<PAGE>
Filed Pursuant to Rule 424(b)(5)
Registration File No.: 333-16995
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED DECEMBER 10, 1996)
2,250,000 SHARES
SFX BROADCASTING, INC. [LOGO]
12 5/8% SERIES E CUMULATIVE EXCHANGEABLE PREFERRED STOCK
SFX Broadcasting, Inc. (the "Company") hereby offers 2,250,000 shares of
its 12 5/8% Series E Cumulative Exchangeable Preferred Stock, par value $.01
per share (the "Series E Preferred Stock").
Dividends on the Series E Preferred Stock will accrue from the date of
issuance and will be payable semi-annually, commencing July 15, 1997, at a
rate per annum of 12 5/8% 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 by the issuance of
additional shares of Series E Preferred Stock (including fractional shares)
having an aggregate liquidation preference equal to the amount of such
dividends. The liquidation preference of the Series E Preferred Stock will be
$100.0 per share. Subject to certain conditions, the shares of 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 Exchange Debentures due 2006 (including any such
securities paid in lieu of cash interest, as described herein, the "Exchange
Debentures"); provided that, immediately after giving effect to any such
partial exchange, there shall be outstanding shares of Series E Preferred
Stock with an aggregate liquidation preference of not less than $50.0 million
and not less than $50.0 million in aggregate principal amount of Exchange
Debentures. The Series E 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 accumulated and unpaid dividends to
the date of redemption. In addition, prior to January 15, 2000 the Company
may, at its option, redeem up to 50% of the aggregate of (i) the liquidation
preference of the Series E Preferred Stock issued (whether initially issued
or issued in lieu of cash dividends) less the liquidation preference of
Series E Preferred Stock exchanged for Exchange Debentures and (ii) the
principal amount of Exchange Debentures issued (whether issued in exchange
for Series E Preferred Stock or in lieu of cash interest), with the net
proceeds of one or more common equity offerings received on or after the date
of original issuance of the Series E Preferred Stock at a redemption price of
112.625% of the liquidation preference or principal amount, as the case may
be, plus accumulated and unpaid dividends in the case of Series E Preferred
Stock and accrued and unpaid interest in the case of Exchange Debentures;
provided, that after any such redemption, if any Series E Preferred Stock or
Exchange Debentures remain outstanding, at least $50.0 million in liquidation
preference or principal amount, as applicable, of such securities remain
outstanding. The Company is required, subject to certain conditions, to
redeem all of the Series E Preferred Stock outstanding on October 31, 2006,
at a redemption price equal to 100% of the liquidation preference thereof,
plus accumulated and unpaid dividends to the date of redemption. Upon the
occurrence of a Change of Control (as defined herein), each holder of Series
E Preferred Stock may, subject to certain conditions, require the Company to
offer to purchase all of that holder's shares of Series E Preferred Stock at
a price equal to 101% of the liquidation preference thereof, plus accumulated
and unpaid dividends to the date of purchase. The Series E Preferred Stock
will rank junior to the Company's outstanding 6-1/2% Series D Cumulative
Convertible Exchangeable Preferred Stock due May 31, 2007 (the "Series D
Preferred Stock"), and senior to all other outstanding classes or series of
capital stock, with respect to dividend rights and rights on liquidation of
the Company. The Company's outstanding preferred stock and debt agreements
restrict the payment of cash dividends on the Series E Preferred Stock. As of
December 31, 1996, there were outstanding $149.5 million in aggregate
liquidation preference of shares of Series D Preferred Stock ranking senior
to the Series E Preferred Stock.
Interest on the Exchange Debentures will be payable at a rate of 12 5/8%
per annum and will accrue from the date of issuance thereof. Interest on the
Exchange Debentures will be payable semi-annually in cash or, at the option
of the Company, on or prior to January 15, 2002, in additional Exchange
Debentures, in arrears on each January 15 and July 15 commencing on the first
such date after the exchange of the shares of Series E Preferred Stock for
such Exchange Debentures. The Exchange Debentures mature on October 31, 2006,
and are redeemable, at the option of the Company, in whole or in part, on or
after January 15, 2002, at the redemption prices set forth herein, plus
accrued and unpaid interest to the date of redemption. Upon the occurrence of
a Change of Control, each holder of Exchange Debentures may require the
Company to, subject to certain conditions, offer to purchase all of that
holder's Exchange Debentures at a price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest on the date of purchase. The
Exchange Debentures will be subordinated to all existing and future Senior
Debt (as defined herein) of the Company. The Exchange Debentures will rank
pari passu with the Company's existing 10.75% Senior Subordinated Notes due
2006 ("New Notes") and will rank senior to any 61/2% Exchange Notes due May
31, 2007 (the "Series D Exchange Notes") issued in exchange for any
outstanding shares of Series D Preferred Stock; however, the Exchange
Debentures will be effectively subordinated to indebtedness and other
liabilities of the Company's subsidiaries. On a pro forma basis, after giving
effect to this offering and anticipated borrowings under the Credit Agreement
(as defined herein) as though such transactions had occurred on September 30,
1996, there would have been $138.0 million of Senior Debt of the Company
outstanding and the Company's subsidiaries would have had $725.0 million of
indebtedness and other liabilities.
SEE "RISK FACTORS," BEGINNING ON PAGE S-21 OF THIS PROSPECTUS SUPPLEMENT
AND ON PAGE 4 OF THE ACCOMPANYING PROSPECTUS, FOR A DISCUSSION OF CERTAIN
RISK FACTORS THAT SHOULD BE CONSIDERED BY INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(3)
- ------------ ---------------- ---------------------- --------------------
<S> <C> <C> <C>
Per Share .. $100.00 $3.75 $96.25
- ------------ ---------------- ---------------------- --------------------
Total ....... $225,000,000 $8,437,500 $216,562,500
- ------------ ---------------- ---------------------- --------------------
</TABLE>
- -----------------------------------------------------------------------------
(1) Plus accumulated dividends, if any, from the date of issuance.
(2) The Company has agreed to indemnify the Underwriters (as defined
herein) against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(3) Before deducting expenses payable by the Company, estimated at
$2,250,000.
The shares of Series E Preferred Stock are offered by the Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters and subject to approval of certain legal matters by counsel. It
is expected that delivery of the shares of Series E Preferred Stock will be
made on or about January 23, 1997, at the offices of BT Securities
Corporation, New York, New York.
BT SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
The date of this Prospectus Supplement is January 17, 1997.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES E PREFERRED STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
CERTAIN DEFINITIONS AND MARKET AND INDUSTRY DATA
"Broadcast Cash Flow" means net revenues (including, where applicable,
fees earned or to be earned on a pro forma basis by the Company pursuant to
the SCMC Termination Agreement (as defined herein) and concert revenues less
concert costs of Delsener/Slater (as defined herein)) less station operating
expenses. "EBITDA" means net income (loss) before (i) extraordinary items,
(ii) provisions for income taxes, (iii) interest (income) expense, (iv) other
(income) expense, (v) cumulative effects of changes in accounting principles,
(vi) depreciation, amortization, duopoly integration costs and
acquisition-related costs, and (vii) non-recurring charges. The difference
between Broadcast Cash Flow and EBITDA is that EBITDA reflects the impact of
corporate expenses. Although Broadcast Cash Flow and EBITDA are not measures
of performance calculated in accordance with generally accepted accounting
principles ("GAAP"), the Company believes that Broadcast Cash Flow and EBITDA
are accepted by the broadcasting industry as generally recognized measures of
performance and are used by analysts who report publicly on the performance
of broadcasting companies. Nevertheless, these measures should not be
considered in isolation or as a substitute for operating income, net income,
net cash provided by operating activities or any other measure for
determining the Company's operating performance or liquidity which is
calculated in accordance with GAAP.
Unless the context requires otherwise, the term "operate," as used in
connection with the Company's radio station activities, includes the
provision of programming and the sale of advertising pursuant to a local
marketing agreement ("LMA") and the sale of advertising pursuant to a joint
sales agreement ("JSA").
Unless otherwise indicated herein, data with respect to (i) market rank,
station revenue rank, combined market revenue share and total number of
stations in a market have been prepared by BIA Publications, Inc. based upon
estimates derived from surveys of radio station general managers and owners
and (ii) station rank among target demographics have been derived from
surveys of persons in the target demographic cited, and audience share and
combined audience share have been derived from persons over the age of 12,
listening Monday through Sunday, 6 a.m. to 12 midnight, based upon The
Arbitron Company's Summer 1996 Radio Market Report (or, if not included
therein, the Spring 1996 Radio Market Report) as provided by The Arbitron
Company ("Arbitron").
S-2
<PAGE>
SUMMARY
The following summary is qualified by, and should be read in conjunction
with, the more detailed information and consolidated financial statements and
notes thereto appearing elsewhere in this Prospectus Supplement, in the
accompanying Prospectus and in the documents incorporated by reference
herein. Certain capitalized terms used herein have the meanings assigned to
them in the Glossary located at pages S-18 to S-20 of this Prospectus
Supplement. As used in this Prospectus Supplement, except under the caption
"Description of Series E Preferred Stock" or where the context otherwise
requires, the "Company" refers to SFX Broadcasting, Inc., a Delaware
corporation, and its subsidiaries, after giving effect to the Pending
Acquisitions and the Pending Dispositions (each as defined herein). See
"Agreements Related to the Pending Acquisitions and the Pending
Dispositions." Investors should consider carefully the information set forth
under "Risk Factors" in this Prospectus Supplement and in the accompanying
Prospectus.
THE COMPANY
The Company is one of the largest radio station groups in the United
States and currently owns or operates 68 radio stations in 20 markets. Upon
consummation of the Pending Acquisitions and the Pending Dispositions, the
Company will own or operate 76 radio stations (59 FM and 17 AM stations) in
22 markets organized into five regional groups. The Company will be diverse
in terms of format and geographic markets and will rank number one or two in
1995 combined market revenues in 17 of its 22 markets and will own or operate
two or more stations in 21 of these markets. In addition, the Company
recently acquired a concert promotion company and believes this acquisition
will create cross-promotional and other revenue-enhancing opportunities with
certain of the Company's radio stations. On a pro forma basis, after giving
effect to the Transactions (as defined in the Glossary) as of January 1,
1995, the Company would have had net revenues, Broadcast Cash Flow and EBITDA
of $239.2 million, $88.1 million and $80.6 million, respectively, for the
year ended December 31, 1995, and $192.0 million, $76.0 million and $70.0
million, respectively, for the nine months ended September 30, 1996.
The radio broadcasting industry has experienced significant growth and
consolidation as a result of positive economic conditions and a favorable
regulatory environment. The Company participated in this growth and
consolidation by the acquisition of 58 stations since its initial public
offering in 1993. The Company has also achieved significant growth in
Broadcast Cash Flow through acquiring radio stations and enhancing the
stations' financial performance, both by increasing revenues and by
controlling or eliminating expenses. On a same-station basis for the
Company's existing stations, assuming that all acquisitions and dispositions
had been completed as of January 1, 1995, net revenues and Broadcast Cash
Flow would have increased 9% and 20%, respectively, for the nine months ended
September 30, 1996, over the corresponding period in 1995.
S-3
<PAGE>
The following chart sets forth certain information with respect to the
Company's stations after giving effect to the Pending Acquisitions and the
Pending Dispositions:
<TABLE>
<CAPTION>
NUMBER OF
STATIONS
OPERATED
FOLLOWING 1995 1995
NUMBER OF PENDING COMBINED COMBINED COMBINED
STATIONS NUMBER OF ACQUISITIONS MARKET MARKET MARKET
MARKET CURRENTLY STATIONS TO AND PENDING AUDIENCE REVENUE REVENUE
MARKET RANK OPERATED(1) BE ACQUIRED DISPOSITIONS SHARE SHARE RANK(2)
- --------------------------- -------- ----------- ----------- ------------ ---------- ---------- ----------
AM FM
----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NORTHEAST REGION
Providence, RI .......... 31 3 -- 1 2 17.4% 28.3% 2
Hartford, CT ............ 41 4 1 1 4 25.7% 26.8% 2
Albany, NY .............. 57 5 -- 2 3 22.6% 32.4% 1
Springfield/Northampton, MA 76 3 -- 1 2 12.9% 28.9% 1
New Haven, CT ........... 95 2 -- -- 2 13.3%(3) 49.7% 1
MID-SOUTH ATLANTIC REGION
Charlotte, NC ........... 37 2 -- -- 2 11.8% 13.6% 3
Greensboro, NC .......... 42 4 -- 2 2 11.9% 13.7% 4
Nashville, TN ........... 44 2 -- -- 2 22.0% 27.3% 1
Greenville-Spartanburg, SC 59 4 -- 1 3 27.8% 43.4% 1
MID-ATLANTIC REGION
Pittsburgh, PA .......... 19 -- 4 -- 4 27.4% 25.1% 1
Indianapolis, IN ........ 36 -- 3 1 2 19.4% 25.2% 2
Raleigh-Durham, NC ...... 50 4 -- -- 4 25.8% 35.8% 1
Richmond, VA ............ 56 1 4 -- 5 24.3% 38.3% 2
SOUTHERN REGION
Jacksonville, FL ........ 53 6 2(4) 2 4 32.4% 44.8% 1
Daytona Beach, FL ....... 93 1 -- -- 1 8.9%(4) 33.3% 1
Jackson, MS ............. 118 6 -- 2 4 27.9% 56.0% 1
Biloxi, MS .............. 134 2 -- -- 2 22.4%(4) 34.6% 1
SOUTHWEST REGION
Dallas, TX .............. 7 -- 2 -- 2 5.4% 5.8% 5
Houston, TX ............. 9 2 2 1 3 13.2% 15.8% 2
San Diego, CA ........... 15 2 -- -- 2 9.1% 10.1% 4
Tucson, AZ .............. 62 4 -- 2 2 23.9% 26.2% 1
Wichita, KS ............. 91 3 -- 1 2 16.5% 21.0% 3
----------- ----------- ----- -----
Total ................. 60 18 17 59
</TABLE>
- ------------
(1) Does not include eight radio stations which are currently owned by the
Company and are to be transferred in the Pending Dispositions, the
Chancellor Exchange and the CBS Exchange (each as defined herein). See
"Agreements Related to the Pending Acquisitions and the Pending
Dispositions."
(2) Ranks radio stations currently operated and radio stations anticipated
to be operated by the Company upon the consummation of the Pending
Acquisitions and Pending Dispositions against radio stations actually
owned and operated in 1995 by other market participants.
(3) Based upon Arbitron's Spring 1996 Radio Market Report.
(4) The Company currently provides programming and sells advertising on
these stations pursuant to an LMA.
S-4
<PAGE>
OPERATING STRATEGY
The Company seeks to maximize its Broadcast Cash Flow by employing its
operating strategy, which has the following principal components:
Operate Highly Ranked Stations. The Company believes that highly ranked
stations, measured in terms of combined market audience share, provide
important competitive advantages. Highly ranked stations generally receive a
disproportionately large share of their market's advertising revenues because
such stations are regarded as an efficient means of targeting advertising
dollars at well-defined audiences. Such stations can better capitalize on the
operating leverage inherent in the radio industry because the costs of
operating a radio station are generally fixed and, therefore, increased
revenues generally result in disproportionately larger increases in Broadcast
Cash Flow. For example, the stations in Pittsburgh and Indianapolis to be
acquired in the Secret Communications Acquisition (as defined herein) have
significantly higher combined revenue shares than their combined audience
shares.
Assemble Market Clusters with Regional Concentrations. The Company intends
to capitalize on the recently enacted Telecommunications Act of 1996 (the
"Recent Legislation") by continuing to assemble and operate a cluster of
stations in each of its principal markets. The Company believes that, by
controlling a larger share of the total advertising inventory in a particular
market, it can offer advertisers attractive packages of advertising options.
The Company also believes that its cluster approach will allow it to operate
its stations with more highly skilled local management teams and eliminate
duplicative operating and overhead expenses. By assembling market clusters
with a regional concentration, the Company believes that it will be able to
increase revenues by targeting regionally-based advertisers and capturing a
larger share of their advertising budgets. The Pending Acquisitions will
strengthen the Company's existing clusters of stations and create additional
clusters within regions in which it already operates.
Enhance Revenues and Control Costs. The Company seeks to maximize
Broadcast Cash Flow by employing management techniques to enhance revenues
while maintaining strict cost controls. Key elements of the Company's
strategy include:
Aggressive Sales and Inventory Management. In each of its market clusters,
the Company utilizes sophisticated sales reporting systems to monitor its
sales activity and to formulate and implement pricing and inventory
controls. The Company believes that controlling a larger share of the
total advertising inventory in a particular market enhances its ability to
identify market trends and optimize pricing and inventory management.
Targeted Programming. The Company utilizes extensive market research to
refine the programming at each of its stations and to position each of the
stations within a particular cluster to maximize the total audience share
and market revenue of the cluster as a whole. The Company's cluster
approach is designed to afford it the flexibility either to develop strong
programming formats for its market leading stations or to develop
independently successful program formats to meet the needs of particular
market conditions.
Strict Cost Controls. The Company's management imposes strict financial
reporting requirements and expense budget limitations on each of its
stations. In addition, management maintains a centralized accounting
system which allows it to monitor the performance and operations of each
of its stations. Such centralization allows the Company to achieve expense
savings in certain areas, including purchasing and administrative
expenses. The Company also achieves expense savings through the
elimination of certain duplicative costs within its markets and market
clusters.
Leverage Regional Management Structure. The Company emphasizes both
regional and local management of its radio stations. In July 1996, in
anticipation of its rapid growth, the Company implemented a new regional
management structure. The regional operations are currently managed under the
direction of five regional vice presidents, each of whom reports directly to
the Company's Chief Executive Officer and Chief Operating Officer. Each of
these regional vice presidents is an experienced
S-5
<PAGE>
executive with over 15 years of radio broadcasting experience. Through this
regional management structure, the Company believes that it will be able to
more readily transfer the programming and sales successes of individual
stations and clusters to other stations and clusters within the same region.
The Company believes that regional management and coordination will enable it
to maximize the benefits of operating a national station franchise while
maintaining controls over local operations. Local management is primarily
responsible for building and developing a sales team capable of converting
the station's audience rankings into revenues. The Company's general managers
and sales managers are motivated through incentive compensation based
primarily upon their station's cash flow performance. The stations to be
acquired in the Pending Acquisitions (as defined herein) are in regions where
the Company has already established a regional management structure.
Generate Incremental Cash Flow Through Complementary Businesses. The
Company intends to selectively pursue acquisitions of, and other business
arrangements with, complementary businesses that effectively leverage the
Company's core capabilities as one of the largest radio station groups in the
United States. This strategy is reflected in the recent acquisition of
Delsener/Slater, a concert promotion company, that the Company believes will
create cross-promotional and other revenue-enhancing opportunities with
certain radio stations owned and operated by the Company. The Company is
currently considering certain other complementary acquisitions, including
additional concert promotion companies.
MANAGEMENT
The Company's senior management team is comprised of Robert F.X.
Sillerman, Executive Chairman, Michael G. Ferrel, Chief Executive Officer, D.
Geoffrey Armstrong, Chief Operating Officer, and Thomas P. Benson, Chief
Financial Officer. The Company's senior management has substantial experience
in operating radio stations in markets of all sizes, identifying attractive
acquisition candidates and integrating acquired radio stations. Corporate
management continuously provides local management with advice and support in
the development of advertising and marketing strategies, sales force training
and motivation techniques.
PENDING ACQUISITIONS AND PENDING DISPOSITIONS
In October 1996, the Company entered into an agreement with Secret
Communications Limited Partnership, a privately-held entity ("Secret
Communications"), pursuant to which the Company agreed to acquire
substantially all of the assets used in the operation of nine radio stations
located in Indianapolis, Indiana, Pittsburgh, Pennsylvania, and Cleveland,
Ohio for $300.0 million. Two of the radio stations in Pittsburgh are not yet
owned by Secret Communications but are anticipated to be acquired prior to
the consummation of the acquisition, and Secret Communications currently
provides services to these stations pursuant to an LMA. Management of the
Company believes that the acquisition offers significant opportunity to
improve revenues at the acquired stations. In the Pittsburgh market,
management anticipates that the Company will benefit from several recent
actions taken by Secret Communications, including the adoption of a new
format at one station, completion of a facilities swap which resulted in
another station moving to a stronger signal with improved coverage of the
market area and consolidation of certain selling and administrative functions
between the two stations currently owned by Secret Communications and the two
stations which Secret Communications began to operate under an LMA in June
1996. The parties have reached an agreement in principle to amend the
purchase agreement to provide that the Cleveland stations will not be
acquired by the Company and the purchase price will be reduced to $255.0
million (the "Secret Communications Acquisition"). See "Agreements Related to
the Pending Acquisitions and the Pending Dispositions--Secret Communications
Acquisition."
In addition, pursuant to separate agreements, the Company has also agreed
to: (i) acquire a 96% interest in four radio stations operating in Richmond,
Virginia, where the Company currently owns one station (the "Richmond
Acquisition"); (ii) exchange one radio station operating in Washington,
D.C./Baltimore, Maryland, for two radio stations operating in Dallas, Texas
(the "CBS Exchange"); (iii) acquire one radio station operating in Hartford,
Connecticut, where the Company currently owns four
S-6
<PAGE>
stations (the "Hartford Acquisition"); (iv) acquire two radio stations
operating in Houston, Texas, where the Company currently owns two stations
(the "Texas Coast Acquisition"); (v) exchange four radio stations owned by
the Company and located on Long Island, New York, for two radio stations
operating in Jacksonville, Florida, where the Company currently owns four
stations, and a cash payment (the "Chancellor Exchange"); and (vi) sell one
radio station operating in Little Rock, Arkansas (the "Little Rock
Disposition"), and two radio stations operating in Myrtle Beach, South
Carolina (the "Myrtle Beach Disposition").
The Secret Communications Acquisition, the Richmond Acquisition, the CBS
Exchange, the Hartford Acquisition, the Texas Coast Acquisition and the
Chancellor Exchange are referred to herein collectively as the "Pending
Acquisitions." The Little Rock Disposition and the Myrtle Beach Disposition
are referred to herein collectively as the "Pending Dispositions."
The Company anticipates that it will consummate all of the Pending
Acquisitions and the Pending Dispositions as follows:
<TABLE>
<CAPTION>
CASH PURCHASE ANTICIPATED DATE OF
TRANSACTION (SALE) PRICE(1) CONSUMMATION
- ---------------------------------- ------------------ -------------------
(IN MILLIONS)
<S> <C> <C>
Hartford Acquisition .............. $25.5 1st quarter 1997
Texas Coast Acquisition ........... 41.5 (2) 1st quarter 1997
Little Rock Disposition ........... (4.1) 1st quarter 1997
Myrtle Beach Disposition .......... (5.1) 1st quarter 1997
CBS Exchange ...................... -- 1st quarter 1997
Richmond Acquisition .............. 40.4 2nd quarter 1997
Chancellor Exchange ............... (11.0) 2nd quarter 1997
Secret Communications Acquisition 255.0 (3) 3rd quarter 1997
</TABLE>
- ------------
(1) Represents the gross cash sale or purchase price for the corresponding
transaction. Certain of these amounts do not reflect amounts advanced
or placed in escrow, payable over a period of time, or to be paid in
stock of the Company.
(2) Includes amounts payable in respect of certain ancillary agreements.
Does not include certain additional contingent liabilities.
(3) Does not include certain additional contingent liabilities.
The timing and completion of the Pending Acquisitions and the Pending
Dispositions are subject to a number of conditions, certain of which are
beyond the Company's control. Each of the Pending Acquisitions and each of
the Pending Dispositions is subject to the approval of the Federal
Communications Commission (the "FCC"). Additionally, the Department of
Justice, Antitrust Division (the "Antitrust Division") has indicated its
intention to review matters related to the concentration of ownership within
markets even when the ownership in question is permitted under the provisions
of the Recent Legislation. While the Company believes that each of the
Pending Acquisitions and the Pending Dispositions does not substantially
lessen competition, there can be no assurance that the Antitrust Division
will not take a contrary position, which could delay or prevent the
consummation of any or all of the Pending Acquisitions or require the Company
to restructure its ownership in the relevant market or markets. The Company's
ability to consummate the Pending Acquisitions is also subject to the
availability of funds under the Company's $225.0 million senior credit
facility (the "Credit Agreement") and the consummation of this Preferred
Stock Offering. See "Risk Factors--Risks Related to the Pending Acquisitions
and the Pending Dispositions" and "Agreements Related to the Pending
Acquisitions and the Pending Dispositions" in this Prospectus Supplement and
"Risk Factors--Extensive Regulation of Radio Broadcasting" in the
accompanying Prospectus.
S-7
<PAGE>
FINANCING PLAN
The Company's plan for financing the Pending Acquisitions is set forth
below:
<TABLE>
<CAPTION>
<S> <C>
SOURCES OF FUNDS:
Preferred Stock Offering .......... $225,000,000
Credit Agreement(1) ............... 152,200,000
Chancellor Exchange ............... 11,000,000
Pending Dispositions(2) ........... 1,100,000
--------------
Total sources of funds .......... $389,300,000
==============
USES OF FUNDS:
Repayment of Credit Agreement(1) .. $ 50,000,000
Richmond Acquisition(3) ........... 22,300,000
Secret Communications
Acquisition(4) .................... 240,000,000
Hartford Acquisition(5) ........... 23,000,000
Texas Coast Acquisition(6) ........ 39,000,000
Fees and expenses(7) .............. 15,000,000
--------------
Total uses of funds ............. $389,300,000
==============
</TABLE>
- ------------
(1) The Company will utilize $50.0 million of the proceeds of the Preferred
Stock Offering to pay down the outstanding balance (which currently
bears interest at rates of 8.25% to 8.50% per annum) under the Credit
Agreement. The Company anticipates that this amount will be borrowed to
finance a portion of the Secret Communications Acquisition. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
(2) The portion of the sale price to be received in the first six months
following the Myrtle Beach Disposition is approximately $500,000. The
purchase price of the Little Rock Disposition is $4.1 million, of which
$3.5 million has been paid pursuant to an LMA and will be applied
against the purchase price. See "Agreements Related to the Pending
Acquisitions and the Pending Dispositions--Little Rock Disposition."
(3) Excludes certain operating expenditures of approximately $1.6 million,
which have been paid by the Company. Also excludes $14.5 million which
the Company has advanced to finance the acquisition of two stations and
$2.0 million which has been deposited in escrow in order to secure the
Company's obligations under the acquisition agreement. See "Agreements
Related to the Pending Acquisitions and the Pending
Dispositions--Richmond Acquisition."
(4) The purchase price of the Secret Communications Acquisition is $255.0
million, subject to certain adjustments. Of this amount, $15.0 million
has been segregated pursuant to a letter of credit which secures the
Company's obligations under the purchase agreement. Assumes execution
of an amendment to the purchase agreement, which, in addition to
reducing the purchase price to $255.0 million, will provide that the
Company is not obligated to consummate the Secret Communications
Acquisition prior to July 15, 1997. See "Agreements Related to the
Pending Acquisitions and the Pending Dispositions--Secret
Communications Acquisition."
(5) Assumes no adjustment to the purchase price of the Hartford Acquisition
of $25.5 million. Of this amount, $2.5 million has been deposited by
the Company in escrow in order to secure its obligations under the
purchase agreement. See "Agreements Related to the Pending Acquisitions
and the Pending Dispositions--Hartford Acquisition."
(6) The purchase price of the Texas Coast Acquisition is $38.0 million. Of
this amount, $2.5 million has been deposited by the Company in escrow
accounts in order to secure its obligations under the purchase
agreement. In addition, the Company is obligated to pay (i) $3.5
million (of which the seller has agreed to bear $250,000) for
environmental recovery and (ii) approximately $214,000 in the first
year (a total of $1.5 million over seven years) under a noncompetition
agreement. These amounts do not include certain additional contingent
liabilities relating to the environmental recovery. See "Agreements
Related to the Pending Acquisitions and the Pending Dispositions--Texas
Coast Acquisition."
(7) Consists of fees and expenses of the Preferred Stock Offering and the
Credit Agreement of approximately $11.0 million and of the Pending
Acquisitions of approximately $4.0 million.
S-8
<PAGE>
The Company currently anticipates borrowing $152.2 million under the
Credit Agreement in the third quarter of 1997 to consummate the Secret
Communications Acquisition. The availability of such borrowings will be
subject to meeting certain financial tests contained in the Credit Agreement
relating to the cash flow of the Company's stations. There can be no
assurance, however, that the Company will have adequate borrowing capacity
under the Credit Agreement. If the Company's borrowing capacity under the
Credit Agreement is not sufficient to finance the Secret Communications
Acquisition, the Company will be required to either seek modification of the
Credit Agreement or obtain alternative financing in order to consummate the
Secret Communications Acquisition. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Risk Factors--Risks Related to the Pending Acquisitions and
the Pending Dispositions."
The consummation of the Pending Acquisitions and the Pending Dispositions
is subject to a number of conditions, certain of which are beyond the
Company's control, and there can be no assurance that such transactions will
be completed on the terms described herein or at all. See "Risk
Factors--Risks Related to Pending Acquisitions and Dispositions." If any of
the Pending Acquisitions is not consummated or if any additional acquisition
opportunities arise, the Company may apply the proceeds intended to finance
certain of the Pending Acquisitions for other acquisitions, to reduce
indebtedness or for working capital and other corporate purposes. Although
the Company currently has no agreements or commitments for additional
acquisitions other than the Pending Acquisitions, pursuant to the Company's
expansion strategy, it intends to continue to seek additional acquisitions.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
S-9
<PAGE>
THE OFFERING
Securities Offered ..... 2,250,000 shares of 12 5/8% Series E
Cumulative Exchangeable Preferred Stock, par
value $.01 per share, plus any additional
shares of such stock issued from time to
time in lieu of cash dividends.
Issue Price ............ $100.0 per share, plus accumulated and
unpaid dividends, if any, from January 23,
1997 (the "Issue Date").
Dividends .............. At a rate equal to 12 5/8% per annum of the
liquidation preference per share, payable
semi-annually beginning July 15, 1997, and
accumulating from the Issue Date. The
Company, at its option, may pay dividends on
any dividend payment date occurring on or
before January 15, 2002, either in cash or
by the issuance of additional shares of
Series E Preferred Stock having an aggregate
liquidation preference equal to the amount
of such dividends.
Dividend Payment Dates . January 15 and July 15, commencing July 15,
1997.
Ranking ................ The Series E Preferred Stock will, with
respect to dividend rights and rights on
liquidation, winding-up and dissolution of
the Company, rank junior to the Company's
Series D Preferred Stock, of which $149.5
million in aggregate liquidation preference
was outstanding as of December 31, 1996. The
Series E Preferred Stock will, with respect
to dividend rights and rights on
liquidation, winding-up and dissolution of
the Company, rank senior to all other
classes of common stock and preferred stock
of the Company outstanding upon consummation
of the Preferred Stock Offering.
Liquidation Rights ..... Upon any liquidation, dissolution or winding
up of the affairs of the Company or
reduction or decrease in its capital stock
resulting in a distribution of assets to the
holders of any class or series of the
Company's Common Stock, the Series E
Preferred Stock will have a liquidation
preference of $100.0 per share plus accrued
and unpaid dividends, if any, to the date
fixed for liquidation, dissolution, winding
up or reduction or decrease in capital
stock, before any distribution is made on
any Junior Securities (as defined herein),
including, without limitation, the common
stock of the Company, but excluding the
Series D Preferred Stock. See "Description
of Series E Preferred Stock and Exchange
Debentures--Description of Series E
Preferred Stock--Liquidation Rights."
Mandatory Redemption ... The Company is required, subject to certain
conditions, to redeem all of the Series E
Preferred Stock outstanding on October 31,
2006, at a redemption price equal to 100% of
the liquidation preference thereof, plus
accumulated and unpaid dividends to the date
of redemption.
S-10
<PAGE>
Optional Redemption .... The Series E Preferred Stock is redeemable,
at the option of the Company, in whole or in
part, at any time on or after January 15,
2002, at the redemption prices set forth
herein, plus, without duplication,
accumulated and unpaid dividends to the date
of redemption. In addition, prior to January
15, 2000 the Company may, at its option,
redeem up to 50% of the aggregate of (i) the
liquidation preference of the Series E
Preferred Stock issued (whether initially
issued or issued in lieu of cash dividends)
less the liquidation preference of Series E
Preferred Stock exchanged for Exchange
Debentures and (ii) the principal amount of
Exchange Debentures issued (whether issued
in exchange for Series E Preferred Stock or
in lieu of cash interest), with the net
proceeds of one or more common equity
offerings received on or after the date of
original issuance of the Series E Preferred
Stock at a redemption price of 112.625% of
the liquidation preference or principal
amount, as the case may be, plus accumulated
and unpaid dividends in the case of Series E
Preferred Stock and accrued and unpaid
interest in the case of Exchange Debentures;
provided, that after any such redemption, if
any Series E Preferred Stock or Exchange
Debentures remain outstanding, at least
$50.0 million in liquidation preference or
principle amount, as applicable, of such
securities remain outstanding.
Exchange Rights ........ On any Dividend Payment Date, the Company
may, at its option, exchange, in whole or in
part, on a pro rata basis, the outstanding
Series E Preferred Stock for the Exchange
Debentures upon payment of all accrued and
unpaid dividends; provided that immediately
after giving effect to any such partial
exchange, there shall be outstanding shares
of Series E Preferred Stock (whether
initially issued or issued in lieu of cash
dividends) with an aggregate liquidation
preference of not less than $50.0 million
and not less than $50.0 million in aggregate
principal amount of Exchange Debentures. The
Company's ability to exercise the exchange
option is subject to compliance with its
debt agreements.
Change of Control ...... In the event of a Change of Control, the
Company will, subject to the prior repayment
or the obtaining of consents from the
holders of all outstanding Indebtedness
under the Credit Agreement and the New Notes
(as defined herein), offer to purchase all
outstanding shares of Series E Preferred
Stock at a purchase price equal to 101% of
the liquidation preference thereof, plus
accumulated and unpaid dividends to the date
of purchase. The Company will be required to
either repay such outstanding Indebtedness
or obtain such consents within 90 days of
any change of control. There can be no
assurance that the Company will have
sufficient funds to purchase all of the
shares of Series E Preferred Stock in the
event of a Change of Control or that the
Company would be able to obtain financing
for such purpose on favorable terms, or at
all. See "Risk Factors--Ability to Finance
Change of Control Repurchase" and
"Description of Series E Preferred Stock and
Exchange
S-11
<PAGE>
Debentures--Description of Series E
Preferred Stock--Change of Control" in this
Prospectus Supplement and "Risk
Factors--Change of Control" in the
accompanying Prospectus.
Voting ................. The Series E Preferred Stock will be
non-voting, except as otherwise required by
law and as specified in the Certificate of
Designations (as defined herein). Upon the
Company's failure to meet certain
obligations to holders of Series E Preferred
Stock, the holders of Series E Preferred
Stock will be entitled to elect two
additional members to the Company's Board of
Directors.
Certain Restrictive
Provisions ............. The Certificate of Designations will contain
certain restrictive provisions that, among
other things, limit the ability of the
Company and its subsidiaries to incur
additional Indebtedness (as defined herein),
pay dividends or make certain other
restricted payments, enter into certain
transactions with affiliates, or merge or
consolidate with any other person.
The Exchange Debentures
Issue .................. 12 5/8% Senior Subordinated Exchange
Debentures due 2006 issuable in exchange for
the Series E Preferred Stock in an aggregate
principal amount equal to the liquidation
preference of the shares of Series E
Preferred Stock so exchanged, plus any
additional Exchange Debentures issued from
time to time in lieu of cash interest
through the date of such exchange (the
"Exchange Date").
Maturity ............... October 31, 2006.
Interest Rate and
Payment Dates .......... The Exchange Debentures will bear interest
at a rate of 12 5/8% per annum. Interest
will accrue from the date of issuance or
from the most recent interest payment date
to which interest has been paid or provided
for. Interest will be payable semi-annually
in cash (or, at the option of the Company on
or prior to January 15, 2002, in additional
Exchange Debentures having a principal
amount equal to the amount of interest so
paid) in arrears on each January 15 and July
15, commencing with the first such date
after the applicable Exchange Date.
Ranking ................ The Exchange Debentures will be general
unsecured obligations of the Company and
will be subordinated in right of payment to
all existing and future Senior Debt of the
Company. In addition, the Exchange
Debentures will not be guaranteed by any of
the Company's subsidiaries and will,
therefore, be effectively subordinated to
all existing and future Indebtedness of the
Company's subsidiaries. The Exchange
Debentures will rank pari passu with the New
Notes and will rank senior to any 61/2%
Exchange Notes due May 31, 2007, issued in
exchange for any of the Company's
outstanding shares of Series D Preferred
Stock. As of September 30, 1996, the total
amount of Senior
S-12
<PAGE>
Debt of the Company, pro forma for the
Transactions, would have been $138.0 million
and the total amount of indebtedness and
other liabilities of the Company's
subsidiaries (including their guarantees of
the New Notes) would have been $725.0
million. The Exchange Debentures will rank
pari passu or senior to any class or series
of Indebtedness that expressly provides that
it ranks pari passu or subordinate to the
Exchange Debentures, as the case may be.
Optional Redemption .... The Exchange Debentures are redeemable, at
the option of the Company, in whole or in
part, at any time on or after January 15,
2002, at the redemption prices set forth
herein, plus, without duplication,
accumulated and unpaid interest to the date
of redemption. In addition, prior to January
15, 2000 the Company may, at its option,
redeem up to 50% of the aggregate of (i) the
liquidation preference of the Series E
Preferred Stock issued (whether initially
issued or issued in lieu of cash dividends)
less the liquidation preference of Series E
Preferred Stock exchanged for Exchange
Debentures and (ii) the principal amount of
Exchange Debentures issued (whether issued
in exchange for Series E Preferred Stock or
in lieu of cash interest), with the net
proceeds of one or more common equity
offerings received on or after the date of
original issuance of the Series E Preferred
Stock at a redemption price of 112.625% of
the liquidation preference or principal
amount, as the case may be, plus accumulated
and unpaid dividends in the case of Series E
Preferred Stock and accrued and unpaid
interest in the case of Exchange Debentures;
provided, that after any such redemption, if
any Series E Preferred Stock or Exchange
Debentures remain outstanding, at least $50
million in liquidation preference or
principle amount, as applicable, of such
securities remain outstanding.
Change of Control ...... In the event of a Change of Control, the
Company will, subject to certain conditions,
be required to offer to purchase all
outstanding Exchange Debentures at a
purchase price equal to 101% of the
principal amount thereof, plus accrued and
unpaid interest to the date of purchase.
