Arbitron) as any of the radio or television broadcasting
stations owned by the Company or its subsidiaries or affiliates, or the
subsidiaries or affiliates of any of the Company's direct or indirect
stockholders owning more than twenty percent (20%) of the Company (collectively
the "Protected Companies"), or (ii) any person, firm, corporation or other
entity, or in connection with any business enterprise, that is directly or
indirectly engaged in any of the radio, television, outdoor advertising or
related business activities in which the Company and its subsidiaries or the
Protected Companies have significant involvement (collectively, the "Competing
Business Areas"), in each case at the effective time of such Termination of
Employment (other than beneficial ownership of up to five percent (5%) of the
outstanding voting stock of a publicly traded company that owns such a
competitor).
(d) The restrictions in this Section 7, to the extent
applicable, shall survive the termination of this Agreement and shall be in
addition to any restrictions imposed upon the Executive by statute or at common
law.
(e) The parties hereby acknowledge that the restrictions in
this Section 7 have been specifically negotiated and agreed to by the parties
hereto and are limited only to those restrictions necessary to protect the
Protected Companies from unfair competition. The parties hereby agree that if
the scope or enforceability of any provision, paragraph or subparagraph of this
Section 7 is in any way disputed at any time, and should a court find that such
restrictions are overly broad, the court may modify and enforce the covenant to
the extent that it believes to be reasonable under the circumstances. Each
provision, paragraph and subparagraph of this Section 7 is separable from every
other provision, paragraph, and subparagraph and constitutes a separate and
distinct covenant. The Executive acknowledges that the Protected Companies
operate in major and medium sized markets throughout the United States and that
the effect of Section 7(c) may be to prevent him from working in the Competing
Business Areas after his termination of employment hereunder.
8. INJUNCTIVE RELIEF
The Executive hereby expressly acknowledges that any breach or
threatened breach by the Executive of any of the terms set forth in Section 7 of
this Agreement may result in significant and continuing injury to the Company,
the monetary value of which would be impossible to establish. Therefore, the
Executive agrees that the Company shall be entitled to apply for injunctive
relief in a court of appropriate jurisdiction. The provisions of this Section 8
shall survive the Employment Term.
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9. PARTIES BENEFITED; ASSIGNMENTS
This Agreement shall be binding upon the Executive, his heirs
and his personal representative or representatives, and upon the Company and Los
Angeles and their respective successors and assigns. Neither this Agreement nor
any rights or obligations hereunder may be assigned by the Executive, other than
by will or by the laws of descent and distribution. From and after the
consummation of the Capstar Merger, all rights and obligations of the Company
under this Agreement shall be assigned to and assumed by the New Chancellor. The
consummation of the Capstar Merger shall not constitute a Change in Control.
10. NOTICES
Any notice required or permitted by this Agreement shall be in
writing, sent by registered or certified mail, return receipt requested,
addressed to the Board and the Company at its then principal office, or to the
Executive at the address set forth in the preamble, as the case may be, or to
such other address or addresses as any party hereto may from time to time
specify in writing for the purpose in a notice given to the other parties in
compliance with this Section 10. Notices shall be deemed given when received.
11. GOVERNING LAW
This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of Texas, without regard to conflict of
law principles.
12. INDEMNIFICATION AND INSURANCE; LEGAL EXPENSES
The Company shall indemnify the Executive to the fullest
extent permitted by the laws of the State of Delaware, as in effect at the time
of the subject act or omission, and shall advance to the Executive reasonable
attorneys' fees and expenses as such fees and expenses are incurred (subject to
an undertaking from the Executive to repay such advances if it shall be finally
determined by a judicial decision which is not subject to further appeal that
the Executive was not entitled to the reimbursement of such fees and expenses)
and he will be entitled to the protection of any insurance policies the Company
may elect to maintain generally for the benefit of its directors and officers
("Directors and Officers Insurance") against all costs, charges and expenses
incurred or sustained by him in connection with any action, suit or proceeding
to which he may be made a party by reason of his being or having been a
director, officer or employee of the Company or any of its subsidiaries or his
serving or having served any other enterprise as a director, officer or employee
at the request of the Company (other than any dispute, claim or controversy
arising under or relating to this Agreement). The Company covenants to maintain
during the Employment Term for the benefit of the Executive (in his capacity as
an officer and director of the Company) Directors and Officers Insurance
providing benefits to the Executive no less favorable, taken as a whole, than
the benefits provided to the Executive by the Directors and Officers Insurance
maintained by the
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Company on the date hereof; provided, however, that the Board may elect to
terminate Directors and Officers Insurance for all officers and directors,
including the Executive, if the Board determines in good faith that such
insurance is not available or is available only at unreasonable expense.
13. REPRESENTATIONS AND WARRANTIES OF THE EXECUTIVE
The Executive represents and warrants to the Company that (a)
the Executive is under no contractual or other restriction which is inconsistent
with the execution of this Agreement, the performance of his duties hereunder or
the other rights of Company hereunder, and (b) the Executive is under no
physical or mental disability that would hinder the performance of his duties
under this Agreement.
14. DISPUTES
Any dispute or controversy arising under, out of, in
connection with or in relation to this Agreement shall, at the election and upon
written demand of either the Executive or the Company, be finally determined and
settled by arbitration in the city of the Company's headquarters in accordance
with the rules and procedures of the American Arbitration Association, and
judgment upon the award may be entered in any court having jurisdiction thereof.
The Company shall pay the costs and expenses of such arbitration and the fees of
the Executive's counsel and experts unless the finder of fact determines that
the Company is the prevailing party in such arbitration.
15. FACILITY OF PAYMENT
All cash payments to be made by the Company to or on behalf of
the Executive hereunder shall be an obligation of and made by Los Angeles.
16. INTENTIONALLY OMITTED
17. MISCELLANEOUS
The provisions of this Agreement shall survive the termination
of the Executive's employment with the Company. This Agreement contains the
entire agreement of the parties relating to the subject matter hereof. This
Agreement supersedes any prior written or oral agreements or understandings
between the parties relating to the subject matter hereof. No modification or
amendment of this Agreement shall be valid unless in writing and signed by or on
behalf of the parties hereto. A waiver of the breach of any term or condition of
this Agreement shall not be deemed to constitute a waiver of any subsequent
breach of the same or any other term or condition. This Agreement is intended to
be performed in accordance with, and only to the extent permitted by, all
applicable laws, ordinances, rules and regulations. If any provision of this
Agreement, or the application thereof to any person or circumstance, shall, for
any reason and to any extent, be held invalid or unenforceable, such invalidity
and unenforceability shall not affect the remaining provisions hereof and the
application of such provisions to other persons or circumstances, all of which
shall be enforced to the greatest extent permitted
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by law. The compensation provided to the Executive pursuant to this Agreement
shall be subject to any withholdings and deductions required by any applicable
tax laws. Any amounts payable under this Agreement to the Executive after the
death of the Executive shall be paid to the Executive's estate or legal
representative. The headings in this Agreement are inserted for convenience of
reference only and shall not be a part of or control or affect the meaning of
any provision hereof.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have duly executed and
delivered this Agreement as of the date first written above.
CHANCELLOR MEDIA CORPORATION
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES
By: /s/ JEFFREY A. MARCUS
------------------------------------------
Jeffrey A. Marcus
President and Chief Executive Officer
/s/ ERIC C. NEUMAN
---------------------------------------------
Eric C. Neuman
<PAGE> 1
EXHIBIT 10.56
------------------
EXECUTION COPY
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EMPLOYMENT AGREEMENT
BETWEEN
CHANCELLOR MEDIA CORPORATION
AND
THOMAS P. MCMILLIN
This Employment Agreement (this "Agreement") is made and
entered into as of October 1, 1998 (the "Effective Date"), between Chancellor
Media Corporation, a Delaware corporation (the "Company"), Chancellor Media
Corporation of Los Angeles, a Delaware corporation ("Los Angeles"), and Thomas
P. McMillin (the "Executive"), residing at 6706 Stefani Drive, Dallas, Texas
75225.
W I T N E S S E T H:
WHEREAS, the Company has a need for executive management
services; and
WHEREAS, the Executive is qualified and willing to render such
services to the Company; and
WHEREAS, the parties hereto desire to enter into an employment
agreement for the services of the Executive, on the terms and conditions as set
forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and obligations hereinafter set forth, the parties agree as
follows:
1. DEFINITIONS
The following terms used in this Agreement shall have the
meaning specified below unless the context clearly indicates the contrary:
"Annual Bonus" shall mean the annual incentive bonus payable
to the Executive described in Section 4.
"Average Bonus" shall mean the greater of (a) (i) the total of
the Annual Bonuses paid hereunder with respect to the Employment Term, divided
by (ii) the length of such portion of the Employment Term in years (including
fractions) as falls on or prior to the last December 31 thereof and (b) the Base
Salary then in effect.
<PAGE> 2
"Base Salary" shall mean the annual base salary payable to the
Executive at the rate set forth in Section 4.
"Board" shall mean the Board of Directors of the Company.
"Capstar" shall mean Capstar Broadcasting Corporation, a
Delaware corporation.
"Capstar Merger" shall mean the proposed merger of the Company
with and into a subsidiary of Capstar, subsequent to which Capstar will change
its name to Chancellor Media Corporation.
"Cause" shall mean the Executive's (a) habitual neglect of his
material duties or failure to perform his material obligations under this
Agreement, (b) refusal or failure to follow lawful directives of the Chief
Executive Officer, (c) commission of an act of fraud, theft or embezzlement, or
(d) conviction of a felony or other crime involving moral turpitude; provided,
however, that the Company shall give the Executive written notice of any actions
alleged to constitute Cause under subsections (a) and (b) above, and the
Executive shall have a reasonable opportunity (as specified by the Compensation
Committee) to cure any such alleged Cause.
"Change in Control" shall mean (a) the sale, lease or other
transfer of all or substantially all of the assets of the Company to any person
or group (as such term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended); (b) the adoption by the stockholders of the Company of
a plan relating to the liquidation or dissolution of the Company; (c) the merger
or consolidation of the Company with or into another entity or the merger of
another entity into the Company or any subsidiary thereof with the effect that
immediately after such transaction the stockholders of the Company immediately
prior to such transaction (or their Related Parties) directly and indirectly
hold less than fifty percent (50%) of the total voting power of all securities
generally entitled to vote in the election of directors, managers or trustees of
the entity surviving such merger or consolidation; (d) the acquisition by any
person or group of more than fifty percent (50%) of the direct and indirect
voting power of all securities of the Company generally entitled to vote in the
election of directors of the Company; or (e) the majority of the Board is
composed of members who (i) have served less than twelve (12) months and (ii)
were not approved by a majority of the Board at the time of their election or
appointment.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Common Stock" shall mean $0.01 par value common stock of the
Company.
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<PAGE> 3
"Compensation Committee" shall mean the Compensation Committee
of the Board.
"Consumer Price Index" shall mean the Consumer Price Index for
All Urban Consumers (1982-84=100) for all cities as reported by the United
States Bureau of Labor Statistics.
"Contract Year" shall mean each twelve (12) consecutive month
period during the Employment Term which begins on the Effective Date and each
annual anniversary thereof.
"Contract Non-Renewal" shall mean the decision to not renew or
extend the Employment Term beyond the Expiration Date other than for Cause (as
to the Company's decision) or Good Reason (as to the Executive's decision).
"Employment Inducements" shall mean any compensation,
including, without limitation, signing bonuses and stock options, that are paid
or granted to senior officers of the Company in connection with such officers'
initial hiring by the Company, or in connection with any amendments to or
extensions of the term of such senior officers' employment agreements with the
Company.
"Employment Term" shall mean the period beginning on the
Effective Date and ending on the close of business on the effective date of the
Executive's termination of employment with the Company.
"Excise Tax" shall mean the taxes imposed by Code Section
4999.
"Execution Options" shall have the meaning ascribed to such
term in Section 4(i)(b).
"Expiration Date" shall have the meaning ascribed to such term
in Section 2.
"Good Reason" shall mean (a) the Company's material breach of
any provision hereof, (b) the Executive no longer directly reporting to Jeffrey
A. Marcus, (c) any adverse change in the Executive's job responsibilities,
duties, functions, status, offices, title, perquisites or support staff, (d)
relocation of the Executive's regular work address outside of the Dallas
metropolitan area without his consent, or (e) a Change in Control; provided,
however, that the Executive shall give the Company written notice of any actions
(other than that set out in subsection (e) above) alleged to constitute Good
Reason and the Company shall have a reasonable opportunity to cure any such
alleged Good Reason during the 30-day period commencing on the date the Company
receives such written notice.
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"New Chancellor" shall mean, from and after the consummation
of the Capstar Merger, Chancellor Media Corporation, a Delaware corporation, as
successor by name change to Capstar.
"Option Agreement" shall mean the agreement between the
Executive and the Company pursuant to which any Options are granted to the
Executive.
"Option Plan" shall mean the 1998 Chancellor Media Corporation
Non-Qualified Stock Option Plan, as amended from time to time, and any successor
thereto.
"Options" shall mean the non-qualified stock options to be
granted to the Executive hereunder.
"Permanent Disability" shall mean the Executive's inability to
perform the duties contemplated by this Agreement by reason of a physical or
mental disability or infirmity which has continued for more than ninety (90)
working days (excluding vacation) in any twelve (12) consecutive month period as
determined by the Board. The Executive agrees to submit such medical evidence
regarding such disability or infirmity as is reasonably requested by the Board.
"Related Parties" shall mean with respect to any person (a)
the spouse and lineal ascendants and descendants of such person, and any sibling
of any of such persons and (b) any trust, corporation, partnership or other
entity, the beneficiaries, stockholders, partners, owners or persons
beneficially holding an eighty percent (80%) or more controlling interest of
which consist of persons referred to in subsection (a) above.
"Termination of Employment" shall mean the first to occur of
the following events:
(a) the date of death of the Executive;
(b) the effective date specified in the Company's
written notice to the Executive of the termination of his
employment as a result of his Permanent Disability, which
effective date shall not be earlier than the ninety-first
(91st) working day (excluding vacation) following the
commencement of the Executive's inability to perform his
duties hereunder;
(c) the effective date specified in the Company's
written notice to the Executive of the Company's termination
of his employment without Cause;
(d) the effective date specified in the Company's
written notice to the Executive of the Company's termination
of his employment for Cause;
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(e) the effective date specified in the Executive's
written notice to the Company of the Executive's termination
of his employment for Good Reason;
(f) the effective date specified in the Executive's
written notice to the Company of the Executive's termination
of his employment without Good Reason; and
(g) the date the Executive's employment terminates
pursuant to Section 2.
"Termination without Cause" shall mean a termination by the
Company of the Executive's employment without Cause.
2. EMPLOYMENT
The Company agrees to continue the employment of the
Executive, and the Executive agrees to continue to provide services to the
Company from the date of this Agreement until the close of business on the fifth
(5th) anniversary of the Effective Date (the "Expiration Date"), unless the
Executive's employment is earlier terminated pursuant to a Termination of
Employment. The Executive will serve the Company subject to the general
supervision, advice and direction of the Board and the Chief Executive Officer
and upon the terms and conditions set forth in this Agreement.
3. TITLE AND DUTIES
(a) The Executive's job title shall be Senior Vice President
and Assistant to the President of the Company. During the Employment Term, the
Executive shall have such authority and duties as are usual and customary for
similar positions within the Company, and shall perform such additional services
and duties as the Chief Executive Officer may from time to time designate
consistent with such position.
(b) The Executive shall report solely to the Chief Executive
Officer.
(c) The Executive shall devote his full business time and best
efforts to the business affairs of the Company; however, the Executive may
devote reasonable time and attention to serving as a director of, or member of a
committee of the directors of, any corporations or organizations so long as such
activities do not interfere unreasonably with the Executive's duties hereunder
or any not-for-profit organization, or engaging in other charitable or community
activities.
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(d) Throughout the Employment Term, the Executive shall serve
on the Management Committee of the Company.
4. COMPENSATION AND BENEFITS
(a) Base Compensation. During the Employment Term, the Company
shall pay the Executive, in installments according to the Company's regular
payroll practice, Base Salary at the annual rate of Five Hundred Thousand
Dollars ($500,000) for the first (1st) Contract Year; and subject to increase
for each subsequent Contract Year an amount equal to the product of
(i) the Base Salary for the immediately preceding
Contract Year; and
(ii) the ratio of the Consumer Price Index for the
last complete calendar month in such preceding Contract Year
to the Consumer Price Index for the same month in the year
preceding such preceding Contract Year;
provided, however, that in no event shall the Base Salary in any subsequent
Contract Year be less than the Base Salary in the immediately preceding Contract
Year.
(b) Annual Incentive Bonus. The Executive shall be entitled to
an Annual Bonus for each calendar year during which he is employed hereunder of
up to 100% of the Executive's Base Salary in effect at the end of the applicable
calendar year (or for the final calendar year within the Employment Term, in
effect at the end of the Employment Term), subject to increases at the
discretion of the Compensation Committee based upon the recommendation of the
Chief Executive Officer of the Company. For each such calendar year one-half of
the Annual Bonus shall be based upon the Executive's performance and one-half of
the Annual Bonus shall be discretionary, in each case as measured against
standards and budgets to be mutually agreed between the Executive and the Chief
Executive Officer, with the amounts of the bonuses to be determined by the
Compensation Committee based upon the recommendation of the Chief Executive
Officer of the Company; provided, however, that the Annual Bonus for any partial
calendar year shall be adjusted pro rata for the portion of the calendar year
contained within the Employment Term. The Executive's Annual Bonus earned with
respect to each calendar year shall be paid at the same time as annual incentive
bonuses with respect to that calendar year are paid to other senior executives
of the Company generally, but in no event later than March 31 of the following
calendar year.
(c) Stock Options.