There can be no assurance that the Company
will have sufficient funds to purchase all
the Exchange Debentures in the event of a
Change of Control or that the Company would
be able to obtain financing for such purpose
on favorable terms, if at all. See "Risk
Factors--Ability to Finance Change of
Control Repurchase" and "Description of
Series E Preferred Stock and Exchange
Debentures--Description of Exchange
Debentures--Change of Control" in this
Prospectus Supplement and "Risk
Factors--Change of Control" in the
accompanying Prospectus.
Certain Covenants ...... The indenture governing the Exchange
Debentures (the "Exchange Indenture") will
contain certain covenants that, among other
things, limit the ability of the Company and
its subsidiaries to incur additional
Indebtedness, pay dividends or make
S-13
<PAGE>
certain other restricted payments,
consummate certain asset sales, enter into
certain transactions with affiliates, incur
indebtedness that is subordinate in right of
payment to any Senior Debt and senior in
right of payment to the Exchange Debentures,
incur liens, impose restrictions on the
ability of a subsidiary to pay dividends or
make certain payments to the Company and its
subsidiaries, merge or consolidate with any
other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or
substantially all of their assets to any
other person.
RISK FACTORS
See "Risk Factors" in this Prospectus Supplement and in the accompanying
Prospectus for a discussion of certain risk factors that should be considered
in evaluating an investment in the Series E Preferred Stock.
S-14
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Summary Consolidated Financial Data of the Company and predecessors
include the historical financial statements of Capstar Communications, Inc.,
a predecessor of the Company ("Capstar"), and the historical financial
statements of the Company since its formation on February 26, 1992. The
Summary Consolidated Financial Data as of September 30, 1996, and for the
nine months ended September 30, 1996 and 1995, have been derived from the
unaudited consolidated financial statements and notes thereto of the Company
which are incorporated herein by reference. The pro forma summary data as of
September 30, 1996, and for the year ended December 31, 1995, and the nine
months ended September 30, 1996 and 1995, are derived from the unaudited pro
forma condensed combined financial statements which, in the opinion of the
Company, reflect all adjustments necessary for a fair presentation of the
transactions for which such pro forma financial information is given.
Operating results for the nine months ended September 30, 1996, are not
necessarily indicative of the results that may be achieved for the fiscal
year ending December 31, 1996. The historical consolidated financial results
for the Company are not comparable from year to year because of the
acquisition and disposition of various radio stations by the Company during
the periods covered. See "Unaudited Pro Forma Condensed Combined Financial
Statements."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------ -----------------------------------------
PRO FORMA FOR PRO FORMA
THE FOR THE
TRANSACTIONS(8) TRANSACTIONS(8)
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
1991 1992 1993 1994 1995 1995 1995 1996 1996
-------- -------- --------- ------- -------- ------------- --------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues(1) .......... $13,442 $15,003 $ 34,233 $55,556 $76,830 $239,246 $55,328 $ 92,840 $191,957
Station operating expenses 9,105 9,624 21,555 33,956 51,039 151,159 36,556 61,448 115,948
Depreciation,
amortization, duopoly
integration
costs and acquisition
related costs(2) ........ 3,726 3,208 4,475 5,873 9,137 40,379 5,672 10,663 30,946
Corporate expenses ....... 726 769 1,808 2,964 3,797 7,500 2,838 4,475 6,017
Non-recurring charges
including adjustments to
broadcast rights
agreement(3)(4) ......... -- -- 13,980 -- 5,000 1,061 5,000 27,489 26,930
-------- -------- --------- ------- -------- ------------- --------- --------- ----------------
Operating income (loss) .. (115) 1,402 (7,585) 12,763 7,857 39,147 5,262 (11,235) 12,116
Other (income) loss/net .. (124) (17) 121 (650) (1,003) (451) -- (83)
Interest expense,
including amortization
of deferred financing
costs ................... 4,241 3,610 7,351 9,332 12,903 61,362 9,515 18,849 46,422
Minority interest ........ -- -- -- -- -- 2 -- -- (13)
-------- -------- --------- ------- -------- ------------- --------- --------- ----------------
Income (loss) before
income taxes,
extraordinary item and
cumulative effect of a
change in accounting
principle ............... (4,232) (2,208) (14,919) 3,310 (4,396) (21,214) (3,802) (30,084) (34,210)
Income tax expense
(benefit) ............... -- -- 1,015 1,474 -- -- -- -- --
Extraordinary loss on debt
retirement .............. -- -- 1,665 -- -- -- -- -- --
Cumulative effect of a
change in accounting
principle ............... -- -- 182 -- -- -- -- -- --
-------- -------- --------- ------- -------- ------------- --------- --------- ----------------
Net income (loss) ........ (4,232) (2,208) (17,781) 1,836 (4,396) (21,214) (3,802) (30,084) (34,210)
Redeemable preferred stock
dividends and
accretion(5) ............ 302 385 557 348 291 38,362 219 3,551 28,872
-------- -------- --------- ------- -------- ------------- --------- --------- ----------------
Net income (loss)
applicable to common
stock ................... $(4,534) $(2,593) $(18,338) $ 1,488 $(4,687) $(59,576) $(4,021) $(33,635) $(63,082)
======== ======== ========= ======= ======== ============= ========= ========= ================
Net income (loss) per
share ................... $ (3.85) $ (2.20) $ (7.08) $ 0.26 $ (0.71) $ (7.06) $ (0.62) $ (4.55) $ (6.83)
======== ======== ========= ======= ======== ============= ========= ========= ================
Weighted average common
shares outstanding ...... 1,179 1,179 2,589 5,792 6,596 8,436 6,532 7,394 9,234
Ratio of earnings to fixed
charges(6) .............. -- -- -- 1.4x -- -- -- -- --
Ratio of earnings to
combined fixed charges
and preferred stock
dividends(6) ............ -- -- -- 1.3x -- -- -- -- --
OTHER OPERATING DATA:
Broadcast Cash Flow (7) .. $ 4,337 $ 5,379 $ 12,678 $21,600 $25,791 $ 88,087 $18,772 $ 31,392 $ 76,009
EBITDA (7) ............... 3,611 4,610 10,870 18,636 21,994 80,587 15,934 26,917 69,992
</TABLE>
S-15
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1996
----------------------------------------------------- ----------------------------
PRO FORMA FOR
THE PENDING
TRANSACTIONS
AS OF
SEPTEMBER 30,
ACTUAL 1996(9)
1991 1992 1993 1994 1995 (UNAUDITED) (UNAUDITED)
--------- --------- --------- --------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents . $ 96 $ 657 $ 10,287 $ 3,194 $ 11,893 $ 40,139 $ 2,241
Current assets ............. 3,065 4,515 31,273 28,367 32,505 103,884 64,353
Total assets ............... 37,367 36,127 152,871 145,808 187,337 725,929 1,190,836
Long-term debt ............. 38,828 39,011 81,627 81,516 81,850 451,922 589,922
Redeemable Preferred Stock:
Series A Preferred Stock . 2,839 3,892 917 -- -- -- --
Series B Preferred Stock . 133 -- 2,784 2,466 1,735 1,889 1,889
Series C Preferred Stock . -- -- -- -- 1,550 1,614 1,614
Series D Preferred Stock . -- -- -- -- -- 149,500 149,500
Series E Preferred Stock . -- -- -- -- -- -- 214,313
Stockholders' equity ....... (6,951) (9,411) 48,598 48,856 83,061 25,079 97,079
</TABLE>
- ------------
(1) Net revenues on a pro forma basis includes $3,584,000 and $2,645,000 of
fees from Triathlon Broadcasting Company ("Triathlon") for the year
ended December 31, 1995 and the nine months ended September 30, 1996,
respectively, that would have been received by the Company had the SCMC
Termination Agreement been in effect as of January 1, 1995. Future fees
may be lesser or greater based upon the future acquisition and
financing activities of Triathlon.
(2) Includes $1,400,000 and $355,000 of duopoly integration costs incurred
during the year ended December 31, 1995 and the nine months ended
September 30, 1996.
(3) Represents in 1993 the non-cash non-recurring charge related to the
valuation of the common stock issued to the Company's founders at the
Company's initial public offering in September 1993 and certain pooling
costs related to the merger of Capstar with and into a subsidiary of
the Company.
(4) Amounts for the nine months ended September 30, 1996 reflect
non-recurring charges related to the Company's termination agreement
with R. Steven Hicks, a former executive officer of the Company (the
"Hicks Agreement"), the Armstrong Agreement (as defined herein) and the
SCMC Termination Agreement.
(5) Includes dividends on preferred stock which the Company redeemed in
1993, accretion on outstanding redeemable preferred stock, dividends on
the Series D Preferred Stock and assumed dividends on the Series E
Preferred Stock.
(6) For purposes of computing the ratio of earnings to combined fixed
charges and preferred stock dividends and the ratio of earnings to
fixed charges, "earnings" consists of earnings before income taxes and
fixed charges. "Fixed charges and preferred stock dividends" consists
of interest on all indebtedness, amortization of deferred financing
costs and preferred stock dividends. "Fixed charges" consists of
interest on all indebtedness and amortization of deferred financing
costs. Earnings were insufficient to cover combined fixed charges and
preferred stock dividends by $33,635,000, $4,687,000, $15,476,000,
$2,593,000 and $4,534,000 for the nine months ended September 30, 1996
and the years ended December 31, 1995, 1993, 1992 and 1991,
respectively. Pro forma earnings for the nine months ended September
30, 1996 and the year ended December 31, 1995, would have been
insufficient to cover combined fixed charges and preferred stock
dividends by $63,082,000 and $59,576,000, respectively, pro forma for
the Transactions. Earnings were insufficient to cover fixed charges by
$30,084,000, $4,396,000, $14,919,000, $2,208,000 and $4,232,000 during
the nine months ended September 30, 1996 and the years ended December
31, 1995, 1993, 1992 and 1991, respectively. Pro forma earnings for the
nine months ended September 30, 1996 and the year ended December 31,
1995, would have been insufficient to cover fixed charges by
$34,310,000 and $21,244,000, respectively, pro forma for the
Transactions.
(7) "Broadcast Cash Flow" means net revenues (including, where applicable,
fees earned or to be earned on a pro forma basis by the Company
pursuant to the SCMC Termination Agreement and concert revenues less
concert costs of Delsener/Slater) less station operating expenses.
"EBITDA" means net income (loss) before (i) extraordinary items, (ii)
provisions for income taxes, (iii) interest (income) expense, (iv)
other (income) expense,
S-16
<PAGE>
(v) cumulative effects of changes in accounting principles, (vi)
depreciation, amortization, duopoly integration costs and acquisition
related costs, and (vii) non-recurring charges. The difference between
Broadcast Cash Flow and EBITDA is that EBITDA reflects the impact of
corporate expenses. Although Broadcast Cash Flow and EBITDA are not
measures of performance calculated in accordance with GAAP, the Company
believes that Broadcast Cash Flow and EBITDA are accepted by the
broadcasting industry as generally recognized measures of performance
and are used by analysts who report publicly on the performance of
broadcasting companies. Nevertheless, these measures should not be
considered in isolation or as a substitute for operating income, net
income, net cash provided by operating activities or any other measure
for determining the Company's operating performance or liquidity which
is calculated in accordance with GAAP.
On a pro forma basis giving effect to the Transactions, Broadcast Cash
Flow attributable to the fees earned pursuant to the SCMC Termination
Agreement and concert revenues less concert costs of Delsener/Slater
would have been $9,609,000 and $8,349,000 for the year ended December
31, 1995, and for the nine months ended September 30, 1996,
respectively.
(8) The unaudited pro forma Statement of Operations Data for the nine
months ended September 30, 1996, and the year ended December 31, 1995,
are presented as if the Company had completed the Transactions as of
January 1, 1995. The term "Transactions" is defined in the Glossary.
(9) The unaudited pro forma Balance Sheet Data at September 30, 1996, is
presented as if the Company had completed as of September 30, 1996, the
Pending Transactions as of September 30, 1996. The term "Pending
Transactions as of September 30, 1996" is defined in the Glossary.
S-17
<PAGE>
GLOSSARY
"Acquisitions" means, collectively, the Recent Acquisitions and the
Pending Acquisitions.
"Albany Acquisition" means the acquisition, consummated in January 1997,
of substantially all of the assets used in the operation of WYSR-FM,
operating in Albany, New York.
"Broadcast Cash Flow" is defined as net revenues (including, where
applicable, fees earned or to be earned on a pro forma basis by the Company
pursuant to the SCMC Termination Agreement and concert revenues less concert
costs of Delsener/Slater) less station operating expenses.
"CBS Exchange" means the pending exchange by the Company of radio station
WHFS-FM, operating in Washington, D.C./Baltimore, Maryland, for KTXQ-FM and
KRRW-FM, both operating in Dallas, Texas, and owned by CBS, Inc.
"Chancellor Exchange" means the pending exchange of the Company's radio
stations WBAB-FM, WHFM-FM, WBLI-FM and WGBB-AM, each operating on Long
Island, New York, for WFYV-FM and WAPE-FM, both operating in Jacksonville,
Florida, and a payment to the Company of $11.0 million in cash.
"Credit Agreement" means the definitive credit agreement the Company
entered into in November 1996, which increases amounts available under its
senior credit facility to $225.0 million.
"Dallas Disposition" means the sale, consummated in October 1996, of radio
station KTCK-AM, operating in Dallas, Texas.
"Delsener/Slater Acquisition" means the acquisition, consummated in
January 1997, of Delsener/ Slater Enterprises, Ltd., a concert promotion
company, and certain affiliated entities (collectively, "Delsener/Slater").
"Dispositions" means, collectively, the Recent Dispositions and the
Pending Dispositions.
"EBITDA" is defined as net income (loss) before (i) extraordinary items,
(ii) provisions for income taxes, (iii) interest (income) expense, (iv) other
(income) expense, (v) cumulative effects of changes in accounting principles,
(vi) depreciation, amortization, duopoly integration costs and acquisition
related costs and (vii) non-recurring charges.
"Greensboro Acquisition" means the acquisition, consummated in November
1996, of substantially all of the assets of WHSL-FM, operating in Greensboro,
North Carolina.
"Greenville Acquisition" means the acquisition, consummated in June 1996,
of substantially all of the assets of WROQ-FM, operating in
Greenville-Spartanburg, South Carolina.
"Hartford Acquisition" means the pending acquisition by the Company of
WWYZ-FM, which operates in Hartford, Connecticut.
"Houston Exchange" means the exchange, consummated in December 1996, of
the Company's radio station KRLD-AM, operating in Dallas, Texas, and the
Company's Texas State Networks for radio station KKRW-FM, operating in
Houston, Texas.
"Jackson Acquisitions" means, collectively, the acquisitions, consummated
in the third quarter of 1996, of substantially all of the assets of WJDX-FM,
WSTZ-FM and WZRX-AM, each operating in Jackson, Mississippi.
"Liberty Acquisition" means the acquisition, consummated in July 1996, of
Liberty Broadcasting Incorporated, which owned and operated or provided
programming to or sold advertising on behalf of 14 FM and six AM radio
stations located in six markets: Washington, DC/Baltimore, Maryland;
Nassau-Suffolk, New York; Providence, Rhode Island; Hartford, Connecticut;
Albany, New York; and Richmond, Virginia.
S-18
<PAGE>
"Little Rock Disposition" means the pending sale of KOLL-FM, operating in
Little Rock, Arkansas, to Triathlon.
"Louisville Acquisition" means the acquisition, consummated in September
1996, from Prism of substantially all of the assets of WVEZ-FM, WTFX-FM and
WWKY-AM, each operating in Louisville, Kentucky.
"Louisville Dispositions" means the sale, consummated in October 1996, of
the three stations acquired in the Louisville Acquisition.
"MMR Merger" means the merger, consummated in November 1996, of a
wholly-owned subsidiary of the Company with and into MMR, as a result of
which MMR became a wholly-owned subsidiary of the Company.
"Myrtle Beach Disposition" means the pending sale of WYAK-FM and WMYB-FM,
both operating in Myrtle Beach, South Carolina.
"Pending Acquisitions" means, collectively, the Chancellor Exchange, the
Richmond Acquisition, the CBS Exchange, the Secret Communications
Acquisition, the Hartford Acquisition and the Texas Coast Acquisition.
"Pending Dispositions" means, collectively, the Little Rock Disposition
and the Myrtle Beach Disposition.
"Pending Transactions as of September 30, 1996" means, collectively, the
Pending Acquisitions, the Pending Dispositions, the Greensboro Acquisition,
the Dallas Disposition, the MMR Merger, the Houston Exchange, the
Delsener/Slater Acquisition and the Albany Acquisition.
"Prism Acquisition" means the acquisition, consummated in the third
quarter of 1996, of substantially all of the assets of Prism used in the
operation of ten FM and six AM radio stations located in five markets:
Louisville, Kentucky; Jacksonville, Florida; Raleigh, North Carolina; Tucson,
Arizona; and Wichita, Kansas.
"Private Placement" means the Company's private placement in May 1996 of
$149.5 million in aggregate liquidation preference of Series D Preferred
Stock and of $450.0 million in aggregate principal amount of New Notes.
"Raleigh-Greensboro Acquisitions" means the acquisition, consummated in
June 1996, of substantially all of the assets of WMFR-AM, WMAG-FM and
WTCK-AM, each operating in Greensboro, North Carolina, and WTRG-FM and
WRDU-FM, both operating in Raleigh, North Carolina.
"Recent Acquisitions" means, collectively, the MMR Merger, the Greensboro
Acquisition, the Liberty Acquisition, the Prism Acquisition, the Jackson
Acquisitions, the Greenville Acquisition, the Louisville Acquisition, the
Raleigh-Greensboro Acquisitions, the Houston Exchange, the Albany
Acquisition, the Delsener/Slater Acquisition, and the acquisitions of WTDR-FM
and WLYT-FM, both operating in Charlotte, North Carolina, KTCK-FM, operating
in Dallas, Texas, and KYXY-FM, operating in San Diego, California.
"Recent Dispositions" means, collectively, the Washington Dispositions,
the Louisville Dispositions and the Dallas Disposition.
"Recent Transactions as of September 30, 1996" means, collectively, the
Liberty Acquisition, the Prism Acquisition, the Jackson Acquisitions, the
Greenville Acquisition, the Raleigh-Greenboro Acquisitions, the acquisitions
of WLYT-FM, operating in Charlottte, North Carolina, KTCK-FM, operating in
Dallas, Texas, and KYXY-FM, operating in San Diego, California, the
Washington Dispositions and the Louisville Dispositions.
"Richmond Acquisition" means the pending acquisition of a 96% interest in
ABS Communications L.L.C., which owns or will acquire WVGO-FM, WLEE-FM,
WKHK-FM and WBZU-FM, each operating in Richmond, Virginia.
S-19
<PAGE>
"Secret Communications Acquisition" means the pending acquisition of
WFBQ-FM, WRZX-FM and WNDE-AM, each operating in Indianapolis, Indiana, and
WDVE-FM, WXDX-FM, WDSY-FM and WJJJ-FM, each operating in Pittsburgh,
Pennsylvania.
"Tender Offer" means a tender offer, consummated in May 1996, pursuant to
which the Company repurchased $79.4 million of the $80.0 million in principal
amount of 11.375% Senior Subordinated Notes due 2000 outstanding.
"Transactions" means, collectively, the Acquisitions, the Dispositions,
the Preferred Stock Offering, borrowings under the Credit Agreement, the
Private Placement and the Tender Offer; the implementation of the Hicks
Agreement, the Armstrong Agreement and the SCMC Termination Agreement; and
the repayment of the Company's former credit facility.
"Washington Dispositions" means the sale, consummated in July 1996, of
three of the stations acquired from Liberty Broadcasting, each operating in
the Washington, D.C./Baltimore, Maryland market.
S-20
<PAGE>
RISK FACTORS
An investment in the shares of Series E Preferred Stock offered hereby
involves a high degree of risk. Prospective investors should consider
carefully, in addition to the other information contained in and incorporated
in this Prospectus Supplement (including the financial statements and notes
thereto) and the accompanying Prospectus, the following factors in connection
with an investment in the shares of Series E Preferred Stock offered hereby.
This Prospectus Supplement and the accompanying Prospectus contain
forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ materially from the results discussed in
the forward-looking statements. Factors that could cause such a difference
include, but are not limited to, those discussed below or in the "Risk
Factors" section of the accompanying Prospectus, as well as those contained
in "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and those discussed elsewhere in this Prospectus Supplement or
the accompanying Prospectus.
RISKS RELATED TO THE PENDING ACQUISITIONS AND THE PENDING DISPOSITIONS
Consummation of each of the Pending Acquisitions and the Pending
Dispositions is subject to a number of closing conditions, certain of which
are beyond the Company's control. In particular, consummation of each of the
Pending Acquisitions and the Pending Dispositions is dependent upon the prior
approval by the lenders under the Credit Agreement. The Antitrust Division
has indicated its intention to review matters related to the concentration of
ownership within markets even when the ownership in question is in compliance
with the provisions of the Recent Legislation. While the Company believes
that each of the Pending Acquisitions and the Pending Dispositions does not
substantially lessen competition, there can be no assurance that the
Antitrust Division will not take a contrary position, which could delay or
prevent the consummation of any or all of the Pending Acquisitions or require
the Company to restructure its ownership in the relevant market or markets.
See "--Extensive Regulation of Radio Broadcasting" in the accompanying
Prospectus. For a more complete description of the conditions precedent to
the consummation of each transaction, see "Agreements Related to the Pending
Acquisitions and the Pending Dispositions."
The Company will require financing in addition to the Preferred Stock
Offering in order to consummate the Pending Acquisitions, which the Company
anticipates obtaining through borrowings under the Credit Agreement, and
proceeds from the Chancellor Exchange and the Pending Dispositions. The
Company will require funding under the Credit Agreement of approximately
$152.2 million in order to consummate the Secret Communications Acquisition
in the third quarter of 1997. The ability of the Company to borrow such
amount under the Credit Agreement will be subject to meeting certain
financial tests dependent on the cash flow of the Company, giving effect to
the consummation of the pending acquisitions and dispositions of the Company.
There can be no assurance that the Company will have adequate borrowing
capacity under the Credit Agreement. If the Company's borrowing capacity
under the Credit Agreement is not sufficient to finance the Secret
Communications Acquisition, the Company will be required to either seek
modification of the Credit Agreement or obtain alternative financing. There
can be no assurance that the Company will be able to obtain additional
financing or such modification on terms acceptable to the Company or at all.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
As a result of the foregoing, there can be no assurance as to when the
Pending Acquisitions or the Pending Dispositions will be consummated or that
they will be consummated on the terms described herein or at all.
Furthermore, the Company cannot predict whether the consummation of the
Pending Acquisitions or the Pending Dispositions will conform to the
assumptions used in the preparation of the Unaudited Pro Forma Condensed
Combined Financial Statements included herein. In analyzing the Unaudited Pro
Forma Condensed Combined Financial Statements and other information,
prospective investors should consider that the Pending Acquisitions or the
Pending Dispositions may not be consummated at all or on the terms described
herein, and the Pending Acquisitions or the Pending Dispositions, if
consummated, may be subject to substantial delay.
S-21
<PAGE>
SUBSTANTIAL LEVERAGE; INABILITY TO SERVICE OBLIGATIONS
In connection with the Acquisitions, the Company has incurred and will
incur significant amounts of indebtedness. As of September 30, 1996, the
Company's consolidated indebtedness would have been approximately $589.9
million on a pro forma basis after giving effect to the Transactions. In
addition, subject to the restrictions contained in the instruments governing
the Company's indebtedness and preferred stock, the Company may incur
additional indebtedness from time to time to finance acquisitions, for
capital expenditures or for other purposes. For the year ended December 31,
1995, and the nine months ended September 30, 1996, on a pro forma basis
after giving effect to the Transactions as if they had all occurred on
January 1, 1995, the Company's earnings (defined as earnings before income
taxes and fixed charges) would have been insufficient to cover its fixed
charges (defined as interest on all indebtedness and amortization of deferred
financing costs) by $21.2 million and $34.3 million, respectively, and would
have been insufficient to cover its combined fixed charges and preferred
stock dividends by $59.6 million and $63.1 million, respectively.
The degree to which the Company is leveraged could have material
consequences to the Company and the holders of shares of the Company's stock,
including, but not limited to, the following: (i) the Company's ability to
obtain additional financing in the future for acquisitions, working capital,
capital expenditures, general corporate or other purposes may be impaired,
(ii) a substantial portion of the Company's cash flow from operations will be
dedicated to the payment of the principal and interest on its debt and
dividends on the Series D Preferred Stock and the Series E Preferred Stock
and will not be available for other purposes, (iii) the agreements governing
the Company's long-term debt contain, and the Exchange Indenture and the
Series D Exchange Note Indenture will contain, restrictive financial and
operating covenants, and the failure by the Company to comply with such
covenants could result in an event of default under the applicable
instruments, which could permit acceleration of the debt under such
instrument and in some cases acceleration of debt under other instruments
that contain cross-default or cross-acceleration provisions and (iv) the
Company's level of indebtedness could make it more vulnerable to economic
downturns, limit its ability to withstand competitive pressures and limit its
flexibility in reacting to changes in its industry and general economic
conditions. Certain of the Company's competitors operate on a less leveraged
basis, and have significantly greater operating and financial flexibility,
than the Company.
The Company's ability to make scheduled payments of principal of, to pay
interest on or to refinance, its debt, to make dividend, conversion or
redemption payments on its preferred stock depends on its future financial
performance, which, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors beyond its
control, as well as the success of the radio stations to be acquired and the
integration of these stations into the Company's operations. Based upon the
Company's current level of operations and anticipated improvements,
management believes that cash flow from operations, together with the net
proceeds of this Preferred Stock Offering, borrowings under the Credit
Agreement and the Chancellor Exchange, will be adequate to meet the Company's
anticipated future requirements for working capital, capital expenditures and
scheduled interest, principal, dividend, and redemption payments through
1998. There can be no assurance that the Company will be able to borrow under
the Credit Agreement, that the Company's business will generate sufficient
cash flow from operations, that anticipated improvements in operating results
will be achieved or that future working capital borrowings will be available
in an amount to enable the Company to service its debt, to make dividend,
conversion and redemption payments and to make necessary capital or other
expenditures. The Company may be required to refinance a portion of the
principal amount of its indebtedness, or the aggregate liquidation preference
of its preferred stock prior to their maturities. There can be no assurance
that the Company will be able to raise additional capital through the sale of
securities, the disposition of radio stations or otherwise for any such
refinancing. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
LIMITATIONS ON ABILITY TO PAY DIVIDENDS; RESTRICTIONS ON EXCHANGE
The terms of the Series D Preferred Stock provide that the Company may not
declare or pay any cash dividends or make any cash distributions in respect
of the Series E Preferred Stock until all accrued and
S-22
<PAGE>
unpaid dividends on the Series D Preferred Stock have been declared and paid
or set aside. Additionally, the Credit Agreement prohibits the payment of
cash dividends on the Series E Preferred Stock, and the indenture governing
the New Notes (the "New Note Indenture") restricts the Company's ability to
pay cash dividends on the Series E Preferred Stock unless certain financial
tests (including a ratio of debt to cash flow) and an additional restricted
payments test are met. There can be no assurance that the Company will be
able to meet the tests required by the Credit Agreement or the New Note
Indenture so as to be able to pay cash dividends on the Series E Preferred
Stock. For all dividend payment dates through and including January 15, 2002,
the Company may, at its option, pay dividends on the Series E Preferred Stock
by issuing additional shares of Series E Preferred Stock with the aggregate
liquidation preference equal to the amount of such dividends. The Company
does not currently intend to pay cash dividends on the Series E Preferred
Stock.
The ability of the Company to exchange Series E Preferred Stock for
Exchange Debentures is subject to compliance with the Company's debt
agreements. The Credit Agreement and the indenture governing the New Notes
currently prohibit the issuance of the Exchange Debentures. There can be no
assurance that the Company will be permitted to issue any Exchange Debentures
in exchange for Series E Preferred Stock.
RANKING OF THE SERIES E PREFERRED STOCK; SUBORDINATION OF THE EXCHANGE
DEBENTURES
The Series E Preferred Stock will rank junior in right of payment upon
liquidation to all existing and future indebtedness of the Company and to the
Series D Preferred Stock. As of December 31, 1996, there were outstanding
$149.5 million in aggregate liquidation preference of shares of Series D
Preferred Stock. The Series E Preferred Stock will rank senior in right of
payment upon liquidation to the common stock of the Company and the shares of
Series B Redeemable Preferred Stock (the "Series B Preferred Stock"). The
payment of principal, premium, if any, and interest on, and any other amounts
owing in respect of, the Exchange Debentures, if issued, will be subordinated
to the prior payment in full of all existing and future Senior Debt of the
Company. As of September 30, 1996, on a pro forma basis after giving effect
to the Transactions, approximately $138.0 million of Senior Debt would have
been outstanding and the Company would have available to it approximately
$87.0 million of additional borrowing capacity under the Credit Agreement
(subject to compliance with the financial tests contained therein).
Additional Senior Debt may be incurred by the Company from time to time
subject to certain restrictions contained in the Credit Agreement and the New
Note Indenture. In the event of the bankruptcy, liquidation, dissolution,
reorganization or other winding up of the Company, the assets of the Company
will be available to pay obligations on the Exchange Debentures only after
all Senior Debt has been paid in full, and there may not be sufficient assets
remaining to pay amounts due on any or all of the Exchange Debentures. See
"Description of Series E Preferred Stock--Description of the Exchange
Debentures--Subordination."
ABILITY TO FINANCE CHANGE OF CONTROL REPURCHASE
If events occur which constitute a change of control for purposes of the
applicable certificate of designations or indenture, then the holders of
Series D Preferred Stock, Series E Preferred Stock, Series D Exchange Notes
or Exchange Debentures may require the Company to purchase all such
securities then outstanding. This repurchase would be at a price, in cash,
equal to 101% of the liquidation preference or principal amount thereof (or,
in the case of the Series D Preferred Stock or the Series D Exchange Notes,
in shares of Class A Common Stock valued at 95% of the Current Market Price,
as defined in the applicable certificate of designations or indenture) plus
accumulated and unpaid dividends or interest, if any, to the date of
purchase. The right of holders of the Series E Preferred Stock to require
such a repurchase is subject to the prior repayment, or the obtaining of
consents from the holders of, Indebtedness under the Credit Agreement and the
New Notes. There can be no assurance that the Company would be able to obtain
the funds required by it to effect the repurchase through a refinancing of
such securities or otherwise, or that the repurchase of such securities would
be permitted under the Company's credit facility or other debt instruments or
that the Company would be successful in obtaining any such consents. See
"Description of Series E Preferred Stock and Exchange Debentures--Description
S-23
<PAGE>
of Series E Preferred Stock--Change of Control" and "Description of Series E
Preferred Stock and Exchange Debentures--Description of the Exchange
Debentures--Repurchase at the Option of Holders."
CERTAIN TAX CONSIDERATIONS
Distributions on the Series E Preferred Stock, whether paid in cash or in
additional shares of Series E Preferred Stock, will be taxable as ordinary
dividend income to the extent that the cash or fair market value of the
additional shares of Series E Preferred Stock on the date of distribution
does not exceed the Company's current and accumulated earnings and profits. A
holder's initial tax basis in any additional shares of Series E Preferred
Stock distributed by the Company in lieu of cash dividend payments on the
Series E Preferred Stock will equal the fair market value of such shares on
their date of distribution. In addition, depending on the issue price of
shares of Series E Preferred Stock on the date of their issuance, holders may
be required to include additional amounts of income based on the difference
between (x) the issue price of such shares on the date of their issuance and
(y) the amount payable in redemption of such shares, unless the difference is
de minimis under the applicable standard (such difference being referred to
as "Redemption Premium"). See "Certain Federal Income Tax
Considerations--Redemption Premium." Shares of Series E Preferred Stock that
bear Redemption Premium generally will have different tax characteristics
from other shares of Series E Preferred Stock and might trade separately,
which might adversely affect the liquidity of such shares.
Upon an exchange of shares of Series E Preferred Stock for cash or
Exchange Debentures, the holder generally should have capital gain or loss
equal to the difference between the cash or issue price of the Exchange
Debentures received and the holder's adjusted basis in the shares of Series E
Preferred Stock redeemed, unless the exchange has the effect of a dividend.
For a discussion of how to determine the issue price of the Exchange
Debentures, see "Certain Federal Income Tax Considerations--Original Issue
Discount." Holders should also note that if shares of Series E Preferred
Stock are exchanged for Exchange Debentures and the stated redemption price
at maturity of such Exchange Debentures exceeds their issue price by more
than a de minimis amount, the Exchange Debentures will be treated as having
original issue discount ("OID") equal to the entire amount of such excess.
The Company is allowed to exchange the Series E Preferred Stock for
Exchange Debentures from time to time. Because the determination of the issue
price of the Exchange Debentures depends on several factors (such as, whether
the Exchange Debentures or the Series E Preferred Stock are traded on an
established securities market at the time of the exchange, the trading price,
and whether the Exchange Debentures bear "adequate stated interest" at the
time of the exchange), it is possible that Exchange Debentures issued at
different times will have different issue prices. To the extent the Exchange
Debentures have different issue prices, they may have different tax
characteristics from each other (for example, the amount of OID on such
Exchange Debentures may vary) and may trade separately, which may adversely
affect the liquidity of such Exchange Debentures.
For a discussion of these and other relevant tax issues, see "Certain
Federal Income Tax Considerations."
FRAUDULENT CONVEYANCE
Various state and federal fraudulent conveyance laws have been enacted for
the protection of creditors and may be utilized by a court to subordinate or
avoid the Exchange Debentures in favor of other existing or future creditors
of the Company. If a court in a lawsuit commenced on behalf of any unpaid
creditor of the Company, or by the Company as a Chapter 11 debtor in
possession, or by a representative of the Company's creditors with standing
were to find that, at the time the Company issued the Exchange Debentures,
the Company (x) intended to hinder, delay or defraud any existing or future
creditor or (y) did not receive fair consideration or reasonably equivalent
value for issuing such Exchange Debentures and the Company (i) was insolvent,
(ii) was rendered insolvent by reason of such issuance, (iii) was engaged or
about to engage in a business or transactions for which its remaining assets
constituted unreasonably small capital or (iv) intended to incur, or believed
that it would incur, debts
S-24
<PAGE>
beyond its ability to pay such debts as they matured, the court may, upon
appropriate proof, void the Company's obligations under the Exchange
Debentures and void such transactions. In such event, claims of the holders
of such Exchange Debentures could be subordinated to claims of the other
creditors of the Company.
ABSENCE OF PUBLIC MARKET
There is no existing market for the Series E Preferred Stock or the
Exchange Debentures. The Company does not intend to list the Series E
Preferred Stock or the Exchange Debentures on a national securities exchange
or to seek the admission thereof to trading in the National Association of
Securities Dealers Automated Quotation System. Accordingly, no assurance can
be given that an active market will develop for any of the Series E Preferred
Stock or the Exchange Debentures or as to the liquidity of any trading market
for the Series E Preferred Stock or the Exchange Debentures. If a trading
market does not develop or is not maintained, holders of the Series E
Preferred Stock or the Exchange Debentures may experience difficulty in
reselling such Series E Preferred Stock or Exchange Debentures or may be
unable to sell them at all. Future trading prices of the Series E Preferred
Stock or the Exchange Debentures will depend on many factors, including,
among other things, prevailing interest rates, the Company's operating
results and the market for similar securities. The Underwriters have advised
the Company that they currently intend to make a market in the Series E
Preferred Stock and the Exchange Debentures, in the event that the Exchange
Debentures are issued upon exchange of the Series E Preferred Stock. However,
the Underwriters are not obligated to do so and any market making may be
discontinued at any time without notice.
S-25
<PAGE>
CAPITALIZATION
The following table sets forth: (i) the actual capitalization of the
Company at September 30, 1996, and (ii) the pro forma capitalization of the
Company at September 30, 1996, giving effect to the Transactions.
<TABLE>
<CAPTION>
<S> <C> <C>
SEPTEMBER 30, 1996
----------------------------
(IN THOUSANDS)
PRO FORMA FOR
ACTUAL THE
(UNAUDITED) TRANSACTIONS
----------- ---------------
Cash and cash equivalents ....................................... $ 40,139 $ 2,241
----------- ---------------
DEBT:
Credit Agreement ............................................... -- 138,000
New Notes ...................................................... 450,000 450,000
Old Notes and other ............................................ 1,922 1,922
----------- ---------------
Total debt .................................................... 451,922 589,922
----------- ---------------
REDEEMABLE PREFERRED STOCK:
Series B Preferred Stock ....................................... 1,889 1,889
Series C Preferred Stock ....................................... 1,614 1,614
Series D Preferred Stock ....................................... 149,500 149,500
Series E Preferred Stock ....................................... -- 214,313 (1)
STOCKHOLDERS' EQUITY:
Class A Common Stock, $.01 par value,
100,000,000 shares authorized, 6,431,897 shares outstanding as
of September 30, 1996 actual, and 8,063,087 shares pro forma(2) 64 81
Class B Common Stock, $.01 par value,
1,000,000 shares authorized, 856,126 shares outstanding as of
September 30, 1996 actual, and 1,064,936 shares pro forma .... 10 12
Class C Common Stock, $.01 par value,
1,200,000 shares authorized, none issued and outstanding ..... -- --
Treasury stock; 170,192 shares at September 30, 1996
actual and pro forma .......................................... (6,393) (6,393)
Additional paid-in capital ..................................... 108,898 180,879
Accumulated deficit ............................................ (77,500) (77,500)
----------- ---------------
Total stockholders' equity .................................... 25,079 97,079
----------- ---------------
Total capitalization ......................................... $630,004 $1,054,317
=========== ===============
</TABLE>
- ------------
(1) The Series E Preferred Stock is recorded net of fees and expenses.
(2) Does not include (i) shares issuable upon conversion of the Series D
Preferred Stock, (ii) shares issuable, subject to certain
conditions, upon conversion of the Class B Common Stock, and (iii)
shares issuable upon the exercise of outstanding options and
warrants.
S-26
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following financial statements and notes thereto contain
forward-looking statements that involve risks and uncertainties. The actual
results of the Company may differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are
not limited to, risks and uncertainties relating to the ability of the
Company to achieve cost savings, revenue of stations owned or to be acquired,
the need for additional financing, consummation of the Pending Acquisitions
or the Pending Dispositions, integration of the Acquisitions, and the
management of growth. See "Risk Factors" in this Prospectus Supplement and
the accompanying Prospectus. The Company undertakes no obligation to publicly
release the result of any revisions to these forward-looking statements that
may be made to reflect any future events or circumstances.