(i) On the Effective Date and each of the first four
(4) anniversaries of the Effective Date on which the Executive
remains employed hereunder, the Executive shall
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<PAGE> 7
be granted an Option to purchase Forty Thousand (40,000)
shares of Common Stock. In the event the Executive's
employment hereunder is terminated by the Company without
Cause or by the Executive for Good Reason prior to the
Expiration Date, the Executive shall be granted, as of the
date of such Termination of Employment, a number of Options
equal to Two Hundred Thousand (200,000) minus the number of
Options previously granted pursuant to the immediately
preceding sentence.
(ii) All Options described in paragraph (i) above
shall be granted subject to the following terms and
conditions: (A) the Options shall be granted under and subject
to the Option Plan; (B) the exercise price of the Options
shall be, (1) in the case of the Options granted on the
Effective Date, $29.875 and (2) in the case of the Options
granted thereafter, the last reported sale price of the Common
Stock on the Nasdaq National Market System (or other principal
trading market for the Common Stock) at the close of the
trading day immediately preceding the date as of which the
grant is made; provided, however, that with respect to any
Options the grant of which is accelerated because the
Executive's employment is terminated either by the Company or
the Executive as a result of a Change in Control, the exercise
price of such Options shall be the lower of (x) the exercise
price equal to the average last reported sale price on the
Nasdaq National Market System (or other principal trading
market for the Common Stock) for the 30 trading days prior to
the ten trading days ending at the close of the trading day
immediately preceding the date on which any announcement of
such Change in Control is made and (y) an exercise price equal
to the last reported sale price of the Common Stock on the
Nasdaq National Market System (or other principal trading
market for the Common Stock) at the close of the trading day
immediately preceding the date as of which the grant is made;
(C) twenty-five percent (25%) of the Options shall vest on
each of the first four (4) annual anniversaries of the date of
grant if and to the extent that a Termination of Employment
has not occurred, provided that in the event of a Contract
Non-Renewal, all such Options shall vest and become
exercisable on the Expiration Date and in the event of a
Termination of Employment by the Executive for Good Reason or
a Termination of Employment by the Company other than for
Cause, all such Options shall vest and become exercisable on
the date of such Termination of Employment; (D) each Option
shall be exercisable for the ten (10) year period following
the date of grant; (E) each Option shall be evidenced by, and
subject to, an Option Agreement; and (F) the number of shares
granted shall be subject to adjustment for any subsequent
stock splits.
(iii) Except as otherwise provided in paragraph (ii)
above, the Option Agreements shall specify that such Options
shall remain exercisable for the periods described in
paragraph (ii) above notwithstanding any Termination of
Employment, other than a Termination of Employment by the
Company for Cause.
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<PAGE> 8
(d) Vacation. During each complete twelve (12) month period of
the Employment Term, the Executive shall be entitled to no fewer than four (4)
weeks of paid vacation (unless, based on his length of service with the Company
and his position with the Company, the Executive is entitled to a greater number
of weeks of paid vacation under the Company's generally applicable vacation
policy, as determined by the Compensation Committee).
(e) Employee Benefit Plans. During the Employment Term, the
Executive shall be entitled to participate in all pension, profit sharing and
other retirement plans, all incentive compensation plans and all group health,
hospitalization and disability insurance plans and other employee welfare
benefit plans in which other senior executives of the Company may participate on
terms and conditions no less favorable than those which apply to such other
senior executives of the Company.
(f) Company Payment of Health Benefit Coverage. During the
Employment Term, the Company shall pay the amount of premiums or other cost
incurred for coverage of the Executive and his eligible spouse and dependent
family members under the applicable Company health benefits arrangement
(consistent with the terms of such arrangement).
(g) Life Insurance Policy. In addition to the insurance
coverage contemplated by Section 4(e), during the Employment Term the Company
shall maintain in effect term life insurance coverage for the Executive with a
death benefit of at least Five Hundred Thousand Dollars ($500,000), subject to
the Executive's insurability at standard rates and with the beneficiary or
beneficiaries, thereof designated by the Executive. Notwithstanding Section 9 of
this Agreement, such life insurance policy or policies may be assigned to a
trust for the benefit of any beneficiary designated by the Executive.
(h) Automobile and Parking Allowance; Other Benefits.
(i) During the Employment Term, the Company shall (A)
either provide the Executive with, or pay or reimburse the
Executive for his purchase or lease of an automobile selected
by the Executive with a retail sales price of not more than
Seventy Thousand Dollars ($70,000), which automobile may be
traded no more frequently than every three (3) years, and (B)
pay all insurance and all other expenses related to the
business operation of such automobile.
(ii) During the Employment Term, the Company shall
reimburse the Executive for the monthly membership fees in
connection with (A) the membership of the Executive and his
spouse and dependent family members in the country club of
Executive's choosing, and (B) the membership of the Executive
and his spouse and dependent family members in an athletic
club of Executive's choosing.
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<PAGE> 9
(i) Execution Bonus. The Executive shall be paid or granted,
as the case may be, the following Employment Inducements in connection with the
execution of this Agreement:
(i) Within fifteen (15) days after the execution and
delivery of this Agreement, the Company shall pay to the
Executive a one-time execution bonus in the gross amount of
One Million Dollars ($1,000,000);
(ii) The Executive shall be granted an option to
purchase Two Hundred Thousand (200,000) shares of Common Stock
(collectively, the "Execution Options"), subject to the
following terms and conditions: (A) the Execution Options
shall be granted under and subject to the Option Plan; (B) the
exercise price of the Execution Options shall be $29.875; (C)
twenty-five percent (25%) of the Execution Options shall vest
on the Effective Date and twenty-five percent (25%) of the
Execution Options shall vest on each of the first three (3)
annual anniversaries of the date of grant if and to the extent
that a Termination of Employment has not occurred, provided
that in the event of a Termination of Employment by the
Executive for Good Reason or a Termination of Employment by
the Company other than for Cause, all such Execution Options
shall vest and become exercisable on the date of such
Termination of Employment; (D) each Execution Option shall be
exercisable for the ten (10) year period following the date of
grant; (E) each Execution Option shall be evidenced by, and
subject to, an Option Agreement; and (F) the number of shares
granted shall be subject to adjustment for any subsequent
stock splits; and
(iii) Except as otherwise provided in paragraph (ii)
above, the Option Agreements shall specify that the Execution
Options shall remain exercisable for the periods described in
paragraph (ii) above notwithstanding any Termination of
Employment, other than a Termination of Employment by the
Company for Cause.
5. REIMBURSEMENT OF EXPENSES
In addition to the compensation provided for under Section 4
hereof, upon submission of proper vouchers, the Company will pay or reimburse
the Executive for all normal and reasonable travel and entertainment expenses
incurred by the Executive during the Employment Term in connection with the
Executive's responsibilities to the Company.
6. TERMINATION BENEFITS
(a) Upon the termination of the Executive's employment with
the Company for any reason, the Company shall provide the Executive (or, in the
case of his death, his estate or other legal representative), (i) any Annual
Bonus earned but not yet paid with respect
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<PAGE> 10
to the preceding calendar year, (ii) all benefits due him under the Company's
benefits plans and policies for his services rendered to the Company prior to
the date of such termination (according to the terms of such plans and
policies), (iii) not later than ninety (90) days after such termination, in a
lump sum, all Base Salary earned through the date of such termination, and (iv)
not later than ninety (90) days after such termination, in a lump sum, any
Annual Bonus earned with respect to that portion of the calendar year prior to
such termination.
(b) In the event that the Executive's employment hereunder is
terminated by the Company without Cause or by the Executive for Good Reason (but
not by reason of expiration or non-renewal of this Agreement), and subject to
the last sentence of this subsection (b), the Company shall make a one-time cash
payment to the Executive in a gross amount such that the net payments retained
by the Executive after payment of any applicable Excise Tax with respect to such
payment shall equal two times the Executive's Base Salary then in effect. Such
payment shall be made at the time of any such termination without Cause or
within thirty (30) days of any such resignation for Good Reason. Such payment
shall be in full satisfaction of all obligations of the Company to Executive
hereunder (other than those obligations set forth in Sections 4(c), 4(i)(ii) and
6(a)) and shall be conditioned on Executive giving a general release of the
Company and affiliates in the form used generally by the Company in the case of
the termination of employment of senior executives.
(c) (i) In the event that the Executive elects to
terminate his employment hereunder other than for Good Reason,
the Company, in consideration for the Executive's agreement in
Section 7(b), shall continue to pay him one-half of his Base
Salary as set forth in Section 4(a) through the earlier of (A)
the fifth (5th) anniversary of the Effective Date or (B) the
second (2nd) anniversary of such termination of employment
(the earlier of such dates, the "Cessation Date").
(ii) In addition, in such event, the Company may,
by written notice to the Executive given no later than 15 days
following his termination of employment, elect to require the
Executive to observe the provisions of Section 7(c) hereof. In
such event, the Company shall, on the last day of each
calendar year preceding the Cessation Date, make a payment to
him equal to one-half of his Average Bonus, and on the last
day of the calendar year which includes the Cessation Date
make a payment to him equal to the product of one-half of his
Average Bonus and the fraction of such calendar year which
precedes the Cessation Date.
(d) In the event of any Termination of Employment, the
Executive shall not be required to seek other employment to mitigate damages,
and any income earned by the Executive from other employment or self-employment
shall not be offset against any obligations of the Company to the Executive
under this Agreement.
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<PAGE> 11
7. PROTECTED INFORMATION; PROHIBITED SOLICITATION
(a) The Executive hereby recognizes and acknowledges that
during the course of his employment by the Company, the Company will furnish,
disclose or make available to the Executive confidential or proprietary
information related to the Company's business, including, without limitation,
customer lists, ideas and formatting and programming concepts and plans, that
such confidential or proprietary information has been developed and will be
developed through the Company's expenditure of substantial time and money, and
that all such confidential information could be used by the Executive and others
to compete with the Company. The Executive hereby agrees that all such
confidential or proprietary information shall constitute trade secrets, and
further agrees to use such confidential or proprietary information only for the
purpose of carrying out his duties with the Company and not to disclose such
information unless required to do so by subpoena or other legal process. No
information otherwise in the public domain (other than by an act of the
Executive in violation hereof) shall be considered confidential.
The Executive further agrees that all memoranda, notices,
files, records and other documents concerning the business of the Company, made
or compiled by the Executive during the period of his employment or made
available to him, shall be the Company's property and shall be delivered to the
Company upon its request therefor and in any event upon the termination of the
Executive's employment with the Company, provided, however, that the Executive
shall be permitted to retain copies of personal correspondence generated or
received by him during the Employment Term, subject to the use restrictions of
this Section 7(a).
(b) The Executive hereby agrees, in consideration of his
employment hereunder and in view of the confidential position to be held by the
Executive hereunder, that after any Termination of Employment, and through the
Cessation Date the Executive will not directly or indirectly induce any employee
of any of the Protected Companies (as defined below) to terminate such
employment or to become employed by any other media company.
(c) Should the Company make the election set forth in Section
6(c)(ii), the Executive further agrees that, from and after the Termination of
Employment and through the Cessation Date, he shall not be employed by or
perform activities on behalf of, or have an ownership interest in, (i) any radio
or television broadcasting station or outdoor advertising company serving the
same "Area of Dominant Influence" (as reported by Arbitron or any comparable
service) as any of the radio or television broadcasting stations or outdoor
advertising company owned by the Company or its subsidiaries or affiliates, or
the subsidiaries or affiliates of any of the Company's direct or indirect
stockholders owning more than twenty percent (20%) of the Company (collectively
the "Protected Companies"), or (ii) any person, firm, corporation or other
entity, or in connection with any business enterprise, that is directly or
indirectly engaged in any of the radio, television, outdoor advertising or
related business activities in which the Company and its subsidiaries or the
Protected Companies have
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<PAGE> 12
significant involvement (collectively, the "Competing Business Areas"), in each
case at the effective time of such Termination of Employment (other than
beneficial ownership of up to five percent (5%) of the outstanding voting stock
of a publicly traded company that owns such a competitor).
(d) The restrictions in this Section 7, to the extent
applicable, shall survive the termination of this Agreement and shall be in
addition to any restrictions imposed upon the Executive by statute or at common
law.
(e) The parties hereby acknowledge that the restrictions in
this Section 7 have been specifically negotiated and agreed to by the parties
hereto and are limited only to those restrictions necessary to protect the
Protected Companies from unfair competition. The parties hereby agree that if
the scope or enforceability of any provision, paragraph or subparagraph of this
Section 7 is in any way disputed at any time, and should a court find that such
restrictions are overly broad, the court may modify and enforce the covenant to
the extent that it believes to be reasonable under the circumstances. Each
provision, paragraph and subparagraph of this Section 7 is separable from every
other provision, paragraph, and subparagraph and constitutes a separate and
distinct covenant. The Executive acknowledges that the Protected Companies
operate in major and medium sized markets throughout the United States and that
the effect of Section 7(c) may be to prevent him from working in the Competing
Business Areas after his termination of employment hereunder for the period
specified thereunder.
8. INJUNCTIVE RELIEF
The Executive hereby expressly acknowledges that any breach or
threatened breach by the Executive of any of the terms set forth in Section 7 of
this Agreement may result in significant and continuing injury to the Company,
the monetary value of which would be impossible to establish. Therefore, the
Executive agrees that the Company shall be entitled to apply for injunctive
relief in a court of appropriate jurisdiction.
The provisions of this Section 8 shall survive the Employment Term.
9. PARTIES BENEFITED; ASSIGNMENTS
This Agreement shall be binding upon the Executive, his heirs
and his personal representative or representatives, and upon the Company and Los
Angeles and their respective successors and assigns. Neither this Agreement nor
any rights or obligations hereunder may be assigned by the Executive, other than
by will or by the laws of descent and distribution. From and after the
consummation of the Capstar Merger, all rights and obligations of the
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<PAGE> 13
Company under this Agreement shall be assigned to and assumed by the New
Chancellor. The consummation of the Capstar Merger shall not constitute a Change
in Control.
10. NOTICES
Any notice required or permitted by this Agreement shall be in
writing, sent by registered or certified mail, return receipt requested,
addressed to the Board and the Company at its then principal office, or to the
Executive at the address set forth in the preamble, as the case may be, or to
such other address or addresses as any party hereto may from time to time
specify in writing for the purpose in a notice given to the other parties in
compliance with this Section 10. Notices shall be deemed given when received.
11. GOVERNING LAW
This agreement shall be governed by and construed and enforced
in accordance with the laws of the State of Texas, without regard to conflict of
law principles.
12. INDEMNIFICATION AND INSURANCE; LEGAL EXPENSES
The Company shall indemnify the Executive to the fullest
extent permitted by the laws of the State of Delaware, as in effect at the time
of the subject act or omission, and shall advance to the Executive reasonable
attorneys' fees and expenses as such fees and expenses are incurred (subject to
an undertaking from the Executive to repay such advances if it shall be finally
determined by a judicial decision which is not subject to further appeal that
the Executive was not entitled to the reimbursement of such fees and expenses)
and he will be entitled to the protection of any insurance policies the Company
may elect to maintain generally for the benefit of its directors and officers
("Directors and Officers Insurance") against all costs, charges and expenses
incurred or sustained by him in connection with any action, suit or proceeding
to which he may be made a party by reason of his being or having been a
director, officer or employee of the Company or any of its subsidiaries or his
serving or having served any other enterprise as a director, officer or employee
at the request of the Company (other than any dispute, claim or controversy
arising under or relating to this Agreement). The Company covenants to maintain
during the Employment Term for the benefit of the Executive (in his capacity as
an officer and director of the Company) Directors and Officers Insurance
providing benefits to the Executive no less favorable, taken as a whole, than
the benefits provided to the Executive by the Directors and Officers Insurance
maintained by the Company on the date hereof; provided, however, that the Board
may elect to terminate Directors and Officers Insurance for all officers and
directors, including the Executive, if the
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<PAGE> 14
Board determines in good faith that such insurance is not available or is
available only at unreasonable expense.
13. REPRESENTATIONS AND WARRANTIES OF THE EXECUTIVE
The Executive represents and warrants to the Company that (a)
the Executive is under no contractual or other restriction which is inconsistent
with the execution of this Agreement, the performance of his duties hereunder or
the other rights of Company hereunder, and (b) the Executive is under no
physical or mental disability that would hinder the performance of his duties
under this Agreement.
14. DISPUTES
Any dispute or controversy arising under, out of, in
connection with or in relation to this Agreement shall, at the election and upon
written demand of either the Executive or the Company, be finally determined and
settled by arbitration in the city of the Company's headquarters in accordance
with the rules and procedures of the American Arbitration Association, and
judgment upon the award may be entered in any court having jurisdiction thereof.
The Company shall pay the costs and expenses of such arbitration and the fees of
the Executive's counsel and experts unless the finder of fact determines that
the Company is the prevailing party in such arbitration.
15. FACILITY OF PAYMENT
All cash payments to be made by the Company to or on behalf of
the Executive hereunder shall be an obligation of and made by Los Angeles.
16. MISCELLANEOUS
The provisions of this Agreement shall survive the termination
of the Executive's employment with the Company. This Agreement contains the
entire agreement of the parties relating to the subject matter hereof. This
Agreement supersedes any prior written or oral agreements or understandings
between the parties relating to the subject matter hereof. No modification or
amendment of this Agreement shall be valid unless in writing and signed by or on
behalf of the parties hereto. A waiver of the breach of any term or condition of
this Agreement shall not be deemed to constitute a waiver of any subsequent
breach of the same or any other term or condition. This Agreement is intended to
be performed in accordance with, and only to the extent permitted by, all
applicable laws, ordinances, rules and regulations. If
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<PAGE> 15
any provision of this Agreement, or the application thereof to any person or
circumstance, shall, for any reason and to any extent, be held invalid or
unenforceable, such invalidity and unenforceability shall not affect the
remaining provisions hereof and the application of such provisions to other
persons or circumstances, all of which shall be enforced to the greatest extent
permitted by law. The compensation provided to the Executive pursuant to this
Agreement shall be subject to any withholdings and deductions required by any
applicable tax laws. Any amounts payable under this Agreement to the Executive
after the death of the Executive shall be paid to the Executive's estate or
legal representative. The headings in this Agreement are inserted for
convenience of reference only and shall not be a part of or control or affect
the meaning of any provision hereof. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be an original, but
such counterparts shall together constitute one and the same agreement.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have duly executed and
delivered this Agreement as of the date first written above.
CHANCELLOR MEDIA CORPORATION
CHANCELLOR MEDIA CORPORATION OF
LOS ANGELES
By: /s/ JEFFREY A. MARCUS
---------------------------------------
Jeffrey A. Marcus
President and Chief Executive Officer
/s/ THOMAS P. MCMILLIN
------------------------------------------
Thomas P. McMillin
16
<PAGE> 1
EXHIBIT 10.57
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
AMONG
CHANCELLOR MEDIA CORPORATION,
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES
AND
THOMAS P. MCMILLIN
This Amendment No. 1 to Employment Agreement (this
"Amendment") is made and entered into this 6th day of January, 1999 (the
"Effective Date"), among Chancellor Media Corporation, a Delaware corporation
(the "Company"), and Chancellor Media Corporation of Los Angeles, a Delaware
corporation ("Los Angeles") and Thomas P. McMillin (the "Executive"), residing
at 6706 Stefani Drive, Dallas, Texas 75225.
W I T N E S S E T H:
WHEREAS, the Company, Los Angeles and the Executive entered
into an Employment Agreement as of October 1, 1998 (the "Employment Agreement");
WHEREAS, the Company, Los Angeles and the Executive desire to
modify and clarify certain provisions of such Employment Agreement; and
WHEREAS, the capitalized terms used herein without definition
shall have the meaning assigned to such terms in the Employment Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and obligations hereinafter set forth, the parties agree as
follows:
1. Amendment to Section 3. The words "Senior Vice President and
Assistant to the President" in the initial sentence of paragraph (a) of Section
3 of the Employment Agreement are hereby deleted and replaced with the words
"Senior Vice President and Chief Financial Officer."
2. Amendments to Section 4.
(a) The reference to "100%" in the initial sentence of
paragraph (b) of Section 4 of the Employment Agreement is hereby deleted and
replaced with a reference to "200%."
<PAGE> 2
(b) The current text of subparagraph (i) of paragraph (c) of
Section 4 of the Employment Agreement is hereby deleted in its entirety and
replaced with the following:
"(i) On the Effective Date, the Executive shall be granted
an Option to purchase Forty Thousand (40,000) shares of Common Stock.
On each of the first four (4) anniversaries of the Effective Date on
which the Executive remains employed hereunder, the Executive shall be
granted an Option to purchase Fifty Thousand (50,000) shares of Common
Stock. In the event the Executive's employment hereunder is terminated
by the Company without Cause or by the Executive for Good Reason prior
to the Expiration Date, the Executive shall be granted, as of the date
of such Termination of Employment, a number of Options equal to Two
Hundred Forty Thousand (240,000) minus the number of Options
previously granted pursuant to the two immediately preceding
sentences."
3. Additional Option Grant. In addition to the Options granted to the
Executive as provided in paragraph (c) of Section 4 of the Stock Option
Agreement, the Company shall grant to the Executive, effective as of the
Effective Date, (i) an Option to purchase Fifty Thousand (50,000) shares of
Common Stock (the "50,000 Share Option") and (ii) an Option to purchase Ten
Thousand (10,000) shares of Common Stock (the "10,000 Share Option"). Each of
the 50,000 Share Option and the 10,000 Share Option shall have an exercise price
per share equal to $46.125 (the last reported sale price of the Common Stock on
the Nasdaq National Market System at the close of the trading day immediately
preceding the Effective Date). Except as otherwise expressly provided in this
Section 3, (x) the provisions of paragraphs (h)(ii)(ii) and (h)(ii)(iii) of the
Employment Agreement, including but not limited to provisions regarding vesting
and exercisability, shall apply to the 50,000 Share Options, and (y) the
provisions of paragraphs (c)(ii) and (c)(iii) of the Employment Agreement,
including but not limited to provisions regarding vesting and exercisability,
shall apply to the 10,000 Share Options.
4. No Other Amendments. Except as expressly modified by this
Amendment, all terms and provisions of the Employment Agreement shall remain in
full force and effect.
5. Assignment. This Amendment shall be binding upon the Executive, his
heirs and his personal representative or representatives, and upon the Company
and Los Angeles and their respective successors and assigns. Neither this
Amendment nor any rights or obligations hereunder may be assigned by the
Executive, other than by will or by the laws of descent and distribution.
6. Governing Law. This Amendment shall be governed by and construed
and enforced in accordance with the laws of the State of Texas, without regard
to conflict of law principles.
7. Miscellaneous. The provisions of this Amendment shall survive the
termination of the Executive's employment with the Company. This Amendment,
together with the Employment Agreement, contain the entire agreement of the
parties relating to the subject matter hereof. This Amendment, together with the
Employment Agreement, supersede any prior written or oral agreements or
understandings between the parties relating to the subject matter hereof. No
modification or amendment of this
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<PAGE> 3
Amendment shall be valid unless in writing and signed by or on behalf of the
parties hereto. A waiver of the breach of any term or condition of this
Amendment shall not be deemed to constitute a waiver of any subsequent breach of
the same or any other term or condition. This Amendment is intended to be
performed in accordance with, and only to the extent permitted by, all
applicable laws, ordinances, rules and regulations. If any provision of this
Amendment, or the application thereof to any person or circumstance, shall, for
any reason and to any extent, be held invalid or unenforceable, such invalidity
and unenforceability shall not affect the remaining provisions hereof and the
application of such provisions to other persons or circumstances, all of which
shall be enforced to the greatest extent permitted by law. The headings in this
Agreement are inserted for convenience of reference only and shall not be a part
of or control or affect the meaning of any provision hereof.
8. Counterparts. This Amendment may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Amendment as of the date first written above.
CHANCELLOR MEDIA CORPORATION
CHANCELLOR MEDIA CORPORATION OF
LOS ANGELES
By: /s/ Jeffrey A. Marcus
----------------------------------------
Jeffrey A. Marcus
President and Chief Executive Officer
/s/ Thomas P. McMillin
----------------------------------------
Thomas P. McMillin
<PAGE> 1
EXHIBIT 10.58
----------------
EXECUTION COPY
----------------
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
BETWEEN
CHANCELLOR MEDIA CORPORATION
AND
JAMES A. MCLAUGHLIN, JR.
This Employment Agreement (this "Agreement") is made and
entered into as of October 1, 1998 (the "Execution Date"), to be effective as of
August 18, 1998 (the "Effective Date") between Chancellor Media Corporation, a
Delaware corporation (the "Company"), Chancellor Media Corporation of Los
Angeles, a Delaware corporation ("Los Angeles"), and James A. McLaughlin, Jr.
(the "Executive"), residing at 10939 Emerald Chase Drive, Orlando, Florida
32836.
W I T N E S S E T H:
WHEREAS, the Company and the Executive entered into an
Employment Agreement between the Company and the Executive on August 18, 1998
(the "Prior Employment Agreement"); and
WHEREAS, the Company and the Executive desire to modify and
clarify certain provisions of such Prior Employment Agreement by amending and
restating the Prior Employment Agreement;
WHEREAS, the parties hereto desire to enter into an employment
agreement for the services of the Executive, on the terms and conditions as set
forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and obligations hereinafter set forth, the parties agree as
follows:
1. DEFINITIONS
The following terms used in this Agreement shall have the
meaning specified below unless the context clearly indicates the contrary:
"Annual Bonus" shall mean the annual incentive bonus payable
to the Executive described in Section 4.
"Average Bonus" shall mean the greater of (a) (i) the total of
the Annual Bonuses paid hereunder with respect to the Employment Term, divided
by (ii) the length of such portion of the Employment Term in years (including
fractions) as falls on or prior to the last December 31 thereof and (b) Six
Hundred Thousand Dollars ($600,000).
"Base Salary" shall mean the annual base salary payable to the
Executive at the rate set forth in Section 4.
<PAGE> 2
"Board" shall mean the Board of Directors of the Company.
"Capstar" shall mean Capstar Broadcasting Corporation, a
Delaware corporation.
"Capstar Merger" shall mean the proposed merger of the Company
with and into a subsidiary of Capstar, subsequent to which Capstar will change
its name to Chancellor Media Corporation.
"Cause" shall mean the Executive's (a) habitual neglect of his
material duties or failure to perform his material obligations under this
Agreement, (b) refusal or failure to follow lawful directives of the Chief
Executive Officer, (c) commission of an act of fraud, theft or embezzlement, or
(d) conviction of a felony or other crime involving moral turpitude; provided,
however, that the Company shall give the Executive written notice of any actions
alleged to constitute Cause under subsections (a) and (b) above, and the
Executive shall have a reasonable opportunity (as specified by the Compensation
Committee) to cure any such alleged Cause.
"Change in Control" shall mean (a) the sale, lease or other
transfer of all or substantially all of the assets of the Company to any person
or group (as such term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended); (b) the adoption by the stockholders of the Company of
a plan relating to the liquidation or dissolution of the Company; (c) the merger
or consolidation of the Company with or into another entity or the merger of
another entity into the Company or any subsidiary thereof with the effect that
immediately after such transaction the stockholders of the Company immediately
prior to such transaction (or their Related Parties) directly and indirectly
hold less than fifty percent (50%) of the total voting power of all securities
generally entitled to vote in the election of directors, managers or trustees of
the entity surviving such merger or consolidation; (d) the acquisition by any
person or group of more than fifty percent (50%) of the direct and indirect
voting power of all securities of the Company generally entitled to vote in the
election of directors of the Company; or (e) the majority of the Board is
composed of members who (i) have served less than twelve (12) months and (ii)
were not approved by a majority of the Board at the time of their election or
appointment.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Common Stock" shall mean $0.01 par value common stock of the
Company.
"Compensation Committee" shall mean the Compensation Committee
of the Board.
"Consumer Price Index" shall mean the Consumer Price Index for
All Urban Consumers (1982-84=100) for all cities as reported by the United
States Bureau of Labor Statistics.
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<PAGE> 3
"Contract Year" shall mean each twelve (12) consecutive month
period during the Employment Term which begins on the Effective Date and each
annual anniversary thereof.
"Contract Non-Renewal" shall mean the decision to not renew or
extend the Employment Term beyond the Expiration Date other than for Cause (as
to the Company's decision) or Good Reason (as to the Executive's decision).
"Employment Inducements" shall mean any compensation,
including, without limitation, signing bonuses and stock options, that are paid
or granted to senior officers of the Company in connection with such officers'
initial hiring by the Company, or in connection with any amendments to or
extensions of the term of such senior officers' employment agreements with the
Company.
"Employment Term" shall mean the period beginning on the
Effective Date and ending on the close of business on the effective date of the
Executive's termination of employment with the Company.
"Excise Tax" shall mean the taxes imposed by Code Section
4999.
"Execution Options" shall have the meaning ascribed to such
term in Section 4(i)(b).
"Expiration Date" shall have the meaning ascribed to such term
in Section 2.
"Good Reason" shall mean (a) the Company's material breach of
any provision hereof, (b) the Executive no longer directly reporting to the
Chief Executive Officer or such other executive designated by the Chief
Executive Officer, (c) any adverse change in the Executive's job
responsibilities (except for responsibilities relating to acquisitions), duties,
functions, status, offices, title, perquisites or support staff, (d) relocation
of the Executive's regular work address outside of the Orlando metropolitan area
without his consent, or (e) a Change in Control; provided, however, that the
Executive shall give the Company written notice of any actions (other than that
set out in subsection (e) above) alleged to constitute Good Reason and the
Company shall have a reasonable opportunity to cure any such alleged Good
Reason.
"Minimal Time and Attention" shall mean such limited efforts
and duties of the Executive relating to the activities of SMD and Adventure
(each as hereafter defined) which do not interfere in any respect with the
Executive's duties under Section 3(a) hereunder.
"New Chancellor" shall mean, from and after the consummation
of the Capstar Merger, Chancellor Media Corporation, a Delaware corporation, as
successor by name change to Capstar.
"Option Agreement" shall mean the agreement between the
Executive and the Company pursuant to which any Options are granted to the
Executive.
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<PAGE> 4
"Option Plan" shall mean the 1998 Chancellor Media Corporation
Non-Qualified Stock Option Plan, as amended from time to time, and any successor
thereto.
"Options" shall mean the non-qualified stock options to be
granted to the Executive hereunder.
"Permanent Disability" shall mean the Executive's inability to
perform the duties contemplated by this Agreement by reason of a physical or
mental disability or infirmity which has continued for more than ninety (90)
working days (excluding vacation) in any twelve (12) consecutive month period as
determined by the Board. The Executive agrees to submit such medical evidence
regarding such disability or infirmity as is reasonably requested by the Board.
"Related Parties" shall mean with respect to any person (a)
the spouse and lineal ascendants and descendants of such person, and any sibling
of any of such persons and (b) any trust, corporation, partnership or other
entity, the beneficiaries, stockholders, partners, owners or persons
beneficially holding an eighty percent (80%) or more controlling interest of
which consist of persons referred to in subsection (a) above.
"Termination of Employment" shall mean the first to occur of
the following events:
(a) the date of death of the Executive;
(b) the effective date specified in the Company's
written notice to the Executive of the termination of his
employment as a result of his Permanent Disability, which
effective date shall not be earlier than the ninety-first
(91st) working day (excluding vacation) following the
commencement of the Executive's inability to perform his
duties hereunder;
(c) the effective date specified in the Company's
written notice to the Executive of the Company's termination
of his employment without Cause;
(d) the effective date specified in the Company's
written notice to the Executive of the Company's termination
of his employment for Cause;
(e) the effective date specified in the Executive's
written notice to the Company of the Executive's termination
of his employment for Good Reason;
(f) the effective date specified in the Executive's
written notice to the Company of the Executive's termination
of his employment without Good Reason; and
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(g) the date the Executive's employment terminates
pursuant to Section 2.
"Termination without Cause" shall mean a termination by the
Company of the Executive's employment without Cause.
2. EMPLOYMENT
The Company agrees to continue the employment of the
Executive, and the Executive agrees to continue to provide services to the
Company from the date of this Agreement until the close of business on the fifth
(5th) anniversary of the Effective Date (the "Expiration Date"), unless the
Executive's employment is earlier terminated pursuant to a Termination of
Employment. The Executive will serve the Company subject to the general
supervision, advice and direction of the Board and the Chief Executive Officer
and upon the terms and conditions set forth in this Agreement.
3. TITLE AND DUTIES
(a) The Executive's job title shall be President of the
Chancellor Outdoor Group, a division of the Company. Subject to the last
sentence of Section 13 of this Agreement, during the Employment Term, the
Executive shall have such authority and duties as are usual and customary for
similar positions within the Company, and shall perform such additional services
and duties as the Chief Executive Officer may from time to time designate
consistent with such position.
(b) The Executive shall report solely to the Chief Executive
Officer or to such other executive designated by the Chief Executive Officer.
Certain other senior officers of the Company, designated from time to time by
the Chief Executive Officer, may report, directly or indirectly through other
senior officers designated from time to time by the Chief Executive Officer, to
the Executive, and the Executive shall be responsible for reviewing the
performance of such senior officers of the Company.
(c) The Executive shall devote his full business time and best
efforts to the business affairs of the Company; however, the Executive may:
(i) devote reasonable time and attention to serving
as a director of, or member of a committee of the directors
of, any not-for-profit organization, or engaging in other
charitable or community activities;
(ii) devote Minimal Time and Attention to advisory
activities for SMD, LLP, a Georgia limited liability
partnership ("SMD") and Adventure Outdoor Advertising, Inc., a
Florida corporation ("Adventure"); provided, however, the
Executive shall not devote any time and attention to SMD
and/or Adventure after December 31, 1999; and
(iii) devote reasonable time and attention to serving
as a director of, or member of a committee of the directors
of, such other corporations
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and organizations that the Chief Executive Officer may from
time to time approve in the future.
4. COMPENSATION AND BENEFITS
(a) Base Compensation. During the Employment Term, the Company
shall pay the Executive, in installments according to the Company's regular
payroll practice, Base Salary at the annual rate of Five Hundred Thousand
Dollars ($500,000) for the first (1st) Contract Year; and subject to increase
for each subsequent Contract Year an amount equal to the product of
(i) the Base Salary for the immediately preceding
Contract Year; and
(ii) the ratio of the Consumer Price Index for the
last complete calendar month in such preceding Contract Year
to the Consumer Price Index for the same month in the year
preceding such preceding Contract Year;
provided, however, that in no event shall the Base Salary in any subsequent
Contract Year be less than the Base Salary in the immediately preceding Contract
Year.
(b) Annual Incentive Bonus. The Executive shall be entitled to
an Annual Bonus of up to One Million Dollars ($1,000,000) for each calendar year
during which he is employed hereunder, subject to increases at the discretion of
the Compensation Committee based upon the recommendation of the Chief Executive
Officer of the Company. For each such calendar year one-half of the Annual Bonus
shall be based upon the Executive's performance and one-half of the Annual Bonus
shall be discretionary, in each case as measured against standards and budgets
to be mutually agreed between the Executive and the Chief Executive Officer,
with the amounts of the bonuses to be determined by the Compensation Committee
based upon the recommendation of the Chief Executive Officer of the Company;
provided, however, the Annual Bonus for any partial calendar year shall be
adjusted pro rata for the portion of the calendar year contained within the
Employment Term. The Executive's Annual Bonus earned with respect to each
calendar year shall be paid at the same time as annual incentive bonuses with
respect to that calendar year are paid to other senior executives of the Company
generally, but in no event later than March 31 of the following calendar year.
(c) Stock Options.