In the opinion of management, all adjustments necessary to fairly present
this pro forma information have been made. The Unaudited Pro Forma Condensed
Combined Financial Statements are based upon, and should be read in
conjunction with, the historical financial statements and the respective
notes to such financial statements incorporated herein by reference. The pro
forma information does not purport to be indicative of the results that would
have been reported had such events actually occurred on the dates specified,
nor is it indicative of the Company's future results if the aforementioned
transactions are completed. The Company cannot predict whether the
consummation of the Acquisitions or the Dispositions will conform to the
assumptions used in the preparation of the Unaudited Pro Forma Condensed
Combined Financial Statements. The Unaudited Pro Forma Statement of
Operations data include adjustments to station operating expenses to reflect
anticipated savings that management believes it will be able to achieve
through the implementation of its strategy. However, there can be no
assurance that the Company will be able to achieve such savings.
The Unaudited Pro Forma Condensed Combined Balance Sheet at September 30,
1996 is presented as if the Company had completed the Recent and Pending
Transactions as of September 30, 1996. No adjustment has been made to the
Unaudited Pro Forma Condensed Combined Balance Sheet for the Houston
Exchange, the Louisville Dispositions or the CBS Exchange, as they will be
recorded at historical cost.
The Unaudited Pro Forma Condensed Combined Statements of Operations for
the year ended December 31, 1995 and the nine months ended September 30, 1996
are presented as if the Company had completed the Transactions as of January
1, 1995. MMR's acquisition of WMYB-FM, operating in Myrtle Beach, South
Carolina, and the Albany Acquisition have not been reflected in the Unaudited
Pro Forma Condensed Combined Statement of Operations as they would not have a
material impact.
S-27
<PAGE>
SFX BROADCASTING, INC. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
RECENT TRANSACTIONS
------------------------
SFX PRO FORMA
BROADCASTING, DALLAS MMR DELSENER/ FOR THE
INC. AS DISPOSITION MERGER GREENSBORO SLATER PRO FORMA RECENT
REPORTED (1) (2) ACQUISITION ACQUISITION ADJUSTMENTS(3) TRANSACTIONS
------------- ------------- --------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets ... $103,884 $12,412 $(26,058) $ 484 $5,554 (484)(a) $ 72,439
(22,453)(b)
(900)(c)
Property and
equipment, net .. 65,308 (1,155) 2,580 1,164 2,240 -- 70,137
Intangible assets,
net .............. 516,402 (9,003) 131,837 1,252 -- 3,584 (a) 663,476
18,404 (b)
1,000 (c)
Other assets ...... 40,335 (2) (13,532) -- 38 (6,000)(a) 20,739
(100)(c)
------------- ------------- --------- ----------- ----------- ------------ ------------
Total assets ...... $725,929 $ 2,252 $ 94,827 $2,900 $7,832 $ (6,949) $826,791
============= ============= ========= =========== =========== ============ ============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PENDING TRANSACTIONS (OTHER THAN THE
SECRET COMMUNICATIONS ACQUISITION)
--------------------------------------------------
PRO FORMA FOR THE
RECENT AND PENDING
TRANSACTIONS
OFFERING AND (OTHER THAN THE
CHANCELLOR RICHMOND PRO FORMA SECRET SECRET
EXCHANGE ACQUISITION HARTFORD TEXAS COAST ADJUSTMENTS COMMUNICATIONS COMMUNICATIONS
(4) (5) ACQUISITION ACQUISITION (3) ACQUISITION) ACQUISITION(6)
---------- ------------- ----------- ----------- ------------- ------------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets ... $ 11,000 $ 3,119 $1,472 $2,440 $ 214,313 (d) $ 185,353 $ 8,235
(6,071)(e)
(40,800)(f)
(3,119)(f)
(25,500)(g)
(41,500)(h)
(2,440)(h)
Property and
equipment, net .. -- 1,680 38 153 -- 72,008 5,644
Intangible assets,
net .............. (11,000) 9,533 -- -- 6,071 (e) 774,625 42,261
31,142 (f)
32,957 (g)
42,446 (h)
Other assets ...... -- 62 -- 549 (500)(h) 20,850 105
---------- ------------- ----------- ----------- ------------- ------------------ --------------
Total assets ...... $ -- $14,394 $1,510 $3,142 $ 206,999 $1,052,836 $56,245
========== ============= =========== =========== ============= ================== ==============
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
PRO FORMA RECENT AND
ADJUSTMENTS PENDING
(3) TRANSACTIONS
------------ ------------
<S> <C> <C>
ASSETS
Current assets ... $ 138,000 (i) $ 64,353
(8,235)(i)
(255,000)(k)
(4,000)(j)
Property and
equipment, net .. -- 77,652
Intangible assets,
net .............. 206,990 (k) 1,027,876
4,000 (j)
Other assets ...... -- 20,955
------------ ------------
Total assets ...... $ 81,755 $1,190,836
============ ============
</TABLE>
S-28
<PAGE>
<TABLE>
<CAPTION>
RECENT TRANSACTIONS
-----------------------
SFX PRO FORMA
BROADCASTING, DALLAS MMR DELSENER/ PRO FORMA FOR THE
INC. AS DISPOSITION MERGER GREENSBORO SLATER ADJUSTMENTS RECENT
REPORTED (1) (2) ACQUISITION ACQUISITION (3) TRANSACTIONS
------------- ------------- -------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities . $ 39,011 $2,310 $ 1,283 $ 171 $ 808 (171)(a) $ 43,830
418 (b)
Other liabilities ... 830 (58) -- -- 10 2,547 (b) 3,329
Long-term debt (incl.
current portion):
Credit Agreement ... -- -- -- -- -- -- --
New Notes ........... 450,000 -- -- -- -- -- 450,000
Acquired company
debt ............... -- -- -- -- -- -- --
Other debt ........... 1,922 -- -- -- -- -- 1,922
Deferred taxes ....... 56,084 -- 21,544 -- -- -- 77,628
Minority interest ... -- -- -- -- -- -- --
Redeemable preferred
stock:
Series B Preferred
Stock .............. 1,889 -- -- -- -- -- 1,889
Series C Preferred
Stock .............. 1,614 -- -- -- -- -- 1,614
Series D Preferred
Stock .............. 149,500 -- -- -- -- -- 149,500
Series E Preferred
Stock .............. -- -- -- -- -- -- --
Stockholders' equity 25,079 -- 72,000 2,729 7,014 (2,729)(a) 97,079
(7,014)(b)
------------- ------------- -------- ----------- ----------- ------------- ------------
Total liabilities and
stockholders' equity $725,929 $2,252 $94,827 $2,900 $7,832 $(6,949) $826,791
============= ============= ======== =========== =========== ============= ============
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PENDING TRANSACTIONS (OTHER THAN THE
SECRET COMMUNICATIONS ACQUISITION)
---------------------------------------------------
PRO FORMA FOR THE
RECENT AND PENDING
OFFERING AND TRANSACTIONS
CHANCELLOR RICHMOND PRO FORMA (OTHER THAN THE SECRET
EXCHANGE ACQUISITION HARTFORD TEXAS COAST ADJUSTMENTS SECRET COMMISSIONS COMMUNICATIONS
(4) (5) ACQUISITION ACQUISITION (3) ACQUISITION) ACQUISITION(6)
---------- ------------- ----------- ----------- ------------- ------------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities . $-- $ 592 $ 423 $ 239 $ (592)(f) $ 44,467 $ 1,556
214 (h)
(239)(h)
Other liabilities ... -- -- -- -- 934 (h) 4,263 --
Long-term debt (incl.
current portion):
Credit agreement ... -- -- -- -- -- -- --
New Notes ........... -- -- -- -- -- 450,000 --
Acquired company
debt ............... -- 19,236 -- -- (19,236)(f) -- --
Other debt ........... -- -- -- -- -- 1,922 --
Deferred taxes ....... -- -- -- 27 8,544 (g) 86,172 --
(27)(h)
Minority interest ... -- -- -- -- 1,617 (f) 1,617 --
Redeemable preferred
stock:
Series B Preferred
Stock .............. -- -- -- -- -- 1,889 --
Series C Preferred
Stock .............. -- -- -- -- -- 1,614 --
Series D Preferred
Stock .............. -- -- -- -- -- 149,500 --
Series E Preferred
Stock .............. -- -- -- -- 214,313 (d) 214,313 --
Stockholders' equity -- (5,434) 1,087 2,876 97,079 54,689
5,434 (f)
(1,087)(g)
(2,876)(h)
---------- ------------- ----------- ----------- ------------- ------------------ --------------
Total liabilities and
stockholders' equity $-- $14,394 $1,510 $3,142 $206,999 $1,052,836 $56,245
========== ============= =========== =========== ============= ================== ==============
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
PRO FORMA RECENT AND
ADJUSTMENTS PENDING
(3) TRANSACTIONS
----------- ------------
<S> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities . $ (1,556)(k) $ 44,467
Other liabilities ... -- 4,263
Long-term debt (incl.
current portion):
Credit Agreement ... 138,000 (i) 138,000
New Notes ........... -- 450,000
Acquired company
debt ............... -- --
Other debt ........... -- 1,922
Deferred taxes ....... -- 86,172
Minority interest ... -- 1,617
Redeemable preferred
stock:
Series B Preferred
Stock .............. -- 1,889
Series C Preferred
Stock .............. -- 1,614
Series D Preferred
Stock .............. -- 149,500
Series E Preferred
Stock .............. -- 214,313
Stockholders' equity (54,689)(k) 97,079
----------- ------------
Total liabilities and
stockholders' equity $ 81,755 $1,190,836
=========== ============
</TABLE>
S-29
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(1) Dallas Disposition
To reflect the Dallas Disposition for $13,400,000 in cash to the Company.
The prior owner has commenced litigation against the Company due to the
parties' inability to agree on the amount of a contingent payment due the
prior owner. Should the ultimate payment exceed approximately $2,900,000, the
Company will recognize a loss on the disposal.
<TABLE>
<CAPTION>
DALLAS
SALE PROCEEDS KTCK-AM DISPOSITION
--------------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets .............................. $13,400 $ (988) $12,412
Property and equipment, net ................. -- (1,155) (1,155)
Intangible assets, net ...................... -- (9,003) (9,003)
Other assets ................................ -- (2) (2)
--------------- ----------- -------------
Total assets ............................... $13,400 $(11,148) $ 2,252
=============== =========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ......................... $ -- $ 2,310 $ 2,310
Other liabilities ........................... -- (58) (58)
Stockholders' equity ........................ 13,400 (13,400) --
--------------- ----------- -------------
Total liabilities and stockholders' equity $13,400 $(11,148) $ 2,252
=============== =========== =============
</TABLE>
(2) MMR Merger
Reflects the consummation of the merger of the Company with MMR for
approximately $72,000,000 in the Company's equity securities, repayment of
MMR's outstanding debt, and contribution of a loan between the Company and
MMR.
<TABLE>
<CAPTION>
MULTI-MARKET RADIO, INC.
--------------------------------------------------------
AS MMR PRO FORMA
REPORTED DISPOSITIONS(A) ADJUSTMENTS MMR MERGER
---------- --------------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets ............................. $12,252 $ 950 $ 7,562 (b) $(26,058)
(43,322)(c)
(3,500)(d)
Property and equipment, net ................ 3,454 (874) -- 2,580
Intangible assets, net ..................... 64,132 (4,036) 63,241 (e) 131,837
5,000 (c)
3,500 (d)
Other assets ............................... 4,434 2,403 (20,369)(f) (13,532)
---------- --------------- ------------- ------------
Total assets .............................. $84,272 $(1,557) $ 12,112 $ 94,827
========== =============== ============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ........................ $ 2,324 $ -- $ (1,041)(c) $ 1,283
Other liabilities .......................... 3,500 (3,500) -- --
Long-term debt ............................. 57,650 -- (37,281)(c) --
(20,369)(f)
Deferred taxes ............................. 7,241 -- 14,303 (e) 21,544
Stockholders' equity ....................... 13,557 1,943 7,562 (b) 72,000
(7,562)(e)
56,500 (e)
---------- --------------- ------------- ------------
Total liabilities and stockholders' equity $84,272 $(1,557) $ 12,112 $ 94,827
========== =============== ============= ============
</TABLE>
S-30
<PAGE>
------------
(a) Represents the pending Myrtle Beach Disposition for a sale price of
$4,252,000 (present value of payments to be received) $350,000 of which
has been received subsequent to September 30, 1996, as a deposit, and
the pending Little Rock Disposition for $4,100,000, $3,500,000 of which
has been received as a deposit. No gain or loss will be recognized by
the Company in connection with these transactions.
(b) The MMR Class A Warrants exercised subsequent to September 30, 1996
provided net cash proceeds of approximately $7,562,000.
(c) Repayment of approximately $38,000,000 of existing MMR indebtedness,
including accrued interest, and approximately $5,000,000 related to
prepayment premiums.
(d) Acquisition costs associated with the MMR Merger are $3,500,000.
(e) To reflect the MMR Merger, based on the stock price of the Company's
Class A Common Stock of $34 per share.
(f) To reflect a contribution of a loan between the Company and MMR.
(3) Offering and Pro Forma Adjustments
a. To reflect the Greensboro Acquisition for $6,000,000 in cash (which had
been deposited by the Company with the seller prior to September 30,
1996), the recording of the related excess of the purchase price paid
over the net book value of the assets carried on the adjusted balance
sheet of $3,584,000 and the adjustments to remove the current assets of
$484,000, current liabilities of $171,000, and stockholders' equity of
$2,729,000.
b. To reflect the Delsener/Slater Acquisition for $25,418,000, $19,953,000
in cash plus future payments with a net present value of $2,965,000
($418,000 of which is payable within one year), an additional payment
of $2,500,000 for working capital and other purchase price adjustments,
the recording of related excess of the purchase price paid over net
book value of the assets carried on the adjusted balance sheet of
$18,404,000, and an adjustment to remove the stockholders' equity of
$7,014,000.
c. To reflect the Albany Acquisition for $1,000,000 in cash, net of
deposit of $100,000.
d. For purposes of the pro forma financial statements, the Company has
assumed the issuance of $225,000,000 of Series E redeemable preferred
stock which, net of fees and expenses will yield net proceeds of
$214,313,000.
e. To reflect additional acquisition costs related to the Pending
Transactions as of September 30, 1996.
f. To reflect the Richmond Acquisition for $40,800,000 in cash, the
recording of the related excess of the purchase price paid over the net
book value of the assets carried on the adjusted balance sheet of
$31,142,000, the minority interest of $1,617,000 and adjustments to
remove current assets of $3,119,000, current liabilities of $592,000,
long-term debt of $19,236,000 and stockholders' deficit of $5,434,000.
In addition, the Company entered into an agreement with one of the
sellers under which it may owe a contingent payment. See "Agreements
Relating to the Pending Acquisitions and the Pending
Dispositions--Richmond Acquisition".
g. To reflect the Hartford Acquisition for $25,500,000 in cash (including
working capital), the recording of related excess of the purchase price
paid over net book value of the assets carried on the adjusted balance
sheet of $32,957,000 and the related incremental deferred taxes of
$8,544,000, and an adjustment to remove the stockholders' equity of
$1,087,000.
h. To reflect the Texas Coast Acquisition for $43,148,000, $42,000,000 in
cash (net of deposit of $500,000) and future payments with a net
present value of $1,148,000 ($214,000 of which is payable within one
year), the recording of the related excess of the purchase price paid
over the net book value of the assets carried on the adjusted balance
sheet of $42,446,000 and adjustments to remove current assets of
$2,440,000, current liabilities of $239,000, deferred taxes of $27,000
and stockholders' equity of $2,876,000.
i. For purposes of the pro forma financial statements, the Company has
assumed borrowings of $138,000,000 under the Credit Agreement.
j. To reflect fees and expenses associated with borrowings under the
Credit Agreement.
k. To reflect the Secret Communications Acquisition for $255,000,000 in
cash, the related excess of the purchase price paid over net book value
of the assets carried on the adjusted balance sheet
S-31
<PAGE>
of $206,990,000 and the adjustments to remove $8,235,000 of current
assets and $1,556,000 of current liabilities which are not being
assumed, and an adjustment to remove the stockholders' equity of
$54,689,000.
(4) Chancellor Exchange
To reflect the $11,000,000 of cash to be received by the Company in the
Chancellor Exchange. No gain or loss will be recognized because the cash and
the fair market value of the stations received equals the carrying value of
the station exchanged.
(5) Richmond Acquisition
To reflect the acquisition of a 96% interest in a limited liability
corporation which will acquire the assets of radio stations WKHK-FM, WBZU-FM
and WVGO-FM/WLEE-FM, for cash payments by the Company of approximately
$38,800,000 ($14,500,000 of which was loaned to ABS subsequent to September
30, 1996). See "Agreements Related to the Pending Acquisitions and the
Pending Dispositions--Richmond Acquisition".
<TABLE>
<CAPTION>
WVGO-FM/ RICHMOND
WKHK-FM WBZU-FM WLEE-FM ACQUISITION
--------- --------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets ............................. $ 2,644 $ 286 $ 189 $ 3,119
Property and equipment, net ................ 189 920 571 1,680
Intangible assets, net ..................... 4,818 1,047 3,668 9,533
Other assets ............................... -- 62 -- 62
--------- --------- ---------- -------------
Total assets .............................. $ 7,651 $ 2,315 $4,428 $14,394
========= ========= ========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ........................ $ 190 $ 184 $ 218 $ 592
Long-term debt ............................. 12,011 4,200 3,025 19,236
Stockholders' equity ....................... (4,550) (2,069) 1,185 (5,434)
--------- --------- ---------- -------------
Total liabilities and stockholders' equity $ 7,651 $ 2,315 $4,428 $14,394
========= ========= ========== =============
</TABLE>
(6) Secret Communications Acquisition
To reflect the Secret Communications Acquisition for $255,000,000.
<TABLE>
<CAPTION>
SECRET
SECRET THIRD PARTY COMMUNICATIONS
COMMUNICATIONS STATIONS(A) ACQUISITION
-------------- ------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets .............................. $ 8,018 $ 217 $ 8,235
Property and equipment, net ................. 4,580 1,064 5,644
Intangible assets, net ...................... 42,075 186 42,261
Other assets ................................ 105 -- 105
-------------- ------------- --------------
Total assets ............................... $54,778 $1,467 $56,245
============== ============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ......................... $ 1,556 $ -- $ 1,556
Stockholders' equity ........................ 53,222 1,467 54,689
-------------- ------------- --------------
Total liabilities and stockholders' equity $54,778 $1,467 $56,245
============== ============= ==============
</TABLE>
(a) Reflects the balance sheets of WDSY-FM and WJJJ-FM (the "Third Party
Stations") which Secret is expected to have acquired prior to the
consummation of the Secret Communications Acquisition.
S-32
<PAGE>
SFX BROADCASTING, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
RECENT ACQUISITIONS AND DISPOSITIONS
LIBERTY
ACQUISITION PRISM
SFX INCLUDING ACQUISITION
BROADCASTING, WASHINGTON INCLUDING
INC. AS DISPOSITIONS LOUISVILLE
REPORTED MMR MERGER(1) (2) DISPOSITIONS(3)
------------- ------------------- ------------ -------------
<S> <C> <C> <C> <C>
Net broadcast
revenues ........ $ 92,840 $16,550 $24,992 $13,511
Concert revenue,
net ............. -- -- -- --
Station and other
operating
expenses ........ 61,448 9,145 17,774 10,897
Depreciation,
amortization and
acquisition
related costs .. 10,663 4,080 5,150 1,241
Corporate
expenses ........ 4,475 939 1,478 808
Other ............ 27,489 887 -- --
------------- ------------------- ------------ -------------
Operating income
(loss) .......... (11,235) 1,499 590 565
Net interest
expense,
including
amortization of
deferred
financing costs 18,849 -- 3,326 773
Other expense
(income) ........ -- -- 5,935 --
Income tax
expense
(benefit) ....... -- -- (3,378) --
Minority interest
income (loss) .. -- -- -- --
------------- ------------------- ------------ -------------
Net income (loss)
before
extraordinary
loss ............ (30,084) 1,499 (5,293) (208)
Preferred stock
dividend
requirement ..... 3,551 -- -- --
------------- ------------------- ------------ -------------
Net income (loss)
before
extraordinary
loss applicable
to common shares $(33,635) $ 1,499 $(5,293) $ (208)
============= =================== ============ =============
Net loss before
extraordinary
loss per common
share ........... $ (4.55)
Average common
shares
outstanding ..... 7,394
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PENDING ACQUISITIONS AND DISPOSITIONS (OTHER THAN THE SECRET
COMMUNICATIONS ACQUISITION)
-----------------------------------------------------------------
GREENSBORO,
RALEIGH- PRO FORMA
GREENSBORO, HOUSTON FOR THE
GREENVILLE EXCHANGE RECENT
AND JACKSON AND DALLAS DELSENER/ PRO FORMA ACQUISITIONS
ACQUISITIONS DISPOSITION SLATER ADJUSTMENTS AND
(4) (5) ACQUISITION (6) DISPOSITIONS
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net broadcast
revenues ........ $ 4,728 $(7,664) $ -- $ 2,895 (a) $147,852*
Concert revenue,
net ............. -- -- 5,454*** -- 5,454
Station and other
operating
expenses ........ 2,869 (8,954) 608 (2,821)(b) 90,966
Depreciation,
amortization and
acquisition
related costs .. 1,492 (283) 733 (735)(c) 23,393
391 (d)
243 (e)
418 (f)
Corporate
expenses ........ 111 90 -- (2,487)(g) 5,414
Other ............ -- (1,435) -- -- 26,941
------------ ----------- ----------- ----------- ------------
Operating income
(loss) .......... 256 2,918 4,113 7,886 6,592
Net interest
expense,
including
amortization of
deferred
financing costs 382 (1,486) 60 (25,224)(h) 34,341
36,281 (h)
1,198 (h)
182 (m)
Other expense
(income) ........ (11,948) -- -- (5,935)(i) (28)
11,920 (i)
Income tax
expense
(benefit) ....... 45 772 -- 2,561 (i) --
Minority interest
income (loss) .. -- -- -- -- --
------------ ----------- ----------- ----------- ------------
Net income (loss)
before
extraordinary
loss ............ 11,777 3,632 4,053 (13,097) (27,721)
Preferred stock
dividend
requirement ..... -- -- -- 4,017 (j) 7,568
------------ ----------- ----------- ----------- ------------
Net income (loss)
before
extraordinary
loss applicable
to common shares $ 11,777 $ 3,632 $ 4,053 $(17,114) $ (35,289)
============ =========== =========== =========== ============
Net loss before
extraordinary
loss per common
share ........... $ (3.82)
Average common
shares
outstanding ..... 9,234**
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA FOR
THE RECENT AND
PENDING
ACQUISITIONS AND
DISPOSITIONS
CBS OFFERING AND (OTHER THAN THE
RICHMOND CHANCELLOR TEXAS COAST EXCHANGE HARTFORD PRO FORMA SECRET COMM.
ACQUISITION(7) EXCHANGE(8) ACQUISITION (9) ACQUISITION ADJUSTMENTS(6) ACQ.)
------------ ---------- ----------- -------- ----------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net broadcast
revenues ........ $7,055 $ (769) $3,041 $ 18 $3,796 $ -- $160,993*
Concert revenue,
net ............. -- -- -- -- -- -- 5,454
Station and other
operating
expenses ........ 6,059 (1,247) 2,150 1,382 2,895 (1,304)(b) 100,901
Depreciation,
amortization and
acquisition
related costs .. 799 (206) 39 -- 5 1,333 (c) 25,522
159 (l)
Corporate
expenses ........ 788 (1,026) -- -- -- 603 (g) 6,017
238 (g)
Other ............ -- -- (11) -- -- -- 26,930
------------ ---------- ----------- -------- ----------- ------------ ----------------
Operating income
(loss) .......... (591) 1,710 863 (1,364) 896 (1,029) 7,077
Net interest
expense,
including
amortization of
deferred
financing costs 936 (7) -- -- 11 (777)(h) 34,564
60 (m)
Other expense
(income) ........ -- (1) (51) -- (3) -- (83)
Income tax
expense
(benefit) ....... -- (2) -- 679 -- (677)(i) --
Minority interest
income (loss) .. -- -- -- -- -- (13)(k) (13)
Net income (loss)
before
extraordinary
loss ............ (1,527) 1,720 914 (2,043) 888 378 (27,391)
Preferred stock
dividend
requirement ..... -- -- -- -- -- 21,304 (j) 28,872
------------ ---------- ----------- -------- ----------- ------------ ----------------
Net income (loss)
before
extraordinary
loss applicable
to common shares $(1,527) $1,720 $914 $(2,043) $888 $(20,926) $(56,263)
============ ========== =========== ======== =========== ============ ================
Net loss before
extraordinary
loss per common
share ........... $ (6.09)
Average common
shares
outstanding ..... 9,234**
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
RECENT AND
PENDING
SECRET PRO FORMA ACQUISITIONS
COMMUNICATIONS ADJUSTMENTS AND
ACQUISITION(10) (6) DISPOSITIONS
-------------- ----------- ------------
<S> <C> <C> <C>
Net broadcast
revenues ........ $25,510 $ -- $186,503*
Concert revenue,
net ............. -- -- 5,454
Station and other
operating
expenses ........ 15,047 -- 115,948
Depreciation,
amortization and
acquisition
related costs .. 2,580 2,844 (c) 30,946
Corporate
expenses ........ -- -- 6,017
Other ............ -- -- 26,930
-------------- ----------- ------------
Operating income
(loss) .......... 7,883 (2,844) 12,116
Net interest
expense,
including
amortization of
deferred
financing costs -- 11,858 (h) 46,422
Other expense
(income) ........ 1,175 (1,175)(n) (83)
Income tax
expense
(benefit) ....... -- -- --
Minority interest
income (loss) .. -- -- (13)
Net income (loss)
before
extraordinary
loss ............ 6,708 (13,527) (34,210)
Preferred stock
dividend
requirement ..... -- -- 28,872
-------------- ----------- ------------
Net income (loss)
before
extraordinary
loss applicable
to common shares $6,708 $(13,527) $(63,082)
============== =========== ============
Net loss before
extraordinary
loss per common
share ........... $ (6.83)
Average common
shares
outstanding ..... 9,234**
</TABLE>
- ------------
* Includes $2,895 of fees from Triathlon; see Note 6(a).
** Represents average shares outstanding for the nine months ended
September 30, 1996 plus the 1,840 shares issued in the MMR Merger.
*** Comprised of $40,444 of concert and related revenue, net of concert
costs of $34,990. The Company is currently evaluating alternative
classification presentations of the Delsener/Slater Acquisition.
S-33
<PAGE>
SFX BROADCASTING, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
RECENT ACQUISITIONS AND DISPOSITIONS
---------------------------------------------------------------------------------------
GREENSBORO,
LIBERTY RALEIGH-
ACQUISITION PRISM GREENSBORO, HOUSTON
SFX INCLUDING ACQUISITION GREENVILLE EXCHANGE
BROADCASTING, WASHINGTON INCLUDING AND JACKSON AND DALLAS DELSENER/
INC. AS DISPOSITIONS LOUISVILLE ACQUISITIONS DISPOSITION SLATER
REPORTED MMR MERGER(1) (2) DISPOSITIONS(3) (4) (5) ACQUISITION
------------- ----------------- ------------ ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
NET BROADCAST
REVENUES ........ $ 76,830 $21,757 $50,518 $26,959 $18,463 $(9,967) $ --
CONCERT REVENUE,
NET ............. -- -- -- -- -- -- 6,025****
STATION AND OTHER
OPERATING
EXPENSES ........ 51,039 12,088 32,781 22,411 15,570 (9,689) 912
DEPRECIATION,
AMORTIZATION AND
ACQUISITION
RELATED COSTS .. 9,137** 4,230 9,092 2,232 2,947 (124) 750
CORPORATE
EXPENSES ........ 3,797 1,253 4,653 2,027 265 120 --
OTHER ............ 5,000 1,114 -- -- -- (5,000) --
------------- ----------------- ------------ ------------- ------------ ----------- -----------
OPERATING INCOME
(LOSS) .......... 7,857 3,072 3,992 289 (319) 4,726 4,363
NET INTEREST
EXPENSE,
INCLUDING
AMORTIZATION OF
DEFERRED
FINANCING
COSTS ........... 12,253 -- 7,275 1,565 948 (1,841) 144
OTHER EXPENSE
(INCOME) ........ -- -- -- (200) (201) (498) --
INCOME TAX
EXPENSE
(BENEFIT) ....... -- -- (2,725) -- 562 -- --
MINORITY INTEREST
INCOME (LOSS) .. -- -- -- -- -- -- --
------------- ----------------- ------------ ------------- ------------ ----------- -----------
NET INCOME (LOSS) (4,396) 3,072 (558) (1,076) (1,628) 7,065 4,219
PREFERRED STOCK
DIVIDEND
REQUIREMENT ..... 291 -- -- -- -- -- --
------------- ----------------- ------------ ------------- ------------ ----------- -----------
NET INCOME (LOSS)
APPLICABLE TO
COMMON SHARES .. $ (4,687) $ 3,072 $ (558) $(1,076) $(1,628) $ 7,065 $ 4,219
============= ================= ============ ============= ============ =========== ===========
NET LOSS PER
COMMON
SHARE ........... $ (0.71)
AVERAGE COMMON
SHARES
OUTSTANDING ..... 6,596
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA
FOR THE RECENT
PRO FORMA ACQUISITIONS
ADJUSTMENTS AND
(6) DISPOSITIONS
----------- ------------
<S> <C> <C>
NET BROADCAST
REVENUES ........ $ 5,035 (a) $189,595*
CONCERT REVENUE,
NET ............. -- 6,025
STATION AND OTHER
OPERATING
EXPENSES ........ 1,323 (a) 121,295
(5,140)(b)
DEPRECIATION,
AMORTIZATION AND
ACQUISITION
RELATED COSTS .. 978 (a) 30,029
(878)(c)
782 (d)
325 (e)
558 (f)
CORPORATE
EXPENSES ........ (7,065)(g) 5,095
45 (a)
OTHER ............ -- 1,114
----------- ------------
OPERATING INCOME
(LOSS) .......... 14,107 38,087
NET INTEREST
EXPENSE,
INCLUDING
AMORTIZATION OF
DEFERRED
FINANCING
COSTS ........... (20,776)(h) 49,821
48,375 (h)
1,598 (h)
280 (m)
OTHER EXPENSE
(INCOME) ........ -- (899)
INCOME TAX
EXPENSE
(BENEFIT) ....... 2,163 (i) --
MINORITY INTEREST
INCOME (LOSS) .. -- --
----------- ------------
NET INCOME (LOSS) (17,533) (10,835)
PREFERRED STOCK
DIVIDEND
REQUIREMENT ..... 9,665 (j) 9,956
----------- ------------
NET INCOME (LOSS)
APPLICABLE TO
COMMON SHARES .. $(27,198) $ (20,791)
=========== ============
NET LOSS PER
COMMON
SHARE ........... $ (2.46)
AVERAGE COMMON
SHARES
OUTSTANDING ..... 8,436***
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PENDING ACQUISITION AND DISPOSITIONS
(OTHER THAN THE SECRET COMMUNICATIONS ACQUISITION)
----------------------------------------------------------------
PRO FORMA FOR
THE RECENT AND
PENDING
ACQUISITIONS
AND
DISPOSITIONS
CBS OFFERING AND (OTHER THAN
RICHMOND CHANCELLOR TEXAS COAST EXCHANGE HARTFORD PRO FORMA THE SECRET
ACQUISITION(7) EXCHANGE(8) ACQUISITION (9) ACQUISITION ADJUSTMENTS(6) COMM. ACQ.)
------------ ---------- ----------- -------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET BROADCAST
REVENUES ........ $9,213 $(3,882) $4,081 $(1,442) $4,923 $ -- $202,488*
CONCERT REVENUE,
NET ............. -- -- -- -- -- -- 6,025
STATION AND OTHER
OPERATING
EXPENSES ........ 8,097 (2,442) 2,981 1,854 4,985 (3,092)(b) 133,678
DEPRECIATION,
AMORTIZATION AND
ACQUISITION
RELATED COSTS .. 1,410 (275) 53 -- 48 1,807 (c) 33,285
213 (l)
CORPORATE
EXPENSES ........ 650 (1,460) -- 214 -- 2,405 (g) 7,500
596 (g)
OTHER ............ -- -- (58) -- 5 -- 1,061
------------ ---------- ----------- -------- ----------- ------------ --------------
OPERATING INCOME
(LOSS) .......... (944) 295 1,105 (3,510) (115) (1,929) 32,989
NET INTEREST
EXPENSE,
INCLUDING
AMORTIZATION OF
DEFERRED
FINANCING
COSTS ........... 1,415 (17) -- -- 4 (1,402)(h) 49,914
93 (m)
OTHER EXPENSE
(INCOME) ........ 43 -- -- (152) -- -- (1,008)
INCOME TAX
EXPENSE
(BENEFIT) ....... -- -- 48 31 7 (86)(i) --
MINORITY INTEREST
INCOME (LOSS) .. -- -- -- -- -- 2 (k) 2
------------ ---------- ----------- -------- ----------- ------------ --------------
NET INCOME (LOSS) (2,402) 312 1,057 (3,389) (126) (536) (15,919)
PREFERRED STOCK
DIVIDEND
REQUIREMENT ..... -- -- -- -- -- 28,406 (j) 38,362
------------ ---------- ----------- -------- ----------- ------------ --------------
NET INCOME (LOSS)
APPLICABLE TO
COMMON SHARES .. $(2,402) $ 312 $1,057 $(3,389) $(126) $(28,942) $ (54,281)
============ ========== =========== ======== =========== ============ ==============
NET LOSS PER
COMMON
SHARE ........... $ (6.43)
AVERAGE COMMON
SHARES
OUTSTANDING ..... 8,436***
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
RECENT AND
PENDING
SECRET PRO FORMA ACQUISITIONS
COMMUNICATIONS ADJUSTMENTS AND
ACQUISITION(10) (6) DISPOSITIONS
-------------- ----------- ------------
<S> <C> <C> <C>
NET BROADCAST
REVENUES ........ $30,733 $ -- $233,221*
CONCERT REVENUE,
NET ............. -- -- 6,025
STATION AND OTHER
OPERATING
EXPENSES ........ 17,481 -- 151,159
DEPRECIATION,
AMORTIZATION AND
ACQUISITION
RELATED COSTS .. 3,496 3,598 (C) 40,379
CORPORATE
EXPENSES ........ 1,249 (1,249)(G) 7,500
OTHER ............ -- -- 1,061
-------------- ----------- ------------
OPERATING INCOME
(LOSS) .......... 8,507 (2,349) 39,147
NET INTEREST
EXPENSE,
INCLUDING
AMORTIZATION OF
DEFERRED
FINANCING
COSTS ........... 2,067 (2,067)(H) 61,362
11,448 (H)
OTHER EXPENSE
(INCOME) ........ 5 -- (1,003)
INCOME TAX
EXPENSE
(BENEFIT) ....... -- -- --
MINORITY INTEREST
INCOME (LOSS) .. -- -- 2
-------------- ----------- ------------
NET INCOME (LOSS) 6,435 (11,730) (21,214)
PREFERRED STOCK
DIVIDEND
REQUIREMENT ..... -- -- 38,362
-------------- ----------- ------------
NET INCOME (LOSS)
APPLICABLE TO
COMMON SHARES .. $6,435 $(11,730) $ (59,576)
============== =========== ============
NET LOSS PER
COMMON
SHARE ........... $ (7.06)
AVERAGE COMMON
SHARES
OUTSTANDING ..... 8,436***
</TABLE>
- ------------
* Includes $3,584 of fees from Triathlon; see Note 6(a).
** Includes $1,400 of duopoly integration costs.
*** Represents total shares outstanding at December 31, 1995 plus the
1,840 shares issued in the MMR Merger.
**** Comprised of a $48,646 of concert and related revenue, net of concert
costs of $42,621. The Company is currently evaluating alternative
classification presentations for the Delsener/Slater Acquisition.
S-34
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF OPERATIONS
(1) MMR Merger
Reflects the net effect of the historical operations of MMR as adjusted
for acquisitions and dispositions.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
--------------------------------------------------------------------
MMR
AS MMR HARTFORD PRO FORMA MMR
REPORTED DISPOSITIONS(a) ACQUISITION ADJUSTMENTS MERGER
---------- --------------- ------------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net broadcast revenues ..... $15,242 $(1,521) $2,829 $ -- $16,550
Station operating expenses . 9,346 (1,593) 2,040 (648)(b) 9,145
Depreciation/amortization .. 1,221 (138) 277 2,655 (c) 4,080
65 (d)
Corporate expenses .......... 1,844 -- -- 939 (e) 939
(1,844)(e)
Non-cash compensation ....... 262 -- -- 625 (g) 887
---------- --------------- ------------- ------------- ---------
Operating income (loss) .... 2,569 210 512 (1,792) 1,499
Interest expense ............ 4,185 -- 274 (4,459)(f) --
Other expense (income) ..... 5,985 (1,577) (12) (4,396)(f) --
Income tax expense (benefit) -- -- 7 (7)(f) --
---------- --------------- ------------- ------------- ---------
Net income (loss) ........... $(7,601) $ 1,787 $ 243 $ 7,070 $ 1,499
========== =============== ============= ============= =========
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------------------------------------
SOUTHERN
MMR STARR--
AS MMR HARTFORD 1ST QUARTER PRO FORMA MMR
REPORTED DISPOSITIONS(A) ACQUISITION 1995 ADJUSTMENTS MERGER
---------- --------------- ------------- ------------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net broadcast revenues ..... $18,288 $(3,647) $4,424 $2,692 $ -- $21,757
Station operating expenses . 11,026 (3,223) 3,286 1,863 (864)(b) 12,088
Depreciation/amortization .. 1,750 (386) 227 327 2,225 (c) 4,230
87 (d)
Corporate expenses .......... 1,666 -- -- -- 1,253 (e) 1,253
(1,666)(e)
Non-cash compensation ....... 281 -- -- -- 833 (g) 1,114
---------- --------------- ------------- ------------- ------------- ---------
Operating income (loss) .... 3,565 (38) 911 502 (1,868) 3,072
Interest expense ............ 4,966 -- 502 -- (5,468)(f) --
Other expense (income) ..... (11) -- (14) -- 25 (f) --
Income tax expense (benefit) (59) -- 48 -- 11 (f) --
---------- --------------- ------------- ------------- ------------- ---------
Net income (loss) ........... $(1,331) $ (38) $ 375 $ 502 $ 3,564 $ 3,072
========== =============== ============= ============= ============= =========
</TABLE>
- ------------
(a) Reflects the elimination of the operations of stations WRSF-FM, sold
in March 1996, WRXR-FM and WKBG-FM, sold in July 1996, and the pending
Little Rock Disposition and Myrtle Beach Disposition.
S-35
<PAGE>
(b) Reflects cost savings of $648,000 and $864,000 for the nine months
ended September 30, 1996 and the year ended December 31, 1995,
respectively, anticipated to be achieved in connection with the MMR
Hartford Acquisition, consisting principally of the elimination of
certain duplicative technical sales and general and administrative
functions due to operating a cluster of stations in the Hartford
market.
(c) Reflects $2,655,000 and $2,225,000 for the nine months ended
September 30, 1996 and the year ended December 31, 1995, respectively,
in amortization of intangible assets recorded in connection with the
MMR Merger, Myrtle Beach Acquisition, MMR Hartford Acquisition, related
incremental deferred taxes and change in amortization periods.
(d) Amortization of $65,000 and $87,000 for acquisition costs associated
with the MMR Merger for the nine months ended September 30, 1996 and
the year ended December 31, 1995, respectively.
(e) To record incremental corporate overhead charges of $939,000 and
$1,253,000 associated with the MMR Merger for the nine months ended
September 30, 1996 and the year ended December 31, 1995, respectively,
and to eliminate MMR's existing corporate overhead of $1,844,000 and
$1,666,000 for the nine months ended September 30, 1996 and the year
ended December 31, 1995, respectively.
(f) Elimination of a nonrecurring loss (income) of $4,396,000 and
($25,000) for the nine months ended September 30, 1996 and the year
ended December 31, 1995, respectively, interest expense of $4,459,000
and $5,468,000 for the nine months ended September 30, 1996 and the
year ended December 31, 1995, respectively, and income tax expense
(benefit) of $7,000 and ($11,000) for the nine months ended September
30, 1996 and the year ended December 31, 1995, respectively.
(g) Reflects non-cash compensation charge for the issuance of shares of
the Series A and Series B Convertible Preferred Stock of MMR. The
shares of Series A and Series B stock were issued to certain officers
and advisors of MMR in July and November 1996, respectively, and
converted into Class A Common Stock of the Company upon consummation of
the MMR Merger. Certain of the shares issued pursuant to the Series A
and Series B conversions which were issued to individuals currently
employed by the Company are being held in escrow and will be released
in five equal annual installments ending in April 2001.
(2) Liberty Acquisition
Reflects the net effect of the historical operations of the Liberty
Stations (as defined herein) adjusted for the Washington Dispositions.
NINE MONTHS ENDED SEPTEMBER 30, 1996
-------------------------------------------
LIBERTY AS WASHINGTON LIBERTY
REPORTED DISPOSITIONS ACQUISITION
------------ -------------- -------------
(IN THOUSANDS)
Net broadcast revenues ... $25,966 $ (974) $24,992
Station operating expenses 19,337 (1,563) 17,774
Depreciation/amortization 5,926 (776) 5,150
Corporate expenses ........ 1,566 (88) 1,478
------------ -------------- -------------
Operating income (loss) .. (863) 1,453 590
Interest expense .......... 3,467 (141) 3,326
Other expense ............. 5,935 -- 5,935
Income tax benefit ........ (3,378) -- (3,378)
------------ -------------- -------------
Net income (loss) ......... $(6,887) $ 1,594 $(5,293)
============ ============== =============
S-36
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------------
LIBERTY AS BECK ROSS WASHINGTON LIBERTY
REPORTED ACQUISITION* DISPOSITIONS ACQUISITION
------------ -------------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net broadcast revenues ... $51,407 $2,486 $(3,375) $50,518
Station operating expenses 34,725 2,121 (4,065) 32,781
Depreciation/amortization 10,429 40 (1,377) 9,092
Corporate expenses ........ 4,653 -- -- 4,653
------------ -------------- -------------- -------------
Operating income .......... 1,600 325 2,067 3,992
Interest expense .......... 7,373 -- (98) 7,275
Income tax benefit ........ (2,725) -- -- (2,725)
------------ -------------- -------------- -------------
Net income (loss) ......... $(3,048) $ 325 $ 2,165 $ (558)
============ ============== ============== =============
</TABLE>
- ------------
* Represents the acquisition by Liberty of radio stations WBLI-FM,
WHCN-FM and WSNE-FM from Beck-Ross Communications, Inc. in 1995.
(3) Prism Acquisition
Reflects the net effect of the historical operations of the Prism
Acquisition adjusted for the Louisville Dispositions.
NINE MONTHS ENDED SEPTEMBER 30, 1996
-----------------------------------------
PRISM AS LOUISVILLE PRISM
REPORTED DISPOSITIONS ACQUISITION
---------- -------------- -------------
(IN THOUSANDS)
Net broadcast revenues ... $16,859 $(3,348) $13,511
Station operating expenses 13,373 (2,476) 10,897
Depreciation/amortization 1,599 (358) 1,241
Corporate expenses ........ 808 -- 808
---------- -------------- -------------
Operating income (loss) .. 1,079 (514) 565
Interest expense .......... 773 -- 773
---------- -------------- -------------
Net income (loss) ......... $ 306 $ (514) $ (208)
========== ============== =============
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------
PRISM AS LOUISVILLE PRISM
REPORTED DISPOSITIONS ACQUISITION
---------- -------------- -------------
(IN THOUSANDS)
Net broadcast revenues ... $32,572 $(5,613) $26,959
Station operating expenses 26,979 (4,568) 22,411
Depreciation/amortization 2,946 (714) 2,232
Corporate expenses ........ 2,027 -- 2,027
---------- -------------- -------------
Operating income (loss) .. 620 (331) 289
Interest expense .......... 1,565 -- 1,565
Other income .............. (200) -- (200)
---------- -------------- -------------
Net loss .................. $ (745) $ (331) $ (1,076)
========== ============== =============
S-37
<PAGE>
(4) Greensboro, Raleigh-Greensboro, Greenville and Jackson Acquisitions
Reflects the net effect of the combined historical operations of the
Greensboro Acquisition, the Raleigh-Greensboro Acquisitions, the Greenville
Acquisition and the Jackson Acquisitions.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
---------------------------------------------------------
RALEIGH-
GREENSBORO AND
GREENSBORO GREENVILLE JACKSON
ACQUISITIONS ACQUISITION ACQUISITIONS TOTAL
-------------- ------------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net broadcast revenues .... $3,619 $ 639 $470 $ 4,728
Station operating expenses 2,264 271 334 2,869
Depreciation/amortization . 1,168 244 80 1,492
Corporate expenses ......... 4 107 -- 111
-------------- ------------- -------------- ----------
Operating income ........... 183 17 56 256
Interest expense ........... 59 323 -- 382
Other income ............... (51) (11,897) -- (11,948)
Income tax expense ......... 45 -- -- 45
-------------- ------------- -------------- ----------
Net income ................. $ 130 $ 11,591 $ 56 $ 11,777
============== ============= ============== ==========
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------
RALEIGH-
GREENSBORO AND
GREENSBORO GREENVILLE JACKSON
ACQUISITIONS ACQUISITION ACQUISITIONS TOTAL
-------------- ------------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net broadcast revenues .... $12,688 $4,074 $1,701 $18,463
Station operating expenses 10,982 3,238 1,350 15,570
Depreciation/amortization . 2,325 514 108 2,947
Corporate expenses ......... -- 195 70 265
-------------- ------------- -------------- ---------
Operating income (loss) ... (619) 127 173 (319)
Interest expense ........... 156 792 -- 948
Other expense (income) .... (203) 2 -- (201)
Income tax expense ......... 562 -- -- 562
-------------- ------------- -------------- ---------
Net income (loss) .......... $(1,134) $ (667) $ 173 $(1,628)
============== ============= ============== =========
</TABLE>
(5) Houston Exchange and Dallas Disposition
To reflect the exchange of KRLD-AM and the Texas State Networks for
KKRW-FM in the Houston Exchange, and the sale of KTCK-AM in the Dallas
Disposition.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 31, 1996
-----------------------------------------------------------------------------------------
HOUSTON EXCHANGE AND
DISPOSITIONS ACQUISITION ADJUSTMENTS* DALLAS DISPOSITION
---------------------------------- ------------- -------------- ----------------------
KRLD-AM TSN KTCK-AM KKRW-FM
---------- ---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net broadcast revenues ... $(8,873) $(2,223) $(2,136) $5,568 $ -- $(7,664)
Station operating expenses (7,862) (1,812) (2,487) 3,207 -- (8,954)
Depreciation/amortization (1,036) (186) (283) 66 1,156 (283)
Corporate expenses ........ -- -- -- 90 -- 90
Other ..................... (1,600) 0 165 -- -- (1,435)
---------- ---------- ---------- ------------- -------------- ----------------------
Operating income (loss) .. 1,625 (225) 469 2,205 (1,156) 2,918
Interest expense .......... (1,183) (299) (4) -- -- (1,486)
Income tax expense ........ -- -- -- 772 -- 772
---------- ---------- ---------- ------------- -------------- ----------------------
Net income (loss) ......... $ 2,808 $ 74 $ 473 $1,433 $(1,156) $ 3,632
========== ========== ========== ============= ============== ======================
</TABLE>
S-38
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------------------------------------------
HOUSTON EXCHANGE AND
DISPOSITIONS ACQUISITION ADJUSTMENTS* DALLAS DISPOSITION
---------------------------------- ------------- -------------- ----------------------
KRLD-AM TSN KTCK-AM KKRW-FM
---------- ---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net broadcast revenues .... $(9,792) $(3,196) $(4,096) $7,117 $ -- $(9,967)
Station operating expenses (8,881) (2,261) (3,714) 5,167 -- (9,689)
Depreciation/amortization . (1,350) (725) (124) 371 1,704 (124)
Corporate expenses ......... -- -- -- 120 -- 120
Other ...................... (5,000) -- -- -- -- (5,000)
---------- ---------- ---------- ------------- -------------- ----------------------
Operating income (loss) ... 5,439 (210) (258) 1,459 (1,704) 4,726
Interest expense ........... (1,433) (403) (5) -- -- (1,841)
Other income ............... -- -- (323) (175) -- (498)
---------- ---------- ---------- ------------- -------------- ----------------------
Net income (loss) .......... $ 6,872 $ 193 $ 70 $1,634 $(1,704) $ 7,065
========== ========== ========== ============= ============== ======================
</TABLE>
- ------------
(*) To reflect historical depreciation and amortization of KRLD-AM and the
Texas State Networks and the disposition of KTCK-AM.
(6) Pro Forma Adjustments
a. Reflects the results during the year ended December 31, 1995 of radio
stations (located in San Diego, Charlotte--WLYT only, and Dallas)
acquired and fees of $3,584,000 and $2,895,000 incurred by Triathlon
and payable to SCMC for the year ended December 31, 1995 and the nine
months ended September 30, 1996, respectively, of which $2,584,000 and
$2,020,000, respectively, represent fees based upon acquisition and
financing activities in the respective periods. Future fees may be
lesser or greater based upon future acquisition and financing activity
by Triathlon. Minimum annual fees will be $1,000,000 per year.
b. Reflects anticipated cost savings realized to date and expected to be
realized following the Liberty Acquisition, the Chancellor Exchange,
the Prism Acquisition, the Jackson Acquisitions, the Richmond
Acquisition, the Texas Coast Acquisition and Hartford Acquisition,
consisting principally of the elimination of certain duplicative
technical, sales and general and administrative functions due to
operating a cluster of stations in each of its principal markets, a
reduction of employee benefit costs and commission rates and the
elimination of programming personnel due to automation and
simulcasting.
Also reflected are the adjustment of Delsener/Slater officers'
salaries to reflect new employment contracts, the elimination of
non-recurring losses of Delsener/Slater and the elimination of certain
salaries and expenses of employee-shareholders in connection with the
Hartford Acquisition.
While management believes that such cost savings and the elimination
of non-recurring expenses are reasonably achievable, the Company's
ability to achieve such cost savings and to eliminate the
non-recurring expenses is subject to numerous factors, many of which
are beyond the Company's control. These factors may include
difficulties in integrating the acquired stations and the incurrence
of unanticipated severance, promotional or other costs and expenses.
There can be no assurance that the Company will realize all such cost
savings. See also "Risk Factors" contained in this Prospectus
Supplement and the accompanying Prospectus.
c. Reflects increase (decrease) in amortization of intangible assets
resulting from the purchase price allocation and change in amortization
period:
S-39
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1996
----------------------------------------------
INCREASE DUE DECREASE DUE
TO PURCHASE TO CHANGE IN
PRICE AMORTIZATION NET INCREASE
ALLOCATION PERIODS (DECREASE)
-------------- -------------- --------------
(IN THOUSANDS)
Liberty Acquisition ........... $1,117 $(2,984) $(1,867)
Prism Acquisition ............. 870 (641) 229
Raleigh-Greensboro, Greenville
and Jackson Acquisitions .... 612 (646) (34)
Albany Acquisition ............ 18 0 18
Delsener/Slater Acquisition .. 919 0 919
--------------
Net Decrease for Recent
Acquistions .................. $ (735)
==============
Richmond Acquisition .......... $ 546 $ (465) $ 81
Texas Coast Acquisition ...... 795 0 795
Hartford Acquisition .......... 457 0 457
--------------
Net Increase for Pending
Acquisitions (other than the
Secret Communications
Acquisition) ................. $ 1,333
==============
Secret Communications
Acquisition .................. $3,880 $(1,036) $ 2,844
==============
(RESTUBBED TABLE CONTINUED FROM ABOVE)
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------
INCREASE DUE DECREASE DUE
TO PURCHASE TO CHANGE IN
PRICE AMORTIZATION NET INCREASE
ALLOCATION PERIODS (DECREASE)
-------------- -------------- --------------
Liberty Acquisition ........... $2,235 $(4,799) $(2,564)
Prism Acquisition ............. 1,606 (1,186) 420
Raleigh-Greensboro, Greenville
and Jackson Acquisitions .... 1,235 (1,220) 15
Albany Acquisition ............ 25 0 25
Delsener/Slater Acquisition .. 1,226 0 1,226
-------------- --------------
Net Decrease for Recent
Acquistions .................. $ (878)
-------------- ==============
Richmond Acquisition .......... $ 728 $ (642) $ 86
Texas Coast Acquisition ...... 1,061 0 1,061
Hartford Acquisition .......... 610 0 610
-------------- --------------
Net Increase for Pending
Acquisitions (other than the
Secret Communications
Acquisition) ................. $ 1,757
-------------- ==============
Secret Communications
Acquisition .................. $5,174 $(1,576) $ 3,598
-------------- ==============
d. Reflects $391,000 and $782,000 in amortization of goodwill arising from
the deferred taxes recorded in connection with the Liberty Acquisition
for the six months prior to the purchase date and the year ended December
31, 1995, respectively.
e. Amortization of $243,000 and $325,000 for acquisition costs associated
with the Recent and Pending Acquisitions for the nine months ended
September 30, 1996 and the year ended December 31, 1995, respectively.
f. To reflect $418,000 and $558,000 in amortization relating to the present
value of the Triathlon consulting fees assigned to the Company under the
SCMC Termination Agreement for the nine months ended September 30, 1996
and the year ended December 31, 1995, respectively.
g. To record incremental corporate overhead charges of $1,803,000 and
$2,405,000 for the nine months ended September 30, 1996 and the year
ended December 31, 1995, respectively, relating to increases in
personnel, professional fees and administrative expenses associated with
the increased size of the Company due to the Recent and Pending
Acquisitions and the elimination of $2,249,000 and $7,718,000 for the
nine months ended September 30, 1996 and the year ended December 31,
1995, respectively, of the corporate overhead of the sellers.
h. To reflect interest expense of $36,281,000 and $48,375,000 for the nine
months ended September 30, 1996 and the year ended December 31, 1995,
respectively, related to the $450,000,000 of New Notes at 10.75%,
amortization of deferred financing costs of $1,198,000 and $1,598,000 for
the nine months ended September 30, 1996 and the year ended December 31,
1995, respectively, interest expense of $11,858,000 and $11,448,000
relating to the borrowings from the Credit Agreement at 8.25% for the
nine months ended September 30, 1996 and the year ended December 31,
1995, respectively, and elimination of existing interest expense (net of
interest on other debt) of $26,001,000 and $24,245,000 related to the
Company and the sellers for the nine months ended September 30, 1996 and
the year ended December 31, 1995, respectively.
i. Elimination of acquisition related costs of $5,935,000 recorded on the
income statement of Liberty for the nine months ended September 30, 1996,
a gain on the sale of assets of $11,920,000 recorded on the books of ABS
Greenville Partners, L.P. for the nine months ended September 30, 1996
and net income tax benefits of $1,884,000 and $2,077,000 for the nine
months ended September 30, 1996 and the year ended December 31, 1995,
respectively.
j. To record the incremental Series D Preferred Stock dividend and the
assumed Series E Preferred Stock issuance to finance a portion of the
Pending Acquisitions at a rate of 6.5% and 12 5/8%, respectively.
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<PAGE>
k. To record minority interest income (loss) related to the Richmond
Acquisition of ($13,000) and $2,000 for the nine months ended September
30, 1996 and the year ended December 31, 1995, respectively.
l. Reflects $159,000 and $213,000 in amortization of goodwill arising from
the deferred taxes recorded in connection with the Hartford Acquisition
for the nine months ended September 30, 1996 and the year ended December
31, 1995, respectively.
m. To record interest expense of $242,000 and $373,000 for the nine months
ended September 30, 1996 and the year ended December 31, 1995,
respectively, in connection with the long-term payments due for the
Delsener/Slater Acquisition and the Texas Coast Acquisition.
n. Elimination of LMA fees paid by Secret Communications for the Third Party
Stations.
(7) Richmond Acquisition
Reflects the net effect of the combined historical operations of radio
stations WKHK-FM, WBZU-FM and WVGO-FM/WLEE-FM acquired in the Richmond
Acquisition.
NINE MONTHS ENDED SEPTEMBER 30, 1996
-----------------------------------------------
WVGO-FM/ RICHMOND
WKHK-FM WBZU-FM WLEE-FM ACQUISITION
--------- --------- ---------- -------------
(IN THOUSANDS)
Net broadcast revenues ... $3,984 $ 866 $ 2,205 $ 7,055
Station operating expenses 2,648 1,119 2,292 6,059
Depreciation/amortization 187 154 458 799
Corporate expenses ........ 273 88 427 788
--------- --------- ---------- -------------
Operating income (loss) .. 876 (495) (972) (591)
Interest expense .......... 571 202 163 936
--------- --------- ---------- -------------
Net income (loss) ......... $ 305 $ (697) $(1,135) $(1,527)
========= ========= ========== =============
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------
WVGO-FM/ RICHMOND
WKHK-FM WBZU-FM WLEE-FM ACQUISITION
--------- ---------- ---------- -------------
(IN THOUSANDS)
Net broadcast revenues ... $4,478 $ 849 $ 3,886 $ 9,213
Station operating expenses 3,154 1,561 3,382 8,097
Depreciation/amortization 253 243 914 1,410
Corporate expenses ........ 245 77 328 650
--------- ---------- ---------- -------------
Operating income (loss) .. 826 (1,032) (738) (944)
Interest expense .......... 811 287 317 1,415
Other expense ............. -- -- 43 43
--------- ---------- ---------- -------------
Net income (loss) ......... $ 15 $(1,319) $(1,098) $(2,402)
========= ========== ========== =============
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<PAGE>
(8) Chancellor Exchange
Reflects the pending transfer of WBAB-FM, WHFM-FM, WBLI-FM, and WGBB-FM
("Long Island Disposition") in exchange for WFYV-FM and WAPE-FM
("Jacksonville Acquisition") in the Chancellor Exchange.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
----------------------------------------------------------
LONG ISLAND JACKSONVILLE CHANCELLOR
DISPOSITION ACQUISITION ADJUSTMENTS EXCHANGE
------------- -------------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net broadcast revenues ... $(5,108) $4,764 $(425)** $ (769)
Station operating expenses (3,923) 2,676 -- (1,247)
Depreciation/amortization (1,429) 876 347* (206)
Corporate expenses ........ (1,026) -- -- (1,026)
------------- -------------- ------------- ------------
Operating income (loss) .. 1,270 1,212 (772) 1,710
Interest expense .......... (7) -- -- (7)
Other expense (income) ... (1) -- -- (1)
Income tax expense ........ (2) -- -- (2)
------------- -------------- ------------- ------------
Net income (loss) ......... $ 1,280 $1,212 $(772) $ 1,720
============= ============== ============= ============
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------
LONG ISLAND JACKSONVILLE CHANCELLOR
DISPOSITION ACQUISITION ADJUSTMENTS EXCHANGE
------------- -------------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net broadcast revenues ... $(11,511) $7,629 $ -- $(3,882)
Station operating expenses (7,282) 4,840 -- (2,442)
Depreciation/amortization (2,682) 1,491 916* (275)
Corporate expenses ........ (1,460) -- -- (1,460)
------------- -------------- ------------- ------------
Operating income (loss) .. (87) 1,298 (916) 295
Interest expense .......... (17) -- -- (17)
Income tax expense ........ -- -- -- --
------------- -------------- ------------- ------------
Net income (loss) ......... $ (70) $1,298 $(916) $ 312
============= ============== ============= ============
</TABLE>
- ------------
* To reflect historic depreciation of the stations that are the subject
of the Long Island Disposition net of decrease in amortization due to
the exchange allocation.
** To eliminate LMA payment received for the Long Island stations for the
month of July 1996.
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<PAGE>
(9) CBS Exchange
To reflect the net effect of the exchange of WHFS-FM for KTXQ-FM and
KRRW-FM in the CBS Exchange.
NINE MONTHS ENDED SEPTEMBER 30, 1996
-------------------------------------------------
KTXQ-FM WHFS-FM CBS
KRRW-FM DISPOSAL ADJUSTMENTS* EXCHANGE
--------- ---------- -------------- ----------
(IN THOUSANDS)
Net broadcast revenues ... $7,447 $7,429 $ -- $ 18
Station operating expenses 5,340 3,958 -- 1,382
Depreciation/amortization 169 997 828 --
--------- ---------- -------------- ----------
Operating income (loss) .. 1,938 2,474 (828) (1,364)
Income tax expense ........ 679 -- -- 679
--------- ---------- -------------- ----------
Net income (loss) ......... $1,259 $2,474 $(828) $(2,043)
========= ========== ============== ==========
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------
KTXQ-FM WHFS-FM CBS
KRRW-FM DISPOSAL ADJUSTMENTS* EXCHANGE
--------- ---------- -------------- ----------
(IN THOUSANDS)
Net broadcast revenues ... $8,534 $9,976 $ -- $(1,442)
Station operating expenses 7,254 5,400 -- 1,854
Depreciation/amortization 1,129 1,638 509 --
Corporate expenses ........ 214 -- -- 214
--------- ---------- -------------- ----------
Operating income .......... (63) 2,938 (509) (3,510)
Other income (loss) ....... (152) -- -- (152)
Income tax expense ........ 31 -- -- 31
--------- ---------- -------------- ----------
Net income (loss) ......... $ 58 $2,938 $(509) $(3,389)
========= ========== ============== ==========
- ------------
* To eliminate depreciation of KTXQ-FM and KRRW-FM and reflect depreciation
of WHFS-FM.
(10) Secret Communications Acquisition
Reflects the Secret Communications Acquisition after the pending
acquisition of the Third Party Stations by Secret Communications. The results
of the Third Party Stations for the nine months ended September 30, 1996
reflect five months of results under the current owner and four months of
operations under Secret Communications through an LMA, which Secret entered
with the current owner on June 1, 1996.
The Company has identified nonrecurring marketing costs of approximately
$580,000 in 1996 at the Pittsburgh stations. These costs have not been
reflected as a pro forma adjustment.
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<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1996
---------------------------------------------
SECRET
SECRET THIRD PARTY COMMUNICATIONS
COMMUNICATIONS STATIONS ACQUISITION
-------------- ------------- --------------
(IN THOUSANDS)
Net broadcast revenues ... $21,335 $4,175 $25,510
Station operating expenses 12,511 2,536 15,047
Depreciation/amortization 2,482 98 2,580
-------------- ------------- --------------
Operating income .......... 6,342 1,541 7,883
Other expenses (income) .. -- 1,175 1,175
-------------- ------------- --------------
Net income ................ $ 6,342 $ 366 $ 6,708
============== ============= ==============
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------
SECRET
SECRET THIRD PARTY COMMUNICATIONS
COMMUNICATIONS STATIONS ACQUISITION
-------------- ------------- --------------
(IN THOUSANDS)
Net broadcast revenues ... $27,071 $3,662 $30,733
Station operating expenses 14,632 2,849 17,481
Depreciation/amortization 3,296 200 3,496
Corporate expenses ........ 1,249 -- 1,249
-------------- ------------- --------------
Operating income .......... 7,894 613 8,507
Interest expense .......... 2,067 -- 2,067
Other income .............. 5 -- 5
-------------- ------------- --------------
Net income ................ $ 5,822 $ 613 $ 6,435
============== ============= ==============
S-44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is not a complete discussion of the financial condition and
results of operations of the Company. For a complete discussion see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995, as amended, and Quarterly Reports on Form 10-Q
for the quarterly periods ended March 31, June 30 and September 30, 1996,
each of which have been incorporated by reference herein.
The following discussion contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ materially
from those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "Risk
Factors" and those appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus, including, without limitation, risks and
uncertainties relating to leverage, the need for additional funds,
consummation of the Pending Acquisitions or the Pending Dispositions,
integration of the Pending Acquisitions, the ability of the Company to
achieve certain cost savings, the management of growth, the popularity of
radio as a broadcasting and advertising medium and changing consumer tastes.
The Company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal need for funds has historically been to fund the
acquisition of radio stations and, to a lesser extent, capital expenditures
and the redemption of outstanding securities. The Company's principal sources
of funds for these requirements have historically been the proceeds from
offerings of equity and debt securities, borrowings under credit agreements
and, to a significantly lesser extent, cash flows from operations.
For a discussion of the Company's historical cash flows, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, as amended, and Quarterly Reports on Form 10-Q for the
quarterly periods ended March 31, June 30 and September 30, 1996, each of
which have been incorporated by reference herein.
Recent Acquisitions and Dispositions. Since January 1, 1996, the Company
has consummated a number of acquisitions and dispositions.
In early 1996, the Company acquired radio stations WTDR-FM and WLYT-FM
(formerly WEZC-FM), both operating in Charlotte, North Carolina, for an
aggregate purchase price of $24.8 million. The primary sources of funds for
this acquisition were proceeds from the Company's public offering in June
1995 and funds available under the Old Credit Agreement.
In the Greenville Acquisition, consummated in June 1996, the Company
acquired substantially all of the assets of WROQ-FM, operating in Greenville,
South Carolina, for approximately $14.0 million.
Also in June 1996, pursuant to the Raleigh-Greensboro Acquisition, the
Company acquired substantially all of the assets of 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.
Pursuant to the Jackson Acquisitions, in July 1996, the Company acquired
substantially all of the assets of WJDX-FM, Jackson, Mississippi, for a
purchase price of approximately $3.0 million and, in August 1996,
substantially all of the assets used in the operation of radio stations
WSTZ-FM and WZRX-AM, each operating in Jackson, Mississippi, for an aggregate
purchase price of approximately $3.5 million.
In July 1996, the Company acquired from Prism, a privately-held radio
broadcasting company, 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
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<PAGE>
September 1996, the Company also acquired from Prism substantially all of
the assets of three radio stations operating in Louisville, Kentucky, upon
renewal of the FCC licenses of such stations, pursuant to the Louisville
Acquisition. The total purchase price for the Prism Acquisition and the
Louisville Acquisition was approximately $105.3 million. In October 1996, the
Company sold the Louisville stations (the "Louisville Dispositions") for
$18.5 million. The Company recognized no gain or loss on the Louisville
Dispositions. The Louisville stations are classified as assets held for sale
on the September 30, 1996, balance sheet.
In July 1996, the Company acquired Liberty Broadcasting for a purchase
price of approximately $227.0 million, plus $10.5 million for working capital
(the "Liberty Acquisition"). Liberty Broadcasting was a privately-held radio
broadcasting company which owned and operated or provided programming to or
sold advertising on behalf of 14 FM and six AM radio stations (the "Liberty
Stations") operating in six markets: Washington, DC/Baltimore, Maryland;
Nassau-Suffolk, New York; Providence, Rhode Island; Hartford, Connecticut;
Albany, New York; and Richmond, Virginia.
In July 1996, the Company sold three of the Liberty Stations operating in
the Washington, D.C./Baltimore, Maryland market (the "Washington
Dispositions") for $25.0 million.
In November 1996, the Company consummated the Greensboro Acquisition,
pursuant to which it purchased one station operating in Greensboro, North
Carolina, for a purchase price of $6.0 million. This amount was paid in full
in the third quarter of 1996.
The Greenville Acquisition, Raleigh-Greensboro Acquisition, Jackson
Acquisitions, Prism Acquisition, Liberty Acquisition and Greensboro
Acquisition were primarily funded with proceeds from the Private Placement.
In November 1996, the Company consummated the Dallas Disposition, pursuant
to which it sold one radio station operating in Dallas, Texas for a net
consideration of $13.4 million. The Company has a contractual obligation to
make certain payments to Cardinal Communications LP ("Cardinal"), the prior
owner of KTCK-AM, upon the sale of the station by the Company. Cardinal has
commenced litigation against the Company due to the parties' inability to
agree on the amount of the contingent payment due upon sale. In the event
that the contingent payment exceeds approximately $2.9 million, the Company
will record a loss on the transaction.
On November 22, 1996, the Company consummated the MMR Merger, pursuant to
which it acquired MMR in exchange for capital stock of the Company having a
value of approximately $72 million. Concurrently with the consummation of the
MMR Merger, the Company paid approximately $43.0 million to satisfy
outstanding indebtedness of MMR from borrowings under the Credit Agreement.
MMR was organized in 1992 by Robert F.X. Sillerman, Chairman of the Board,
Chief Executive Officer and controlling stockholder of the Company, Michael
G. Ferrel, Chief Executive Officer and a Director of the Company, and Howard
J. Tytel, a Director and Executive Vice President of the Company. Mr.
Sillerman owned a substantial equity interest in MMR which was exchanged for
common stock of the Company upon the consummation of the MMR Merger.
In December 1996, the Company consummated the Houston Exchange, pursuant
to which it exchanged the assets of one radio station operating in Dallas,
Texas, along with the Texas State Networks, for the assets of another radio
station operating in Houston, Texas. There was no cash consideration paid by
the Company or the other party pursuant to the Houston Exchange.
Also in December 1996, the Company loaned to ABS Communications L.L.C.
("ABS") $14.5 million to finance the purchase by ABS of two radio stations
operating in Richmond, Virginia, in connection with the Richmond Acquisition.
The Company has also paid a $2.0 million deposit to ABS pursuant to its
agreement to purchase a 96% interest in ABS. The primary source of funds for
this loan was borrowings under the Credit Agreement.
In January 1997, the Company consummated the Delsener/Slater Acquisition,
pursuant to which it purchased Delsener/Slater, a concert promotion company,
for an aggregate consideration of approxi-
S-46
<PAGE>
mately $24.0 million. Of this amount, $3.0 million is to be paid, without
interest, over five years, and $1.0 million is to be paid, without interest,
over ten years. The deferred payments are subject to acceleration in certain
circumstances. The primary source of funds for this acquisition was
borrowings under the Credit Agreement.
Also in January 1997, the Company consummated the Albany Acquisition,
pursuant to which it purchased one radio station operating in Albany, New
York, for a purchase price of $1.0 million. The primary source of funds for
this acquisition was borrowings under the Credit Agreement.
Pending Acquisitions and Dispositions. In October 1996, the Company
entered into an agreement with Secret Communications, pursuant to which the
Company agreed to acquire substantially all of the assets used in the
operation by Secret Communications of nine radio stations located in three
markets (Indianapolis, Indiana, Pittsburgh, Pennsylvania, and Cleveland,
Ohio). Two of the radio stations operating in Pittsburgh are not yet owned by
Secret Communications but are anticipated to be acquired prior to the
consummation of the Secret Communications Acquisition, and Secret
Communications currently provides programming and sells advertising on these
stations pursuant to an LMA. The purchase price of the acquisition is $300.0
million, subject to certain downward adjustments, of which the Company has
segregated $15.0 million pursuant to a letter of credit to secure its
obligations under the purchase agreement.
In January 1997, the parties reached an agreement in principle to amend
the purchase agreement to provide that the purchase price will be reduced
from $300.0 million to $255.0 million and that the Cleveland stations will
not be transferred. In addition, if (i) at any time prior to the date 12
months from the execution of the amendment, Secret Communications enters into
a binding agreement to sell the Cleveland stations at a price less than $45.0
million and (ii) such disposition is consummated prior to March 31, 1998, the
Company will be required to pay, at closing, the difference between the sale
price and $45.0 million, but in no event more than $5.0 million. Upon
execution of the amendment, $10.0 million of the amount segregated pursuant
to the letter of credit will be paid to Secret Communications as a deposit,
and the remaining $5.0 million will also be so paid on May 30, 1997.
In addition, the Company has also entered into separate agreements
regarding the Richmond Acquisition, the CBS Exchange, the Hartford
Acquisition and the Texas Coast Acquisition. The aggregate purchase price of
these acquisitions is approximately $107.7 million, of which the Company has
deposited $8.0 million in escrow to secure its obligations under these
agreements.
The Company has also entered into agreements regarding the Chancellor
Exchange, the Little Rock Disposition and the Myrtle Beach Disposition. The
aggregate cash sale price of these transactions is $20.2 million, of which
the purchasers have deposited in escrow or paid $3.5 million.
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<PAGE>
The Company anticipates that it will consummate all of the Pending
Acquisitions and the Pending Dispositions as follows:
CASH PURCHASE ANTICIPATED DATE OF
TRANSACTION (SALE) PRICE(1) CONSUMMATION
- ---------------------------------- --------------- -------------------
(IN MILLIONS)
Hartford Acquisition .............. $ 25.5 1st quarter 1997
Texas Coast Acquisition ........... 41.5(2) 1st quarter 1997
Little Rock Disposition ........... (4.1) 1st quarter 1997
Myrtle Beach Disposition .......... (5.1) 1st quarter 1997
CBS Exchange ...................... -- 1st quarter 1997
Richmond Acquisition .............. 40.4 2nd quarter 1997
Chancellor Exchange ............... (11.0) 2nd quarter 1997
Secret Communications Acquisition 255.0(3) 3rd quarter 1997
- ------------
(1) Represents the gross cash sales or purchase price for the corresponding
transaction. Certain of these amounts do not reflect amounts advanced
or placed in escrow, payable over a period of time or payable in stock
of the Company.
(2) Includes amounts payable in respect of certain ancillary agreements.
Does not include certain additional contingent liabilities.
(3) Does not include certain additional contingent liabilities.
The timing and completion of each of the above transactions are subject to
a number of closing conditions, certain of which are beyond the Company's
control. Each of the Pending Acquisitions and the Pending Dispositions is
subject to the approval of the FCC. Additionally, the Antitrust Division has
indicated its intention to review matters related to the concentration of
ownership within markets even when the ownership in question is in compliance
with the provisions of the Recent Legislation. While the Company believes
that each of the Pending Acquisitions and the Pending Dispositions does not
substantially lessen competition, there can be no assurance that the
Antitrust Division will not take a contrary position, which could delay or
prevent the consummation of any of the Pending Acquisitions or require the
Company to restructure its ownership in the relevant market or markets. See
"Risk Factors--Risks Related to Pending Acquisitions and the Pending
Dispositions" and "Agreements Related to the Pending Acquisitions and the
Pending Dispositions" in this Prospectus Supplement and "Risk
Factors--Extensive Regulation of Radio Broadcasting" in the accompanying
Prospectus.
The Company intends to finance the Pending Acquisitions from the proceeds
of the Preferred Stock Offering, the Chancellor Exchange, the Pending
Dispositions and the borrowings under the Credit Agreement. See "Risk
Factors--Risks Related to the Pending Acquisitions and the Pending
Dispositions."
The Company is also required to make a payment of $1.0 million in 1997 to
redeem the outstanding shares of Series B Preferred Stock.
Sources of Liquidity. In October 1993, the Company issued $80.0 million in
aggregate principal amount of the Old Notes, which have a maturity date of
October 1, 2000. The Old Notes are senior subordinated obligations of the
Company and are subordinated in right of payment to all existing and future
Senior Debt of the Company (including the Credit Agreement). In May 1996, the
Company completed the Tender Offer, in which it purchased approximately $79.4
million in principal amount of the $80.0 million in principal amount of the
Old Notes then outstanding. The Company also entered into a supplemental
indenture amending the terms of the Old Note Indenture.
In May 1996, the Company issued New Notes in an aggregate principal amount
of $450.0 million (the "Note Offering"). Interest on the New Notes accrues at
the rate of 10.75% per year and is payable on May 15 and November 15 of each
year. The New Notes are general senior subordinated unsecured obligations of
the Company. The New Notes are guaranteed on a senior subordinated basis by
each of the Company's
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<PAGE>
subsidiaries. The New Note Indenture contains certain covenants which limit
the ability of the Company and certain of its subsidiaries to, among other
things, incur additional indebtedness, pay dividends or make certain other
restricted payments, consummate certain asset sales, enter into certain
transactions with affiliates, incur indebtedness that is senior in right of
payment to the New Notes, incur liens, impose restrictions on the ability of
a subsidiary to pay dividends or make certain payments to the Company and its
subsidiaries, merge or consolidate with any other person or dispose of all or
substantially all of the assets of the Company.
Concurrently with 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 "Series D Preferred Stock Offering").
Dividends of $0.8125 per share of Series D Preferred Stock are payable
quarterly in cash. Accumulated unpaid dividends bear interest at the annual
rate of 6.5%. The shares of Series D Preferred Stock are convertible into
shares of Class A Common Stock at any time prior to May 31, 2007, unless
previously redeemed or repurchased, at a conversion price of $45.51 per share
(equivalent to a conversion rate of 1.0987 shares of Class A Common Stock per
share of Series D Preferred Stock), subject to adjustment in certain events.