(i) On the Effective Date and each of the first four
(4) anniversaries of the Effective Date on which the Executive
remains employed hereunder, the Executive shall be granted an
Option to purchase Sixty Thousand (60,000) shares of Common
Stock. In the event the Executive's employment hereunder is
terminated by the Company without Cause or by the Executive
for Good Reason prior to the Expiration Date, the Executive
shall be granted, as of the date of such Termination of
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Employment, a number of Options equal to Three Hundred
Thousand (300,000) minus the number of Options previously
granted pursuant to the immediately preceding sentence.
(ii) All Options described in paragraph (i) above
shall be granted subject to the following terms and
conditions: (A) the Options shall be granted under and subject
to the Option Plan; (B) the exercise price of the Options
shall be, (1) in the case of the Options granted on the
Effective Date, $48.375 per share and (2) in the case of the
Options granted thereafter, the last reported sale price of
the Common Stock on the Nasdaq National Market System (or
other principal trading market for the Common Stock) at the
close of the trading day immediately preceding the date as of
which the grant is made; provided, however, that with respect
to any Options the grant of which is accelerated because the
Executive's employment is terminated either by the Company or
the Executive as a result of a Change in Control, the exercise
price of such Options shall be the lower of (x) the exercise
price equal to the average last reported sale price on the
Nasdaq National Market System (or other principal trading
market for the Common Stock) for the 30 trading days prior to
the ten trading days ending at the close of the trading day
immediately preceding the date any announcement of such Change
in Control is made and (y) an exercise price equal to the last
reported sale price of the Common Stock on the Nasdaq National
Market System (or other principal trading market for the
Common Stock) at the close of the trading day immediately
preceding the date as of which the grant is made; (C)
twenty-five percent (25%) of the Options shall vest on each of
the first four (4) annual anniversaries of the date of grant
if and to the extent that a Termination of Employment has not
occurred, provided that in the event of a Contract
Non-Renewal, all such Options shall vest and become
exercisable on the Expiration Date and in the event of a
Termination of Employment by the Executive for Good Reason or
a Termination of Employment by the Company other than for
Cause, all such Options shall vest and become exercisable on
the date of such Termination of Employment; (D) each Option
shall be exercisable for the ten (10) year period following
the date of grant; (E) each Option shall be evidenced by, and
subject to, an Option Agreement; and (F) the number of shares
granted shall be subject to adjustment for any subsequent
stock splits.
(iii) Except as otherwise provided in paragraph (ii)
above, the Option Agreements shall specify that such Options
shall remain exercisable for the periods described in
paragraph (ii) above notwithstanding any Termination of
Employment, other than a Termination of Employment by the
Company for Cause.
(d) Vacation. During each complete twelve (12) month period of
the Employment Term, the Executive shall be entitled to no fewer than four (4)
weeks of paid vacation (unless, based on his length of service with the Company
and his position
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with the Company, the Executive is entitled to a greater number of weeks of paid
vacation under the Company's generally applicable vacation policy, as determined
by the Compensation Committee).
(e) Employee Benefit Plans. During the Employment Term, the
Executive shall be entitled to participate in all pension, profit sharing and
other retirement plans, all incentive compensation plans and all group health,
hospitalization and disability insurance plans and other employee welfare
benefit plans in which other senior executives of the Company may participate on
terms and conditions no less favorable than those which apply to such other
senior executives of the Company.
(f) Company Payment of Health Benefit Coverage. During the
Employment Term, the Company shall pay the amount of premiums or other cost
incurred for coverage of the Executive and his eligible spouse and dependent
family members under the applicable Company health benefits arrangement
(consistent with the terms of such arrangement).
(g) Life Insurance Policy. In addition to the insurance
coverage contemplated by Section 4(e), during the Employment Term, the Company
shall maintain in effect term life insurance coverage for the Executive with a
death benefit of at least Five Hundred Thousand Dollars ($500,000), subject to
the Executive's insurability at standard rates and with the beneficiary or
beneficiaries, thereof designated by the Executive. Notwithstanding Section 9 of
this Agreement, such life insurance policy or policies may be assigned to a
trust for the benefit of any beneficiary designated by the Executive.
(h) Automobile and Parking Allowance; Other Benefits.
(i) During the Employment Term, the Company shall (A)
either provide the Executive with, or pay or reimburse the
Executive for his purchase or lease of an automobile selected
by the Executive with a retail sales price of not more than
Seventy Thousand Dollars ($70,000), which automobile may be
traded no more frequently than every three (3) years, and (B)
pay all insurance and all other expenses related to the
business operation of such automobile.
(ii) During the Employment Term, the Company shall
reimburse the Executive for the monthly membership fees in
connection with (A) the membership of the Executive and his
spouse and dependent family members in the country club of
Executive's choosing, and (B) the membership of the Executive
and his spouse and dependent family members in an athletic
club of Executive's choosing.
(i) Execution Bonus. The Executive shall be paid or granted,
as the case may be, the following Employment Inducements:
(a) Within fifteen (15) days after the execution and
delivery of the Prior Employment Agreement, the Company shall
pay to the
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Executive a one-time execution bonus in the gross amount of
One Million Dollars ($1,000,000);
(b) The Executive shall be granted an option to
purchase Three Hundred Thousand (300,000) shares of Common
Stock (collectively, the "Execution Options"), subject to the
following terms and conditions: (A) the Execution Options
shall be granted under and subject to the Option Plan; (B) the
exercise price of the Execution Options shall be $48.375 per
share (the price per share at the close of trading on August
7, 1998); (C) twenty-five percent (25%) of the Execution
Options shall vest on the Effective Date and twenty-five
percent (25%) of the Execution Options shall vest on each of
the first three (3) annual anniversaries of the date of grant
if and to the extent that a Termination of Employment has not
occurred, provided that in the event of a Contract
Non-Renewal, all such Execution Options shall vest and become
exercisable on the Expiration Date and in the event of a
Termination of Employment by the Executive for Good Reason or
a Termination of Employment by the Company other than for
Cause, all such Execution Options shall vest and become
exercisable on the date of such Termination of Employment; (D)
each Execution Option shall be exercisable for the ten (10)
year period following the date of grant; (E) each Execution
Option shall be evidenced by, and subject to, an Option
Agreement; and (F) the number of shares granted shall be
subject to adjustment for any subsequent stock splits; and
(c) Except as otherwise provided in paragraph (b)
above, the Option Agreements shall specify that the Execution
Options shall remain exercisable for the periods described in
paragraph (b) above notwithstanding any Termination of
Employment, other than a Termination of Employment by the
Company for Cause.
5. REIMBURSEMENT OF EXPENSES
In addition to the compensation provided for under Section 4
hereof, upon submission of proper vouchers, the Company will pay or reimburse
the Executive for all normal and reasonable travel and entertainment expenses
incurred by the Executive during the Employment Term in connection with the
Executive's responsibilities to the Company.
6. TERMINATION BENEFITS
(a) Upon the termination of the Executive's employment with
the Company for any reason, the Company shall provide the Executive (or, in the
case of his death, his estate or other legal representative), (i) any Annual
Bonus earned but not yet paid with respect to the preceding calendar year, (ii)
all benefits due him under the Company's benefits plans and policies for his
services rendered to the Company prior to the date of such termination
(according to the terms of such plans and policies), (iii) not later than ninety
(90) days after such termination, in a lump sum, all Base Salary earned
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through the date of such termination, and (iv) not later than ninety (90) days
after such termination, in a lump sum, any Annual Bonus earned with respect to
that portion of the calendar year prior to such termination.
(b) In the event that the Executive's employment hereunder is
terminated by the Company without Cause or by the Executive for Good Reason (but
not by reason of expiration or non-renewal of this Agreement), and subject to
the last sentence of this subsection (b), the Company shall make a one-time cash
payment to the Executive in a gross amount such that the net payments retained
by the Executive after payment of any applicable Excise Tax with respect to such
payment shall equal One Million Dollars ($1,000,000). Such payment shall be made
at the time of any such termination without Cause or within thirty (30) days of
any such resignation for Good Reason. Such payment shall be in full satisfaction
of all obligations of the Company to Executive hereunder (other than those
obligations set forth in Sections 4(c), 4(i)(b) and 6(a)) and shall be
conditioned on Executive giving a general release of the Company and affiliates
in the form used generally by the Company in the case of the termination of
employment of senior executives.
(c) (i) In the event that the Executive elects to
terminate his employment hereunder other than for Good Reason,
the Company, in consideration for the Executive's agreement in
Section 7(b), shall continue to pay him one-half of his Base
Salary as set forth in Section 4(a) through the earlier of (A)
the fifth (5th) anniversary of the Effective Date or (B) the
second (2nd) anniversary of such termination of employment
(the earlier of such dates, the "Cessation Date").
(ii) In addition, in such event, the Company may, by
written notice to the Executive given no later than 15 days
following his termination of employment, elect to require the
Executive to observe the provisions of Section 7(c) hereof. In
such event, the Company shall, on the last day of each
calendar year preceding the Cessation Date, make a payment to
him equal to one-half of his Average Bonus, and on the last
day of the calendar year which includes the Cessation Date
make a payment to him equal to the product of one-half of his
Average Bonus and the fraction of such calendar year which
precedes the Cessation Date.
(d) In the event of any Termination of Employment, the
Executive shall not be required to seek other employment to mitigate damages,
and any income earned by the Executive from other employment or self-employment
shall not be offset against any obligations of the Company to the Executive
under this Agreement.
7. PROTECTED INFORMATION; PROHIBITED SOLICITATION
(a) The Executive hereby recognizes and acknowledges that
during the course of his employment by the Company, the Company will furnish,
disclose or make available to the Executive confidential or proprietary
information related to the Company's business, including, without limitation,
customer lists, ideas and formatting
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and programming concepts and plans, that such confidential or proprietary
information has been developed and will be developed through the Company's
expenditure of substantial time and money, and that all such confidential
information could be used by the Executive and others to compete with the
Company. The Executive hereby agrees that all such confidential or proprietary
information shall constitute trade secrets, and further agrees to use such
confidential or proprietary information only for the purpose of carrying out his
duties with the Company and not to disclose such information unless required to
do so by subpoena or other legal process. No information otherwise in the public
domain (other than by an act of the Executive in violation hereof) shall be
considered confidential.
The Executive further agrees that all memoranda, notices,
files, records and other documents concerning the business of the Company, made
or compiled by the Executive during the period of his employment or made
available to him, shall be the Company's property and shall be delivered to the
Company upon its request therefor and in any event upon the termination of the
Executive's employment with the Company, provided, however, that the Executive
shall be permitted to retain copies of personal correspondence generated or
received by him during the Employment Term, subject to the use restrictions of
this Section 7(a).
(b) The Executive hereby agrees, in consideration of his
employment hereunder and in view of the confidential position to be held by the
Executive hereunder, that after any Termination of Employment, and through the
Expiration Date the Executive will not directly or indirectly induce any
employee of any of the Protected Companies (as defined below) to terminate such
employment or to become employed by any other media company.
(c) Should the Company make the election set forth in Section
6(c)(ii), the Executive further agrees that, from and after the Termination of
Employment and through the Expiration Date, he shall not be employed by or
perform activities on behalf of, or have an ownership interest in, (i) any radio
or television broadcasting station or outdoor advertising company serving the
same "Area of Dominant Influence" (as reported by Arbitron) as any of the radio
or television broadcasting stations or outdoor advertising company owned by the
Company or its subsidiaries or affiliates, or the subsidiaries or affiliates of
any of the Company's direct or indirect stockholders owning more than twenty
percent (20%) of the Company (collectively the "Protected Companies"), or (ii)
any person, firm, corporation or other entity, or in connection with any
business enterprise, that is directly or indirectly engaged in any of the radio,
television, outdoor advertising or related business activities in which the
Company and its subsidiaries or the Protected Companies have significant
involvement (collectively, the "Competing Business Areas"), in each case at the
effective time of such Termination of Employment (other than beneficial
ownership of up to five percent (5%) of the outstanding voting stock of a
publicly traded company that owns such a competitor).
(d) The restrictions in this Section 7, to the extent
applicable, shall survive the termination of this Agreement and shall be in
addition to any restrictions imposed upon the Executive by statute or at common
law.
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(e) The parties hereby acknowledge that the restrictions in
this Section 7 have been specifically negotiated and agreed to by the parties
hereto and are limited only to those restrictions necessary to protect the
Protected Companies from unfair competition. The parties hereby agree that if
the scope or enforceability of any provision, paragraph or subparagraph of this
Section 7 is in any way disputed at any time, and should a court find that such
restrictions are overly broad, the court may modify and enforce the covenant to
the extent that it believes to be reasonable under the circumstances. Each
provision, paragraph and subparagraph of this Section 7 is separable from every
other provision, paragraph, and subparagraph and constitutes a separate and
distinct covenant. The Executive acknowledges that the Protected Companies
operate in major and medium sized markets throughout the United States and that
the effect of Section 7(c) may be to prevent him from working in the Competing
Business Areas after his termination of employment hereunder.
8. INJUNCTIVE RELIEF
The Executive hereby expressly acknowledges that any breach or
threatened breach by the Executive of any of the terms set forth in Section 7 of
this Agreement may result in significant and continuing injury to the Company,
the monetary value of which would be impossible to establish. Therefore, the
Executive agrees that the Company shall be entitled to apply for injunctive
relief in a court of appropriate jurisdiction. The provisions of this Section 8
shall survive the Employment Term.
9. PARTIES BENEFITED; ASSIGNMENTS
This Agreement shall be binding upon the Executive, his heirs
and his personal representative or representatives, and upon the Company and Los
Angeles and their respective successors and assigns. Neither this Agreement nor
any rights or obligations hereunder may be assigned by the Executive, other than
by will or by the laws of descent and distribution. From and after the
consummation of the Capstar Merger, all rights and obligations of the Company
under this Agreement shall be assigned to and assumed by the New Chancellor. The
consummation of the Capstar Merger shall not constitute a Change in Control.
10. NOTICES
Any notice required or permitted by this Agreement shall be in
writing, sent by registered or certified mail, return receipt requested,
addressed to the Board and the Company at its then principal office, or to the
Executive at the address set forth in the preamble, as the case may be, or to
such other address or addresses as any party hereto may from time to time
specify in writing for the purpose in a notice given to the other parties in
compliance with this Section 10. Notices shall be deemed given when received.
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11. GOVERNING LAW
This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of Texas, without regard to conflict of
law principles.
12. INDEMNIFICATION AND INSURANCE; LEGAL EXPENSES
The Company shall indemnify the Executive to the fullest
extent permitted by the laws of the State of Delaware, as in effect at the time
of the subject act or omission, and shall advance to the Executive reasonable
attorneys' fees and expenses as such fees and expenses are incurred (subject to
an undertaking from the Executive to repay such advances if it shall be finally
determined by a judicial decision which is not subject to further appeal that
the Executive was not entitled to the reimbursement of such fees and expenses)
and he will be entitled to the protection of any insurance policies the Company
may elect to maintain generally for the benefit of its directors and officers
("Directors and Officers Insurance") against all costs, charges and expenses
incurred or sustained by him in connection with any action, suit or proceeding
to which he may be made a party by reason of his being or having been a
director, officer or employee of the Company or any of its subsidiaries or his
serving or having served any other enterprise as a director, officer or employee
at the request of the Company (other than any dispute, claim or controversy
arising under or relating to this Agreement). The Company covenants to maintain
during the Employment Term for the benefit of the Executive (in his capacity as
an officer and director of the Company) Directors and Officers Insurance
providing benefits to the Executive no less favorable, taken as a whole, than
the benefits provided to the Executive by the Directors and Officers Insurance
maintained by the Company on the date hereof; provided, however, that the Board
may elect to terminate Directors and Officers Insurance for all officers and
directors, including the Executive, if the Board determines in good faith that
such insurance is not available or is available only at unreasonable expense.
13. REPRESENTATIONS AND WARRANTIES OF THE EXECUTIVE
The Executive represents and warrants to the Company that (a)
the Executive is under no contractual or other restriction which is inconsistent
with the execution of this Agreement, the performance of his duties hereunder or
the other rights of Company hereunder, and (b) the Executive is under no
physical or mental disability that would hinder the performance of his duties
under this Agreement. Notwithstanding the foregoing, the parties hereto
recognize that the Executive is restricted from certain activities within the
State of Florida and in areas of Chattanooga, Tennessee and Myrtle Beach, South
Carolina, by the terms of an employment agreement with Peterson Acquisition,
Inc. ("Peterson"), the terms of which are, to the best of the Executive's
knowledge, presently enforceable by Clear Channel Communications, Inc., pursuant
to subsequent acquisition transactions involving the business operations of
Peterson (the "Clear Channel Agreement"), and accordingly the Executive shall
have no responsibilities that would violate the non-competition provisions of
the Clear Channel
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Agreement until the earlier to occur of (i) January 1, 1999 or (ii) such time as
the Executive obtains a waiver of such non-competition provisions.
14. DISPUTES
Any dispute or controversy arising under, out of, in
connection with or in relation to this Agreement shall, at the election and upon
written demand of either the Executive or the Company, be finally determined and
settled by arbitration in the city of the Company's headquarters in accordance
with the rules and procedures of the American Arbitration Association, and
judgment upon the award may be entered in any court having jurisdiction thereof.
The Company shall pay the costs and expenses of such arbitration and the fees of
the Executive's counsel and experts unless the finder of fact determines that
the Company is the prevailing party in such arbitration.
15. FACILITY OF PAYMENT
All cash payments to be made by the Company to or on behalf of
the Executive hereunder shall be an obligation of and made by Los Angeles.
16. MISCELLANEOUS
The provisions of this Agreement shall survive the termination
of the Executive's employment with the Company. This Agreement contains the
entire agreement of the parties relating to the subject matter hereof. This
Agreement supersedes any prior written or oral agreements or understandings
between the parties relating to the subject matter hereof. No modification or
amendment of this Agreement shall be valid unless in writing and signed by or on
behalf of the parties hereto. A waiver of the breach of any term or condition of
this Agreement shall not be deemed to constitute a waiver of any subsequent
breach of the same or any other term or condition. This Agreement is intended to
be performed in accordance with, and only to the extent permitted by, all
applicable laws, ordinances, rules and regulations. If any provision of this
Agreement, or the application thereof to any person or circumstance, shall, for
any reason and to any extent, be held invalid or unenforceable, such invalidity
and unenforceability shall not affect the remaining provisions hereof and the
application of such provisions to other persons or circumstances, all of which
shall be enforced to the greatest extent permitted by law. The compensation
provided to the Executive pursuant to this Agreement shall be subject to any
withholdings and deductions required by any applicable tax laws. Any amounts
payable under this Agreement to the Executive after the death of the Executive
shall be paid to the Executive's estate or legal representative. The headings in
this Agreement are inserted for convenience of reference only and shall not be a
part of or control or affect the meaning of any provision hereof. This Agreement
may be executed in any number of counterparts, each of which when so executed
shall be an original, but such counterparts shall together constitute one and
the same agreement.
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IN WITNESS WHEREOF, the parties have duly executed and
delivered this Agreement as of the date first written above.
CHANCELLOR MEDIA CORPORATION
CHANCELLOR MEDIA CORPORATION OF
LOS ANGELES
By: /s/ JEFFREY A. MARCUS
----------------------------------------
Jeffrey A. Marcus
President and Chief Executive Officer
/s/ JAMES A. MCLAUGHLIN, JR.
-------------------------------------------
James A. McLaughlin, Jr.
<PAGE> 1
EXHIBIT 12.1
CHANCELLOR MEDIA CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL NINE ACTUAL NINE COMBINED
MONTHS MONTHS YEAR
YEAR ENDED DECEMBER 31, ENDED ENDED ENDED
-------------------------------------------------- SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1993 1994 1995 1996 1997 1997 1998 1997
-------- ------- ------- -------- -------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income (loss) before
income taxes.......... $(20,749) $ 39 $(5,658) $(19,090) $ (6,692) $ 5,882 $ 28,199 $ (849,353)
Fixed charges........... 15,086 15,252 20,854 40,461 109,173 51,819 169,312 651,095
Less: Dividends on
preferred stock of
subsidiary(1)......... -- -- -- -- (19,848) (4,275) (27,078) (40,074)
-------- ------- ------- -------- -------- ------- --------- ----------
Earnings as
adjusted(A)........... (5,663) 15,291 15,196 21,371 82,633 53,426 170,433 (238,332)
======== ======= ======= ======== ======== ======= ========= ==========
Fixed Charges:
Interest expense........ 13,878 13,809 19,199 37,527 85,017 45,036 135,709 595,080
Amortization of deferred
financing costs....... 728 712 631 1,113 1,337 885 2,133 6,774
Dividends on preferred
stock of
subsidiary(1)......... -- -- -- -- 19,848 4,275 27,078 40,074
Rents under leases
representative of an
interest factor(2).... 480 731 1,024 1,821 2,971 1,623 4,392 9,167
-------- ------- ------- -------- -------- ------- --------- ----------
Fixed charges as
adjusted................ 15,086 15,252 20,854 40,461 109,173 51,819 169,312 651,095
Preferred stock
dividends(1)............ 7,317 7,431 7,431 5,877 18,715 8,843 29,618 26,840
-------- ------- ------- -------- -------- ------- --------- ----------
Total fixed charges and
preferred stock
dividends(B)............ 22,403 22,683 28,285 46,338 127,888 60,662 198,930 677,935
======== ======= ======= ======== ======== ======= ========= ==========
Ratio of earnings to
combined fixed charges
and preferred stock
dividends (A) divided by
(B)..................... -- -- -- -- -- -- -- --
Deficiency of earnings to
combined fixed charges
and preferred stock
dividends (B) minus
(A)..................... $ 28,066 $ 7,392 $13,089 $ 24,967 $ 45,255 $ 7,236 $ 28,497 $ 916,267
<CAPTION>
PRO FORMA
COMBINED
NINE MONTHS
ENDED
SEPTEMBER 30,
1998
-------------
<S> <C>
Earnings:
Income (loss) before
income taxes.......... $(478,724)
Fixed charges........... 492,916
Less: Dividends on
preferred stock of
subsidiary(1)......... (33,822)
---------
Earnings as
adjusted(A)........... (19,630)
=========
Fixed Charges:
Interest expense........ 446,310
Amortization of deferred
financing costs....... 5,080
Dividends on preferred
stock of
subsidiary(1)......... 33,822
Rents under leases
representative of an
interest factor(2).... 7,704
---------
Fixed charges as
adjusted................ 492,916
Preferred stock
dividends(1)............ 29,618
---------
Total fixed charges and
preferred stock
dividends(B)............ 522,534
=========
Ratio of earnings to
combined fixed charges
and preferred stock
dividends (A) divided by
(B)..................... --
Deficiency of earnings to
combined fixed charges
and preferred stock
dividends (B) minus
(A)..................... $ 542,164
</TABLE>
- ---------------
(1) Represents pretax earnings required to cover preferred stock dividends.
(2) Management of Chancellor Media believes approximately one-third of rental
and lease expense is representative of the interest component of rent
expense.
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF CHANCELLOR MEDIA CORPORATION
HOLDING COMPANY SUBSIDIARIES
NAME OF ENTITY STATE OF INCORPORATION
Chancellor Mezzanine Holdings Corporation Delaware
Katz Media Group, Inc. Delaware
RADIO SUBSIDIARIES
NAME OF ENTITY STATE OF INCORPORATION
Broadcast Architecture, Inc. Massachusetts
Cadena Estereotempo, Inc. Puerto Rico
Chancellor Media Corporation of California Delaware
Chancellor Media Corporation of Charlotte Delaware
Chancellor Media Corporation of Houston Delaware
Chancellor Media Corporation of Illinois Delaware
Chancellor Media Corporation of the Keystone State Delaware
Chancellor Media Corporation of Los Angeles Delaware
Chancellor Media Corporation of the Lone Star State Delaware
Chancellor Media Corporation of Massachusetts Delaware
Chancellor Media Corporation of Miami Delaware
Chancellor Media Corporation of Michigan Delaware
Chancellor Media Corporation of New York Delaware
Chancellor Media Corporation of Ohio Delaware
Chancellor Media Corporation of St. Louis Delaware
Chancellor Media Corporation of Washington, D.C. Delaware
Chancellor Media/KCMG, Inc. Delaware
Chancellor Media Licensee Company Delaware
Chancellor Media of Houston Limited Partnership Delaware
Chancellor Media Pennsylvania License Corp. Delaware
Chancellor Media Radio Licenses, LLC Delaware
Chancellor Media/Riverside Broadcasting Co., Inc. Delaware
Chancellor Media/Shamrock Broadcasting, Inc. Delaware
Chancellor Media/Shamrock Broadcasting of Texas, Inc. Texas
Chancellor Media/Shamrock Radio Licenses, LLC Delaware
Chancellor Media/WAXQ, Inc. Delaware
Cleveland Radio Licenses, LLC Delaware
KLOL License Limited Partnership Delaware
KZPS/KDGE License Corp. Delaware
Portorican American Broadcasting, Inc. Puerto Rico
Primedia Broadcast Group, Inc. Puerto Rico
Radio 100, L.L.C. Delaware
WAXQ License Corp. Delaware
WIO, Inc. Puerto Rico
WIOQ License Corp. Delaware
<PAGE> 2
SUBSIDIARIES OF CHANCELLOR MEDIA CORPORATION
(cont.)
WLDI, Inc. Puerto Rico
WLTW License Corp. Puerto Rico
WNZT, Inc. Puerto Rico
WOQI, Inc. Puerto Rico
WOYE, Inc. Puerto Rico
WRPC, Inc. Puerto Rico
WTOP License Limited Partnership Delaware
Zebra Broadcasting Corporation Ohio
MEDIA REPRESENTATION SUBSIDIARIES
NAME OF ENTITY STATE OF INCORPORATION
Amcast Radio Sales, Inc. Delaware
Christal Radio Sales, Inc. Delaware
Eastman Radio Sales, Inc. Delaware
Katz Cable Corporation Delaware
Katz Communications, Inc. Delaware
Katz International Limited England
Katz Media Corporation Delaware
Katz Millennium Marketing, Inc. Delaware
Katz Radio Sales Limited England
Katz Television Sales Limited England
National Cable Communications, L.P. Delaware
The National Payroll Company, Inc. Delaware
Seltel, Inc. Delaware
OUTDOOR SUBSIDIARIES
NAME OF ENTITY STATE OF INCORPORATION
Chancellor Media MW Sign Corporation Delaware
Chancellor Media Martin Corporation Delaware
Chancellor Media Nevada Sign Corporation Delaware
Chancellor Media Outdoor Corporation Delaware
Chancellor Media Whiteco Outdoor Corporation Delaware
Dowling Company Incorporated Virginia
Hardin Development Corp. Florida
Martin & MacFarlane, Inc. California
Martin Media, L.P. California
MW Sign Corp. California
Nevada Outdoor Systems, Inc. Nevada
Parsons Development Company Florida
Revolution Outdoor Advertising, Inc. Florida
Western Poster Service, Inc. Texas
2
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation:
We consent to the inclusion in this Joint Proxy Statement/Prospectus of
Chancellor Media Corporation of our reports dated February 10, 1998, except for
Notes 2(b) paragraphs 1 and 3-5 as to which the date is February 20, 1998 and
9(b) paragraph 6 as to which the date is March 13, 1998, on our audits of the
consolidated financial statements and financial statement schedules of
Chancellor Media Corporation and Subsidiaries as of December 31, 1997 and for
the year then ended. We also consent to the reference to our firm under the
caption "Experts".
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
February 16, 1999
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Chancellor Media Corporation:
We consent to the use of our reports on the following financial statements: 1)
the consolidated balance sheet of Chancellor Media Corporation and Subsidiaries
as of December 31, 1996 and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1995 and
1996; 2) the combined balance sheets of WMZQ Inc. and Viacom Broadcasting East,
Inc. as of December 31, 1995 and 1996 and the related combined statements of
earnings and cash flows for each of the years in the three-year period ended
December 31, 1996; 3) the combined balance sheets of Riverside Broadcasting Co.,
Inc. and WAXQ Inc. as of December 31, 1995 and 1996 and the related combined
statements of earnings and cash flows for each of the years in the three-year
period ended December 31, 1996; 4) the balance sheets of WLIT Inc. as of
December 31, 1995 and 1996 and the related statements of earnings and cash flows
for each of the years in the three-year period ended December 31, 1996; and 5)
the combined balance sheets of KYSR Inc. and KIBB Inc. as of December 31, 1995
and 1996 and the related combined statements of operations and cash flows for
each of the years in the three-year period ended December 31, 1996. We also
consent to the reference to our firm under the heading "Experts" in the Joint
Proxy Statement/Prospectus.
KPMG LLP
Dallas, Texas
February 16, 1999
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation:
We consent to the inclusion in this Joint Proxy Statement/Prospectus of
Chancellor Media Corporation of our report dated February 13, 1997, except for
Note 15 as to which the date is February 19, 1997, on our audits of the
consolidated financial statements of Chancellor Broadcasting Company and
Subsidiaries as of December 31, 1995 and 1996 and for each of the three years in
the period ended December 31, 1996. We also consent to the reference to our firm
under the caption "Experts".
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
February 16, 1999
<PAGE> 1
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Chancellor Media Corporation:
We consent to the use of our report dated March 28, 1997, relating to the
balance sheet of WDAS-AM/FM (station owned and operated by Beasley FM
Acquisition Corp.) as of December 31, 1996 and the related statements of
earnings and station equity and cash flows for the year ended December 31, 1996,
and the reference to our firm under the heading "Experts" in the Joint Proxy
Statement/Prospectus.
KPMG LLP
St. Petersburg, Florida
February 16, 1999
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation:
As independent public accountants, we hereby consent to the use of our report
dated March 31, 1997 (and to all references to our Firm) included in this Joint
Proxy Statement/Prospectus on form S-4 dated February 17, 1999 of Chancellor
Media Corporation.
Arthur Andersen LLP
Washington, D.C.
February 17, 1999
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Chancellor Media Corporation:
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 19, 1998, except for Note 2, as to which the
date is March 3, 1998 with respect to the consolidated financial statements of
LIN Television Corporation included in the Registration Statement (Form S-4, No.
33- ) and related Joint Proxy Statement/Prospectus of Chancellor Media
Corporation for the registration of shares of its common stock.
Ernst & Young LLP
Dallas, Texas
February 16, 1999
<PAGE> 1
EXHIBIT 23.8
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation:
We hereby consent to the use in the Joint Proxy Statement/Prospectus
constituting a part of Chancellor Media Corporation's Registration Statement on
Form S-4 of our report dated September 17, 1998, relating to the financial
statements of the Outdoor Advertising Division of Whiteco Industries, Inc.,
which are contained in the Joint Proxy Statement/Prospectus.
We also consent to the reference to us under the caption "Experts" in the Joint
Proxy Statement/Prospectus.
BDO Seidman, LLP
Chicago, Illinois
February 16, 1999
<PAGE> 1
EXHIBIT 23.9
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation:
We consent to the inclusion in this Joint Proxy Statement/Prospectus of
Chancellor Media Corporation of our report dated March 26, 1998, on our audits
of the consolidated financial statements of Capstar Broadcasting Corporation and
Subsidiaries as of December 31, 1996 and 1997 and for each of the three years in
the period ended December 31, 1997. We also consent to the reference to our firm
under the caption "Experts".
PRICEWATERHOUSECOOPERS LLP
Austin, Texas
February 16, 1999
<PAGE> 1
EXHIBIT 23.10
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Chancellor Media Corporation:
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 10, 1997 with respect to the consolidated
financial statements of Commodore Media, Inc. and Subsidiaries, included in the
Joint Proxy Statement/ Prospectus of Chancellor Media Corporation that is made a
part of the Registration Statement (Form S-4) and Prospectus of Chancellor Media
Corporation to approve and adopt the Agreement and Plan of Merger between
Chancellor Media Corporation and Ranger Equity Holdings Corporation.
Ernst & Young LLP
New York, New York
February 16, 1999
<PAGE> 1
EXHIBIT 23.11
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Chancellor Media Corporation:
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 5, 1998, except for Notes 2 and 14 as to which the
date is April 27, 1998 with respect to the consolidated financial statements of
SFX Broadcasting, Inc. and Subsidiaries, included in the Joint Proxy
Statement/Prospectus of Chancellor Media Corporation that is made a part of the
Registration Statement (Form S-4) and Prospectus of Chancellor Media Corporation
to approve and adopt the Agreement and Plan of Merger between Chancellor Media
Corporation and Ranger Equity Holdings Corporation.
Ernst & Young LLP
New York, New York
February 16, 1999
<PAGE> 1
EXHIBIT 23.12
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation:
As independent public accountants, we hereby consent to the use of our reports
dated February 13, 1998 (and to all references to our Firm) included in this
Joint Proxy Statement/Prospectus of Chancellor Media Corporation.
Arthur Andersen LLP
Bakersfield, California
February 16, 1999
<PAGE> 1
EXHIBIT 23.13
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Chancellor Media Corporation:
As independent public accountants, we hereby consent to the use of our report
dated August 25, 1995 (and to all references to our Firm) included in this Joint
Proxy Statement/Prospectus of Chancellor Media Corporation.
Barbich Longcrier Hooper & King
Accountancy Corporation
/s/ GEOFFREY B. KING
- ------------------------------------
By: Geoffrey B. King, CPA
Bakersfield, California
February 16, 1999
<PAGE> 1
EXHIBIT 23.14
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation:
We consent to the inclusion in this Joint Proxy Statement/Prospectus of
Chancellor Media Corporation of our report dated February 16, 1999 on our audits
of the statement of assets acquired as of May 29, 1998 and the related
statements of revenues and direct operating expenses of KODA-FM for each of the
two years ended December 31, 1997. We also consent to the reference to our firm
under the caption "Experts".
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
February 16, 1999
<PAGE> 1
EXHIBIT 23.15
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation:
We consent to the inclusion in this Joint Proxy Statement/Prospectus of
Chancellor Media Corporation of our report dated February 16, 1999 on our audits
of the combined statement of assets acquired as of April 3, 1998 and the related
combined statements of revenues and direct operating expenses of KBIG-FM,
KLDE-FM and WBIX-FM (formerly WNSR-FM) for each of the three years ended
December 31, 1997. We also consent to the reference to our firm under the
caption "Experts".
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
February 16, 1999
<PAGE> 1
EXHIBIT 23.16
[LETTERHEAD OF WASSERSTEIN PERELLA & CO., INC.]
CONSENT OF WASSERSTEIN PERELLA & CO., INC.
We hereby consent to (i) the use of our opinion letter dated July 7,
1998 to the Special Committee of the board of Directors of Chancellor Media
Corporation ("Chancellor Media"), included as Annex II to the Joint Proxy
Statement/Prospectus which forms a part of the Registration Statement on Form
S-4 relating to the proposed merger of a substantially wholly owned subsidiary
of LIN Television Corporation with and into Chancellor Media, and (ii) the
references to such opinion in such Proxy Statement/Prospectus. In providing
such consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder, nor do we hereby admit that we are "experts" as used in the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Wasserstein Perella & Co., Inc.
By:
-------------------------
Name:
Title:
Date:
<PAGE> 1
EXHIBIT 23.17
CONSENT OF MORGAN STANLEY & CO. INCORPORATED
We hereby consent to the use of Annex III containing our opinion letter
dated July 7, 1998 (the "Opinion") to the Board of Directors of Chancellor Media
Corporation ("Chancellor") in the Joint Proxy Statement/Prospectus constituting
a part of the registration statement on Form S-4 of Chancellor relating to the
proposed business combination of Chancellor and Ranger Equity Holdings
Corporation ("LIN") and to the references to our firm name in the Joint Proxy
Statement/Prospectus in connection with references to the Opinion. In giving
this consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder (collectively, the "Act"), nor do we admit that we are
experts with respect to any part of such registration statement within the
meaning of the term "experts" as used in the Act.