The shares of Series D Preferred Stock are exchangeable in full (but not in
part), at the Company's option, subject to compliance with covenants
contained in the Company's debt agreements, for Series D Exchange Notes. The
Certificate of Designations of the Series D Preferred Stock contains certain
covenants which, among other things, limit the ability of the Company and its
subsidiaries to engage in transactions with their affiliates.
On November 22, 1996, the Company entered into the Credit Agreement, a
senior revolving credit facility providing for borrowings of up to $225.0
million. Borrowings under the 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 facility converts into a
five-year term loan on September 30, 1998, with repayment due in quarterly
installments commencing December 31, 1998, and with the final payment due
September 30, 2003. The principal will be amortized by 5% in 1998, 15% in
1999, 20% in 2000, 20% in 2001, 22% in 2002 and 18% in 2003. Interest on the
funds borrowed under the 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 1.5%, based on the Company's then-current leverage
ratio, or (ii) the LIBOR rate plus a margin which varies from 1.5% 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. The Company must also pay annual commitment fees of
0.5% of the unutilized total commitments under the Credit Agreement. The
Company's obligations under the 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. As of January
15, 1997, the Company had aggregate borrowings under the Credit Agreement of
$50.0 million.
The Company will require financing in addition to the Preferred Stock
Offering in order to consummate the Pending Acquisitions, which the Company
anticipates obtaining through borrowings under the Credit Agreement and
proceeds from the Chancellor Exchange and the Pending Dispositions. There can
be no assurance that the Chancellor Exchange or the Pending Dispositions will
be successfully consummated. The Company will require funding pursuant to the
Credit Agreement of approximately $152.2 million in order to consummate the
Secret Communications Acquisition which it expects to occur in the third
quarter of 1997. The Credit Agreement prohibits the Company from utilizing
funds available thereunder unless the Company meets certain specified
financial tests, such as total leverage and senior leverage ratios and pro
forma interest expense. The ability of the Company to meet such tests is
dependent on the cash flow of the Company, giving effect to the consummation
of the acquisitions and dispositions of the Company. There can be no
assurance that the Company will have adequate borrowing capacity under the
Credit Agreement. If the Company's borrowing capacity under the Credit
Agreement is not sufficient to finance the Secret Communications Acquisition,
the Company will be required to either seek modification of the Credit
Agreement or obtain alternative financing. There can be no assurance that the
Company will be able to obtain additional financing or such modification on
terms acceptable to the
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<PAGE>
Company or at all. If the Company is unable to consummate the Pending
Acquisitions because of its failure to obtain financing or for any other
reason, it may forfeit deposits up to an aggregate amount of approximately
$22.0 million. See "Risk Factors--Risks Related to the Pending Acquisitions
and the Pending Dispositions."
As a result of the foregoing, there can be no assurance as to when the
Pending Acquisitions or the Pending Dispositions will be consummated or that
they will be consummated on the terms described herein or at all.
Furthermore, the Company cannot predict whether the consummation of the
Pending Acquisitions or the Pending Dispositions will conform to the
assumptions used in the preparation of the Unaudited Pro Forma Condensed
Combined Financial Statements included herein. In analyzing the Unaudited Pro
Forma Condensed Combined Financial Statements and other information,
prospective investors should consider that the Pending Acquisitions or the
Pending Dispositions may not be consummated at all or on the terms described
herein, and the Pending Acquisitions or the Pending Dispositions, if
consummated, may be subject to substantial delay.
The Company expects that any additional acquisitions will be financed
through funds generated from operations, cash on hand, funds which may be
available under the Credit Agreement and additional debt and equity
financing. The availability of additional acquisition financing cannot be
assured, and, depending on the terms of the proposed acquisition financing,
could be restricted by the terms of the Credit Agreement, the debt incurrence
test under the New Note Indenture, the Series D Preferred Stock and/or the
Series E Preferred Stock.
The Company's ability to make scheduled payments of principal of, to pay
interest on or to refinance, its debt (including the New Notes and the
Company's borrowings under the Credit Agreement), to make dividend payments
on the Series D Preferred Stock and the Series E Preferred Stock and to
redeem the Series B Preferred Stock, the Series C Preferred Stock, the Series
D Preferred Stock and the Series E Preferred Stock depends on its future
financial performance, which, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory and other factors
beyond its control, as well as the success of the radio stations to be
acquired and the integration of these stations into the Company's operations.
Based upon the Company's current level of operations and anticipated
improvements, management believes that cash flow from operations, together
with the net proceeds of the Preferred Stock Offering, the Chancellor
Exchange and borrowings under the Credit Agreement, will be adequate to meet
the Company's anticipated future requirements for working capital, capital
expenditures and scheduled interest, principal, dividend and redemption
payments through at least 1998. However, the Company's borrowings under the
Credit Agreement will be, and other future borrowings may be, at variable
rates of interest, which will result in higher interest expense in the event
of increases in interest rates. There can be no assurance that the Chancellor
Exchange or the Pending Dispositions will be consummated, that the Company
will be able to borrow under the Credit Agreement, that the Company's
business will generate sufficient cash flow from operations, that anticipated
improvements in operating results will be achieved or that future working
capital borrowings will be available in an amount to enable the Company to
service its debt, to make dividend, and redemption payments and to make
necessary capital or other expenditures. The Company may be required to
refinance a portion of the principal amount of the New Notes, or the
aggregate liquidation preference of the Series E Preferred Stock and the
Series D Preferred Stock prior to their maturities. There can be no assurance
that the Company will be able to raise additional capital through the sale of
securities, the disposition of radio stations or otherwise for any such
refinancing. See "Risk Factors" in this Prospectus Supplement and in the
accompanying Prospectus.
CHARGES TO OPERATIONS
Pursuant to an agreement between the Company and D. Geoffrey Armstrong,
the Company's Chief Operating Officer (the "Armstrong Agreement"), Mr.
Armstrong's employment may be terminated by either party during the one-month
period commencing on November 22, 1997 upon 30 days' written notice. If his
employment agreement is terminated, Mr. Armstrong will receive a payment of
$1.2 million pursuant to the provisions of his employment agreement which are
currently deferred, and the Company will purchase all of his outstanding
options under the Company's stock option plans for an amount equal
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to the difference between (x) the number of such options multiplied by the
respective exercise price of such options and (y) the number of such options
multiplied by the greater of $40.00 and the average trading price of a share
of Class A Common Stock during the 20 days prior to five days before the
effective date of the termination of the employment agreement. In the event
that the Company is required to purchase Mr. Armstrong's options, based upon
a repurchase price of $40.00 per share, the Company will make a payment to
Mr. Armstrong of approximately $3.25 million. See "Unaudited Pro Forma
Condensed Combined Financial Statements."
The Company's Compensation Committee, Independent Directors and Mr.
Sillerman have agreed that the Company will enter into a new employment
agreement with Mr. Sillerman, pursuant to which Mr. Sillerman will continue
in his position with the Company for a five-year term, subject to renewal for
an additional five-year term. The employment agreement, which has not yet
been finalized, will include the issuance of stock options or their
equivalent both upon the execution of the employment agreement and in the
event of a Change of Control of the Company in amounts to be determined by
the Board of Directors and the Compensation Committee. The initial grant of
such stock options or their equivalent will be at an exercise price
determined on the date of the Compensation Committee's original agreement as
to the new employment agreement. Depending upon the ultimate form and amount
of stock options or their equivalent granted under the employment agreement,
the Company may incur compensation charges in 1996 or later years. See
"Certain Relationships and Related Transactions--Employment Agreements with
Messrs. Sillerman and Ferrel."
The Acquisitions will be accounted for using the purchase method of
accounting and the intangible assets created in the purchase transactions
will be amortized against future earnings of the combined companies. The
amount of such amortization will be substantial and will continue to affect
the Company's operating results in the future. These expenses, however, do
not result in an outflow of cash by the Company and do not impact the
Company's Broadcast Cash Flow.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following discussion is incomplete and should be read in conjunction
with the "Certain Relationships and Related Transactions" sections set forth
in (i) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, as amended, (ii) MMR's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, as amended, and (iii) the Joint Proxy
Statement/Prospectus attached as Exhibit 99.1 to the Company's Current Report
on Form 8-K filed on November 27, 1996, with the Commission, which sections
are incorporated by reference herein. The section includes a description of
the various transactions between the Company and its affiliates as required
by the rules and regulations of the Commission.
RELATIONSHIP OF THE COMPANY WITH SCMC
Prior to April 1996, SCMC, a corporation controlled by Mr. Sillerman, had
been engaged by the Company from 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 receive fees payable by each of MMR and Triathlon to
SCMC in respect of consulting and marketing services to be performed on
behalf of such companies by SCMC, except for fees related to certain
transactions pending at the date of such agreement, and 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 currently
pays SCMC an annual fee of $300,000 (which shall increase to $500,000 at such
time as Triathlon has used an amount equal to the net proceeds of its last
public offering in the manner contemplated by the registration statement
filed in connection therewith). In addition, Triathlon has agreed to advance
to SCMC an amount of $500,000 per year in connection with 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, then the unearned fees must be repaid). Pursuant to the
SCMC Termination Agreement, SCMC 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 on January 23, 1995, plus accrued and unpaid
interest thereon. Pursuant to such agreement, Mr. Sillerman has agreed with
the Company that he will supervise, subject the direction of the Board of
Directors, the performance of the financial consulting and other services
previously performed by SCMC for the Company. In addition, the Company has
hired or intends to hire a number of persons previously employed by SCMC.
On April 15, 1996, Furman Selz delivered its written opinion to the
Independent Committee that, as of the date of such opinion, the consideration
to be offered by the Company to SCMC pursuant to the SCMC Termination
Agreement was fair, from a financial point of view, to the Company. In
rendering its opinion, Furman Selz relied on, among other things, a schedule
prepared by Mr. Sillerman of projected fees payable to SCMC by each of the
Company, MMR and Triathlon. Furman Selz's opinion was delivered for the use
and benefit of the Independent Committee in its consideration of the SCMC
Termination Agreement.
Each engagement of SCMC by the Company has been subject to the affirmative
recommendation of the Audit Committee. SCMC has been engaged by and received
fees from the Company for advisory services, including the assumption of
certain obligations such as the provision of legal services. 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
Acquisitions. 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.
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None of the Pending Acquisitions or Pending Dispositions predate the SCMC
Termination Agreement, and therefore no fees are payable to SCMC in respect
of any Pending Acquisitions or Pending Dispositions.
EMPLOYMENT AGREEMENTS WITH MESSRS. SILLERMAN AND FERREL
The Company's Compensation Committee, Independent Directors and Mr.
Sillerman have agreed that the Company will enter into a new employment
agreement with Mr. Sillerman, pursuant to which Mr. Sillerman will continue
in his position with the Company for a five-year term, subject to renewal for
an additional five-year term. Mr. Sillerman's annual base pay under the
agreement will be $400,000, initially, subject to periodic adjustments. The
Board of Directors has also approved an additional compensation provision,
pursuant to which Mr. Sillerman is to receive a one-time $1.25 million
payment, subject to recoupment by the Company ratably to the extent that Mr.
Sillerman does not remain employed by the Company for a ten-year period. The
Board of Directors and the Compensation Committee also approved a $1.25
million loan to Mr. Sillerman, which loan will be a full-recourse obligation
of Mr. Sillerman and bear interest. Mr. Sillerman has indicated his intention
to use the proceeds from the loan to acquire additional common equity in the
Company.
The employment agreement, which has not yet been finalized, will include
the issuance of stock options or their equivalent both upon the execution of
the employment agreement and in the event of a Change of Control of the
Company in amounts to be determined by the Board of Directors and the
Compensation Committee. The initial grant of such stock options or their
equivalent will be at an exercise price determined on the date of the
Compensation Committee's original agreement as to the new employment
agreement. Depending upon the ultimate form and amount of stock options or
their equivalent granted under the employment agreement, the Company may
incur compensation charges in 1996 or later years. It is anticipated that,
except as described above, the provisions of Mr. Sillerman's employment
agreement, including those with respect to changes of control of the Company,
will be similar to those in his existing employment agreement.
The Company has entered into an employment agreement with Michael G.
Ferrel, pursuant to which Mr. Ferrel has agreed to serve as the Company's
President and Chief Executive Officer for a period of five years from
November 1996. The Company has agreed to pay Mr. Ferrel an annual base
salary of $300,000 for the first year, which increases by five percent in
each subsequent year. Additionally, Mr. Ferrel's employment agreement
provides for an annual bonus equal to the greater of $75,000 or an amount
determined by the Company's Compensation Committee based upon the Company's
achievement of certain performance goals as set by the Board of Directors.
Prior to entering into his employment agreement, Mr. Ferrel was granted
fully-vested options to purchase up to 50,000 shares Class A Common Stock at
an exercise price of $33.75 per share. Upon entering into his employment
agreement, Mr. Ferrel was paid a cash bonus of $500,000 and was granted
fully-vested options to purchase up to 30,000 shares of the Company's Class A
Common Stock. The Company made an interest-bearing loan to Mr. Ferrel of
$300,000 and paid Mr. Ferrel relocation expenses totaling $25,000. Mr. Ferrel
used the proceeds from the bonus payment and loan to pay tax liabilities
related to certain performance-based stock awards earned by Mr. Ferrel during
his employment as Chief Executive Officer and President of MMR. The loan is
payable in full upon the termination of Mr. Ferrel's employment with the
Company. The Company also agreed to grant to Mr. Ferrel, in each of the next
four succeeding years, fully-vested options to purchase up to 30,000 shares
of the Company's Class A Common Stock at their fair market value at the time
of each grant.
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AGREEMENTS RELATED TO THE PENDING ACQUISITIONS
AND THE PENDING DISPOSITIONS
The following is a summary of certain terms of the agreements related to
the Pending Acquisitions and the Pending Dispositions. This summary is not
intended to be complete and is subject to, and qualified in its entirety by
reference to, the agreements, copies of which have been filed as exhibits to
the documents and reports filed by the Company with the Commission and are
incorporated herein or in the accompanying Prospectus by reference.
SECRET COMMUNICATIONS ACQUISITION
On October 15, 1996, the Company entered into an Asset Purchase Agreement
with Secret Communications, pursuant to which the Company agreed to acquire
substantially all of the assets used in the operation of nine radio stations
located in three markets: WFBQ-FM, WRZX-FM and WNDE-AM, each operating in
Indianapolis, Indiana; WDVE-FM, WXDX-FM, WDSY-FM and WJJJ-FM, each operating
in Pittsburgh, Pennsylvania; and WTAM-AM and WLTF-FM, both operating in
Cleveland, Ohio. Secret Communications does not yet own WDSY-FM and WJJJ-FM
(the "Third-Party Stations"), but currently provides programming and sells
advertising on the Third-Party Stations pursuant to an LMA. Secret
Communications has entered into an agreement to acquire these two stations
from a third party and it is anticipated that the acquisition of the
Third-Party Stations by Secret Communications will occur prior to the
consummation of the Secret Communications Acquisition.
The purchase price pursuant to the purchase agreement is $300.0 million.
The Company segregated $15.0 million pursuant to a letter of credit delivered
in escrow in order to secure its obligations under the purchase agreement.
The consummation of the Secret Communications Acquisition is subject to
certain closing conditions, including: (i) the acquisition by Secret
Communications of the Third-Party Stations shall have been consummated, (ii)
no injunction or restraining order prohibiting the consummation of the Secret
Communications Acquisition shall have been issued by any court of competent
jurisdiction, (iii) any applicable waiting period under the HSR Act shall
have expired or been terminated, (iii) the FCC shall have consented to the
acquisition of the stations by the Company, (iv) Secret Communications shall
have received consents to the assignment to the Company of the material
contracts relating to the stations, (v) all representations and warranties of
Secret Communications and the Company shall be true and correct as of the
closing of the transaction, and (vi) there shall have been no material breach
by Secret Communications or the Company of any of their covenants or
agreements set forth in the purchase agreement. The consummation of the
Secret Communications Acquisition is scheduled to occur on the tenth business
day after the FCC consent becomes final and non-appealable. An application
seeking FCC consent to the assignment of the stations to the Company was
filed with the FCC on October 31, 1996. The HSR Act notification relating to
the Secret Communications Acquisition was filed in January 1996, and the
related waiting period has not yet expired. The Secret Communications
Acquisition is anticipated to be consummated in the third quarter of 1997.
The purchase agreement may be terminated by either party (i) if the
consummation of the Secret Communications Acquisition does not occur before
September 30, 1997 (unless such date is extended by the parties), or (ii) at
any time, if the purchase agreement relating to the Third-Party Stations is
terminated.
In January 1997, the parties reached an agreement in principle to amend
the purchase agreement. Pursuant to this amendment, the Cleveland stations
will not be transferred, and the purchase price will be reduced to $255.0
million. Based on unaudited financial information provided to the Company by
management of Secret Communications, the Company believes that the cash flow
attributable to the Cleveland stations was less than $1.5 million for the
year ended December 31, 1996. If (i) at any time prior to the date 12 months
from the execution of the amendment, Secret Communications enters into a
binding agreement to sell the Cleveland stations at a price less than $45.0
million and (ii) such disposition is consummated prior to March 31, 1998, the
Company will be required to pay, at closing, the difference
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between the sale price and $45.0 million, but in no event more than $5.0
million. In addition, the parties have agreed that, upon execution of the
amendment, $10.0 million of the amount segregated pursuant to the letter of
credit will be paid to Secret Communications as a deposit, and the remaining
$5.0 million will also be so paid on May 30, 1997. The amendment will further
provide that the Secret Communications Acquisition will be consummated on the
later of (i) July 15, 1997, if all necessary consents have been obtained and,
if applicable, have become final and non-appealable, or (ii) the tenth
business day after the FCC consent becomes final and non-appealable.
RICHMOND ACQUISITION
In December 1996, the Company entered into an agreement which provided
that the Company will enter into a series of transactions to acquire a 96%
interest in ABS from Kenneth Brown and ABS Communications, Inc. ABS had
previously agreed to acquire WLEE-FM and WVGO-FM, both operating in Richmond,
Virginia, from a third party for $14.5 million. The Company loaned $14.5
million to ABS in December 1996, enabling ABS to consummate its acquisition
of WLEE-FM and WVGO-FM. Pursuant to the Richmond Acquisition the Company has
paid a deposit of $2.0 million in escrow for the benefit of the sellers.
The consummation of the Richmond Acquisition will be effected as follows:
(i) the Company will convert the $14.5 million loan into an equity interest
in ABS; (ii) Mr. Brown will contribute to ABS $1.7 million of his interest in
two partnerships which own WKHK-FM and WBZU-FM, both operating in Richmond,
Virginia; (iii) the Company will contribute to ABS $21.3 million plus an
amount equal to Net Working Capital (as defined in the letter of intent) to
finance ABS's acquisition of the remaining interests in the two partnerships;
(iv) the Company will contribute WMXB-FM, operating in Richmond, Virginia, to
ABS; and (v) the Company will repay certain outstanding deposits, debts and
expenses incurred by Mr. Brown.
The Company has also agreed to pay to Mr. Brown, five years after the
consummation of the Richmond Acquisition, an amount equal to the greater of
(i) the appreciation in value of 100,000 shares of Class A Common Stock over
the five-year period or (ii) the difference of (a) 20% of the value of
WLEE-FM, WVGO-FM, WKHK-FM, WBZU-FM and WMXB-FM, less (b) $78,189,501. This
deferred payment will be canceled or reduced if Mr. Brown terminates his
employment prior to the expiration of the five-year period. In addition, at
any time subsequent to the fifth anniversary of the consummation of the
Richmond Acquisition, the Company shall have the option to purchase from Mr.
Brown, and Mr. Brown will have the right to sell to the Company, his 4%
interest in ABS for a cash price equal to 4% of the independently determined
market value of the five stations.
The consummation of the Richmond Acquisition is subject to the prior
approval of the FCC and the expiration or termination of any applicable
waiting period under the HSR Act. The FCC application relating to the
assignment of these stations is expected to be filed by the second quarter of
1997. The HSR Act notification relating to the Richmond Acquisition is
anticipated to be filed in the first quarter of 1997. The Richmond
Acquisition is anticipated to be consummated in the second quarter of 1997.
CBS EXCHANGE
On September 25, 1996, the Company entered into an agreement with CBS
Inc., pursuant to which the Company agreed to exchange substantially all of
the assets of WHFS-FM, serving the Baltimore, Maryland, and Washington, D.C.
markets, for substantially all of the assets of KTXQ-FM and KRRW-FM, both
operating in Dallas, Texas. The CBS Exchange is intended to qualify as a
like-kind exchange under Section 1031 of the Code. The agreement provides
that the CBS Exchange must be consummated by June 30, 1997. The consummation
of the CBS Exchange is subject to certain closing conditions, including,
among others, the approval of the boards of directors of CBS Inc. and
Westinghouse Electric Corporation, the prior receipt of approval from the FCC
and the expiration or termination of any applicable waiting period under the
HSR Act. An application seeking FCC consent to the assignment of these
stations was filed with the FCC on October 17, 1996. The HSR Act notification
relating to the CBS Exchange was filed in the fourth quarter of 1996 and the
related waiting period has expired. The CBS Exchange is anticipated to be
consummated in the first quarter of 1997.
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HARTFORD ACQUISITION
On October 23, 1996, the Company entered into an agreement to acquire the
outstanding shares of WWYZ, Inc. ("WWYZ") and an affiliated entity for $25.5
million, subject to adjustment based on WWYZ's working capital under certain
circumstances. WWYZ owns and operates radio station WWYZ-FM, operating in
Hartford, Connecticut. The Company has deposited $2.5 million in escrow to
secure its obligations under the purchase agreement, of which up to $800,000
is payable to the sellers of WWYZ in certain circumstances if the
consummation of the Hartford Acquisition is delayed past February 1, 1997.
The Hartford Acquisition is subject to the prior approval of the FCC and the
expiration or termination of any applicable waiting period under the HSR Act.
An application seeking FCC consent to the assignment of WWYZ-FM to the
Company was filed with the FCC on November 12, 1996. No HSR filing is
required for the Hartford Acquisition. The Hartford Acquisition is
anticipated to be consummated in the first quarter of 1997.
CHANCELLOR EXCHANGE
The Company has entered into an agreement with Chancellor with respect to
the Chancellor Exchange, pursuant to which the Company will exchange
substantially all of the assets of WBAB-FM, WHFM-FM, WBLI-FM and WGBB-AM,
each operating on Long Island, New York, for substantially all of the assets
of WAPE-FM and WFYV-FM, both operating in Jacksonville, Florida (both of
which are to be acquired by Chancellor) and a payment to the Company in the
amount of $11.0 million. The Company may, if it so elects, specify certain
other like-kind property in lieu of the cash payment. The Chancellor Exchange
is conditioned on, among other things, the prior receipt of FCC approval and
the expiration or termination of any applicable waiting period under the HSR
Act. If Chancellor is unable to acquire the Jacksonville stations, the
Company may delay consummation of the Chancellor Exchange for up to 24 months
and shall, under certain circumstances, designate alternate station(s) to be
exchanged by Chancellor or sell Chancellor the Long Island stations for an
aggregate price of $54.0 million. If all of the closing conditions are met
but a party fails to consummate the transaction, the other party may compel
specific performance, demand a break-up fee, or require the sale of certain
of the breaching party's stations. The Company does not expect to recognize a
gain or loss on the Chancellor Exchange. Until the consummation of the
Chancellor Exchange, the Company and Chancellor will provide programming and
sell advertising pursuant to LMAs on the Jacksonville radio stations and the
Long Island radio stations, respectively. If the Company delays consummation
of the Chancellor Exchange due to Chancellor's inability to acquire the
Jacksonville stations, or if Chancellor fails to consummate the Chancellor
Exchange under certain circumstances, the Company may impose a monthly LMA
fee with respect to the Long Island Stations of $500,000. The FCC granted its
consent to the assignment of these stations on October 7, 1996. The HSR Act
notification relating to the Chancellor Exchange was filed on September 25,
1996. Under the HSR Act, the Antitrust Division has requested additional
information from the Company relating to the Chancellor Exchange. The Company
expects to substantially comply with the request for additional information
in February 1997. There can be no assurance that the Chancellor Exchange, as
presently structured, will not be challenged or further substantially
reviewed by the Antitrust Division, or that the Chancellor Exchange will be
consummated as presently structured. The Chancellor Exchange is anticipated
to be consummated in the second quarter of 1997.
LITTLE ROCK DISPOSITION
On July 15, 1996, MMR entered into an agreement to sell substantially all
of the assets of KOLL-FM, operating in Little Rock, Arkansas, to Triathlon
for a purchase price of $4.1 million. Triathlon and MMR entered into an LMA,
pursuant to which Triathlon provides programming and sells advertising on
KOLL-FM, and MMR received a payment of $3.5 million pursuant to the LMA,
which will be applied against the purchase price of the station. MMR and
Triathlon obtained an appraisal that the station is valued at $4.1 million
from a nationally recognized appraisal firm. This agreement was assumed by
the Company upon the consummation of the MMR Merger. The FCC consented to the
assignment of KOLL-FM to Triathlon on September 5, 1996. No HSR filing is
required for the Little Rock Disposition, and it is anticipated to be
consummated in the first quarter of 1997.
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MYRTLE BEACH DISPOSITION
On September 30, 1996, MMR agreed to sell WMYB-FM and WYAK-FM, which also
operates in Myrtle Beach, South Carolina, to Pinnacle Broadcasting Company
for a price of $5.125 million, payable over a period of four years. This
agreement was assumed by the Company upon the consummation of the MMR Merger.
An application seeking FCC consent to the assignment of WMYB-FM and WYAK-FM
to Pinnacle Broadcasting Company was filed with the FCC on October 15, 1996.
No HSR filing is required for the Myrtle Beach Disposition, and it is
anticipated to be consummated in the first quarter of 1997.
TEXAS COAST ACQUISITION
MMR entered into a purchase agreement regarding the Texas Coast
Acquisition with Texas Coast Broadcasting, Inc. ("Texas Coast"), pursuant to
which MMR agreed to acquire substantially all of the assets (other than the
real property upon which the radio tower is located) of KQUE-FM and KNUZ-AM,
both operating in Houston, Texas, for an aggregate purchase price of $43.0
million, including payments in connection with a non-competition agreement
and certain environmental matters related to the real property containing the
radio tower. The aggregate purchase price is comprised of: a base purchase
price of $38.0 million; aggregate payments in respect of a non-competition
agreement of $1.5 million, payable over seven years; and payments to an
industrial recovery company for remediation of an identified environmental
problem related to the property upon which the radio tower is located of $3.5
million (of which the seller has agreed to bear $250,000). In addition, the
Company may be required to make contingent payments of up to $750,000 payable
over ten years to the industrial recovery company. The Company deposited in
escrow $2.0 million to secure MMR's obligation under the purchase agreement
and $500,000 in escrow (which amount was matched by the seller) in respect of
the environmental problem, which may be applied against the purchase price if
not used. If the sale is not consummated for any reason, other than (i)
termination of the agreement in accordance with its terms, (ii) a default by
Texas Coast or (iii) failure of a condition precedent, then Texas Coast shall
be entitled to retain the $2.5 million placed in escrow. This agreement was
assumed by the Company upon the consummation of the MMR Merger. Because of
the identified environmental problem, the Company has elected to lease the
radio tower and obtain indemnification secured by an insurance bond with
respect to such property. The consummation of the Texas Coast Acquisition is
conditioned upon, among other things, the expiration or termination of any
applicable waiting period under the HSR Act. The FCC granted its consent to
the assignment of KQUE-FM and KNUZ-AM to the Company on April 24, 1996. The
HSR Act notification relating to the Texas Coast Acquisition is anticipated
to be filed in the first quarter of 1997. The Texas Coast Acquisition is
anticipated to be consummated in the first quarter of 1997.
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DESCRIPTION OF SERIES E PREFERRED STOCK AND EXCHANGE DEBENTURES
DESCRIPTION OF SERIES E PREFERRED STOCK
General
The following is a summary of certain terms of the Series E Preferred
Stock offered hereby. The terms of the Series E Preferred Stock will be set
forth in the Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of Preferred Stock and
Qualifications, Limitations and Restrictions Thereof (the "Certificate of
Designations"). This summary is not intended to be complete and is subject
to, and qualified in its entirety by reference to, the Company's Amended and
Restated Certificate of Incorporation, which will include the Certificate of
Designations, including the definitions therein of certain terms used below.
The definitions of certain terms used in the following summary are set forth
below under "--Certain Definitions."
Pursuant to the Certificate of Designations, 4,150,000 shares of Series E
Preferred Stock with a liquidation preference of $100.0 per share (the
"Liquidation Preference") will be authorized for issuance in the Preferred
Stock Offering. The Series E Preferred Stock will, when issued, be fully paid
and nonassessable, and Holders thereof will have no preemptive rights in
connection therewith.
The Liquidation Preference of the Series E Preferred Stock is not
necessarily indicative of the price at which the Series E Preferred Stock
will actually trade at or after the time of their issuance, and the Series E
Preferred Stock may trade at prices below its Liquidation Preference. The
market price of the Series E Preferred Stock can be expected to fluctuate
with changes in the financial markets and economic conditions, the financial
condition and prospects of the Company and other factors that generally
influence the market prices of securities. See "Risk Factors" in this
Prospectus Supplement and in the accompanying Prospectus.
The transfer agent for the Series E Preferred Stock will be The Bank of
New York unless and until a successor is selected by the Company (the
"Transfer Agent"). The offices of the Transfer Agent are located in New York
City at One Wall Street, New York, New York 10286.
As used in this Description of Series E Preferred Stock and Exchange
Debentures, the term "Company" shall refer to SFX Broadcasting, Inc.,
excluding its Subsidiaries.
Ranking
The Series E Preferred Stock will rank junior in right of payment of the
Series D Preferred Stock of the Company as to dividends and upon liquidation,
dissolution or winding up of the Company. The Series E Preferred Stock will
rank senior in right of payment to all other classes or series of capital
stock of the Company as to dividends and upon liquidation, dissolution or
winding up of the Company. The Certificate of Designations will provide that
the Company may not, without the consent of the Holders of at least
two-thirds of the then-outstanding Series E Preferred Stock, authorize,
create (by way of reclassification or otherwise) or issue any class or series
of capital stock of the Company ranking senior to the Series E Preferred
Stock ("Senior Securities") or any obligation or security convertible or
exchangeable into or evidencing a right to purchase, shares of any class or
series of Senior Securities.
Dividends
The Holders of the Series E Preferred Stock will be entitled to receive,
when, as and if dividends are declared by the Board of Directors out of funds
of the Company legally available therefor, cumulative preferential dividends
from the issue date of the Series E Preferred Stock accruing at the rate per
share of $12.625 per annum, payable semi-annually in arrears on January 15
and July 15 in each year or, if any such date is not a business day, on the
next succeeding business day (each, a "Dividend Payment Date"), to the
Holders of record as of the next preceding January 1 and July 1 (each, a
"Record Date"). Dividends will be payable in cash, except that on each
Dividend Payment Date occurring on or prior to January 15, 2002, dividends
may be paid, at the Company's option, by the issuance of additional shares of
Series E
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Preferred Stock (including fractional shares) having an aggregate
Liquidation Preference equal to the amount of such dividends. The first
dividend payment will be payable on July 15, 1997. Dividends payable on the
Series E Preferred Stock will be computed on the basis of a 360-day year of
twelve 30-day months and will be deemed to accrue on a daily basis. For a
discussion of certain federal income tax considerations relevant to the
payment of dividends on the Series E Preferred Stock, see "Certain Federal
Income Tax Considerations--Dividends on Series E Preferred Stock."
Dividends on the Series E Preferred Stock will accrue whether or not the
Company has earnings or profits, whether or not there are funds legally
available for the payment of such dividends and whether or not dividends are
declared. Dividends will accumulate to the extent they are not paid on the
Dividend Payment Date for the period to which they relate. Accumulated unpaid
dividends will bear interest at the rate of 12.625% per annum. The
Certificate of Designations will provide that the Company will take all
actions required or permitted under Delaware law to permit the payment of
dividends on the Series E Preferred Stock.
No dividend whatsoever shall be declared or paid upon, or any sum set
apart for the payment of dividends upon, any outstanding Series E Preferred
Stock with respect to any dividend period unless all dividends for all
preceding dividend periods have been declared and paid upon, or declared and
a sufficient sum set apart for the payment of such dividend upon, all
outstanding shares of Series E Preferred Stock. Unless full cumulative
dividends on all outstanding shares of Series E Preferred Stock due for all
past dividend periods shall have been declared and paid, or declared and a
sufficient sum for the payment thereof set apart, then: (i) no dividend
(other than a dividend payable solely in shares of any class of stock ranking
junior to the Series E Preferred Stock as to the payment of dividends and as
to rights in liquidation, dissolution or winding up of the affairs of the
Company ("Junior Securities")) shall be declared or paid upon, or any sum set
apart for the payment of dividends upon, any shares of Junior Securities;
(ii) no other distribution shall be declared or made upon, or any sum set
apart for the payment of any distribution upon, any shares of Junior
Securities; (iii) no shares of Junior Securities shall be purchased, redeemed
or otherwise acquired or retired for value (excluding an exchange for shares
of other Junior Securities) by the Company or any of its Subsidiaries; and
(iv) no monies shall be paid into or set apart or made available for a
sinking or other like fund for the purchase, redemption or other acquisition
or retirement for value of any shares of Junior Securities by the Company or
any of its Subsidiaries. Holders of the Series E Preferred Stock will not be
entitled to any dividends, whether payable in cash, property or stock, in
excess of the full cumulative dividends as herein described.
The shares of Series D Preferred Stock are Senior Securities. Unless full
cumulative dividends on all outstanding Series D Preferred Stock due for all
past dividend periods shall have been declared and paid, or declared and a
sufficient sum for the payment thereof set apart for such payment, the
Company will be prohibited from paying any dividend or making any other
distribution on or in respect of the Series E Preferred Stock. See "Risk
Factors--Limitations on Ability to Pay Dividends; Restrictions on Exchange."
In addition, the Credit Agreement, the New Note Indenture, the Series D
Certificate of Designations and the Series D Exchange Note Indenture contain
restrictions on the ability of the Company to pay dividends on the Series E
Preferred Stock. Any future credit agreements or other agreements relating to
Indebtedness to which the Company becomes a party may contain similar
restrictions and provisions. See "Risk Factors--Limitations on Ability to Pay
Dividends; Restrictions on Exchange."
Voting Rights
Holders of record of the Series E Preferred Stock will have no voting
rights, except as required by law and as provided in the Certificate of
Designations. The Certificate of Designations will provide that upon (a) the
accumulation of accrued and unpaid dividends on the outstanding Series E
Preferred Stock in an amount equal to six full quarterly dividends (whether
or not consecutive); (b) the failure of the Company to satisfy any mandatory
redemption or repurchase obligation (including, without limitation, pursuant
to any required Change of Control Offer) with respect to the Series E
Preferred Stock; (c) the failure of the Company to make a Change of Control
Offer on the terms and in accordance with the provisions described below
under the caption "--Change of Control"; (d) the failure of the Company to
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comply with any of the other covenants or agreements set forth in the
Certificate of Designations and the continuance of such failure for 60
consecutive days or more; or (e) default under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured
or evidenced any Indebtedness for money borrowed by the Company or any of its
Subsidiaries (or the payment of which is guaranteed by the Company or any of
its Subsidiaries) whether such Indebtedness or guarantee now exists, or is
created after the Closing Date, which default (i) is caused by a failure to
pay principal of or premium, if any, or interest on such Indebtedness prior
to the expiration of the grace period provided in such Indebtedness on the
date of such default (a "Payment Default") or (ii) results in the
acceleration of such Indebtedness prior to its express maturity and, in each
case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$25.0 million or more (each of the events described in clauses (a), (b), (c),
(d) and (e) being referred to herein as a "Voting Rights Triggering Event"),
then the number of members of the Company's Board of Directors will be
immediately and automatically increased by two, and the Holders of a majority
of the outstanding shares of Series E Preferred Stock, voting as a separate
class, will be entitled to elect two members to the Board of Directors of the
Company. Voting rights arising as a result of a Voting Rights Triggering
Event will continue until such time as all dividends in arrears on the Series
E Preferred Stock are paid in full and all other Voting Rights Triggering
Events have been cured or waived.
In addition, as provided above under "--Ranking," the Company may not
authorize, create (by way of reclassification or otherwise) or issue any
Senior Securities, or any obligation or security convertible into or
evidencing the right to purchase Senior Securities, without the affirmative
vote or consent of the Holders of two-thirds of the then-outstanding shares
of Series E Preferred Stock, in each case, voting as a separate class.
Exchange
The Company may, at its option on any Dividend Payment Date, exchange, in
whole or in part, on a pro rata basis, the then-outstanding shares of Series
E Preferred Stock for Exchange Debentures; provided that immediately after
giving effect to any partial exchange, there shall be outstanding Series E
Preferred Stock with an aggregate liquidation preference of not less than
$50.0 million and not less than $50.0 million in aggregate principal amount
of Exchange Debentures; and, provided further, that (i) on the date of such
exchange there are no accumulated and unpaid dividends on the Series E
Preferred Stock (including the dividend payable on such date) or other
contractual impediments to such exchange; (ii) such exchange would be
permitted under the terms of the Series D Preferred Stock, to the extent then
outstanding, and, immediately after giving effect to such exchange, no
Default or Event of Default (each as defined in the Exchange Indenture) would
exist under the Exchange Indenture, no default or event of default would
exist under the Credit Agreement, the New Note Indenture or the Series D
Exchange Note Indenture and no default or event of default under any material
instrument governing Indebtedness outstanding at the time would be caused
thereby; (iii) the Exchange Indenture has been qualified under the Trust
Indenture Act, if such qualification is required at the time of exchange; and
(iv) the Company shall have delivered a written opinion to the Exchange
Trustee (as defined herein) to the effect that all conditions to be satisfied
prior to such exchange have been satisfied. The Credit Agreement, the New
Note Indenture, the Series D Certificate of Designations and the Series D
Exchange Note Indenture currently restrict the exchange of the Series E
Preferred Stock and may restrict the Company's ability to exchange the Series
E Preferred Stock in the future.
The Exchange Debentures will be issuable in all appropriate denominations.