Dated: February 11, 1999
Morgan Stanley & Co. Incorporated
By: /s/ PAUL J. TAUBMAN
---------------------------
Name: Paul J. Taubman
Title: Managing Director
<PAGE> 1
EXHIBIT 23.18
CONSENT OF GREENHILL & CO., LLC
We hereby consent to the use of our opinion letter dated July 7, 1998
to the Board of Directors of Ranger Equity Holdings Corporation, included as
Annex IV to the Joint Proxy Statement/Prospectus which forms a part of the
Registration Statement on Form S-4 relating to the proposed business combination
of Chancellor Media Corporation and Ranger Equity Holdings Corporation and to
the references to our firm name in the Joint Proxy Statement/Prospectus in
connection with references to our opinion. In providing such consent, we do not
admit and we disclaim that we come within the category of persons whose consent
is required under Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder (collectively, the "Act"), nor do we admit and we disclaim that we
are experts with respect to any part of such registration statement within the
meaning of the term "experts" as used in the Act.
Dated: February 11 , 1999
------------------------
Greenhill & Co., LLC
By: /s/ SCOTT L. BOK
--------------------------------
Name: Scott L. Bok
------------------------------
Title: Managing Director
-----------------------------
<PAGE> 1
EXHIBIT 23.19
[VINSON & ELKINS L.L.P. LETTERHEAD]
February 11, 1999
We hereby consent to the reference to us under the heading "Legal Matters" in
the Joint Proxy Statement/Prospectus which forms a part of the Registration
Statement on Form S-4 relating to the proposed business combination of
Chancellor Media Corporation and Ranger Equity Holdings Corporation. In giving
this consent, we do not hereby admit that we are within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933 and the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
Very truly yours,
/s/ VINSON & ELKINS L.L.P.
<PAGE> 1
EXHIBIT 99.1
CERTIFICATE OF INCORPORATION
OF
RANGER EQUITY HOLDINGS CORPORATION
I, the undersigned natural person acting as an incorporator of a
corporation (hereinafter called the "Corporation") under the Delaware General
Corporation Law ("Delaware Law"), do hereby adopt the following Certificate of
Incorporation for the Corporation:
FIRST: The name of the Corporation is Ranger Equity Holdings
Corporation.
SECOND: The registered office of the Corporation in the State of
Delaware is located at 1013 Centre Road, the City of Wilmington, County of New
Castle. The name of the registered agent of the Corporation at such address is
the Corporation Service Company.
THIRD: The purpose for which the Corporation is organized is to engage
in any and all lawful acts and activity for which corporations may now or
hereafter be organized under Delaware Law. The Corporation shall have all powers
that may now or hereafter be lawful for a corporation to exercise under Delaware
Law and shall have perpetual existence.
FOURTH: The total number of shares of capital stock of all classes that
the Corporation shall have authority to issue is 1,005,000,000 shares. The
authorized capital stock is divided into 5,000,000 shares of preferred stock,
par value $.01 per share (the "Preferred Stock"), and 1,000,000,000 shares of
common stock, par value $.01 per share (the "Common Stock").
The shares of Preferred Stock of the Corporation may be issued from
time to time in one or more classes or series thereof, the shares of each class
or series thereof to have such voting powers, full or limited, or no voting
powers, and such designations, preferences and relative, participating, optional
or other special rights, and qualifications, limitations or restrictions
thereof, as are stated and expressed herein or in the resolution or resolutions
providing for the issue of such class or series, adopted by the board of
directors of the Corporation (the "Board of Directors") as hereinafter provided.
Authority is hereby expressly granted to the Board of Directors,
subject to the provisions of this Article Fourth and to the limitations
prescribed by Delaware Law, to authorize the issue of one or more classes, or
series thereof, of Preferred Stock and
<PAGE> 2
with respect to each such class or series to fix by resolution or resolutions
providing for the issue of such class or series the voting powers, full or
limited, if any, of the shares of such class or series and the designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof. The authority of the Board
of Directors with respect to each class or series thereof shall include, but not
be limited to, the determination or fixing of the following:
(i) the maximum number of shares to constitute such class or
series, which may subsequently be increased or decreased by resolutions of the
Board of Directors unless otherwise provided in the resolution providing for the
issue of such class or series, the distinctive designation thereof and the
stated value thereof if different than the par value thereof;
(ii) the dividend rate of such class or series, the conditions
and dates upon which such dividends shall be payable, the relation which such
dividends shall bear to the dividends payable on any other class or classes of
stock or any other series of any class of stock of the Corporation, and whether
such dividends shall be cumulative or noncumulative;
(iii) whether the shares of such class or series shall be
subject to redemption, in whole or in part, and if made subject to such
redemption the times, prices and other terms and conditions of such redemption,
including whether or not such redemption may occur at the option of the
Corporation or at the option of the holder or holders thereof or upon the
happening of a specified event;
(iv) the terms and amount of any sinking fund established for
the purchase or redemption of the shares of such class or series;
(v) whether or not the shares of such class or series shall be
convertible into or exchangeable for shares of any other class or classes of any
stock or any other series of any class of stock of the Corporation, and, if
provision is made for conversion or exchange, the times, prices, rates,
adjustments, and other terms and conditions of such conversion or exchange;
(vi) the extent, if any, to which the holders of shares of
such class or series shall be entitled to vote with respect to the election of
directors or otherwise;
(vii) the restrictions, if any, on the issue or reissue of any
additional Preferred Stock;
(viii) the rights of the holders of the shares of such class
or series upon the dissolution of, or upon the subsequent distribution of assets
of, the Corporation; and
(ix) the manner in which any facts ascertainable outside the
resolution or resolutions providing for the issue of such class or series shall
operate upon the voting
2
<PAGE> 3
powers, designations, preferences, rights and qualifications, limitations or
restrictions of such class or series.
The shares of Common Stock of the Corporation shall be of one
and the same class. The holders of Common Stock shall have one vote per share of
Common Stock on all matters on which holders of Common Stock are entitled to
vote.
FIFTH: The name of the incorporator of the Corporation is
Antonios C. Backos, and the mailing address of such incorporator is c/o Weil,
Gotshal & Manges LLP, 767 Fifth Avenue, New York, NY 10153.
SIXTH: The number of directors constituting the initial Board
of Directors is four, and the name and mailing address of each person who is to
serve as director until the first annual meeting of stockholders or until his
successor is elected and qualified are as follows:
Thomas O. Hicks 200 Crescent Court, Suite 1600
Chairman Dallas, Texas 75201
Eric C. Neuman 200 Crescent Court, Suite 1600
Dallas, Texas 75201
Michael J. Levitt 1325 Avenue of the Americas, 25th Floor
New York, New York 10019
Gary R. Chapman 1 Richmond Square, Suite 230E
Providence, Rhode Island 02906
SEVENTH: Directors of the Corporation need not be elected by
written ballot unless the bylaws of the Corporation otherwise provide.
EIGHTH: The directors of the Corporation shall have the power
to adopt, amend, and repeal the bylaws of the Corporation.
NINTH: No contract or transaction between the Corporation and
one or more of its directors, officers, or stockholders or between the
Corporation and any person (as used herein "person" means other corporation,
partnership, association, firm, trust, joint venture, political subdivision, or
instrumentality) or other organization in which one or more of its directors,
officers or stockholders are directors, officers, or stockholders, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the Board of Directors or committee which authorizes the contract or
transaction,or solely because his, her, or
3
<PAGE> 4
their votes are counted for such purpose, if: (i) the material facts as to his
or her relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or (ii) the material
facts as to his or her relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specially approved in good faith by
vote of the stockholders; or (iii) the contract or transaction is fair as to the
Corporation as of the time it is authorized approved, or ratified by the Board
of Directors or of a committee which authorizes the contract or transaction.
TENTH: The Corporation shall indemnify any person who was, is,
or is threatened to be made a party to a proceeding (as hereinafter defined) by
reason of the fact that he or she (i) is or was a director or officer of the
Corporation or (ii) while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
fullest extent permitted under Delaware Law, as the same exists or may
hereinafter be amended. Such right shall be a contract right and as such shall
run to the benefit of any director or officer who is to serve as a director or
officer of the Corporation while this Article Tenth is in effect. Any repeal or
amendment of this Article Tenth shall be prospective only and shall not limit
the rights to any such director or officer or the obligations of the Corporation
with respect to any claim arising from or related to the services of such
director or officer in any of the foregoing capacities prior to any such repeal
or amendment to this Article Tenth. Such right shall include the right to be
paid by the Corporation expenses incurred in defending any such proceeding in
advance of its final disposition to the maximum extent permitted under Delaware
Law, as the same exists or may hereafter be amended. If a claim for
indemnification or advancement of expenses hereunder is not paid in full by the
Corporation within sixty (60) days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim, and if successful in
whole or in part, the claimant shall also be entitled to be paid the expenses of
prosecuting such claim. It shall be a defense to any such action that such
indemnification or advancement of costs of defense are not permitted under
Delaware Law, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors or any committee thereof, independent legal counsel, or stockholders)
to have made it determination prior to the commencement of such action that
indemnification of, or advancement of costs of defense to, the claimant is
permissible in the circumstances nor an actual determination by the Corporation
(including its Board of Directors or any committee thereof, independent legal
counsel, or stockholders) that such indemnification or advancement is not
permissible shall be a defense to the action or create a presumption that such
indemnification or advancement is not permissible. In the event of the death of
4
<PAGE> 5
any person having a right of indemnification under the foregoing provisions,
such right shall inure to the benefit of his or her heirs, executors,
administrators, and personal representatives. The rights conferred above shall
not be exclusive of any other right which any person may have or hereafter
acquire under any statue, by-law, resolution of stockholders or directors,
agreement, or otherwise.
The Corporation may additionally indemnify any employee or
agent of the Corporation to the fullest extent permitted by Delaware Law, as the
same exists or may hereafter be amended.
As used herein, the term "proceeding" means any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, arbitrative, or investigative, any appeal in such an action,
suit, or proceeding, and any inquiry or investigation that could lead to such an
action, suit, or proceeding.
ELEVENTH: A director of the Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of law, (iii) under Section 174 of Delaware Law,
or (iv) for any transaction from which the director derived an improper personal
benefit. Any repeal or amendment of this Article Eleventh by the stockholders of
the Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation arising
from an act or omission occurring prior to the time of such repeal or amendment.
In addition to the circumstances in which a director of the Corporation is not
personally liable as set forth in the foregoing provisions of this Article
Eleventh, a director shall not be liable to the Corporation or its stockholders
to such further extent as permitted by any law hereafter enacted, including
without limitation any subsequent amendment to Delaware Law.
TWELFTH: The Corporation expressly elects not to be governed
by Section 203 of the Delaware Law.
THIRTEENTH: Until the earlier to occur of (i) the termination
of the Stockholders Agreement (as hereinafter defined), or (ii) the consummation
of a Qualified IPO (as hereinafter defined), in case the Corporation or any
Affiliated Successor (as hereinafter defined) proposes to issue or sell any
shares of Common Stock or any rights, warrants, options, convertible securities
or indebtedness, exchangeable securities or indebtedness, or other rights
exercisable for or convertible or exchangeable into, directly or indirectly,
Common Stock and securities convertible or exchangeable into Common Stock,
whether at the time of issuance or upon the passage of time or the occurrence of
some future event (collectively, "Common Stock Equivalents", and together with
any shares of Common Stock, the "Offered Securities"), the Corporation shall, no
later than twenty (20) days prior to the consummation of such transaction (a
"Preemptive Rights
5
<PAGE> 6
Transaction"), give notice in writing (the "Offer Notice") to each
securityholder who is, at such time, a party to the Stockholders Agreement
(each, a "Holder") of such Preemptive Rights Transaction. The Offer Notice shall
describe the proposed Preemptive Rights Transaction, identify the proposed
purchaser, and contain an offer (the "Preemptive Rights Offer") to sell to each
Holder who certifies (to the reasonable satisfaction of the Corporation) that
such Holder is an "Accredited Investor", as defined in Regulation D under the
Securities Act of 1933, as amended (an "Accredited Offeree"), at the same price
and for the same consideration to be paid by the proposed purchaser, all or part
of such Accredited Offeree's pro rata portion of the Offered Securities (which
shall be the percentage ownership of the Fully Diluted Common Stock held by such
Holder, excluding, for the purposes of such calculation, any shares of Common
Stock issuable upon exercise of any Common Stock Equivalents granted pursuant to
any employee, officer or director benefit plan or arrangement). If any such
Holder fails to accept such offer by written notice fifteen days after its
receipt of the Offer Notice, the Corporation or such Affiliated Successor may
proceed with the proposed issue or sale of the Offered Securities, free of any
right on the part of such Holder under this Article Thirteenth in respect
thereof.
Notwithstanding anything else contained in this Article
Thirteenth, the foregoing paragraph shall not apply to (i) issuances or sales of
Common Stock or Common Stock Equivalents to employees, officers, and/or
directors of the Corporation and/or any of its Subsidiaries (as hereinafter
defined) pursuant to employee benefit or similar plans or arrangements of the
Corporation and/or its Subsidiaries, (ii) issuances or sales of Common Stock or
Common Stock Equivalents upon exercise of any Common Stock Equivalent which,
when issued, was subject to or exempt from the preemptive rights under this
Article Thirteenth, (iii) securities distributed or set aside ratably to all
holders of Common Stock and Common Stock Equivalents (or any class or series
thereof) on a per share equivalent basis, (iv) issuances or sales of Common
Stock or Common Stock Equivalents pursuant to a registered underwritten public
offering, a merger of the Corporation or a Subsidiary of the Corporation into or
with another entity or an acquisition by the Corporation or a Subsidiary of the
Corporation of another business or corporation, or (v) issuances of Common Stock
by the Corporation in payment of all or any portion of the principal of, or
interest or premium on, any indebtedness of the Corporation or any of its
Subsidiaries. In the event of any issuances or sales of Common Stock or Common
Stock Equivalents as a unit with any other security of the Corporation or its
Subsidiaries, the preemptive rights under this Article Thirteenth shall be
applicable to the entire unit rather than only the Common Stock or Common Stock
Equivalent included in the unit.
For purposes of this Article Thirteenth, the following terms
are defined as follows:
"Affiliated Successor" means a successor entity to the
Corporation (whether by merger, consolidation, reorganization, or otherwise) in
which the HMC
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<PAGE> 7
Group owns at least the same percentage of the fully-diluted common stock of
such entity (after giving effect to the merger, consolidation, reorganization,
or other transaction) as the HMC Group owns of the Fully-Diluted Common Stock of
the Corporation.
"Fully-Diluted Common Stock" means, at any time, the then
outstanding Common Stock of the Corporation plus (without duplication) all
shares of Common Stock issuable, whether at such time or upon the passage of
time or the occurrence of future events, upon the exercise, conversion, or
exchange of all then outstanding Common Stock Equivalents.
"HMC Group" means HMTF and its Affiliates and its and their
respective officers, directors, and employees (and members of their respective
families and trusts for the primary benefit of such family members).
"HMTF" means Hicks, Muse, Tate & Furst Incorporated, a Texas
corporation.
"Person" or "person" means any individual, corporation,
partnership, limited liability company, joint venture, association, joint-stock
company, trust, unincorporated organization or government or other agency or
political subdivision thereof.
"Qualified IPO" means a firm commitment underwritten public
offering of Common Stock pursuant to a registration statement under the
Securities Act of 1933, as amended, where both (i) the proceeds to the
Corporation (prior to deducting any underwriters' discounts and commissions)
equal or exceed [Fifth Million Dollars ($50,000,000)] and (ii) upon consummation
of such offering, the Common Stock is listed on the New York Stock Exchange or
authorized to be quoted and/or listed on the Nasdaq National Market.
"Stockholders Agreement" means that certain Stockholders
Agreement dated February 1998, by and among the Corporation and each
securityholder party thereto.
"Subsidiary" of any Person means (i) a corporation a majority
of whose outstanding shares of capital stock or other equity interests with
voting power, under ordinary circumstances, to elect directors, is at the time,
directly or indirectly, owned by such Person, by one or more subsidiaries of
such Person or by such Person and one or more subsidiaries of such Person, and
(ii) any other Person (other than a corporation) in which such Person, a
subsidiary of such Person or such Person and one or more subsidiaries of such
Person, directly or indirectly, at the date of determination thereof has (x) at
least a majority ownership interest or (y) the power to elect or direct the
election of the directors or other governing body of such Person.
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<PAGE> 8
I, the undersigned, for the purpose of forming the Corporation under Delaware
Law, do make, file, and record this Certificate of Incorporation and do certify
that this is my act and deed and that the facts stated herein are true and,
accordingly, I do hereunto set my hand on this 11th day of February, 1998.
/s/ ANTONIOS C. BACKOS
----------------------------------
Antonios C. Backos
Incorporator
8
<PAGE> 1
EXHIBIT 99.2
BYLAWS
OF
RANGER EQUITY HOLDINGS CORPORATION
A Delaware Corporation
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
PREAMBLE 2
<S> <C> <C>
Article 1 ARTICLE ONE: OFFICES.............................................................2
1.1 Registered Office and Agent...........................................................2
1.2 Other Offices.........................................................................2
Article 2 ARTICLE TWO: MEETINGS OF STOCKHOLDERS............................................2
2.1 Annual Meeting........................................................................2
2.2 Special Meeting.......................................................................3
2.3 Place of Meeting......................................................................3
2.4 Notice................................................................................3
2.5 Voting List...........................................................................3
2.6 Quorum................................................................................4
2.7 Required Vote; Withdrawal of Quorum...................................................4
2.8 Method of Voting; Proxies.............................................................4
2.9 Record Date...........................................................................5
2.10 Conduct of Meeting....................................................................6
2.11 Inspectors............................................................................6
Article 3 ARTICLE THREE: DIRECTORS.........................................................6
3.1 Management............................................................................6
3.2 Number; Qualification; Election; Term.................................................7
3.3 Change in Number......................................................................7
3.4 Removal...............................................................................7
3.5 Vacancies.............................................................................7
3.6 Meetings of Directors.................................................................8
3.7 First Meeting.........................................................................8
3.8 Election of Officers..................................................................8
3.9 Regular Meetings......................................................................8
3.10 Special Meetings......................................................................8
3.11 Notice................................................................................8
3.12 Quorum; Majority Vote.................................................................8
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C> <C>
3.13 Procedure.............................................................................9
3.14 Presumption of Assent.................................................................9
3.15 Compensation..........................................................................9
Article 4 ARTICLE FOUR: COMMITTEES.........................................................9
4.1 Designation...........................................................................9
4.2 Number; Qualification; Term..........................................................10
4.3 Authority............................................................................10
4.4 Committee Changes....................................................................10
4.5 Alternate Members of Committees......................................................10
4.6 Regular Meetings.....................................................................10
4.7 Special Meetings.....................................................................10
4.8 Quorum; Majority Vote................................................................10
4.9 Minutes..............................................................................11
4.10 Compensation.........................................................................11
4.11 Responsibility.......................................................................11
Article 5 ARTICLE FIVE: NOTICE............................................................11
5.1 Method...............................................................................11
5.2 Waiver...............................................................................11
Article 6 ARTICLE SIX: OFFICERS...........................................................12
6.1 Number; Titles; Term of Office.......................................................12
6.2 Removal..............................................................................12
6.3 Vacancies............................................................................12
6.4 Authority............................................................................12
6.5 Compensation.........................................................................12
6.6 Chairman of the Board................................................................12
6.7 President............................................................................13
6.8 Vice Presidents......................................................................13
6.9 Treasurer............................................................................13
6.10 Assistant Treasurers.................................................................13
</TABLE>
ii
<PAGE> 4
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C> <C>
6.11 Secretary............................................................................13
6.12 Assistant Secretaries................................................................14
Article 7 ARTICLE SEVEN: CERTIFICATES AND SHAREHOLDERS....................................14
7.1 Certificates for Shares..............................................................14
7.2 Replacement of Lost or Destroyed Certificates........................................14
7.3 Transfer of Shares...................................................................14
7.4 Registered Stockholders..............................................................15
7.5 Regulations..........................................................................15
7.6 Legends..............................................................................15
Article 8 ARTICLE EIGHT: MISCELLANEOUS PROVISIONS.........................................15
8.1 Dividends............................................................................15
8.2 Reserves.............................................................................15
8.3 Books and Records....................................................................15
8.4 Fiscal Year..........................................................................16
8.5 Seal.................................................................................16
8.6 Resignations.........................................................................16
8.7 Securities of Other Corporations.....................................................16
8.8 Telephone Meetings...................................................................16
8.9 Action Without a Meeting.............................................................16
8.10 Invalid Provisions...................................................................17
8.11 Mortgages, etc.......................................................................17
8.12 Headings.............................................................................17
8.13 References...........................................................................17
8.14 Amendments...........................................................................17
</TABLE>
iii
<PAGE> 5
BYLAWS
OF
RANGER EQUITY HOLDINGS CORPORATION
A Delaware Corporation
PREAMBLE
These bylaws are subject to, and governed by, the General Corporation
Law of the State of Delaware (the "Delaware General Corporation Law") and the
certificate of incorporation of Ranger Equity Holdings Corporation, a Delaware
corporation (the "Corporation"). In the event of a direct conflict between the
provisions of these bylaws and the mandatory provisions of the Delaware General
Corporation Law or the provisions of the certificate of incorporation of the
Corporation, such provisions of the Delaware General Corporation Law or the
certificate of incorporation of the Corporation, as the case may be, will be
controlling.
ARTICLE 1
ARTICLE ONE: OFFICES
1.1 REGISTERED OFFICE AND AGENT. The registered office and registered
agent of the Corporation shall be as designated from time to time by the
appropriate filing by the Corporation in the office of the Secretary of State of
the State of Delaware.
1.2 OTHER OFFICES. The Corporation may also have offices at such other
places, both within and without the State of Delaware, as the board of directors
may from time to time determine or as the business of the Corporation may
require.
ARTICLE 2
ARTICLE TWO: MEETINGS OF STOCKHOLDERS
2.1 ANNUAL MEETING. An annual meeting of stockholders of the
Corporation shall be held each calendar year on such date and at such time as
shall be designated from time to time by the board of directors and stated in
the notice of the meeting or in a duly
<PAGE> 6
executed waiver of notice of such meeting. At such meeting, the stockholders
shall elect directors and transact such other business as may properly be
brought before the meeting.
2.2 SPECIAL MEETING. A special meeting of the stockholders may be
called at any time by the Chairman of the Board, the President, the board of
directors, and shall be called by the President or the Secretary at the request
in writing of the stockholders of record of not less than ten percent of all
shares entitled to vote at such meeting or as otherwise provided by the
certificate of incorporation of the Corporation. A special meeting shall be held
on such date and at such time as shall be designated by the person(s) calling
the meeting and stated in the notice of the meeting or in a duly executed waiver
of notice of such meeting. Only such business shall be transacted at a special
meeting as may be stated or indicated in the notice of such meeting or in a duly
executed waiver of notice of such meeting.
2.3 PLACE OF MEETING. An annual meeting of stockholders may be held at
any place within or without the State of Delaware designated by the board of
directors. A special meeting of stockholders may be held at any place within or
without the State of Delaware designated in the notice of the meeting or a duly
executed waiver of notice of such meeting. Meetings of stockholders shall be
held at the principal office of the Corporation unless another place is
designated for meetings in the manner provided herein.
2.4 NOTICE. Written or printed notice stating the place, day, and time
of each meeting of the stockholders and, in case of a special meeting, the
purpose or purposes for which the meeting is called shall be delivered not less
than ten nor more than 60 days before the date of the meeting, either personally
or by mail, by or at the direction of the President, the Secretary, or the
officer or person(s) calling the meeting, to each stockholder of record entitled
to vote at such meeting. If such notice is to be sent by mail, it shall be
directed to such stockholder at his address as it appears on the records of the
Corporation, unless he shall have filed with the Secretary of the Corporation a
written request that notices to him be mailed to some other address, in which
case it shall be directed to him at such other address. Notice of any meeting of
stockholders shall not be required to be given to any stockholder who shall
attend such meeting in person or by proxy and shall not, at the beginning of
such meeting, object to the transaction of any business because the meeting is
not lawfully called or convened, or who shall, either before or after the
meeting, submit a signed waiver of notice, in person or by proxy.
2.5 VOTING LIST. At least ten days before each meeting of stockholders,
the Secretary or other officer of the Corporation who has charge of the
Corporation's stock ledger, either directly or through another officer appointed
by him or through a transfer agent appointed by the board of directors, shall
prepare a complete list of stockholders entitled to vote thereat, arranged in
alphabetical order and showing the address of each stockholder and number of
shares registered in the name of each stockholder. For a period of ten days
prior to such meeting, such list shall be kept on file at a place within
3
<PAGE> 7
the city where the meeting is to be held, which place shall be specified in the
notice of meeting or a duly executed waiver of notice of such meeting or, if not
so specified, at the place where the meeting is to be held and shall be open to
examination by any stockholder during ordinary business hours. Such list shall
be produced at such meeting and kept at the meeting at all times during such
meeting and may be inspected by any stockholder who is present.
2.6 QUORUM. The holders of a majority of the outstanding shares
entitled to vote on a matter, present in person or by proxy, shall constitute a
quorum at any meeting of stockholders, except as otherwise provided by law, the
certificate of incorporation of the Corporation, or these by-laws. If a quorum
shall not be present, in person or by proxy, at any meeting of stockholders, the
stockholders entitled to vote thereat who are present, in person or by proxy,
or, if no stockholder entitled to vote is present, any officer of the
Corporation may adjourn the meeting from time to time, without notice other than
announcement at the meeting (unless the board of directors, after such
adjournment, fixes a new record date for the adjourned meeting), until a quorum
shall be present, in person or by proxy. At any adjourned meeting at which a
quorum shall be present, in person or by proxy, any business may be transacted
which may have been transacted at the original meeting had a quorum been
present; provided that, if the adjournment is for more than 30 days or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the adjourned meeting.
2.7 REQUIRED VOTE; WITHDRAWAL OF QUORUM. When a quorum is present at
any meeting, the vote of the holders of at least a majority of the outstanding
shares entitled to vote who are present, in person or by proxy, shall decide any
question brought before such meeting, unless the question is one on which, by
express provision of statute, the certificate of incorporation of the
Corporation, or these bylaws, a different vote is required, in which case such
express provision shall govern and control the decision of such question. The
stockholders present at a duly constituted meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
2.8 METHOD OF VOTING; PROXIES. Except as otherwise provided in the
certificate of incorporation of the Corporation or by law, each outstanding
share, regardless of class, shall be entitled to one vote on each matter
submitted to a vote at a meeting of stockholders. Elections of directors need
not be by written ballot. At any meeting of stockholders, every stockholder
having the right to vote may vote either in person or by a proxy executed in
writing by the stockholder or by his duly authorized attorney-in-fact. Each such
proxy shall be filed with the Secretary of the Corporation before or at the time
of the meeting. No proxy shall be valid after three years from the date of its
execution, unless otherwise provided in the proxy. If no date is stated in a
proxy, such proxy shall be presumed to have been executed on the date of the
meeting at which it is to be voted. Each proxy shall be revocable unless
expressly provided therein
4
<PAGE> 8
to be irrevocable and coupled with an interest sufficient in law to support an
irrevocable power or unless otherwise made irrevocable by law.
2.9 RECORD DATE. For the purpose of determining stockholders entitled
to notice of or to vote at any meeting of stockholders, or any adjournment
thereof, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion, or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the board of directors, for any such determination of stockholders, such date
in any case to be not more than 60 days and not less than ten days prior to such
meeting nor more than 60 days prior to any other action. If no record date is
fixed:
(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close
of business on the day next preceding the day on which notice is given
or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held.
(ii) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the
board of directors adopts the resolution relating thereto.
(iii) A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the board of
directors may fix a new record date for the adjourned meeting.
(iv) In order that the Corporation may determine the
stockholders entitled to consent to corporate action in writing without
a meeting, the board of directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors, and which date shall
not be more than ten days after the date upon which the resolution
fixing the record date is adopted by the board of directors. If no
record date has been fixed by the board of directors, the record date
for determining stockholders entitled to consent to corporate action in
writing without a meeting, when no prior action by the board of
directors is required by law or these bylaws, shall be the first date
on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of
business, or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded.
Delivery made to the Corporation's registered office in the State of
Delaware, principal place of business, or such officer or agent shall
be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the board of
5
<PAGE> 9
directors and prior action by the board of directors is required by law
or these bylaws, the record date for determining stockholders entitled
to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the board of directors adopts
the resolution taking such prior action.
2.10 CONDUCT OF MEETING. The Chairman of the Board, if such office has
been filled, and, if not or if the Chairman of the Board is absent or otherwise
unable to act, the President shall preside at all meetings of stockholders. The
Secretary shall keep the records of each meeting of stockholders. In the absence
or inability to act of any such officer, such officer's duties shall be
performed by the officer given the authority to act for such absent or
non-acting officer under these bylaws or by some person appointed by the
meeting.
2.11 INSPECTORS. The board of directors may, in advance of any meeting
of stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If any of the inspectors so appointed shall fail to appear
or act, the chairman of the meeting shall, or if inspectors shall not have been
appointed, the chairman of the meeting may, appoint one or more inspectors. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares of capital stock of the Corporation
outstanding and the voting power of each, the number of shares represented at
the meeting, the existence of a quorum, and the validity and effect of proxies
and shall receive votes, ballots, or consents, hear and determine all challenges
and questions arising in connection with the right to vote, count and tabulate
all votes, ballots, or consents, determine the results, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the chairman of the meeting, the inspectors shall make a report in
writing of any challenge, request, or matter determined by them and shall
execute a certificate of any fact found by them. No director or candidate for
the office of director shall act as an inspector of an election of directors.
Inspectors need not be stockholders.
ARTICLE 3
ARTICLE THREE: DIRECTORS
3.1 MANAGEMENT. The business and property of the Corporation shall be
managed by the board of directors. Subject to the restrictions imposed by law,
the certificate of incorporation of the Corporation, or these bylaws, the board
of directors may exercise all the powers of the Corporation.
6
<PAGE> 10
3.2 NUMBER; QUALIFICATION; ELECTION; TERM. The number of directors
which shall constitute the entire board of directors shall be not less than one.
The first board of directors shall consist of the number of directors named in
the certificate of incorporation of the Corporation or, if no directors are so
named, shall consist of the number of directors elected by the incorporator(s)
at an organizational meeting or by unanimous written consent in lieu thereof.
Thereafter, within the limits above specified, the number of directors which
shall constitute the entire board of directors shall be determined by resolution
of the board of directors or by resolution of the stockholders at the annual
meeting thereof or at a special meeting thereof called for that purpose. Except
as otherwise required by law, the certificate of incorporation of the
Corporation, or these bylaws, the directors shall be elected at an annual
meeting of stockholders at which a quorum is present. Directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy and entitled to vote on the election of directors. Each director so chosen
shall hold office until the first annual meeting of stockholders held after his
election and until his successor is elected and qualified or, if earlier, until
his death, resignation, or removal from office. None of the directors need be a
stockholder of the Corporation or a resident of the State of Delaware. Each
director must have attained the age of majority.
3.3 CHANGE IN NUMBER. No decrease in the number of directors
constituting the entire board of directors shall have the effect of shortening
the term of any incumbent director.
3.4 REMOVAL. Except as otherwise provided in the certificate of
incorporation of the Corporation or these by-laws, at any meeting of
stockholders called expressly for that purpose, any director or the entire board
of directors may be removed, with or without cause, by a vote of the holders of
a majority of the shares then entitled to vote on the election of directors;
provided, however, that so long as stockholders have the right to cumulate votes
in the election of directors pursuant to the certificate of incorporation of the
Corporation, if less than the entire board of directors is to be removed, no one
of the directors may be removed if the votes cast against his removal would be
sufficient to elect him if then cumulatively voted at an election of the entire
board of directors.
3.5 VACANCIES. Vacancies and newly-created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, or by the sole
remaining director, and each director so chosen shall hold office until the
first annual meeting of stockholders held after his election and until his
successor is elected and qualified or, if earlier, until his death, resignation,
or removal from office. If there are no directors in office, an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly-created directorship, the directors then in
office shall constitute less than a majority of the whole board of directors (as
constituted immediately prior to any such increase), the Court of Chancery may,
upon application of any stockholder or stockholders holding at least 10% of the
total number of the shares at the time outstanding having the
7
<PAGE> 11
right to vote for such directors, summarily order an election to be held to fill
any such vacancies or newly-created directorships or to replace the directors
chosen by the directors then in office. Except as otherwise provided in these
bylaws, when one or more directors shall resign from the board of directors,
effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have the power to fill such vacancy
or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office as provided in these bylaws with respect to the filling of other
vacancies.
3.6 MEETINGS OF DIRECTORS. The directors may hold their meetings and
may have an office and keep the books of the Corporation, except as otherwise
provided by statute, in such place or places within or without the State of
Delaware as the board of directors may from time to time determine or as shall
be specified in the notice of such meeting or duly executed waiver of notice of
such meeting.
3.7 FIRST MEETING. Each newly elected board of directors may hold its
first meeting for the purpose of organization and the transaction of business,
if a quorum is present, immediately after and at the same place as the annual
meeting of stockholders, and no notice of such meeting shall be necessary.
3.8 ELECTION OF OFFICERS. At the first meeting of the board of
directors after each annual meeting of stockholders at which a quorum shall be
present, the board of directors shall elect the officers of the Corporation.
3.9 REGULAR MEETINGS. Regular meetings of the board of directors shall
be held at such times and places as shall be designated from time to time by
resolution of the board of directors. Notice of such regular meetings shall not
be required.
3.10 SPECIAL MEETINGS. Special meetings of the board of directors shall
be held whenever called by the Chairman of the Board, the President, or any
director.
3.11 NOTICE. The Secretary shall give notice of each special meeting to
each director at least 24 hours before the meeting. Notice of any such meeting
need not be given to any director who shall, either before or after the meeting,
submit a signed waiver of notice or who shall attend such meeting without
protesting, prior to or at its commencement, the lack of notice to him. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the board of directors need be specified in the notice or waiver of
notice of such meeting.
3.12 QUORUM; MAJORITY VOTE. At all meetings of the board of directors,
a majority of the directors fixed in the manner provided in these bylaws shall
constitute a quorum for the transaction of business. If at any meeting of the
board of directors there be less than a quorum present, a majority of those
present or any director solely present may adjourn the meeting from time to time
without further notice. Unless the act of a greater number is required by law,
the certificate of incorporation of the Corporation, or
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these bylaws, the act of a majority of the directors present at a meeting at
which a quorum is in attendance shall be the act of the board of directors. At
any time that the certificate of incorporation of the Corporation provides that
directors elected by the holders of a class or series of stock shall have more
or less than one vote per director on any matter, every reference in these
bylaws to a majority or other proportion of directors shall refer to a majority
or other proportion of the votes of such directors.
3.13 PROCEDURE. At meetings of the board of directors, business shall
be transacted in such order as from time to time the board of directors may
determine. The Chairman of the Board, if such office has been filled, and, if
not or if the Chairman of the Board is absent or otherwise unable to act, the
President shall preside at all meetings of the board of directors. In the
absence or inability to act of either such officer, a chairman shall be chosen
by the board of directors from among the directors present. The Secretary of the
Corporation shall act as the secretary of each meeting of the board of directors
unless the board of directors appoints another person to act as secretary of the
meeting. The board of directors shall keep regular minutes of its proceedings
which shall be placed in the minute book of the Corporation.