Notice of the intention to exchange will be sent by or on behalf of the
Company not more than 60 days nor less than 30 days prior to the Exchange
Date, by first class mail, postage prepaid, to each Holder of record of
Series E Preferred Stock at its registered address. In addition to any
information required by law or by the applicable rules of any exchange upon
which Series E Preferred Stock may be listed or admitted to trading, such
notice will state: (i) the Exchange Date; (ii) the place or places where
certificates for such shares are to be surrendered for exchange, including
any procedures applicable to exchanges to be accomplished through book-entry
transfers; and (iii) that dividends on the Series E Preferred Stock to be
exchanged will cease to accrue on the Exchange Date. If notice of any
exchange has been properly given, and if on or before
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the Exchange Date the Exchange Debentures have been duly executed and
authenticated and an amount in cash or additional Series E Preferred Stock
(as applicable) equal to all accrued and unpaid dividends, if any, thereon to
the Exchange Date has been deposited with the Transfer Agent, then on and
after the close of business on the Exchange Date, the Series E Preferred
Stock to be exchanged will no longer be deemed to be outstanding and may
thereafter be issued in the same manner as the other authorized but unissued
preferred stock, but not as Series E Preferred Stock, and all rights of the
Holders thereof as stockholders of the Company will cease, except the right
of the Holders to receive upon surrender of their certificates the Exchange
Debentures and all accrued and unpaid dividends, if any, thereon to the
Exchange Date.
Redemption
Mandatory Redemption
On October 31, 2006 (the "Mandatory Redemption Date"), the Company will be
required to redeem (subject to the legal availability of funds therefor) all
outstanding shares of Series E Preferred Stock at a price in cash equal to
the Liquidation Preference thereof, plus accrued and unpaid dividends, if
any, to the date of redemption. The Credit Agreement, the New Note Indenture,
the Series D Certificate of Designations and the Series D Exchange Note
Indenture currently restrict the redemption of the Series E Preferred Stock
and may restrict the Company's ability to redeem the Series E Preferred Stock
in the future. The Company will not be required to make sinking fund payments
with respect to the Series E Preferred Stock. The Certificate of Designations
will provide that the Company will take all actions required or permitted
under Delaware law to permit such redemption.
Optional Redemption
The Series E Preferred Stock may be redeemed, in whole or in part, at the
option of the Company on or after January 15, 2002, at the redemption prices
specified below (expressed as percentages of the Liquidation Preference
thereof), in each case, together with accrued and unpaid dividends, if any,
to the date of redemption, upon not less than 30 nor more than 60 days' prior
written notice, if redeemed during the 12-month period commencing on January
15 of each of the years set forth below:
REDEMPTION
YEAR RATE
- -------------------- ------------
2002 ................ 106.313%
2003 ................ 104.734%
2004 ................ 103.156%
2005 ................ 101.578%
2006 and thereafter 100.000%
In addition, prior to January 15, 2000 the Company may, at its option,
redeem up to 50% of the aggregate of (i) the liquidation preference of the
Series E Preferred Stock issued (whether issued or issued in lieu of cash
dividends) less the liquidation preference of Series E Preferred Stock
exchanged for Exchange Debentures and (ii) the principal amount of Exchange
Debentures issued (whether issued in exchange for Series E Preferred Stock or
in lieu of cash interest), with the net proceeds of one or more common equity
offerings received on or after the date of original issuance of the Series E
Preferred Stock at a redemption price of 112.625% of the liquidation
preference or principal amount, as the case may be, plus accumulated and
unpaid dividends in the case of Series E Preferred Stock and accrued and
unpaid interest in the case of Exchange Debentures; provided, that after any
such redemption, if any Series E Preferred Stock or Exchange Debentures
remain outstanding, at least $50 million in liquidation preference or
principle amount, as applicable, of Series E Preferred Stock or Exchange
Debentures, as the case may be, remain outstanding; and provided further,
that any such redemption shall occur within 75 days of the date of closing of
such offering of common equity of the Company.
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The Credit Agreement, the New Note Indenture, the Series D Certificate of
Designations and the Series D Exchange Note Indenture currently restrict the
redemption of the Series E Preferred Stock and may restrict the Company's
ability to redeem the Series E Preferred Stock in the future.
Liquidation Rights
Upon any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Company or reduction or decrease in its capital stock
resulting in a distribution of assets to the holders of any class or series
of the Company's capital stock (a "reduction or decrease in capital stock"),
each Holder of the Series E Preferred Stock will be entitled to payment out
of the assets of the Company available for distribution of an amount equal to
the Liquidation Preference per share of Series E Preferred Stock held by such
Holder, plus accrued and unpaid dividends, if any, to the date fixed for
liquidation, dissolution, winding up or reduction or decrease in capital
stock, before any distribution is made on any Junior Securities, including,
without limitation, common stock of the Company. After payment in full of the
Liquidation Preference and all accrued dividends, if any, to which Holders of
Series E Preferred Stock are entitled, such Holders will not be entitled to
any further participation in any distribution of assets of the Company.
However, neither the voluntary sale, conveyance, exchange or transfer (for
cash, shares of stock, securities or other consideration) of all or
substantially all of the property or assets of the Company nor the
consolidation or merger of the Company with or into one or more corporations
will be deemed to be a voluntary or involuntary liquidation, dissolution or
winding up of the Company or reduction or decrease in capital stock, unless
such sale, conveyance, exchange or transfer shall be in connection with a
liquidation, dissolution or winding up of the business of the Company or
reduction or decrease in capital stock.
The Certificate of Designations will not contain any provision requiring
funds to be set aside to protect the Liquidation Preference of the Series E
Preferred Stock, although such Liquidation Preference will be substantially
in excess of the par value of the Series E Preferred Stock.
Change of Control
Upon the occurrence of a Change of Control, each Holder of Series E
Preferred Stock will have the right to require the Company to repurchase all
or any part of such Holder's shares of Series E Preferred Stock pursuant to
the offer described below (the "Change of Control Offer") at an offer price
in cash equal to 101% of the aggregate Liquidation Preference thereof plus
accrued and unpaid dividends, if any, thereon to the date of purchase (the
"Change of Control Payment").
The Certificate of Designations will provide that, subject to the
provisions of the following paragraph, within 30 days following any Change of
Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and
offering to repurchase all outstanding shares of Series E Preferred Stock
pursuant to the procedures required by the Certificate of Designations and
described in such notice. The Company will comply with the requirements of
Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable
in connection with the repurchase of the Series E Preferred Stock as a result
of a Change of Control.
On the Change of Control Payment date, the Company will, to the extent
lawful, (1) accept for payment all shares of Series E Preferred Stock or
portions thereof properly tendered pursuant to the Change of Control Offer,
(2) deposit with the Paying Agent an amount equal to the Change of Control
Payment in respect of all shares of Series E Preferred Stock or portions
thereof so tendered and (3) deliver or cause to be delivered to the Transfer
Agent the Series E Preferred Stock so accepted together with an Officers'
Certificate stating the aggregate Liquidation Preference of the shares of
Series E Preferred Stock or portions thereof being purchased by the Company.
The Paying Agent will promptly mail to each Holder of Series E Preferred
Stock so tendered the Change of Control Payment for such Series E Preferred
Stock, and the Transfer Agent will promptly authenticate and mail (or cause
to be transferred by book entry) to each Holder a new certificate
representing the Series E Preferred Stock equal in Liquidation Preference
amount to any unpurchased portion of the Series E Preferred Stock
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surrendered, if any. The Certificate of Designations will provide that,
prior to complying with the provisions of this covenant, but in any event
within 90 days following a Change of Control, the Company will either repay
all outstanding Indebtedness or obtain the requisite consents, if any, under
all agreements governing outstanding Indebtedness to permit the repurchase of
Series E Preferred Stock required by this covenant. If the Company fails to
make such repayment or obtain such consents within such time period, it will
result in a Voting Rights Triggering Event, but the obligation to commence
and consummate a Change of Control Offer will be suspended until such
repayment is made or such consents are obtained. The Certificate of
Designations will also provide that, if such consents are not obtained, the
Company will not repurchase any Series E Preferred Stock until the 91st day
following the retirement of the New Notes. The Company will publicly announce
the results of the Change of Control Offer on or as soon as practicable after
the Change of Control Payment Date.
The Change of Control provisions described above will be applicable
whether or not any other provisions of the Certificate of Designations are
applicable. Except as described above with respect to a Change of Control,
the Certificate of Designations does not contain provisions that permit the
Holders of the Series E Preferred Stock to require that the Company
repurchase or redeem the Series E Preferred Stock in the event of a takeover,
recapitalization or similar transaction.
The Credit Agreement prohibits the Company from purchasing any Series E
Preferred Stock prior to its maturity, and also provides that certain change
of control events with respect to the Company constitute a default
thereunder. The New Note Indenture, the Series D Certificate of Designations
and the Series D Exchange Note Indenture also contain restrictions on the
ability of the Company to repurchase Series E Preferred Stock. Any future
credit agreements or other agreements relating to Indebtedness to which the
Company becomes a party may contain similar restrictions and provisions. In
the event a Change of Control occurs at a time when the Company is prohibited
from purchasing Series E Preferred Stock, the Company could seek the consent
of its lenders to the purchase of Series E Preferred Stock or could attempt
to refinance the borrowings that contain such prohibition. If the Company
does not obtain such a consent or repay such borrowings, the Company will
remain prohibited from purchasing Series E Preferred Stock. In such case, the
Holders of a majority of the outstanding shares of Series E Preferred Stock,
voting as a separate class, may be entitled to elect two members to the Board
of Directors of the Company.
The Company will not be required to make a Change of Control Offer to the
Holders of Series E Preferred Stock upon a Change of Control if a third party
makes the Change of Control Offer described above in the manner, at the times
and otherwise in compliance with the requirements set forth in the
Certificate of Designations and purchases all shares of Series E Preferred
Stock validly tendered and not withdrawn under such Change of Control Offer.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Subsidiaries taken
as a whole to any "person" (as such term is used in Section 13(d)(3) of the
Exchange Act) other than the Principal or his Related Parties (as defined
below), (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company, (iii) the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of
which is that any "person" (as defined above), other than the Principal and
his Related Parties, becomes the "beneficial owner" (as such term is defined
in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a person
shall be deemed to have "beneficial ownership" of all securities that such
person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time, upon the happening of an event
or otherwise), directly or indirectly, of Voting Stock of the Company having
more than 35% of the combined voting power of all classes of Voting Stock of
the Company then outstanding, or (iv) the first day on which a majority of
the members of the Board of Directors of the Company are not Continuing
Directors.
The definition of Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of the assets of the Company and its Subsidiaries taken as
a whole. Although there is a developing body of case law interpreting the
phrase "substantially all,"
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there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of Series E Preferred Stock to
require the Company to repurchase such Series E Preferred Stock as a result
of a sale, lease, transfer, conveyance or other disposition of less than all
of the assets of the Company and, its Subsidiaries taken as a whole to
another Person or group may be uncertain.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board
of Directors on the date of the Certificate of Designations or (ii) was
nominated for election or elected to such Board of Directors with the
approval of a majority of the Continuing Directors who were members of such
Board at the time of such nomination or election.
"Principal" means Robert F.X. Sillerman.
"Related Party" with respect to the Principal means (A) any spouse or
immediate family member (in the case of an individual) of the Principal or
(B) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or persons (as defined above) beneficially
owning (as defined above) an 80% or more controlling interest of which
consist of the Principal and/or such other persons referred to in the
immediately preceding clause (A).
Certain Covenants
Restricted Payments
The Certificate of Designations will provide that the Company will not,
and will not permit any of its Subsidiaries to, directly or indirectly: (i)
declare or pay any dividend or make any other payment or distribution on
account of the Company's Parity Securities or Junior Securities (including,
without limitation, any payment in connection with any merger or
consolidation involving the Company) or to the direct or indirect holders of
the Company's Parity Securities or Junior Securities in their capacity as
such (other than dividends or distributions payable in Capital Stock (other
than Disqualified Stock) of the Company); (ii) purchase, redeem or otherwise
acquire or retire for value any Parity Securities or Junior Securities of the
Company; (iii) make any payment on, or purchase, redeem, defease or otherwise
acquire or retire for value any Junior Securities, except payments of the
Liquidation Preference thereof at final maturity; or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i)
through (iv) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(a) no Voting Rights Triggering Event shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness (other than
Permitted Debt) pursuant to the Debt to Cash Flow Ratio test set forth in
the first paragraph of the covenant described below under the caption
"--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments declared or made after the Closing Date (other
than Restricted Payments permitted by clauses (2), (5), (6) or (10) of the
following paragraph) shall not exceed, at the date of determination, the
sum of (1) an amount equal to the Company's Consolidated Cash Flow from
the Closing Date to the end of the Company's most recently ended full
fiscal quarter for which internal financial statements are available,
taken as a single accounting period, less the product of 1.4 times the
Company's Consolidated Interest Expense from the Closing Date to the end
of the Company's most recently ended full fiscal quarter for which
internal financial statements are available, taken as a single accounting
period, plus (2) an amount equal to the net cash proceeds received by the
Company from the issue or sale after the Closing Date of Equity Interests
of the Company (other than (i) sales of Disqualified Stock and (ii) Equity
Interests sold to any of the Company's Subsidiaries) or of debt
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securities or Disqualified Stock (other than the Series D Preferred
Stock) of the Company that have been converted into such Equity Interests
plus (3) to the extent that any Restricted Investment that was made after
the Closing Date is sold for cash or otherwise liquidated or repaid for
cash, the lesser of (A) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any) and (B) the
initial amount of such Restricted Investment.
If no Voting Rights Triggering Event shall have occurred and be continuing
as a result thereof, the foregoing provisions will not prohibit: (1) the
payment of any dividend within 60 days after the date of declaration thereof,
if at said date of declaration such payment would have complied with the
provisions of the Certificate of Designations; (2) the redemption,
repurchase, retirement or other acquisition of any Equity Interests of the
Company in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Subsidiary of the Company) of other Equity
Interests of the Company (other than any Disqualified Stock); provided that
the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition shall be excluded
from clause (c)(2) of the preceding paragraph; (3) cash payments made in
respect of fractional shares of Capital Stock not to exceed $100,000 in the
aggregate in any fiscal year; (4) the payment of dividends on the Series D
Preferred Stock in accordance with the terms thereof as in effect on the
Closing Date; (5) the issuance of Series D Exchange Notes in exchange for the
Series D Preferred Stock; provided that such issuance is permitted by the
covenant described below under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock;" (6) the issuance of Exchange Debentures in
exchange for the Series E Preferred Stock; provided that such issuance is
permitted by the covenant described below under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock;" (7) in the event that the
Company elects to issue the Series D Exchange Notes in exchange for the
Series D Preferred Stock, cash payments made in lieu of the issuance of
Series D Exchange Notes having a face amount less than $50 and any cash
payments representing accrued and unpaid dividends in respect thereof, not to
exceed $100,000 in the aggregate in any fiscal year; (8) in the event that
the Company elects to issue Exchange Debentures in exchange for Series E
Preferred Stock, cash payments made in lieu of the issuance of Exchange
Debentures having a face amount less than $1,000 and any cash payments
representing accrued and unpaid dividends in respect thereof, not to exceed
$100,000 in the aggregate in any fiscal year; (9) payments made by the
Company to SCMC for facilities maintenance and other services and
reimbursements pursuant to the Shared Facilities Agreement, as amended from
time to time, to the extent that such payments do not exceed the amount of
payments which would have been due if calculated in accordance with the terms
of the Shared Facility Agreement as in effect on the Closing Date; (10)
payments by the Company pursuant to the Management Termination Agreements in
accordance with the terms thereof as in effect on the Closing Date and (11)
the redemption by the Company of its Series C Preferred Stock in accordance
with the terms thereof as in effect on the Closing Date.
The amount of all Restricted Payments (other than cash) shall be the Fair
Market Value (evidenced by a resolution of the Board of Directors set forth
in an Officers' Certificate delivered to the Board of Directors) on the date
of the Restricted Payment of the asset(s) or securities proposed to be
transferred by the Company or such Subsidiary, as the case may be, pursuant
to the Restricted Payment. Not later than the date of making any Restricted
Payment, the Company shall deliver to the Board of Directors an Officers'
Certificate stating that such Restricted Payment is permitted and setting
forth the basis upon which the calculations required by this covenant were
computed, which calculations may be based upon the Company's latest available
financial statements.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Certificate of Designations will provide that the Company will not,
and will not permit any of its Subsidiaries to, directly or indirectly,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable, contingently or otherwise, with respect to (collectively,
"incur") any Indebtedness (including Acquired Debt) and that the Company will
not issue any Disqualified Stock and will not permit any of its Subsidiaries
to issue any shares of Preferred Stock; provided, however, that (i) the
Company may incur Indebtedness (including Acquired Debt) or issue shares of
Disqualified Stock and (ii) (A) the Subsidiaries may guarantee Senior Debt
and (B) the Subsidiaries may issue Preferred Stock (other than
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Disqualified Stock) if, in either case, the Company's Debt to Cash Flow
Ratio at the time of incurrence of such Indebtedness or the issuance of such
Disqualified Stock or the Guarantee of such Senior Debt or the issuance of
such Preferred Stock, as the case may be, after giving pro forma effect to
such incurrence or issuance or Guarantee as of such date and to the use of
proceeds therefrom as if the same had occurred at the beginning of the most
recently ended four full fiscal quarter period of the Company for which
internal financial statements are available, would have been no greater than
7.0 to 1.
The foregoing provisions will not apply to the incurrence of any of the
following Indebtedness (collectively, "Permitted Debt"):
(i) the incurrence by the Company and its Subsidiaries of Indebtedness
pursuant to one or more Bank Facilities, so long as the aggregate
principal amount of all Indebtedness outstanding under all Bank Facilities
does not, at the time of incurrence, exceed an amount equal to $225.0
million;
(ii) the incurrence by the Company and its Subsidiaries of the Existing
Indebtedness;
(iii) Indebtedness under the Exchange Debentures;
(iv) the issuance of Disqualified Stock by the Company that by its terms
would not require or permit any payment of dividends or other
distributions that would violate the covenant described above under the
caption "--Restricted Payments";
(v) the incurrence by the Company or any of its Subsidiaries of
Indebtedness in connection with the acquisition of assets or a new
Subsidiary; provided that such Indebtedness was incurred by the prior
owner of such assets or such Subsidiary prior to such acquisition by the
Company or one of its Subsidiaries and was not incurred in connection
with, or in contemplation of, such acquisition by the Company or one of
its Subsidiaries; and provided further that, after giving pro forma effect
to such incurrence of Indebtedness as of such date and to the use of
proceeds therefrom as if the same had occurred at the beginning of the
most recently ended four full fiscal quarter period for which internal
financial statements are available, the Company's Debt to Cash Flow Ratio
would have been no greater than 7.0 to 1;
(vi) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Debt in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by the Certificate of Designation to be
incurred;
(vii) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Subsidiaries; provided, however, that (i) if the Company is the obligor on
such Indebtedness, such Indebtedness is expressly subordinate to the
payment in full of all Obligations with respect to the Exchange Debentures
and (ii)(A) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than the
Company or a Subsidiary and (B) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Subsidiary
shall be deemed, in each case, to constitute an incurrence of such
Indebtedness by the Company or such Subsidiary, as the case may be;
(viii) the incurrence by the Company or any of its Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating rate Indebtedness that is
permitted by the terms of the Certificate of Designations to be
outstanding; and
(ix) the incurrence by the Company and any of its Subsidiaries of
Indebtedness (in addition to Indebtedness permitted by any other clause of
this paragraph) in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding not to exceed $10.0 million.
Merger, Consolidation or Sale of Assets
The Certification of Designation will provide that the Company may not
consolidate or merge with or into (whether or not the Company is the
surviving corporation), or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its properties or assets in one or
more related transactions, to another corporation, Person or entity unless
(i) the Company is the surviving corporation
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or the entity or the Person formed by or surviving any such consolidation or
merger (if other than the Company) or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made is a
corporation organized or existing under the laws of the United States, any
states, any state thereof or the District of Columbia; (ii) the Series E
Preferred Stock shall be converted into or exchanged for and shall become
shares of such successor, transferee or resulting Person, having in respect
of such successor, transferee or resulting Person the same powers,
preferences and relative participating, optional or other special rights and
the qualifications, limitations or restrictions thereon, that the Series E
Preferred Stock had immediately prior to such transaction; (iii) immediately
after such transaction no Voting Rights Triggering Event exists; (iv) such
transaction will not result in the loss or suspension or material impairment
of any Material Broadcast License; and (v) except in the case of a merger of
the Company with or into a Wholly Owned Subsidiary of the Company, the
Company or the entity or Person formed by or surviving any such consolidation
or merger (if other than the Company), or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made (A)
will have Consolidated Net Worth immediately after the transaction equal to
or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction and (B) will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred at
the beginning of the applicable four-quarter period, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Debt to Cash Flow
Ratio set forth in the first paragraph of the covenant described under the
caption "--Incurrence of Indebtedness and Issuance of Preferred Stock."
Transactions with Affiliates
The Certificate of Designations will provide that the Company will not,
and will not permit any of its Subsidiaries to, make any payment to, or sell,
lease, transfer or otherwise dispose of any of its properties or assets to,
or purchase any property or assets from, or enter into or make or amend any
contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Subsidiary than those that
would have been obtained in a comparable transaction by the Company or such
Subsidiary with an unrelated Person and (ii) the Company delivers to the
Holders (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $1.0
million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause
(i) above and that such Affiliate Transaction has been approved by a majority
of the members of the Board of Directors that are disinterested as to such
Affiliate Transaction and (b) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $5.0 million, an opinion as to the fairness to the Holders of such
Affiliate Transaction from a financial point of view issued by an accounting,
appraisal or investment banking firm of national standing; provided that (1)
transactions between or among the Company and/or its Wholly Owned
Subsidiaries, (2) redemption or repurchase of the Existing MMR Indebtedness,
(3) transactions and agreements specifically contemplated by the Termination
and Assignment Agreement between the Company and SCMC as in effect on the
Closing Date, (4) payments required by the terms of the joint lease among the
Company, SCMC and the landlord thereunder for the Company's corporate
headquarters located at 150 East 58th Street, New York, New York and any
agreements directly related thereto, in each case, as the same are in effect
on the Closing, Date, (5) payments made by the Company to SCMC for facilities
maintenance and other services and reimbursements pursuant to the Shared
Facilities Agreement, (6) payments and other transactions by the Company
pursuant to the Management Termination Agreements and (7) any Permitted
Investment, in each case, shall not be deemed to be Affiliate Transactions.
Payments for Consent
The Certificate of Designations will provide that neither the Company nor
any of its Subsidiaries will, directly or indirectly, pay or cause to be paid
any consideration, whether by way of dividend or other distribution, fee or
otherwise, to any Holder of Series E Preferred Stock for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Certificate of Designations or the Series E Preferred Stock unless such
consideration is offered to be paid and is paid to all Holders of the
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Series E Preferred Stock that consent, waive or agree to amend in the time
frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
Reports
The Certificate of Designations will provide that, whether or not required
by the rules and regulations the Commission, so long as any shares of Series
E Preferred Stock are outstanding, the Company will furnish to the Holders of
Series E Preferred Stock (i) all quarterly and annual financial information
that would be required to be contained in a filing with the Commission on
Forms 10-Q and 10-K if the Company were required to file such Forms,
including "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and (ii)
all current reports that would be required to be filed with the Commission on
Form 8-K if the Company were required to file such reports. In addition,
whether or not required by the rules and regulations of the Commission, the
Company will file a copy of all such information and reports with the
Commission for public availability (unless the Commission will not accept
such a filing) and make such information available to securities analysts and
prospective investors upon request.
Transfer and Exchange
A Holder may transfer or exchange Series E Preferred Stock in accordance
with the Certificate of Designations if the requirements of the Transfer
Agent for such transfer or exchange are met. The Transfer Agent may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and the Company may require a Holder to pay any taxes and fees
required by law or permitted by the Certificate of Designations.
Amendment, Supplement and Waiver
Without the consent of each Holder affected, an amendment or waiver may
not (with respect to any Series E Preferred Stock held by a non-consenting
Holder): (i) alter the voting rights with respect to the Series E Preferred
Stock or reduce the number of shares of Series E Preferred Stock whose
Holders must consent to an amendment, supplement or waiver, (ii) reduce the
Liquidation Preference of or change the Mandatory Redemption Date of any
Series E Preferred Stock or alter the provisions with respect to the
redemption of the Series E Preferred Stock (other than provisions relating to
the covenant described above under the caption "--Change of Control"), (iii)
reduce the rate of or change the time for payment of dividends on any Series
E Preferred Stock, (iv) waive a default in the payment of dividends on the
Series E Preferred Stock, (v) make any Series E Preferred Stock payable in
any form other than that stated in the Certificate of Designations, (vi) make
any change in the provisions of the Certificate of Designations relating to
waivers of the rights of Holders of Series E Preferred Stock to receive the
Liquidation Preference or dividends on the Series E Preferred Stock, (vii)
waive a redemption payment with respect to any Series E Preferred Stock
(other than a payment required by the covenant described above under the
caption "--Change of Control") or (viii) make any change in the foregoing
amendment and waiver provisions. In addition, any amendment to the covenant
described under the caption "--Change of Control" including the related
definitions will require the consent of the Holders of at least 75% of the
shares of Series E Preferred Stock then outstanding if such amendment would
adversely affect the rights of Holders of Series E Preferred Stock.
Notwithstanding the foregoing, without the consent of any Holder of Series
E Preferred Stock, the Company may (to the extent permitted by Delaware law)
amend or supplement the Certificate of Designations to cure any ambiguity,
defect or inconsistency, to provide for uncertificated Series E Preferred
Stock in addition to or in place of certificated Series E Preferred Stock or
to make any change that would provide any additional rights or benefits to
the Holders of Series E Preferred Stock or that does not adversely affect the
legal rights under the Certificate of Designations of any such Holder.
Reissuance
Series E Preferred Stock redeemed or otherwise acquired by the Company
will assume the status of authorized but unissued preferred stock and may
thereafter be reissued in the same manner as the other authorized but
unissued preferred stock, but not as Series E Preferred Stock.
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DESCRIPTION OF THE EXCHANGE DEBENTURES
The Exchange Debentures will, if and when issued, be issued pursuant to an
indenture (the "Exchange Indenture") between the Company and the trustee
thereunder (the "Exchange Trustee"). The terms of the Exchange Debentures
include those stated in the Exchange Indenture and those made part of the
Exchange Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The Exchange Debentures will be subject
to all such terms, and Holders of Exchange Debentures are referred to the
Exchange Indenture and the Trust Indenture Act for a statement thereof. The
following summary of certain provisions of the Exchange Indenture does not
purport to be complete and is qualified in its entirety by reference to the
Exchange Indenture, including the definitions therein of certain terms used
below. The definitions of certain terms used in the Exchange Indenture and in
the following summary are set forth below under "--Certain Definitions."
The Exchange Debentures will rank senior in right of payment to the Series
D Exchange Notes. The Exchange Debentures will rank pari passu in right of
payment with the New Notes. The Exchange Debentures will be subordinated in
right of payment to all Senior Debt, including borrowings under the New
Credit Agreement.
Certain operations of the Company are conducted through its Subsidiaries
and, therefore, the Company is dependent upon the cash flow of its
Subsidiaries to meet its obligations, including its obligations under the
Exchange Debentures.
Principal, Maturity and Interest
The Exchange Debentures will be limited in aggregate principal amount to
$415 million and will mature on October 31, 2006. Interest on the Exchange
Debentures will accrue at the rate of 12.625% per annum and will be payable
semi-annually in arrears on each January 15 and July 15 (each, an "Interest
Payment Date") to Holders of record on the immediately preceding January 1
and July 1 (each, an "Exchange Debenture Record Date"). Interest will be
payable in cash, except that on each Interest Payment Date occurring prior to
January 15, 2002, interest may be paid, at the Company's option, by the
issuance of additional Exchange Debentures having an aggregate principal
amount equal to the amount of such interest. Interest on the Exchange
Debentures will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from the date of original issuance.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months. The Exchange Debentures will be issued in all appropriate
denominations.
Subordination
The payment of principal of, premium on, if any, and interest on the
Exchange Debentures will be subordinated in right of payment, as set forth in
the Exchange Indenture, to the prior payment in full of all Senior Debt,
whether outstanding on the date of the Exchange Indenture or thereafter
incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property,
or in an assignment for the benefit of creditors or any marshaling of the
Company's assets and liabilities, the holders of Senior Debt will be entitled
to receive payment in full of all Obligations due in respect of such Senior
Debt (including interest after the commencement of any such proceeding at the
rate specified in the applicable Senior Debt, whether or not an allowable
claim) before the Holders will be entitled to receive any payment with
respect to the Exchange Debentures; and until all Obligations with respect to
Senior Debt are paid in full, any distribution to which the Holders would be
entitled will be made to the holders of Senior Debt (except that, in either
case, Holders may receive (i) securities that are subordinated at least to
the same extent as the Exchange Debentures to Senior Debt and any securities
issued in exchange for Senior Debt and (ii) payments made from the trust
described below under "--Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the
Exchange Debentures (except as described above) if (i) a default in the
payment of the principal of, premium, if any, or interest
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on Designated Senior Debt occurs and is continuing or (ii) any other default
occurs and is continuing with respect to Designated Senior Debt that permits
holders of Designated Senior Debt as to which such default relates to
accelerate its maturity and the trustee receives a notice of such default (a
"Payment Blockage Notice") from the Company or the holders of any Designated
Senior Debt. Payments on the Exchange Debentures may and shall be resumed (a)
in the case of a payment default, upon the date on which such default is
cured or waived and (b) in the case of a nonpayment default, the earlier of
the date on which such nonpayment default is cured or waived or 179 days
after the date on which the applicable Payment Blockage Notice is received,
unless the maturity of any Designated Senior Debt has been accelerated. No
new period of payment blockage may be commenced unless and until (1) 360 days
have elapsed since the effectiveness of the immediately prior Payment
Blockage Notice and (2) all scheduled payments of principal, premium, if any,
interest on the Exchange Debentures that have come due have been paid in
full. No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Exchange Trustee shall be, or
be made, the basis for a subsequent Payment Blockage Notice.
The Exchange Indenture will further require that the Company promptly
notify the holders of Senior Debt if payment of the Exchange Debentures is
accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders may recover less ratably than
creditors of the Company who are holders of Senior Debt or other creditors of
the Company who are not subordinated to holders of Senior Debt. As of
September 30, 1996, after giving pro forma effect to the Transactions, the
Company would have had approximately $138.0 million of Senior Debt
outstanding. The Exchange Indenture will limit, subject to certain financial
tests, the amount of additional Indebtedness, including Senior Debt, that the
Company and its Subsidiaries may incur. See "--Certain Covenants--Incurrence
of Indebtedness and Issuance of Preferred Stock."
"Designated Senior Debt" means (i) so long as any Senior Bank Debt is
outstanding, the Senior Bank Debt and (ii) thereafter, any other Senior Debt
permitted under the Exchange Indenture, the principal amount of which is
$25.0 million or more and that has been designated by the Company as
"Designated Senior Debt."
"Senior Bank Debt" means any Indebtedness outstanding under, and any other
Obligations with respect to, Bank Facilities, to the extent that any such
Indebtedness and other Obligations are permitted by the Exchange Indenture to
be incurred.
"Senior Debt" means (a) the Senior Bank Debt, (b) all additional
Indebtedness that is permitted under the Exchange Indenture that is not by
its terms pari passu with or subordinated to the Exchange Debentures, (c) all
Obligations of the Company with respect to the foregoing clauses (a) and (b),
including post-petition interest and (d) all (including all subsequent)
renewals, extensions, amendments, refinancings, repurchases or redemptions,
modifications, replacements or refundings thereto (whether or not coincident
therewith) that are permitted by the Exchange Indenture. Notwithstanding
anything to the contrary in the foregoing, Senior Debt shall not include (i)
any Indebtedness of the Company to any of its Subsidiaries, (ii) any
Indebtedness incurred for the purchase of goods or materials or for services
obtained in the ordinary course of business (other than with the proceeds of
borrowings from banks or other financial institutions), (iii) the Series D
Exchange Notes or (iv) any Indebtedness incurred in violation of the Exchange
Indenture.
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Optional Redemption
The Exchange Debentures will be subject to redemption after January 15,
2002, at the option of the Company, in whole or in part, upon not less than
30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest, if any, thereon to the applicable redemption date, if redeemed
during the twelve-month period beginning on January 15 of the years indicated
below:
REDEMPTION
YEAR RATE
- -------------------- ------------
2002 ................ 106.313%
2003 ................ 104.734%
2004 ................ 103.156%
2005 ................ 101.578%
2006 and thereafter 100.000%
In addition, prior to January 15, 2000 the Company may, at its option,
redeem up to 50% of the aggregate of (i) the liquidation preference of the
Series E Preferred Stock issued (whether initially issued or issued in lieu
of cash dividends) less the liquidation preference of Series E Preferred
Stock exchanged for Exchange Debentures and (ii) the principal amount of
Exchange Debentures issued (whether issued in exchange for Series E Preferred
Stock or in lieu of cash interest), with the net proceeds of one or more
common equity offerings received on or after the date of original issuance of
the Series E Preferred Stock at a redemption price of 112.625% of the
liquidation preference or principal amount, as the case may be, plus
accumulated and unpaid dividends in the case of Series E Preferred Stock and
accrued and unpaid interest in the case of Exchange Debentures; provided,
that after any such redemption, if any Series E Preferred Stock or Exchange
Debentures remain outstanding, at least $50 million in liquidation preference
or principle amount, as applicable, of Series E Preferred Stock or Exchange
Debentures, as the case may be, remain outstanding; and provided further,
that any such redemption shall occur within 75 days of the date of closing of
such offering of common equity of the Company.
The Credit Agreement, the New Note Indenture, the Series D Certificate of
Designations and the Series D Exchange Note Indenture currently restrict the
redemption of the Exchange Debentures and may restrict the Company's ability
to redeem the Exchange Debentures in the future.
Selection and Notice
If less than all of the Exchange Debentures are to be redeemed at any
time, selection of Exchange Debentures for redemption will be made by the
Exchange Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Exchange Debentures are
listed, or, if the Exchange Debentures are not so listed, on a pro rata
basis, by lot or by such method as the Exchange Trustee shall deem fair and
appropriate. Notices of redemption shall be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each Holder
of Exchange Debentures to be redeemed at its registered address. If any
Exchange Debenture is to be redeemed in part only, the notice of redemption
that relates to such Exchange Debenture shall state the portion of the
principal amount thereof to be redeemed. A new Exchange Debenture in
principal amount equal to the unredeemed portion thereof will be issued in
the name of the Holder thereof upon cancellation of the original Exchange
Debenture. On and after the redemption date, interest ceases to accrue on
Exchange Debentures or portions of them called for redemption.
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, each Holder of Exchange
Debentures will have the right to require the Company to repurchase all or
any part of such Holder's Exchange Debentures pursuant to the offer described
below (the "Change of Control Offer") at an offer price in cash equal to
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101% of the aggregate principal amount thereof plus accrued and unpaid
interest, if any, thereon to the date of purchase (the "Change of Control
Payment"). Within ten days following any Change of Control, the Company will
mail a notice to each Holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase Exchange
Debentures pursuant to the procedures required by the Exchange Indenture and
described in such notice. The Company will comply with the requirements of
Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable
in connection with the repurchase of the Exchange Debentures as a result of a
Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Exchange Debentures or portions thereof
properly tendered pursuant to the Change of Control Offer, (2) deposit with
the Paying Agent an amount equal to the Change of Control Payment in respect
of all Exchange Debentures or portions thereof so tendered and (3) deliver or
cause to be delivered to the Exchange Trustee the Exchange Debentures so
accepted together with an Officers' Certificate stating the aggregate
principal amount of Exchange Debentures or portions thereof being purchased
by the Company. The Paying Agent will promptly mail to each Holder of
Exchange Debentures so tendered the Change of Control Payment for such
Exchange Debentures, and the Exchange Trustee will promptly authenticate and
mail (or cause to be transferred by book entry) to each Holder a new Exchange
Debenture equal in principal amount to any unpurchased portion of the
Exchange Debentures surrendered, if any. The Exchange Indenture will provide
that, prior to complying with the provisions of this covenant, but in any
event within 90 days following a Change of Control, the Company will either
repay all outstanding Senior Debt or obtain the requisite consents, if any,
under all agreements governing outstanding Senior Debt to permit the
repurchase of Exchange Debentures required by this covenant. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable
whether or not any other provisions of the Exchange Indenture are applicable.
Except as described above with respect to a Change of Control, the Exchange
Indenture does not contain provisions that permit the Holders of the Exchange
Debentures to require that the Company repurchase or redeem the Exchange
Debentures in the event of a takeover, recapitalization or similar
transaction.
The Credit Agreement prohibits the Company from purchasing any Exchange
Debenture prior to its maturity, and also provides that certain change of
control events with respect to the Company will constitute a default
thereunder. The New Note Indenture, the Series D Certificate of Designations
and the Series D Exchange Note Indenture also contain restrictions on the
ability of the Company to repurchase Series E Preferred Stock. Any future
credit agreements or other agreements relating to Senior Debt to which the
Company becomes a party may contain similar restrictions and provisions. In
the event a Change of Control occurs at a time when the Company is prohibited
from purchasing Exchange Debentures, the Company could seek the consent of
its lenders to the purchase of Exchange Debentures or could attempt to
refinance the borrowings that contain such prohibition. If the Company does
not obtain such a consent or repay such borrowings, the Company will remain
prohibited from purchasing Exchange Debentures. In such case, the Company's
failure to purchase tendered Exchange Debentures would constitute an Event of
Default under the Exchange Indenture which would, in turn, constitute a
default under the Credit Agreement. In such circumstances, the subordination
provisions in the Exchange Indenture would likely restrict payments to the
Holders of Exchange Debentures. See "Risk Factors--Ability to Finance Change
of Control Repurchase" in the Prospectus Supplement and "Risk Factors--Change
of Control" in the accompanying Prospectus.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Exchange Indenture applicable to a Change of Control Offer made
by the Company and purchases all Exchange Debentures validly tendered and not
withdrawn under such Change of Control Offer.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of
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related transactions, of all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole to any "person" (as such term
is used in Section 13(d)(3) of the Exchange Act) other than the Principal or
his Related Parties (as defined below), (ii) the adoption of a plan relating
to the liquidation or dissolution of the Company, (iii) the consummation of
any transaction (including, without limitation, any merger or consolidation)
the result of which is that any "person" (as defined above), other than the
Principal and his Related Parties, becomes the "beneficial owner" (as such
term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except
that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time, upon the happening
of an event or otherwise), directly or indirectly, of Voting Stock of the
Company having more than 35% of the combined voting power of all classes of
Voting Stock of the Company then outstanding, or (iv) the first day on which
a majority of the members of the Board of Directors of the Company are not
Continuing Directors.
The definition of Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of the assets of the Company and its Subsidiaries taken as
a whole. Although there is a developing body of case law interpreting the
phrase "substantially all," there is no precise established definition of the
phrase under applicable law. Accordingly, the ability of a Holder of Exchange
Debentures to require the Company to repurchase such Exchange Debentures as a
result of a sale, lease, transfer, conveyance or other disposition of less
than all of the assets of the Company and its Subsidiaries taken as a whole
to another Person or group may be uncertain.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board
of Directors on the date of the Exchange Indenture or (ii) was nominated for
election or elected to such Board of Directors with the approval of a
majority of the Continuing Directors who were members of such Board at the
time of such nomination or election.
"Principal" means Robert F.X. Sillerman.
"Related Party" with respect to the Principal means (A) any spouse or
immediate family member (in the case of an individual) of the Principal or
(B) or trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or more
controlling interest of which consist of the Principal and/or such other
Persons referred to in the immediately preceding clause (A).
Asset Sales
The Exchange Indenture will provide that the Company will not, and will
not permit any of its Subsidiaries to, engage in any Asset Sale unless (i)
the Company (or the Subsidiary, as the case may be) receives consideration at
the time of such Asset Sale at least equal to the Fair Market Value
(evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Exchange Trustee) of the assets or
Equity Interests issued or sold or otherwise disposed of and (ii) at least
75% of the consideration therefor received by the Company or such Subsidiary
is in the form of cash; provided that the amount of (x) any liabilities (as
shown on the Company's or such Subsidiary's most recent balance sheet), of
the Company or any Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Exchange Debentures
or any guarantee thereof) that are assumed by the transferee of any such
assets pursuant to a customary novation agreement that releases the Company
or such Subsidiary from further liability and (y) any notes or other
obligations received by the Company or any such Subsidiary from such
transferee that are immediately converted by the Company or such Subsidiary
into cash (to the extent of the cash received), shall be deemed to be cash
for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to permanently
reduce Senior Debt (and to correspondingly reduce commitments with respect
thereto, in the case of Senior Debt that is revolving debt), or (b) to the
acquisition of a controlling interest in another business, the making of a
capital expenditure or the acquisition of other long-term assets, in each
case, in the Broadcast Business or businesses reasonably
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related thereto. Pending the final application of any such Net Proceeds, the
Company may temporarily reduce Senior Debt or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Exchange Indenture. Any
Net Proceeds from Asset Sales that are not applied or invested as provided in
the first sentence of this paragraph will be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $10.0
million, the Company will be required to make an offer to all Holders of
Exchange Debentures and the holders of Pari Passu Debt, to the extent
required by the terms thereof (an "Asset Sale Offer"), to purchase the
maximum principal amount of Exchange Debentures and any such Pari Passu Debt
that may be purchased out of the Excess Proceeds, at an offer price in cash
in an amount equal to 100% of the principal amount thereof plus accrued and
unpaid interest thereon to the date of purchase, in accordance with the
procedures set forth in the Exchange Indenture or the agreements governing
Pari Passu Debt, as applicable; provided, however, that the Company may only
purchase Pari Passu Debt in an Asset Sale Offer that was issued pursuant to
an indenture having a provision substantially similar to the Asset Sale Offer
provision contained in the Exchange Indenture. To the extent that the
aggregate amount of Exchange Debentures and Pari Passu Debt tendered pursuant
to an Asset Sale Offer is less than the Excess Proceeds, the Company may use
any remaining Excess Proceeds for general corporate purposes. If the
aggregate principal amount of Exchange Debentures and Pari Passu Debt
surrendered exceeds the amount of Excess Proceeds, the Exchange Trustee shall
select the Exchange Debentures and Pari Passu Debt to be purchased on a pro
rata basis, based upon the principal amount thereof surrendered in such Asset
Sale Offer. Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero.
Notwithstanding the immediately preceding paragraph, the Company and its
Subsidiaries will be permitted to consummate an Asset Sale without complying
with such paragraph if (i) the Company or the applicable Subsidiary, as the
case may be, receives consideration at the time of such Asset Sale at least
equal to the fair market value of the assets or other property sold, issued
or otherwise dispose of (as evidenced by a resolution of the Company's Board
of Directors set forth in an Officers' Certificate delivered to the Exchange
Trustee) and (ii) at least 75% of the consideration for such Asset Sale
constitutes assets or other property of a kind usable by the Company and its
Subsidiaries in the business of the Company and its Subsidiaries as conducted
by the Company and its Subsidiaries on the date of the Exchange Indenture;
provided that any consideration not constituting assets or property of a kind
usable by the Company and its Subsidiaries in the business conducted by them
on the date of such Asset Sale received by the Company or any of its
Subsidiaries in connection with any Asset Sale permitted to be consummated
under this paragraph shall constitute Net Proceeds subject to the provisions
of the two succeeding paragraphs.
Certain Covenants
Restricted Payments
The Exchange Indenture will provide that the Company will not, and will
not permit any of its Subsidiaries to, directly or indirectly: (i) declare or
pay any dividend or make any other payment or distribution on account of the
Company's Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Company) or to the
direct or indirect holders of the Company's Equity Interests in their
capacity as such (other than dividends or distributions payable in Capital
Stock (other than Disqualified Stock) of the Company); (ii) purchase, redeem
or otherwise acquire or retire for value any Equity Interests of the Company
or any direct or indirect parent of the Company; (iii) make any principal
payment on, or purchase, redeem, defease or otherwise acquire or retire for
value any Indebtedness that is subordinated to the Exchange Debentures,
except at final maturity; or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of
and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter
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period, have been permitted to incur at least $1.00 of additional
Indebtedness (other than Permitted Debt) pursuant to the Debt to Cash Flow
Ratio test set forth in the first paragraph of the covenant described
below under caption "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments declared or made after the Closing Date (other
than Restricted Payments permitted by clauses (2), (5), (7) or (12) of the
following paragraph) shall not exceed, at the date of determination, the
sum of (1) an amount equal to the Company's Consolidated Cash Flow from
the Closing Date to the end of the Company's most recently ended full
fiscal quarter for which internal financial statements are available,
taken as a single accounting period, less the product of 1.4 times the
Company's Consolidated Interest Expense from the Closing Date to the end
of the Company's most recently ended full fiscal quarter, for which
internal financial statements are available, taken as a single accounting
period, plus (2) an amount equal to the net cash proceeds received by the
Company from the issue or sale after the Closing Date of Equity Interests
(other than (i) sales of Disqualified Stock and (ii) Equity Interests sold
to any of the Company's Subsidiaries) plus (3) to the extent that any
Restricted Investment that was made after the Closing Date is sold for
cash or otherwise liquidated or repaid for cash, the lesser of (A) the
cash return of capital with respect to such Restricted Investment (less
the cost of disposition, if any) and (B) the initial amount of such
Restricted Investment.
If no Default or Event of Default shall have occurred and be continuing
immediately as a result thereof, the foregoing provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of declaration
thereof, if at said date of declaration such payment would have complied with
the provisions of the Exchange Indenture; (2) the redemption, repurchase,
retirement or other acquisition of any Equity Interests of the Company in
exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Subsidiary of the Company) of other Equity Interests of the
Company (other than any Disqualified Stock); provided that the amount of any
such net cash proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clause (c)(2) of the
preceding paragraph; (3) cash payments made in respect of fractional shares
of Capital Shares not to exceed $100,000 in the aggregate in any fiscal year;
(4) the payment of dividends on the Series D Preferred Stock in accordance
with the terms thereof as in effect on the Closing Date; (5) the issuance of
the Series D Exchange Notes in exchange for the Series D Preferred Stock;
provided that such issuance is permitted by the covenant described below
under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock;" (6) in the event that the Company elects to issue the Series D
Exchange Notes in exchange for the Series D Preferred Stock, cash payments
made in lieu of the issuance of Series D Exchange Notes having a face amount
less than $50 and any cash payments representing accrued and unpaid dividends
in respect thereof, not to exceed $100,000 in the aggregate in any fiscal
year; (7) the payment of dividends on the Series E Preferred Stock in
accordance with the terms thereof as in effect on the Closing Date; (8) the
issuance of additional Exchange Debentures in exchange for the Series E
Preferred Stock; provided that such issuance is permitted by the covenant
described below under the caption "--Incurrence of Indebtedness and Issuance
of Preferred Stock;" (9) in the event that the Company elects to issue the
Exchange Debentures in exchange for the Series E Preferred Stock, cash
payments made in lieu of the issuance of Exchange Debentures having a face
amount less than $1,000 and any cash payments representing accrued and unpaid
dividends in respect thereof, not to exceed $100,000 in the aggregate in any
fiscal year; (10) the defeasance, redemption or repurchase of subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness or the substantially concurrent sale (other than to
a Subsidiary of the Company) of Equity Interests of the Company (other than
Disqualified Stock); provided that the amount of any such net cash proceeds
that are utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (c)(2) of the preceding paragraph;
(11) payments made by the Company to SCMC for facilities maintenance and
other services and reimbursements pursuant to the Shared Facilities Agreement
in accordance with the terms thereof as in effect on the date of the Exchange
Indenture; (12) payments by the Company pursuant to the Management
Termination Agreements in accordance with the terms thereof as in effect on
the date of the Exchange Indenture; and (13) the redemption by the Company of
its Series C Preferred Stock in accordance with the terms thereof as in
effect on the Closing Date.
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The amount of all Restricted Payments (other than cash) shall be the Fair
Market Value (evidenced by a resolution of the Board of Directors set forth
in an Officers' Certificate delivered to the Exchange Trustee) on the date of
the Restricted Payment of the asset(s) proposed to be transferred by the
Company or such Subsidiary, as the case may be, pursuant to the Restricted
Payment. Not later than the date of making any Restricted Payment, the
Company shall deliver to the Exchange Trustee an Officers' Certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by this covenant were computed, which
calculations may be based upon the Company's latest available financial
statements.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Exchange Indenture will provide that the Company will not, and will
not permit any of its Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Company will not issue
any Disqualified Stock and will not permit any of its Subsidiaries to issue
any shares of Preferred Stock; provided, however, that (i) the Company may
incur Indebtedness (including Acquired Debt) or issue shares of Disqualified
Stock and (ii) (A) the Subsidiaries may Guarantee Senior Debt and (B) the
Subsidiaries may issue Preferred Stock (other than Disqualified Stock) if, in
either case, the Company's Debt to Cash Flow Ratio at the time of incurrence
of such Indebtedness or the issuance of such Disqualified Stock or the
Guarantee of Such Senior Debt or the issuance of such Preferred Stock, as the
case may be, after giving pro forma effect to such incurrence or issuance or
Guarantee as of such date and to the use of proceeds therefrom as if the same
had occurred at the beginning of the most recently ended four full fiscal
quarter period of the Company for which internal financial statements are
available, would have been no greater than 7.0 to 1.
The foregoing provisions will not apply to the incurrence of any of the
following Indebtedness (collectively, "Permitted Debt"):
(i) the incurrence by the Company and its Subsidiaries of Indebtedness
pursuant to one or more Bank Facilities, so long as the aggregate
principal amount of all Indebtedness outstanding under all Bank Facilities
does not, at the time of incurrence, exceed an amount equal to $225.0
million;
(ii) the incurrence by the Company and its Subsidiaries of the Existing
Indebtedness;
(iii) Indebtedness under the Exchange Debentures;
(iv) the issuance of Disqualified Stock by the Company that by its terms
would not require or permit any payment of dividends or other
distributions that would violate the covenant described above under the
caption "--Restricted Payments";
(v) the incurrence by the Company or any of its Subsidiaries of
Indebtedness in connection with the acquisition of assets or a new
Subsidiary; provided that such Indebtedness was incurred by the prior
owner of such assets or such Subsidiary prior to such acquisition by the
Company or one of its Subsidiaries and was not incurred in connection
with, or in contemplation of, such acquisition by the Company or one of
its Subsidiaries and provided further that, after giving pro forma effect
to such incurrence of Indebtedness as of such date and to the use of
proceeds therefrom as if the same had occurred at the beginning of the
most recently ended four full fiscal quarter period for which internal
financial statements are available, the Company's Debt to Cash Flow Ratio
would have been no greater than 7.0 to 1;
(vi) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Debt in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by the Exchange Indenture to be incurred;
(vii) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Subsidiaries; provided, however, that (i) if the Company is the obligor on
such Indebtedness, such Indebtedness is expressly subordinate to the
payment in full of all Obligations with respect to the Exchange Debentures
and (ii)(A) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held
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by a Person other than the Company or a Subsidiary and (B) any sale or
other transfer of any such Indebtedness to a Person that is not either the
Company or a Subsidiary shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Subsidiary, as the
case may be;
(viii) the incurrence by the Company or any of its Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating rate Indebtedness that is
permitted by the terms of the Exchange Indenture to be outstanding; and
(ix) the incurrence by the Company and any of its Subsidiaries of
Indebtedness (in addition to Indebtedness permitted by any other clause of
this paragraph) in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding not to exceed $10.0 million.
Liens
The Exchange Indenture will provide that the Company will not, and will
not permit any of its Subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist any Lien securing Indebtedness (other than Senior
Debt) on any asset now owned or hereafter acquired, or on any income or
profits therefrom, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Exchange Indenture will provide that the Company will not, and will
not permit any of its Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Subsidiary to (i)(x) pay dividends or make
any other distributions to the Company or any of its Subsidiaries (1) on its
Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (y) pay any indebtedness owed to the Company
or any of its Subsidiaries, (ii) make loans or advances to the Company or any
of its Subsidiaries or (iii) transfer any of its properties or assets to the
Company or any of its Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (a) Existing Indebtedness as in
effect on the Closing Date, (b) the Credit Agreement as in effect as of the
Closing Date, and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings thereof, and
any other agreement governing or relating to Senior Debt, provided that all
such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacement or refinancings and other agreements are
no more restrictive with respect to such dividend and other payment
restrictions than those contained in the Credit Agreement as in effect on the
Closing Date, (c) the New Note Indenture, the New Notes and the subsidiary
guarantees thereof, (d) the Exchange Indenture and the Exchange Debentures,
(e) applicable law, (f) any instrument governing Indebtedness or Capital
Stock of a Person acquired by the Company or any of its Subsidiaries as in
effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person, or
the property or assets of the Person, so acquired, provided that, in the case
of Indebtedness, such Indebtedness was permitted by the terms of the Exchange
Indenture to be incurred, (g) by reason of customary non-assignment
provisions in leases entered into in the ordinary course of business and
consistent with past practices, or (h) Permitted Refinancing Debt, provided
that the restrictions contained in the agreements governing such Permitted
Refinancing Debt are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced.
Merger, Consolidation or Sale of Assets
The Exchange Indenture will provide that the Company may not consolidate
or merge with or into (whether or not the Company is the surviving
corporation), or sell, assign, transfer, lease, convey or otherwise dispose
of all or substantially all of its properties or assets in one or more
related transactions, to another corporation, Person or entity unless (i) the
Company is the surviving corporation or the entity or the Person formed by or
surviving any such consolidation or merger (if other than the Company) or
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to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made is a corporation organized or existing under
the laws of the United States, any state thereof or the District of Columbia;
(ii) the entity or Person formed by or surviving any such consolidation or
merger (if other than the Company) or the entity or Person to which such
sale, assignment, transfer, lease, conveyance or other disposition shall have
been made assumes all the Obligations of the Company under the Exchange
Debentures and the Exchange Indenture pursuant to a supplemental indenture in
a form reasonably satisfactory to the Exchange Trustee; (iii) immediately
after such transaction no Default or Event of Default exists; (iv) such
transaction will not result in the loss or suspension or material impairment
of any Material Broadcast License; and (v) except in the case of a merger of
the Company with or into a Wholly Owned Subsidiary of the Company, the
Company or the entity or Person formed by or surviving any such consolidation
or merger (if other than the Company), or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made (A)
will have Consolidated Net Worth immediately after the transaction equal to
or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction and (B) will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred at
the beginning of the applicable four-quarter period, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Debt to Cash Flow
Ratio test set forth in the first paragraph of the covenant described above
under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock."
Transactions with Affiliates
The Exchange Indenture will provide that the Company will not, and will
not permit any of its Subsidiaries to, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Subsidiary than those that
would have been obtained in a comparable transaction by the Company or such
Subsidiary with an unrelated Person and (ii) the Company delivers to the
Exchange Trustee (a) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess of
$1.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies
with clause (i) above and that such Affiliate Transaction has been approved
by a majority of the members of the Board of Directors that are disinterested
as to such Affiliate Transaction and (b) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $5.0 million, an opinion as to the fairness to the
Holders of such Affiliate Transaction from a financial point of view issued
by an accounting, appraisal or investment banking firm of national standing;
provided that (1) transactions between or among the Company and/or its Wholly
Owned Subsidiaries, (2) redemption or repurchase of the Existing MMR
Indebtedness, (3) transactions and agreements specifically contemplated by
the Termination and Assignment Agreement between the Company and SCMC as in
effect on the Closing Date, (4) payments required by the terms of the joint
lease among the Company, SCMC and the landlord thereunder for the Company's
corporate headquarters located at 150 East 58th Street, New York, New York
and any agreements directly related thereto, in each case, as the same are in
effect on the Closing Date, (5) payments made by the Company to SCMC for
facilities maintenance and other services and reimbursements pursuant to the
Shared Facilities Agreement, (6) payments and other transactions by the
Company pursuant to the Management Termination Agreements and (7) any
Restricted Payments and Permitted Investments that are permitted by the
provisions of the Exchange Indenture described above under the caption
"--Certain Covenants--Restricted Payments," in each case, shall not be deemed
to be Affiliate Transactions.
No Senior Subordinated Debt
The Exchange Indenture will provide that the Company will not incur,
create, issue, assume, Guarantee or otherwise become liable for any
Indebtedness that is subordinate or junior in right of payment to any Senior
Debt and senior in any respect in right of payment to the Exchange
Debentures.
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Sale and Leaseback Transactions
The Exchange Indenture will provide that the Company will not, and will
not permit any of its Subsidiaries to, enter into any sale and leaseback
transaction; provided that the Company may enter into a sale and leaseback
transaction if (i) the Company could have (a) incurred Indebtedness (other
than Permitted Debt) in an amount equal to the Attributable Debt relating to
such sale and leaseback transaction pursuant to the Debt to Cash Flow Ratio
test set forth in the first paragraph of the covenant described above under
the caption "--Certain Covenants--Incurrence of Additional Indebtedness and
Issuance of Preferred Stock" and (b) incurred a Lien to secure such
Indebtedness pursuant to the covenant described above under the caption
"--Certain Covenants--Liens," (ii) the gross cash proceeds of such sale and
leaseback transaction are at least equal to the Fair Market Value (as
determined in good faith by the Board of Directors and set forth in an
Officers' Certificate delivered to the Exchange Trustee) of the property that
is the subject of such sale and leaseback transaction and (iii) the transfer
of assets in such sale and leaseback transaction is permitted by, and the
Company applies the proceeds of such transaction in compliance with, the
covenant described above under the caption "--Repurchase at the Option of
Holders--Asset Sales."
Limitation on Issuances and Sales of Capital Stock of Wholly Owned
Subsidiaries
The Exchange Indenture will provide that the Company (i) will not, and
will not permit any Wholly Owned Subsidiary of the Company to, transfer,
convey, sell, lease or otherwise dispose of any Capital Stock of any Wholly
Owned Subsidiary of the Company to any Person (other than the Company or a
Wholly Owned Subsidiary of the Company), unless (a) such transfer,
conveyance, sale, lease or other disposition is of all the Capital Stock of
such Wholly Owned Subsidiary and (b) the cash Net Proceeds from such
transfer, conveyance, sale, lease or other disposition are applied in
accordance with the covenant described above under the caption "--Repurchase
at the Option of Holders--Asset Sales," and (ii) will not permit any Wholly
Owned Subsidiary of the Company to issue any of its Equity Interests (other
than, if necessary, shares of its Capital Stock constituting directors'
qualifying shares) to any Person other than to the Company or a Wholly Owned
Subsidiary of the Company; provided that the Subsidiaries of the Company may
issue Preferred Stock (other than Disqualified Stock) in accordance with the
covenant described under "--Incurrence of Indebtedness and Issuance of
Preferred Stock."
Business Activities
The Company will not, and will not permit any Subsidiary to, engage in any
business other than (i) the Broadcast Business and such business activities
as are incidental or related thereto and (ii) such other businesses as the
Company or its Subsidiaries are engaged in on the Closing Date.
Payments for Consent
The Exchange Indenture will provide that neither the Company nor any of
its Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
any Exchange Debentures for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the Exchange Indenture or the
Exchange Debentures unless such consideration is offered to be paid or is
paid to all Holders of the Exchange Debentures that consent, waive or agree
to amend in the time frame set forth in the solicitation documents relating
to such consent, waiver or agreement.
Reports
The Exchange Indenture will provide that, whether or not required by the
rules and regulations of the Commission, so long as any Exchange Debentures
are outstanding, the Company will furnish to the Exchange Trustee and to the
Holders of Exchange Debentures (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual
information
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only, a report thereon by the Company's certified independent accountants
and (ii) all current reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports. In
addition, whether or not required by the rules and regulations of the
Commission, the Company will file a copy of all such information and reports
with the Commission for public availability (unless the Commission will not
accept such a filing) and make such information available to securities
analysts and prospective investors upon request.
Events of Default and Remedies
The Exchange Indenture will provide that each of the following constitutes
an Event of Default: (i) default for 30 days in the payment when due of
interest on the Exchange Debentures (whether or not prohibited by the
subordination provisions of the Exchange Indenture); (ii) default in payment
when due of the principal of or premium, if any, on the Exchange Debentures
(whether or not prohibited by the subordination provisions of the Exchange
Indenture); (iii) failure by the Company to comply with the provisions
described under the captions "--Repurchase at the Option of Holders--Change
of Control," "--Repurchase at the Option of Holders--Asset Sales," "--Certain
Covenants--Restricted Payments, "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock" or "--Certain
Covenants--Merger, Consolidation or Sale of Assets;" (iv) failure by the
Company for 60 days after notice to comply with any of its other agreements
in the Exchange Indenture or the Exchange Debentures; (v) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Subsidiaries (or the payment of which is guaranteed by
the Company or any of its Subsidiaries) whether such Indebtedness or
guarantee now exists, or is created after the date of the Exchange Indenture,
which default (a) is caused by a failure to pay principal of or premium, if
any, or interest on such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness on the date of such default (a "Payment
Default") or (b) results in the acceleration of such Indebtedness prior to
its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $25.0 million or more; (vi) failure
by the Company or any of its Subsidiaries to pay final judgments aggregating
in excess of $10.0 million, which judgments are not paid, discharged or
stayed for a period of 60 days; and (vii) certain events of bankruptcy or
insolvency with respect to the Company, any of its Significant Subsidiaries
or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary.
If any Event of Default occurs and is continuing, the Exchange Trustee or
the Holders of at least 25% in principal amount of the then outstanding
Exchange Debentures may declare all the Exchange Debentures to be due and
payable immediately. Notwithstanding the foregoing, in the case of an Event
of Default arising from certain events of bankruptcy or insolvency, with
respect to the Company, any Significant Subsidiary or any group of
Subsidiaries that, taken together, would constitute a Significant Subsidiary,
all outstanding Exchange Debentures will become due and payable without
further action or notice. Holders of the Exchange Debentures may not enforce
the Exchange Indenture or the Exchange Debentures except as provided in the
Exchange Indenture. Subject to certain limitations, Holders of a majority in
principal amount of the then outstanding Exchange Debentures may direct the
Exchange Trustee in its exercise of any trust or power. The Exchange Trustee
may withhold from Holders of the Exchange Debentures notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding
notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the Exchange Debentures
pursuant to the optional redemption provisions of the Exchange Indenture, an
equivalent premium shall also become and be immediately due and payable to
the extent permitted by law upon the acceleration of the Exchange Debentures.
If an Event of Default occurs prior to January 15, 2002 by reason of any
willful action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention of avoiding the prohibition on redemption of the
Exchange Debentures prior to January 15,
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2002, then the premium specified in the Exchange Indenture shall also become
immediately due and payable to the extent permitted by law upon the
acceleration of the Exchange Debentures.
The Holders of a majority in aggregate principal amount of the Exchange
Debentures then outstanding by notice to the Exchange Trustee may on behalf
of the Holders of all of the Exchange Debentures waive any existing Default
or Event of Default and its consequences under the Exchange Indenture except
a continuing Default or Event of Default in the payment of interest on, or
the principal of, the Exchange Debentures.
The Company is required to deliver to the Exchange Trustee annually a
statement regarding compliance with the Exchange Indenture, and the Company
is required upon becoming aware of any Default or Event of Default, to
deliver to the Exchange Trustee a statement specifying such Default or Event
of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Exchange Debentures or the Exchange Indenture, as applicable, or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder of Exchange Debentures by accepting an Exchange
Debenture waives and releases all such liability. The waiver and release are
part of the consideration for issuance of the Exchange Debentures. Such
waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the Commission that such a waiver is against
public policy.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Exchange Debentures
("Legal Defeasance") except for (i) the rights of Holders of outstanding
Exchange Debentures to receive payments in respect of the principal of,
premium, if any, interest on such Exchange Debentures when such payments are
due from the trust referred to below, (ii) the Company's obligations with
respect to the Exchange Debentures concerning issuing temporary Exchange
Debentures, registration of Exchange Debentures, mutilated, destroyed, lost
or stolen Exchange Debentures and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights,
powers, trusts, duties and immunities of the Exchange Trustee, and the
Company's obligations in connection therewith and (iv) the Legal Defeasance
provisions of the Exchange Indenture. In addition, the Company may, at its
option and at any time, elect to have the obligations of the Company released
with respect to certain covenants that are described in the Exchange
Indenture ("Covenant Defeasance") and thereafter any omission to comply with
such obligations shall not constitute a Default or Event of Default with
respect to the Exchange Debentures. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default"
will no longer constitute an Event of Default with respect to the Exchange
Debentures.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Exchange Trustee, in trust, for
the benefit of the Holders of the Exchange Debentures, cash in U.S. Dollars,
non-callable Government Securities, or a combination thereof, in such amounts
as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any,
interest on the outstanding Exchange Debentures on the stated maturity or on
the applicable redemption date, as the case may be, and the Company must
specify whether the Exchange Debentures are being defeased to maturity or to
a particular redemption date; (ii) in the case of Legal Defeasance, the
Company shall have delivered to the Exchange Trustee an opinion of counsel in
the United States reasonably acceptable to the Exchange Trustee confirming
that (A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of the Exchange
Indenture, there has been a change in the applicable federal income tax law,
in either case to the effect that, and based thereon such opinion of counsel
shall confirm that, the Holders of the outstanding Exchange Debentures will
not recognize income, gain or loss for
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federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Exchange Trustee an opinion of counsel in the United States
reasonably acceptable to the Exchange Trustee confirming that the Holders of
the outstanding Exchange Debentures will not recognize income, gain or loss
for federal income tax purposes as a result of such Covenant Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Covenant Defeasance
had not occurred; (iv) no Default or Event of Default shall have occurred and
be continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such deposit)
or insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date of
deposit (or greater period of time in which any such deposit of trust funds
may remain subject to bankruptcy or insolvency laws insofar as those apply to
the deposit by the Company); (v) such Legal Defeasance or Covenant Defeasance
will not result in a breach or violation of, or constitute a default under
any material agreement or instrument (other than the Exchange Indenture) to
which the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries is bound; (vi) the Company must have
delivered to the Exchange Trustee an opinion of counsel to the effect that,
as of the date of such opinion, (A) the trust funds will not be subject to
rights of holders of Indebtedness other than the Exchange Debentures and (B)
assuming no intervening bankruptcy of the Company between the date of deposit
and the 91st day following the deposit and assuming no Holder of Exchange
Debentures is an insider of the Company, after the 91st day following the
deposit, the trust funds will not be subject to the effects of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally under any applicable United States or state law; (vii) the
Company must deliver to the Exchange Trustee an Officers' Certificate stating
that the deposit was not made by the Company with the intent of preferring
the Holders of Exchange Debentures over the other creditors of the Company
with the intent of defeating, hindering, delaying or defrauding creditors of
the Company or others; and (viii) the Company must deliver to the Exchange
Trustee an Officers' Certificate and an opinion of counsel, each stating that
all conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
Transfer and Exchange
A Holder may transfer or exchange Exchange Debentures in accordance with
the Exchange Indenture. The Registrar and the Exchange Trustee may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and the Company may require a Holder to pay any taxes and fees
required by law or permitted by the Exchange Indenture. The Company is not
required to transfer or exchange any Exchange Debenture selected for
redemption. Also, the Company is not required to transfer or exchange any
Exchange Debenture for a period of 15 days before a selection of Exchange
Debentures to be redeemed.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Exchange
Indenture or the Exchange Debentures may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the
Exchange Debentures then outstanding (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for, Exchange Debentures), and any existing default or compliance with any
provision of the Exchange Indenture or the Exchange Debentures may be waived
with the consent of the Holders of a majority in principal amount of the then
outstanding Exchange Debentures (including consents obtained in connection
with a purchase of, or tender offer or exchange offer for, Exchange
Debentures).
Without the consent of each Holder affected, an amendment or waiver may
not (with respect to any Exchange Debentures held by a non-consenting
Holder): (i) reduce the principal amount of Exchange Debentures whose Holders
must consent to an amendment, supplement or waiver, (ii) reduce the principal
of or change the fixed maturity of any Exchange Debenture or alter the
provisions with respect
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to the redemption of the Exchange Debentures (other than provisions relating
to the covenants described above under the caption "--Repurchase at the
Option of Holders"), (iii) reduce the rate of or change the time for payment
of interest on any Exchange Debenture, (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest on the
Exchange Debentures (except a rescission of acceleration of the Exchange
Debentures by the Holders of at least a majority in aggregate principal
amount of the Exchange Debentures and a waiver of the payment default that
resulted from such acceleration), (v) make any Exchange Debenture payable in
money other than that stated in the Exchange Debentures, (vi) make any change
in the provisions of the Exchange Indenture relating to waivers of past
Defaults or the rights of Holders of Exchange Debentures to receive payments
of principal of or premium, if any, or interest on the Exchange Debentures,
(vii) waive a redemption payment with respect to any Exchange Debenture
(other than a payment required by one of the covenants described above under
the caption "--Repurchase at the Option of Holders") or (viii) make any
change in the foregoing amendment and waiver provisions. In addition, any
amendment to (a) the provisions of Article [10] of the Exchange Indenture
(which relate to subordination) and (b) the covenants described under the
caption "--Repurchase at Option of Holders" including, in each case, the
related definitions will require the consent of the Holders of at least 75%
in aggregate principal amount of the Exchange Debentures then outstanding if
such amendment would adversely affect the rights of Holders of Exchange
Debentures.
Notwithstanding the foregoing, without the consent of any Holder of
Exchange Debentures, the Company and the Exchange Trustee may amend or
supplement the Exchange Indenture or the Exchange Debentures to cure any
ambiguity, defect or inconsistency, to provide for uncertificated Exchange
Debentures in addition to or in place of certificated Exchange Debentures, to
provide for the assumption of the Company's obligations to Holders of
Exchange Debentures in the case of a merger or consolidation, to make any
change that would provide any additional rights or benefits to the Holders of
Exchange Debentures or that does not adversely affect the legal rights under
the Exchange Indenture of any such Holder, or to comply with requirements of
the Commission in order to maintain the qualification of the Exchange
Indenture under the Trust Indenture Act.
Concerning the Exchange Trustee
The Exchange Indenture contains certain limitations on the rights of the
Exchange Trustee, should it become a creditor of the Company, to obtain
payment of claims in certain cases, or to realize on certain property
received in respect of any such claim as security or otherwise. The Exchange
Trustee will be permitted to engage in other transactions; however, if it
acquires any conflicting interest it must eliminate such conflict within 90
days, apply to the Commission for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding
Exchange Debentures will have the right to direct the time, method and place
of conducting any proceeding for exercising any remedy available to the
Exchange Trustee, subject to certain exceptions. The Exchange Indenture
provides that in case an Event of Default shall occur (which shall not be
cured), the Exchange Trustee will be required, in the exercise of its power,
to use the degree of care of a prudent man in the conduct of his own affairs.
Subject to such provisions, the Exchange Trustee will be under no obligation
to exercise any of its rights or powers under the Exchange Indenture at the
request of any Holder of Exchange Debentures, unless such Holder shall have
offered to the Exchange Trustee security and indemnity satisfactory to it
against any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives a copy of this Prospectus Supplement may obtain a copy
of the Company's Amended and Restated Certificate of Incorporation, the
Certificate of Designations and the Exchange Indenture without charge by
writing to SFX Broadcasting, Inc., 150 East 58th Street, 19th Floor, New
York, New York 10155, Attention: Timothy Klahs, Director of Investor
Relations.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Certificate of
Designations and Exchange Indenture. Reference is made to the Certificate of
Designations and the Exchange Indenture for a full disclosure of all such
terms, as well as any other capitalized terms used herein for which no
definition is provided.
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"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or
in contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Advertising Business" means any business deriving substantially all of
its revenues from the (i) sale of advertisements and (ii) sale of products or
provision of services to any business described in clause (i) above.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or
otherwise; provided that beneficial ownership of 10% or more of the voting
securities of a Person shall be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets (including without limitation, by way of a sale and leaseback or
pursuant to an LMA or similar arrangement); provided that the sale, lease,
conveyance or other disposition of all or substantially all of the assets of
the Company and its Subsidiaries taken as a whole will be governed by the
provisions described above under the caption "--Change of Control" and/or the
provisions described above under the caption "--Certain Covenants -- Merger,
Consolidation or Sale of Assets" and not by the provision of the Asset Sale
covenant, and (ii) the issue or sale by the Company or any of its
Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in the
case of either clause (i) or (ii), whether in a single transaction or a
series of related transaction (a) that have a Fair Market Value in excess of
$5.0 million or (b) for aggregate net proceeds in excess of $5.0 million.
Notwithstanding the foregoing: (i) the Pending Dispositions, the Chancellor
Exchange and the CBS Exchange, in each case as described in this Prospectus
Supplement in all material respects, (ii) a transfer of assets by the Company
or to another Wholly Owned Subsidiary, (iii) an issuance of Equity Interests
by a Wholly Owned Subsidiary to the Company or to another Wholly Owned
Subsidiary, (iv) a Restricted Payment that is permitted by the covenant
described above under the caption "--Certain Covenants--Restricted Payments"
and (v) sales of obsolete equipment in the ordinary course of business, will
not be deemed to be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining
term of the lease included in such sale and leaseback transaction (including
any period for which such lease has been extended or may, at the option of
the lessor, be extended).
"Bank Facilities" means, with respect to the Company, one or more debt
facilities (including, without limitation, the Credit Agreement) or
commercial paper facilities with banks or other institutional lenders
providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special
purpose entities formed to borrow from such lenders against such receivables)
or letters of credit, in each case, as amended, restated, modified, renewed,
refunded, replaced or refinanced in whole or in part from time to time.
Indebtedness under Bank Facilities outstanding on the date on which the
Series E Preferred Stock is first issued under the Certificate of
Designations shall be deemed to have been incurred on such date in reliance
on the exception provided by clause (i) under the covenant described under
the caption "--Incurrence of Indebtedness and Issuance of Preferred Stock."
"Broadcast Business" means any business, the majority of whose revenues
are derived from the broadcast of radio programming.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
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"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated)
of corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation
that confers on a Person the right to receive a share of the profits and
losses of, or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government
or any agency or instrumentality thereof having maturities of not more than
six months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date
of acquisition, bankers' acceptances with maturities not exceeding six months
and overnight bank deposits, in each case with any lender party to the Credit
Agreement or with any domestic commercial bank having capital and surplus in
excess of $500.0 million and a Thomson Bank Watch Rating of "B" or better,
(iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii) above
entered into with any financial institution meeting the qualifications
specified in clause (iii) above and (v) commercial paper having the highest
rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's
Corporation and in each case maturing within six months after the date of
acquisition.
"Closing Date" means the date on which Series E Preferred Stock is first
issued.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an Asset Sale by such Person or any of its Subsidiaries during such period
(to the extent such losses were deducted in computing such Consolidated Net
Income), plus (ii) provision for taxes based on income or profits of such
Person and its Subsidiaries for such period, to the extent that such
provision for taxes was included in computing such Consolidated Net Income,
plus (iii) Consolidated Interest Expense of such Person for such period to
the extent any such Consolidated Interest Expense was deducted in computing
such Consolidated Net Income, plus (iv) depreciation, amortization (including
amortization of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) and other non-cash
charges (excluding any such non-cash charge to the extent that it represents
an accrual of or reserve for cash charges in any future period) of such
Person and its Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash charges were deducted in
computing such Consolidated Net Income, less (v) all non-cash items
increasing Consolidated Net Income for such period (excluding any such
non-cash income to the extent it represents an accrual of cash income in any
future period), in each case, on a consolidated basis and determined in
accordance with GAAP.
"Consolidated Indebtedness" of any Person as of any date of determination
means the sum (without duplication) of (i) the total amount of Indebtedness
and Attributable Debt of such Person and its Subsidiaries, plus (ii) the
total amount of other Indebtedness shown on the balance sheet of the primary
obligor on such Indebtedness, to the extent that such Indebtedness has been
Guaranteed by such Person or one of its Subsidiaries, plus (iii) the
aggregate liquidation value or redemption amount (if larger) of all
Disqualified Stock of such Person and all preferred stock of Subsidiaries of
such Person, in each case, determined on a consolidated basis in accordance
with GAAP.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of (i) the consolidated interest expense of such Person and
its Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions, discounts
and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations) and (ii) the consolidated interest expense of such Person and
its Subsidiaries that was capitalized during such period, and (iii) any
interest expense on Indebtedness of another Person that is guaranteed by such
Person or one of its Subsidiaries or secured by a Lien on assets of such
Person or one of its Subsidiaries (whether or not such Guarantee
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or Lien is called upon) and (iv) the product of (a) all cash dividend
payments (and non-cash dividend payments in the case of a Person that is a
Subsidiary) on any series of preferred stock of such Person, times (b) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate
of such Person, expressed as a decimal, in each case, on a consolidated basis
and in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries
for such period, determined on a consolidated basis in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Subsidiary or that is accounted for by the equity method of accounting shall
be included only to the extent of the amount of dividends or distributions
paid in cash to the referent Person or to a Wholly Owned Subsidiary thereof,
(ii) the Net Income of any Subsidiary shall be excluded to the extent that
the declaration or payment of dividends or similar distributions by that
Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (that has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its stockholders, (iii) the Net
Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded and (iv) the
cumulative effect of a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less (x) all
write-ups (other than write-ups resulting from foreign currency translations
and write-ups of tangible assets of a going concern business made within 12
months after the acquisition of such business) subsequent to the date of the
Certificate of Designations in the book value of any asset owned by such
Person or a consolidated Subsidiary of such Person, (y) all investments as of
such date in unconsolidated Subsidiaries and in Persons that are not
Subsidiaries (except, in each case, Permitted Investments), and (z) all
unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Credit Agreement" means that certain credit agreement by and among the
Company, the Company's Subsidiaries, as guarantors, the Bank of New York, as
agent and the lenders party thereto, providing for up to $225 million of
revolving credit borrowings, including any related notes, guarantees,
collateral documents, and other agreements executed in connection therewith,
and in each case as amended, modified, renewed, refunded, replaced or
refinanced from time to time.