3.14 PRESUMPTION OF ASSENT. A director of the Corporation who is
present at the meeting of the board of directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
unless his dissent shall be entered in the minutes of the meeting or unless he
shall file his written dissent to such action with the person acting as
secretary of the meeting before the adjournment thereof or shall forward any
dissent by certified or registered mail to the Secretary of the Corporation
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to a director who voted in favor of such action.
3.15 COMPENSATION. The board of directors shall have the authority to
fix the compensation, including fees and reimbursement of expenses, paid to
directors for attendance at regular or special meetings of the board of
directors or any committee thereof; provided, that nothing contained herein
shall be construed to preclude any director from serving the Corporation in any
other capacity or receiving compensation therefor.
ARTICLE 4
ARTICLE FOUR: COMMITTEES
4.1 DESIGNATION. The board of directors may, by resolution adopted by a
majority of the entire board of directors, designate one or more committees.
4.2 NUMBER; QUALIFICATION; TERM. Each committee shall consist of one or
more directors appointed by resolution adopted by a majority of the entire board
of directors. The number of committee members may be increased or decreased from
time to time by
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resolution adopted by a majority of the entire board of directors. Each
committee member shall serve as such until the earliest of (i) the expiration of
his term as director, (ii) his resignation as a committee member or as a
director, or (iii) his removal as a committee member or as a director.
4.3 AUTHORITY. Each committee, to the extent expressly provided in the
resolution establishing such committee, shall have and may exercise all of the
authority of the board of directors in the management of the business and
property of the Corporation except to the extent expressly restricted by law,
the certificate of incorporation of the Corporation, or these bylaws.
4.4 COMMITTEE CHANGES. The board of directors shall have the power at
any time to fill vacancies in, to change the membership of, and to discharge any
committee.
4.5 ALTERNATE MEMBERS OF COMMITTEES. The board of directors may
designate one or more directors as alternate members of any committee. Any such
alternate member may replace any absent or disqualified member at any meeting of
the committee. If no alternate committee members have been so appointed to a
committee or each such alternate committee member is absent or disqualified, the
member or members of such committee present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the board of directors to act at the meeting in the
place of any such absent or disqualified member.
4.6 REGULAR MEETINGS. Regular meetings of any committee may be held
without notice at such time and place as may be designated from time to time by
the committee and communicated to all members thereof.
4.7 SPECIAL MEETINGS. Special meetings of any committee may be held
whenever called by any committee member. The committee member calling any
special meeting shall cause notice of such special meeting, including therein
the time and place of such special meeting, to be given to each committee member
at least two days before such special meeting. Neither the business to be
transacted at, nor the purpose of, any special meeting of any committee need be
specified in the notice or waiver of notice of any special meeting.
4.8 QUORUM; MAJORITY VOTE. At meetings of any committee, a majority of
the number of members designated by the board of directors shall constitute a
quorum for the transaction of business. If a quorum is not present at a meeting
of any committee, a majority of the members present may adjourn the meeting from
time to time, without notice other than an announcement at the meeting, until a
quorum is present. The act of a majority of the members present at any meeting
at which a quorum is in attendance shall be the act of a committee, unless the
act of a greater number is required by law, the certificate of incorporation of
the Corporation, or these bylaws.
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4.9 MINUTES. Each committee shall cause minutes of its proceedings to
be prepared and shall report the same to the board of directors upon the request
of the board of directors. The minutes of the proceedings of each committee
shall be delivered to the Secretary of the Corporation for placement in the
minute books of the Corporation.
4.10 COMPENSATION. Committee members may, by resolution of the board of
directors, be allowed a fixed sum and expenses of attendance, if any, for
attending any committee meetings or a stated salary.
4.11 RESPONSIBILITY. The designation of any committee and the
delegation of authority to it shall not operate to relieve the board of
directors or any director of any responsibility imposed upon it or such director
by law.
ARTICLE 5
ARTICLE FIVE: NOTICE
5.1 METHOD. Whenever by statute, the certificate of incorporation of
the Corporation, or these bylaws, notice is required to be given to any
committee member, director, or stockholder and no provision is made as to how
such notice shall be given, personal notice shall not be required and any such
notice may be given (a) in writing, by mail, postage prepaid, addressed to such
committee member, director, or stockholder at his address as it appears on the
books or (in the case of a stockholder) the stock transfer records of the
Corporation, or (b) by any other method permitted by law (including but not
limited to overnight courier service, telegram, telex, or telefax). Any notice
required or permitted to be given by mail shall be deemed to be delivered and
given at the time when the same is deposited in the United States mail as
aforesaid. Any notice required or permitted to be given by overnight courier
service shall be deemed to be delivered and given at the time delivered to such
service with all charges prepaid and addressed as aforesaid. Any notice required
or permitted to be given by telegram, telex, or telefax shall be deemed to be
delivered and given at the time transmitted with all charges prepaid and
addressed as aforesaid.
5.2 WAIVER. Whenever any notice is required to be given to any
stockholder, director, or committee member of the Corporation by statute, the
certificate of incorporation of the Corporation, or these bylaws, a waiver
thereof in writing signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be equivalent to the
giving of such notice. Attendance of a stockholder, director, or committee
member at a meeting shall constitute a waiver of notice of such meeting, except
where such person attends for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
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ARTICLE 6
ARTICLE SIX: OFFICERS
6.1 NUMBER; TITLES; TERM OF OFFICE. The officers of the Corporation
shall be a President, a Secretary, and such other officers as the board of
directors may from time to time elect or appoint, including a Chairman of the
Board, one or more Vice Presidents (with each Vice President to have such
descriptive title, if any, as the board of directors shall determine), and a
Treasurer. Each officer shall hold office until his successor shall have been
duly elected and shall have qualified, until his death, or until he shall resign
or shall have been removed in the manner hereinafter provided. Any two or more
offices may be held by the same person. None of the officers need be a
stockholder or a director of the Corporation or a resident of the State of
Delaware.
6.2 REMOVAL. Any officer or agent elected or appointed by the board of
directors may be removed by the board of directors whenever in its judgment the
best interest of the Corporation will be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
6.3 VACANCIES. Any vacancy occurring in any office of the Corporation
(by death, resignation, removal, or otherwise) may be filled by the board of
directors.
6.4 AUTHORITY. Officers shall have such authority and perform such
duties in the management of the Corporation as are provided in these bylaws or
as may be determined by resolution of the board of directors not inconsistent
with these bylaws.
6.5 COMPENSATION. The compensation, if any, of officers and agents
shall be fixed from time to time by the board of directors; provided, however,
that the board of directors may delegate the power to determine the compensation
of any officer and agent (other than the officer to whom such power is
delegated) to the Chairman of the Board or the President.
6.6 CHAIRMAN OF THE BOARD. The Chairman of the Board, if elected by the
board of directors, shall have such powers and duties as may be prescribed by
the board of directors. Such officer shall preside at all meetings of the
stockholders and of the board of directors. Such officer may sign all
certificates for shares of stock of the Corporation.
6.7 PRESIDENT. The President shall be the chief executive officer of
the Corporation and, subject to the board of directors, he shall have general
executive charge, management, and control of the properties and operations of
the Corporation in the ordinary course of its business, with all such powers
with respect to such properties and operations as
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may be reasonably incident to such responsibilities. If the board of directors
has not elected a Chairman of the Board or in the absence or inability to act of
the Chairman of the Board, the President shall exercise all of the powers and
discharge all of the duties of the Chairman of the Board. As between the
Corporation and third parties, any action taken by the President in the
performance of the duties of the Chairman of the Board shall be conclusive
evidence that there is no Chairman of the Board or that the Chairman of the
Board is absent or unable to act.
6.8 VICE PRESIDENTS. Each Vice President shall have such powers and
duties as may be assigned to him by the board of directors, the Chairman of the
Board, or the President, and (in order of their seniority as determined by the
board of directors or, in the absence of such determination, as determined by
the length of time they have held the office of Vice President) shall exercise
the powers of the President during that officer's absence or inability to act.
As between the Corporation and third parties, any action taken by a Vice
President in the performance of the duties of the President shall be conclusive
evidence of the absence or inability to act of the President at the time such
action was taken.
6.9 TREASURER. The Treasurer shall have custody of the Corporation's
funds and securities, shall keep full and accurate account of receipts and
disbursements, shall deposit all monies and valuable effects in the name and to
the credit of the Corporation in such depository or depositories as may be
designated by the board of directors, and shall perform such other duties as may
be prescribed by the board of directors, the Chairman of the Board, or the
President.
6.10 ASSISTANT TREASURERS. Each Assistant Treasurer shall have such
powers and duties as may be assigned to him by the board of directors, the
Chairman of the Board, or the President. The Assistant Treasurers (in the order
of their seniority as determined by the board of directors or, in the absence of
such a determination, as determined by the length of time they have held the
office of Assistant Treasurer) shall exercise the powers of the Treasurer during
that officer's absence or inability to act.
6.11 SECRETARY. Except as otherwise provided in these bylaws, the
Secretary shall keep the minutes of all meetings of the board of directors and
of the stockholders in books provided for that purpose, and he shall attend to
the giving and service of all notices. He may sign with the Chairman of the
Board or the President, in the name of the Corporation, all contracts of the
Corporation and affix the seal of the Corporation thereto. He may sign with the
Chairman of the Board or the President all certificates for shares of stock of
the Corporation, and he shall have charge of the certificate books, transfer
books, and stock papers as the board of directors may direct, all of which shall
at all reasonable times be open to inspection by any director upon application
at the office of the Corporation during business hours. He shall in general
perform all duties incident to the office of the Secretary, subject to the
control of the board of directors, the Chairman of the Board, and the President.
6.12 ASSISTANT SECRETARIES. Each Assistant Secretary shall have such
powers and duties as may be assigned to him by the board of directors, the
Chairman of the Board, or
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the President. The Assistant Secretaries (in the order of their seniority as
determined by the board of directors or, in the absence of such a determination,
as determined by the length of time they have held the office of Assistant
Secretary) shall exercise the powers of the Secretary during that officer's
absence or inability to act.
ARTICLE 7
ARTICLE SEVEN: CERTIFICATES AND SHAREHOLDERS
7.1 CERTIFICATES FOR SHARES. Certificates for shares of stock of the
Corporation shall be in such form as shall be approved by the board of
directors. The certificates shall be signed by the Chairman of the Board or the
President or a Vice President and also by the Secretary or an Assistant
Secretary or by the Treasurer or an Assistant Treasurer. Any and all signatures
on the certificate may be a facsimile and may be sealed with the seal of the
Corporation or a facsimile thereof. If any officer, transfer agent, or registrar
who has signed, or whose facsimile signature has been placed upon, a certificate
has ceased to be such officer, transfer agent, or registrar before such
certificate is issued, such certificate may be issued by the Corporation with
the same effect as if he were such officer, transfer agent, or registrar at the
date of issue. The certificates shall be consecutively numbered and shall be
entered in the books of the Corporation as they are issued and shall exhibit the
holder's name and the number of shares.
7.2 REPLACEMENT OF LOST OR DESTROYED CERTIFICATES. The board of
directors may direct a new certificate or certificates to be issued in place of
a certificate or certificates theretofore issued by the Corporation and alleged
to have been lost or destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate or certificates representing shares to be
lost or destroyed. When authorizing such issue of a new certificate or
certificates the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or to give the Corporation a bond with a
surety or sureties satisfactory to the Corporation in such sum as it may direct
as indemnity against any claim, or expense resulting from a claim, that may be
made against the Corporation with respect to the certificate or certificates
alleged to have been lost or destroyed.
7.3 TRANSFER OF SHARES. Shares of stock of the Corporation shall be
transferable only on the books of the Corporation by the holders thereof in
person or by their duly authorized attorneys or legal representatives. Upon
surrender to the Corporation or the transfer agent of the Corporation of a
certificate representing shares duly endorsed or accompanied by proper evidence
of succession, assignment, or authority to transfer, the
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Corporation or its transfer agent shall issue a new certificate to the person
entitled thereto, cancel the old certificate, and record the transaction upon
its books.
7.4 REGISTERED STOCKHOLDERS. The Corporation shall be entitled to treat
the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by law.
7.5 REGULATIONS The board of directors shall have the power and
authority to make all such rules and regulations as they may deem expedient
concerning the issue, transfer, and registration or the replacement of
certificates for shares of stock of the Corporation.
7.6 LEGENDS. The board of directors shall have the power and authority
to provide that certificates representing shares of stock bear such legends as
the board of directors deems appropriate to assure that the Corporation does not
become liable for violations of federal or state securities laws or other
applicable law.
ARTICLE 8
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS
8.1 DIVIDENDS. Subject to provisions of law and the certificate of
incorporation of the Corporation, dividends may be declared by the board of
directors at any regular or special meeting and may be paid in cash, in
property, or in shares of stock of the Corporation. Such declaration and payment
shall be at the discretion of the board of directors.
8.2 RESERVES. There may be created by the board of directors out of
funds of the Corporation legally available therefor such reserve or reserves as
the directors from time to time, in their discretion, consider proper to provide
for contingencies, to equalize dividends, or to repair or maintain any property
of the Corporation, or for such other purpose as the board of directors shall
consider beneficial to the Corporation, and the board of directors may modify or
abolish any such reserve in the manner in which it was created.
8.3 BOOKS AND RECORDS. The Corporation shall keep correct and complete
books and records of account, shall keep minutes of the proceedings of its
stockholders and board of directors and shall keep at its registered office or
principal place of business, or at the office of its transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of the shares held by each.
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8.4 FISCAL YEAR. The fiscal year of the Corporation shall be fixed by
the board of directors; provided, that if such fiscal year is not fixed by the
board of directors and the selection of the fiscal year is not expressly
deferred by the board of directors, the fiscal year shall be the calendar year.
8.5 SEAL. The seal of the Corporation shall be such as from time to
time may be approved by the board of directors.
8.6 RESIGNATIONS. Any director, committee member, or officer may resign
by so stating at any meeting of the board of directors or by giving written
notice to the board of directors, the Chairman of the Board, the President, or
the Secretary. Such resignation shall take effect at the time specified therein
or, if no time is specified therein, immediately upon its receipt. Unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
8.7 SECURITIES OF OTHER CORPORATIONS. The Chairman of the Board, the
President, or any Vice President of the Corporation shall have the power and
authority to transfer, endorse for transfer, vote, consent, or take any other
action with respect to any securities of another issuer which may be held or
owned by the Corporation and to make, execute, and deliver any waiver, proxy, or
consent with respect to any such securities.
8.8 TELEPHONE MEETINGS. Stockholders (acting for themselves or through
a proxy), members of the board of directors, and members of a committee of the
board of directors may participate in and hold a meeting of such stockholders,
board of directors, or committee by means of a conference telephone or similar
communications equipment by means of which persons participating in the meeting
can hear each other, and participation in a meeting pursuant to this section
shall constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
8.9 ACTION WITHOUT A MEETING. (a) Unless otherwise provided in the
certificate of incorporation of the Corporation, any action required by the
Delaware General Corporation Law to be taken at any annual or special meeting of
the stockholders, or any action which may be taken at any annual or special
meeting of the stockholders, may be taken without a meeting, without prior
notice, and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall be signed by the holders (acting for themselves or
through a proxy) of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which the holders of all shares entitled to vote thereon were present and voted
and shall be delivered to the Corporation by delivery to its registered office
in the State of Delaware, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Every written consent of stockholders
shall bear the date of signature of each stockholder who signs the consent and
no written consent shall be effective to take the corporate action referred to
therein
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unless, within sixty days of the earliest dated consent delivered in the manner
required by this Section 8.9(a) to the Corporation, written consents signed by a
sufficient number of holders to take action are delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office, principal place of business, or
such officer or agent shall be by hand or by certified or registered mail,
return receipt requested.
(b) Unless otherwise restricted by the certificate of incorporation of
the Corporation or by these bylaws, any action required or permitted to be taken
at a meeting of the board of directors, or of any committee of the board of
directors, may be taken without a meeting if a consent or consents in writing,
setting forth the action so taken, shall be signed by all the directors or all
the committee members, as the case may be, entitled to vote with respect to the
subject matter thereof, and such consent shall have the same force and effect as
a vote of such directors or committee members, as the case may be, and may be
stated as such in any certificate or document filed with the Secretary of State
of the State of Delaware or in any certificate delivered to any person. Such
consent or consents shall be filed with the minutes of proceedings of the board
or committee, as the case may be.
8.10 INVALID PROVISIONS. If any part of these bylaws shall be held
invalid or inoperative for any reason, the remaining parts, so far as it is
possible and reasonable, shall remain valid and operative.
8.11 MORTGAGES, ETC. With respect to any deed, deed of trust, mortgage,
or other instrument executed by the Corporation through its duly authorized
officer or officers, the attestation to such execution by the Secretary of the
Corporation shall not be necessary to constitute such deed, deed of trust,
mortgage, or other instrument a valid and binding obligation against the
Corporation unless the resolutions, if any, of the board of directors
authorizing such execution expressly state that such attestation is necessary.
8.12 HEADINGS. The headings used in these bylaws have been inserted for
administrative convenience only and do not constitute matter to be construed in
interpretation.
8.13 REFERENCES. Whenever herein the singular number is used, the same
shall include the plural where appropriate, and words of any gender should
include each other gender where appropriate.
8.14 AMENDMENTS. These bylaws may be altered, amended, or repealed or
new bylaws may be adopted by the stockholders or by the board of directors at
any regular meeting of the stockholders or the board of directors or at any
special meeting of the stockholders or the board of directors if notice of such
alteration, amendment, repeal, or adoption of new bylaws be contained in the
notice of such special meeting.
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