"Debt to Cash Flow Ratio" means, as of any date of determination, the
ratio of (a) the Consolidated Indebtedness as of such date to (b) the
Consolidated Cash Flow of the Company and its Subsidiaries on a consolidated
basis for the four most recent full fiscal quarters ending immediately prior
to such date for which internal financial statements are available. For
purposes of calculating Consolidated Cash Flow for the computation referred
to above, (i) acquisitions that have been made by the Company or any of its
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the date on which such
Ratio is being calculated (the "Calculation Date") shall be deemed to have
occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be calculated without
giving effect to clause (iii) of the proviso set forth in the definition of
Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and
operations or businesses disposed of prior to the Calculation Date, shall be
excluded.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
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"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof,
in whole or in part, on or prior to the date that is 91 days after the
mandatory redemption date of the Series E Preferred Stock.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Debentures" means the Company's 12 5/8% Senior Subordinated
Exchange Debentures due 200 issuable in exchange for the Company's Series E
Preferred Stock.
"Existing Indebtedness" means all Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Credit Agreement) in
existence on the Closing Date, until such amounts are repaid.
"Existing MMR Indebtedness" means all Indebtedness of MMR and its
Subsidiaries in existence at the closing of the MMR Merger, until such
amounts are repaid.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant
segment of the accounting profession, which are in effect on the Closing
Date.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which
obligations or guarantee the full faith and credit of the United States of
America is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations
of such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or payment obligations under an LMA or
representing any Hedging Obligations, except any such balance that
constitutes an accrued expense or trade payable, if and to the extent any of
the foregoing (other than letters of credit and Hedging Obligations) would
appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP, as well as all indebtedness of others secured by a Lien
on any asset of such Person (whether or not such indebtedness is assumed by
such Person) and, to the extent not otherwise included, the Guarantee by such
Person of any indebtedness of any other Person.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with
GAAP; provided that
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an acquisition of assets, Equity Interests or other securities by the
Company for consideration consisting of common equity securities of the
Company shall not be deemed to be an Investment. If the Company or any
Subsidiary of the Company, sells or otherwise disposes of any Equity
Interests of any direct or indirect Subsidiary of the Company such that,
after giving effect to any such sale or disposition, such Person is no longer
a Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the Fair
Market Value of the Equity Interests of such Subsidiary not sold or disposed
of.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Local Marketing Agreement" or "LMA" means a local marketing arrangement,
sale agreement, time brokerage agreement, management agreement or similar
arrangement pursuant to which a Person, subject to customary preemption
rights and other limitations (i) obtains the right to sell at least a
majority of the advertising inventory of a radio station of which a third
party is the licensee, (ii) obtains the right to broadcast programming and
sell advertising time during a majority of the air time of a radio station or
(iii) manages the selling operations of a radio station with respect to at
least a majority of the advertising inventory of such station.
"Management Termination Agreements" means each of (i) the termination
agreement between the Company and R. Steven Hicks, dated April 16, 1996, and
(ii) the employment agreement between the Company and D. Geoffrey Armstrong,
effective April 15, 1996, in each case, as in effect on the Closing Date.
"Material Broadcast License" means one or more authorizations issued by
the Federal Communications Commission for the operation of AM or FM radio
stations that individually or collectively are material to the financial
condition, results of operations or prospects of the Company and its
Subsidiaries taken as a whole.
"MMR" means Multi-Market Radio, Incorporated, a Delaware corporation.
"MMR Merger" means the merger of SFX Merger Company, a Wholly Owned
Subsidiary of the Company, with and into MMR, pursuant to which MMR will
become a Wholly Owned Subsidiary of the Company.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but
not loss), together with any related provision for taxes on such gain (but
not loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b)
the disposition of any securities by such Person or any of its Subsidiaries
or the extinguishment of any Indebtedness of such person or any of its
Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not loss),
together with any related provision for taxes on such extraordinary or
nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company
or any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation
expenses incurred as a result thereof, taxes paid or payable as a result
thereof (after taking into account any available tax credits or deductions
and any tax sharing arrangements), amounts required to be applied to the
repayment of Indebtedness (other than Senior Debt) secured by a Lien on the
asset or assets that were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets established
in accordance with GAAP.
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"New Note Indenture" means the indenture governing the Company's 10 3/4%
Senior Subordinated Notes due 2006.
"New Notes" means the Company's 10-3/4% Senior Subordinated Notes due
2006.
"Obligations" means any principal, interest, penalties, fees (including,
but not limited to, reasonable fees and expenses of counsel),
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Pari Passu Debt" means (i) the New Notes and (ii) all other Indebtedness
that ranks pari passu in right of payment with the Exchange Debentures.
"Permitted Investments" means (a) any Investment in the Company or in a
Subsidiary of the Company; (b) any Investment in Cash Equivalents; (c) any
Investment by the Company or any Subsidiary of the Company in a Person, if
after such Investment (i) such Person becomes a Subsidiary of the Company or
(ii) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated
into, the Company or a Subsidiary of the Company; (d) any Restricted
Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption "--Repurchase at the Option of
Holders--Asset Sales;" (e) any obligations or shares of Capital Stock
received in connection with or as a result of a bankruptcy, workout or
reorganization of the issuer of such obligations or shares of Capital Stock;
(f) any Investment received involuntarily; (g) Investments in any Person
(other than an Affiliate of the Company that is not also a Subsidiary of the
Company) engaged in a Broadcast Business or an Advertising Business which
Investments have an aggregate Fair Market Value (measured on the date each
such Investment was made and without giving effect to subsequent changes in
value), when taken together with all other Investments made pursuant to this
clause (g) that are at the time outstanding, not to exceed $20 million and
(h) other Investments in any Person (other than an Affiliate of the Company
that is not also a Subsidiary of the Company) having an aggregate Fair Market
Value (measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all other
Investments made pursuant to this clause (h) that are at the time
outstanding, not to exceed $15 million.
"Permitted Liens" means (i) Liens securing Senior Debt of the Company or
securing Indebtedness of any Subsidiary that, in either case, was permitted
by the terms of the Exchange Indenture to be incurred; (ii) Liens in favor of
the Company; (iii) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Company or any Subsidiary of
the Company; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any assets
other than those of the Person merged into or consolidated with the Company;
(iv) Liens on property existing at the time of acquisition thereof by the
Company or any Subsidiary of the Company, provided that such Liens were in
existence prior to the contemplation of such acquisition and do not extend to
any assets other than such assets so acquired; (v) Liens existing on the
Closing Date; (vi) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good faith
by appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be required
in conformity with GAAP shall have been made therefor; and (vii) Liens
incurred in the ordinary course of business of the Company or any Subsidiary
of the Company with respect to obligations that do not exceed $10.0 million
at any one time outstanding and that (a) are not incurred in connection with
the borrowing of money or the obtaining of advances or credit (other than
trade credit in the ordinary course of business) and (b) do not in the
aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by the Company or such
Subsidiary.
"Permitted Refinancing Debt" means any Indebtedness of the Company or any
of its Subsidiaries issued in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Subsidiaries; provided that: (i)
the principal amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount (or accreted
value, if applicable) of the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses
incurred in connection
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therewith); (ii) such Permitted Refinancing Debt has a final maturity date
later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the
Exchange Debentures, such Permitted Refinancing Debt has a final maturity
date later than the final maturity date of, and is subordinated in right of
payment to, the Exchange Debentures on terms at least as favorable to the
Holders of Exchange Debenture as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Permitted Refinancing Debt is incurred
either by the Company or by the Subsidiary who was the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Preferred Stock," of any Person, means Capital Stock of such Person of
any class or series (however designated) that ranks prior, as to payment of
dividends or as to the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding up of such Person, to shares
of Capital Stock of any other class or series of such Person.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"SCMC" means Sillerman Communications Management Company, a Delaware
corporation.
"Series D Exchange Notes" means the Company's 6-1/2% Subordinated
Convertible Exchange Notes due 2007 issuable in exchange for the Company's
Series D Preferred Stock.
"Series D Exchange Note Indenture" means the indenture governing the
Company's 6-1/2% Subordinated Convertible Exchange Notes due 2007 issuable in
exchange for the Company's Series E Preferred Stock.
"Series D Preferred Stock" means the Company's 6-1/2% Series D Cumulative
Convertible Exchangeable Preferred Stock due May 31, 2007.
"SFX Merger Company" means SFX Merger Company, a Delaware corporation.
"Shared Facilities Agreement" means the Shared Facilities Agreement
between the Company and SCMC, as in effect on the Closing Date.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Voting Stock thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person (or a combination thereof) and (ii) any
partnership (a) the sole general partner or the managing general partner of
which is such Person or a Subsidiary of such Person or (b) the only general
partners of which are such Person or of one or more Subsidiaries of such
Person (or any combination thereof).
"Voting Stock" means with respect to any specified Person, Capital Stock
with voting power, under ordinary circumstances and without regard to the
occurrence of any contingency, to elect the directors or other managers or
trustees of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the
sum of the products obtained by multiplying (a) the amount of each then
remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect
thereof, by (b) the number of years (calculated to the nearest one-twelfth)
that will elapse between such date and the making of such payment, by (ii)
the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Baker & McKenzie, counsel to the Company, the following
discussion summarizes the material federal income tax considerations relevant
to the purchase, ownership and disposition of the Series E Preferred Stock
and the Exchange Debentures by the initial holders thereof, but does not
purport to be a complete analysis of all the potential tax effects thereof.
This summary deals only with initial investors who hold the Series E
Preferred Stock and Exchange Debentures as capital assets. There can be no
assurance that the Internal Revenue Service will take a similar view of such
consequences. Further, the discussion does not address all aspects of
taxation that may be relevant to particular purchasers in light of their
personal circumstances (including the effect of any foreign, state or local
tax laws) or to certain types of purchasers (including dealers in securities,
insurance companies, foreign persons, financial institutions, tax exempt
entities and persons holding Series E Preferred Stock or the Exchange
Debentures as part of a "straddle," "hedge" or "conversion transaction")
subject to special treatment under the federal income tax laws.
The discussion of the federal income tax consequences set forth below is
based upon currently existing provisions of the Internal Revenue Code of
1986, as amended (the "Code"), judicial decisions, and administrative
interpretations including, but not limited to, Treasury regulations relating
to original issue discount (the "OID Regulations"), which may change,
possibly with retroactive effect. Certain proposed tax legislation, if
enacted in substantially the same form as proposed, may affect some of the
tax consequences discussed herein. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY
DIFFER, EACH PROSPECTIVE PURCHASER OF SERIES E PREFERRED STOCK IS STRONGLY
URGED TO CONSULT HIS OWN TAX ADVISOR WITH RESPECT TO HIS PARTICULAR TAX
SITUATION AND THE PARTICULAR TAX EFFECTS OF ANY STATE, LOCAL, FOREIGN OR
OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.
Although the matter is not entirely free from doubt, for federal income
tax purposes the Series E Preferred Stock should be treated as equity and the
Exchange Debentures should be treated as indebtedness. The Company intends to
treat the Series E Preferred Stock and the Exchange Debentures consistent
with the foregoing classification, and the balance of the discussion is based
on the assumption that such treatment will be respected.
DIVIDENDS ON SERIES E PREFERRED STOCK
Dividends paid on the Series E Preferred Stock, whether paid in cash or in
additional shares of Series E Preferred Stock, will be taxable as ordinary
income to the extent that the amount of cash or the fair market value of the
additional shares of Series E Preferred Stock on the date of distribution
does not exceed the Company's current or accumulated earnings and profits for
federal income tax purposes. To the extent that the amount of distributions
paid on the Series E Preferred Stock exceeds the Company's current or
accumulated earnings and profits for federal income tax purposes, such
distributions will be treated first as a return of capital and will be
applied against and reduce the adjusted tax basis of the Series E Preferred
Stock in the hands of the shareholder. Any remaining amount after the
holder's basis has been reduced to zero will be taxed as capital gain and
will be long-term capital gain if the holder's holding period for the Series
E Preferred Stock exceeds one year. For purposes of the remainder of this
discussion, the term "dividend" refers to a distribution taxed as ordinary
income as described above unless the context indicates otherwise.
A shareholder's initial tax basis in any additional shares of Series E
Preferred Stock distributed by the Company ("Dividend Shares") will equal the
fair market value of such Dividend Shares on the date of their distribution.
A shareholder's holding period for such Dividend Shares will commence with
their distribution, and will not include his holding period for the shares of
Series E Preferred Stock with respect to which the Dividend Shares were
distributed.
Dividends received by corporate shareholders will be eligible for the 70%
dividends-received deduction under section 243 of the Code, subject to the
limitations contained in sections 246 and 246A of the Code. Under section
246(c) of the Code, the 70% dividends-received deduction will not be
available with respect to shares of Series E Preferred Stock which are held
for 45 days or less (90 days in the case of a dividend attributable to a
period or periods aggregating more than 366 days), including the day of
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disposition, but excluding the day of acquisition or any day which is more
than 45 days (or 90 days in the case of the more than 366 day period) after
the date on which the Series E Preferred Stock becomes ex-dividend. The
length of time that a shareholder is deemed to have held stock for these
purposes is reduced for periods during which the shareholder's risk of loss
with respect to the stock is diminished by reason of the existence of certain
options, contracts to sell, short sales or other similar transactions.
Section 246(c) also denies the dividends-received deduction to the extent
that a corporate taxpayer is under an obligation with respect to
substantially similar or related property, to make payments corresponding to
the dividend received. Under section 246(b) of the Code, the aggregate
dividends received deductions allowed may not exceed 70% of the taxable
income (with certain adjustments) of the corporate shareholder. Moreover,
under section 246A of the Code, to the extent that a corporate shareholder
incurs indebtedness "directly attributable" to investment in the Series E
Preferred Stock and the Series E Preferred Stock constitutes "debt financed
portfolio stock" within the meaning of section 246A(c)(1) of the Code, the
dividends-received deduction is proportionately reduced.
A corporate stockholder's liability for alternative minimum tax may be
affected by the portion of the dividends received which such corporate
stockholder deducts in computing taxable income. This results from the fact
that corporate stockholders are required to increase alternative minimum
taxable income by 75% of the excess of current earnings and profits (with
certain adjustments) over alternative minimum taxable income (determined
without regard to earnings and profits adjustments or the alternative tax net
operating loss deduction).
The Clinton Administration has proposed legislation that would reduce the
dividends-received deduction from 70% to 50% and increase the holding period
required to take such a deduction. Subsequently, in August 1996, President
Clinton announced an intention to seek legislation that would eliminate the
dividends-received deduction for certain types of preferred stock that have
characteristics similar to debt. Based on a description of this proposal, the
Series E Preferred Stock might be the type of preferred stock to which this
limitation would apply. It is not clear whether such proposed legislation
will ultimately be enacted or, if enacted, will be enacted as currently
proposed.
Section 1059 of the Code requires a corporate shareholder to reduce its
basis (but not below zero) in the Series E Preferred Stock by the "nontaxed
portion" of any "extraordinary dividend" if the holder has not held its
Series E Preferred Stock for more than two years as of the date the amount or
payment of such dividend is agreed to, announced or declared. Generally, the
nontaxed portion of an extraordinary dividend is the amount excluded from
income under section 243 of the Code (relating to the dividends-received
deduction). An "extraordinary dividend" on the Series E Preferred Stock would
include a dividend that (i) equals or exceeds 5% of the holder's adjusted tax
basis in the Series E Preferred Stock, treating all dividends having
ex-dividend dates within an 85-day period as one dividend, or (ii) exceeds
20% of the holder's adjusted tax basis in the Series E Preferred Stock,
treating all dividends having ex-dividend dates within a 365-day period as
one dividend. In determining whether a dividend paid is an extraordinary
dividend, a holder may elect to use the fair market value of the Series E
Preferred Stock rather than its basis for purposes of applying the 5% (or
20%) limitation if the shareholder is able to establish to the satisfaction
of the Secretary of the Treasury such fair market value as of the day before
the ex-dividend date. An "extraordinary dividend" would also include any
amount treated as a dividend in the case of a redemption of the Series E
Preferred Stock that is non-pro rata as to all shareholders, without regard
to the period the holder held the stock. If any part of the nontaxed portion
of an extraordinary dividend has not been applied to reduce basis as a result
of the limitation on reducing basis below zero, the amount thereof will be
treated as gain from the sale or exchange of stock when such stock is
disposed of or sold.
The extraordinary dividend rules do not apply with respect to "qualified
preferred dividends." A "qualified preferred dividend" is any fixed dividend
payable with respect to preferred stock which (i) provides for fixed
preferred dividends payable no less often than annually and (ii) is not in
arrears as to dividends when acquired, provided the actual rate of return, as
determined under section 1059(e)(3) of the Code, on such stock does not
exceed 15%. Where a qualified preferred dividend exceeds the 5% (or 20%)
threshold for extraordinary dividend status described above, (i) the
extraordinary dividend rules will not apply if the taxpayer holds the stock
for more than five years, and (ii) if the taxpayer disposes of the
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stock before it has been held for more than five years, the aggregate
reduction in basis cannot exceed the excess of the qualified preferred
dividends paid on such stock during the period held by the taxpayer over the
qualified preferred dividends which would have been paid during such period
on the basis of the stated rate of return, as determined under section
1059(e)(3) of the Code. The length of time that a taxpayer is deemed to have
held stock for purposes for section 1059 of the Code is determined under
principles similar to those contained in section 246(c) of the Code discussed
above.
The Clinton Administration has also proposed legislation that would
require immediate recognition of gain under section 1059 to the extent a
corporate holder's tax basis would have been reduced below zero, instead of
deferring such gain until the ultimate sale or exchange of such stock. It is
not clear whether such proposed legislation will ultimately be enacted or, if
enacted, will be enacted as currently proposed.
CORPORATE STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE POSSIBLE APPLICATION OF SECTION 1059 TO THE OWNERSHIP AND
DISPOSITION OF THEIR SERIES E PREFERRED STOCK.
REDEMPTION PREMIUM
If the redemption price of the Series E Preferred Stock to be paid by the
Company on the Mandatory Redemption or Optional Redemption of the Series E
Preferred Stock exceeds, by more than a de minimis amount, its issue price,
all or a portion of such excess may, pursuant to section 305(c) of the Code,
be viewed as constructive distributions (and thus as dividends depending upon
the presence of current or accumulated earnings and profits) over the term of
the Series E Preferred Stock cannot be called for redemption under an
economic accrual method similar to the method described under the third
paragraph under "Original Issue Discount." The issue price of the Series E
Preferred Stock issued for money is the price at which a substantial amount
of such stock is sold. It is not clear how the issue price of Dividend Shares
should be determined. One possible interpretation is to determine the issue
price based on the fair market value of the Dividend Shares at the time of
issuance. Alternatively, it may be determined based on the method used in
determining the issue price of the Exchange Debentures under the principles
discussed under "Certain Federal Income Tax Consequences--Original Issue
Discount" with respect to the Exchange Debentures. A redemption premium will
generally be considered de minimis as long as it is less than the redemption
price of the Series E Preferred Stock multiplied by 1/4 of 1% multiplied by
the number of years until the issuer must redeem the preferred stock.
For purposes of determining whether such constructive distribution
treatment applies, the Mandatory Redemption and the Optional Redemption are
tested separately. Constructive distribution treatment is required if either
(or both) of these tests is satisfied. Because the issue price of the Series
E Preferred Stock at original issuance will equal the Mandatory Redemption
Price, no redemption premium will arise as a result of the Mandatory
Redemption feature with respect to such stock. However, because the issue
price of the Dividend Shares may be determined based on the fair market value
of such Dividend Shares at the time of the distribution, it is possible that
such Dividend Shares will be issued with a redemption premium large enough to
give rise to dividend treatment under the above rules.
Pursuant to recently issued regulations (the "Section 305(c)
Regulations"), such economic accrual will arise due to the Optional
Redemption only if, based on all of the facts and circumstances as of the
date the Series E Preferred Stock are issued, redemption pursuant to the
Optional Redemption were more likely than not to occur. Even if redemption
were more likely than not to occur, however, constructive distribution
treatment would not result if the redemption premium were solely in the
nature of a penalty for premature redemption. For this purpose, a penalty for
premature redemption is a premium paid as a result of changes in economic or
market condition over which neither the issuer nor the holder has control,
such as changes in prevailing dividend rates. The Section 305(c) Regulations
provide a safe harbor pursuant to which constructive distribution treatment
will not result from an issuer call right if the issuer and the holder are
unrelated, there are no arrangements that effectively require the issuer to
redeem the stock and exercise of the option to redeem would not reduce the
yield of the stock. Although the Company believes that the Optional
Redemption would not be treated as more likely than not to be exercised under
these rules, that the redemption premium is in the nature of a penalty for
premature redemption or that the safe harbor would apply, this determination
cannot be made with
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certainty at this time. Thus, no assurance can be given as to the treatment
of the redemption premium with respect to the Series E Preferred Stock under
the Section 305(c) Regulations.
Shares of Series E Preferred Stock that are subject to the Section 305(c)
rules concerning redemption premium generally will have different tax
characteristics than shares of Series E Preferred Stock that are not subject
to the Section 305(c) rules and might trade separately, which might adversely
affect the liquidity of such shares.
REDEMPTION, SALE AND EXCHANGE OF SERIES E PREFERRED STOCK
A redemption of Series E Preferred Stock for cash (whether pursuant to the
Mandatory Redemption, or the Optional Redemption), a sale of Series E
Preferred Stock or an exchange of shares of Series E Preferred Stock for
Exchange Debentures will be a taxable event.
A redemption of Series E Preferred Stock for cash will be treated as a
dividend to the extent of the Company's current or accumulated earnings and
profits, unless the redemption (i) results in a "complete termination" of the
shareholder's stock interest in the Company under section 302(b)(3) of the
Code, (ii) is "substantially disproportionate" with respect to the
shareholder under section 302(b)(2) of the Code or (iii) is "not essentially
equivalent to a dividend" with respect to the shareholder under section
302(b)(1) of the Code. In determining whether any of these tests have been
met, the shareholder must take into account not only stock he actually owns,
but also stock he constructively owns within the meaning of section 318 of
the Code. A distribution to a shareholder is "not essentially equivalent to a
dividend" if it results in a "meaningful reduction" in the shareholder's
stock interest in the Company. If, as a result of a redemption for cash of
the Series E Preferred Stock, a shareholder of the Company whose relative
stock interest in the Company is minimal and who exercises no control over
corporate affairs suffers a reduction in his proportionate interest in the
Company (including any ownership of common stock and any shares
constructively owned), that shareholder should generally be regarded as
having suffered a meaningful reduction in his interest in the Company.
Satisfaction of the "complete termination" and "substantially
disproportionate" exceptions is dependent upon compliance with the respective
objective tests set forth in sections 302 (b)(3), and 302(b)(2) of the Code.
If the redemption is not treated as a distribution taxable as a dividend,
or if Series E Preferred Stock is sold, the redemption or sale of the Series
E Preferred Stock for cash would result in taxable gain or loss equal to the
difference between the amount of cash received and the shareholder's adjusted
tax basis in the Series E Preferred Stock redeemed or sold. Such gain or loss
would be capital gain or loss and would be long-term capital gain or loss if
the holding period for the Series E Preferred Stock exceeded one year.
An exchange of Series E Preferred Stock for Exchange Debentures at the
option of the Company will be subject to the same general rules as a
redemption for cash, including the rules for treating the redemption as a
dividend or as a sale or exchange. If the exchange of Series E Preferred
Stock for Exchange Debentures is treated as a dividend, the amount of the
dividend would be the "issue price" of the Exchange Debentures (to the extent
of the Company's current or accumulated earnings and profits) determined in
the manner described below for purposes of computing original issue discount
(if any) on the Exchange Debentures. If the exchange of Series E Preferred
Stock is not treated as a dividend, the exchanging shareholder would
recognize gain or loss equal to the difference between the issue price of
Exchange Debentures and the shareholder's adjusted tax basis in the Series E
Preferred Stock. If neither the Series E Preferred Stock nor the Exchange
Debentures are regularly traded on an established securities market, gain
realized on the exchange of Series E Preferred Stock for Exchange Debentures
may qualify for installment sale treatment.
If the amount received in a redemption of Series E Preferred Stock is
treated as a distribution which may be taxable as a dividend as opposed to
consideration received in a sale or exchange, the amount of the distribution
will be measured by the amount of cash or the issue price of the Exchange
Debentures, as the case may be, received by the shareholder. The
shareholder's adjusted tax basis in the redeemed Series E Preferred Stock
will be transferred to any remaining stock holdings in the Company. If the
shareholder does not retain any stock ownership in the Company, it is unclear
whether the shareholder will be permitted to transfer such basis to any
Exchange Debentures received in the redemption or will
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lose such basis entirely. Under section 1059 of the Code, the term
"extraordinary dividend" includes any redemption of stock that is treated as
a dividend and that is non-pro rata as to all stock, including holders of
common stock, irrespective of the holding period. Consequently, to the extent
an exchange of Series E Preferred Stock for debentures or cash constitutes a
distribution taxable as a dividend, it may constitute an "extraordinary
dividend" to a corporate shareholder and be subject to the rules described
above. See "--Dividends on Series E Preferred Stock."
ORIGINAL ISSUE DISCOUNT
If the shares of Series E Preferred Stock are exchanged for Exchange
Debentures at a time when the stated redemption price at maturity of such
Exchange Debentures exceeds their issue price by an amount equal to or
greater than 0.25% of the stated redemption price at maturity multiplied by
the number of complete years to maturity, the Exchange Debentures will be
treated as having original issue discount ("OID") equal to the entire amount
of such excess. If the Exchange Debentures are traded on an established
securities market within the meaning of section 1273(b)(3) of the Code, the
issue price of the Exchange Debentures will be their fair market value as of
the issue date. Similarly, if the Series E Preferred Stock, but not the
Exchange Debentures issued and exchanged therefor, is traded on an
established securities market at the time of the exchange, then the issue
price of each Exchange Debenture should be the fair market value of the
Series E Preferred Stock at the time of the exchange. If neither the Series E
Preferred Stock nor the Exchange Debentures are traded on an established
securities market, and absent any "potentially abusive situation," the issue
price of the Exchange Debentures will be their stated principal amount, or,
in the event the Exchange Debentures do not bear "adequate stated interest"
within the meaning of section 1274 of the Code, their "imputed principal
amount" as determined under section 1274 of the Code using the applicable
federal rate (the "AFR") in effect as of the date of the exchange.
The Company is allowed to exchange the Series E Preferred Stock for
Exchange Debentures from time to time. Because the determination of the issue
price of the Exchange Debentures depends on several factors as described
above, it is possible that Exchange Debentures issued at different times will
have different issue prices. To the extent the Exchange Debentures have
different issue prices, they may have different tax characteristics from each
other (for example, the amount of OID on such Exchange Debentures may vary),
and may trade separately, which may adversely affect the liquidity of such
Exchange Debentures.
The "stated redemption price at maturity" of the Exchange Debentures would
equal the total of all payments under the Exchange Debentures, other than
payments of "qualified stated interest." "Qualified stated interest"
generally is stated interest that is unconditionally payable in cash or other
property (other than debt instruments of the issuer such as the Exchange
Debentures) at least annually at a single fixed rate. Therefore, Exchange
Debentures that are issued when the Company has the option to pay interest
for certain periods in additional Exchange Debentures should be treated as
having been issued without any qualified stated interest. Accordingly, the
sum of all interest payable pursuant to the stated interest rate on such
Exchange Debentures over the entire term should be included (along with the
stated principal) in the stated redemption price at maturity of such Exchange
Debentures. On the other hand, if the Exchange Debentures are issued after
January 15, 2002 when the Company does not have the option to pay interest
with additional Exchange Debentures, then stated interest would qualify as
qualified stated interest and none of such stated interest would be included
in the stated redemption price at maturity of the Exchange Debentures.
A holder of an Exchange Debenture would generally be required under
section 1272 of the Code to include in gross income (irrespective of its
method of accounting) a portion of such OID for each year during which it
holds such an Exchange Debenture, even if the cash to which such income is
attributable would not be received until maturity or redemption of the
Exchange Debenture. The amount of any OID included in income for each year
would be calculated under a constant yield to maturity formula that would
result in the allocation of less OID to the early years of the term of the
Exchange Debenture and more OID for later years.
S-95
<PAGE>
An additional Exchange Debenture (an "Interest Payment Debenture") issued
in payment of interest with respect to an Exchange Debenture will not be
considered as a payment made on the Exchange Debenture and will be aggregated
with the Exchange Debenture for purposes of computing and accruing OID on the
Exchange Debenture. As between the Exchange Debenture and the related
Interest Payment Debenture, the adjusted issue price of the Exchange
Debenture would be allocated between the Exchange Debenture and the Interest
Payment Debenture in proportion to their respective principal amounts. That
is, upon the issuance of an Interest Payment Debenture, the Exchange
Debenture and the Interest Payment Debenture would be treated as initially
having the same adjusted issue price and inherent amount of OID per dollar of
principal amount. The Exchange Debenture and the Interest Payment Debenture
derived therefrom would be treated as having the same yield to maturity.
Similar treatment would be applied to any Exchange Debentures issued on
Interest Payment Debentures.
If the Exchange Debentures are not issued with OID, because they are
issued after January 15, 2002, stated interest would be included in income by
a holder in accordance with such holder's usual method of accounting. In all
other cases, all stated interest will be treated as payments on the Exchange
Debentures under the OID rules discussed above, and will not be included
again when paid or accrued.
If the Exchange Debentures are issued with OID and the Company were found
to have had an intention to call the Exchange Debentures before maturity, any
gain realized on a sale, exchange or redemption of Exchange Debentures prior
to maturity would be considered ordinary income to the extent of any
unamortized OID for the period remaining to the stated maturity of the
Exchange Debentures. The Company cannot predict whether it would have an
intention to call the Exchange Debentures before their maturity at the time,
if ever, it issues the Exchange Debentures.
If issued with OID, the Exchange Debentures may be subject to the
provision of the Code dealing with high yield discount obligations in which
case the Company may not be entitled to claim a deduction with respect to a
certain portion of the OID (the "Disqualified Portion") and the remainder of
the OID may not be claimed as a deduction until paid. In such case, the
Disqualified Portion of the OID may be treated as a dividend with respect to
the stock of the Company and the rules applicable to distributions with
respect to the Series E Preferred Stock may apply.
BOND PREMIUM ON EXCHANGE DEBENTURES
If the shares of Series E Preferred Stock are exchanged for Exchange
Debentures at a time when the issue price of such Exchange Debentures exceeds
the amount payable at the maturity date (or earlier redemption date, if
appropriate) of the Exchange Debentures, such excess will be deductible,
subject to certain limitations with respect to individuals, by the holder of
such Exchange Debentures as amortizable bond premium over the term of the
Exchange Debentures (taking into account earlier call dates, as appropriate),
under a yield to maturity formula, but only if an election by the taxpayer
under the section 171 of the Code is in effect or is made. An election under
section 171 of the Code is available only if the Exchange Debentures are held
as capital assets. Such election is binding once made and applies to all debt
obligations owned or subsequently acquired by the taxpayer. Under the Code,
the amortizable bond premium will be treated as an offset to interest income
on the Exchange Debentures rather than as a separate deduction item unless
otherwise provided in future regulations.
REDEMPTION OR SALE OF EXCHANGE DEBENTURES
Generally, any redemption or sale of Exchange Debentures by a holder would
result in taxable gain or loss equal to the difference between the amount of
cash received (except to the extent that cash received is attributable to
accrued interest) and the holder's tax basis in the Exchange Debentures. The
tax basis of a holder who received an Exchange Debenture in exchange for
Series E Preferred Stock will generally be equal to the issue price of the
Exchange Debenture on the date the Exchange Debenture is issued (or, in the
case of an Exchange Debenture received as to which the holder thereof as
entitled to installment sale treatment, the adjusted tax basis of the Series
E Preferred Stock exchanged) plus any OID on the Exchange Debenture included
in the holder's income prior to sale or redemption of the Exchange Debenture,
reduced by any amortizable bond premium applied against the holder's income
S-96
<PAGE>
prior to sale or redemption of the Exchange Debenture and payment other than
payment of qualified stated interest. Such gain or loss would be capital gain
or loss and would be long-term capital gain or loss if the holding period
exceeded one year. However, if the Company were found to have an intention at
the time the Exchange Debentures were issued to call them before maturity,
the gain would be ordinary income to the extent of any unamortized OID.
BACKUP WITHHOLDING
Under section 3406 of the Code and applicable Treasury regulations, a
holder of Series E Preferred Stock or Exchange Debentures may be subject to
backup withholding at the rate of 31% with respect to "reportable payments,"
which include dividends or interest paid on, or the proceeds of a sale,
exchange or redemption of, Series E Preferred Stock or Exchange Debentures,
as the case may be. The payor will be required to deduct and withhold the
prescribed amounts if (i) the payee fails to furnish a taxpayer
identification number ("TIN") to the payor in the manner required by the Code
and applicable Treasury regulations, (ii) the Internal Revenue Service
notifies the payor that the TIN furnished by the payee is incorrect, (iii)
there has been a "notified payee underreporting" described in section 3406(c)
of the Code or (iv) there has been a failure of the payee to certify under
penalty of perjury that the payee is not subject to withholding under section
3406(a)(1)(C) of the Code. If any one of the events listed above occurs, the
Company will be required to withhold an amount equal to 31% from any dividend
payment made with respect to Series E Preferred Stock, any payment of
interest or principal pursuant to the terms of the Exchange Debentures, or
any payment of proceeds of a redemption of Series E Preferred Stock or
Exchange Debentures, as the case may be, to a holder. Amounts paid as backup
withholding do not constitute an additional tax and will be credited against
the holder's federal income tax liabilities, so long as the required
information is provided to the Internal Revenue Service. The Company will
report to the holders of Series E Preferred Stock or Exchange Debentures and
to the Internal Revenue Service the amount of any "reportable payments" for
each calendar year and the amount of tax withheld, if any with respect to
payment on the securities.
SUBSEQUENT PURCHASERS
The foregoing does not discuss special rules which may affect the
treatment of purchasers that acquire the Series E Preferred Stock or the
Exchange Debentures other than through purchasing the Series E Preferred
Stock at the time of original issuance at the issue price, including those
provisions of the Code relating to the treatment of "market discount." For
example, the market discount provisions of the Code may require a subsequent
purchaser of an Exchange Debenture at a market discount to treat all or a
portion of any gain recognized upon sale or other disposition of the Exchange
Debenture as ordinary income and to defer a portion of any interest expense
that would otherwise be deductible on any indebtedness incurred or maintained
to purchase or carry such Exchange Debenture until the holder disposes of the
Exchange Debenture in a taxable transaction.
As a further example, a holder of an Exchange Debenture issued with OID
who purchases such Exchange Debenture for an amount that is greater than its
adjusted issue price but equal to or less than the sum of all payments
payable on the Exchange Debenture after the purchase date (other than
payments, if any, of qualified stated interest) will be considered to have
purchased such Exchange Debenture at an "acquisition premium." Under the
acquisition premium rules, the amount of OID which such holder must include
in income with respect to such Exchange Debenture for any taxable year will
be reduced by the portion of such acquisition premium properly allocable to
such year.
EACH PROSPECTIVE HOLDER OF SERIES E PREFERRED STOCK OR EXCHANGE DEBENTURES
SHOULD CONSULT HIS OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO
HIM OF THE SERIES E PREFERRED STOCK OR EXCHANGE DEBENTURES INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR FOREIGN INCOME TAX LAWS, AND
ANY RECENT OR PROSPECTIVE CHANGES IN APPLICABLE TAX LAWS.
S-97
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement") among the Company and BT Securities Corporation,
Goldman, Sachs & Co. and Lehman Brothers Inc. (collectively, the
"Underwriters"), the Underwriters, severally and not jointly, have agreed to
purchase, and the Company has agreed to sell to the several Underwriters, all
of the Series E Preferred Stock offered hereby.
The Underwriting Agreement provides that the obligation of the
Underwriters to pay for and accept delivery of the Series E Preferred Stock
is subject to the approval of certain legal matters by counsel and to various
other conditions. The nature of each Underwriter's obligations is such that
each is committed to purchase the number of shares of Series E Preferred
Stock set forth opposite its name if it purchases any.
NUMBER OF
UNDERWRITERS SHARES
- ------------------------- -----------
BT Securities Corporation 1,350,000
Goldman, Sachs & Co. .... 450,000
Lehman Brothers Inc. .... 450,000
-----------
Total .................. 2,250,000
===========
The Underwriters propose to offer the Series E Preferred Stock directly to
the public at the public offering price set forth on the cover page hereof,
and to certain dealers at such price less a concession not in excess of
$.0025 per share. The Underwriters may allow and such dealers may reallow a
concession not in excess of $.00125 per share. After the initial public
offering of the Series E Preferred Stock, the public offering price and other
selling terms may be changed.
The Company does not intend to apply for listing of the Series E Preferred
Stock on a national securities exchange, but has been advised by the
Underwriters that they currently intend to make a market in the Series E
Preferred Stock, as permitted by applicable laws and regulations. The
Underwriters are not obligated, however, to make a market in the Series E
Preferred Stock, and any such market making may be discontinued at any time
by one or all of the Underwriters at the sole discretion of such
Underwriters. There can be no assurance that an active public market for the
Series E Preferred Stock will develop.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments the Underwriters may be required to make in respect thereof.
The Company has been informed by the Underwriters that they will not
confirm sales to any account over which they exercise discretionary authority
without prior specific consent.
S-98
<PAGE>
PROSPECTUS
$500,000,000
SFX BROADCASTING, INC. [LOGO]
DEBT SECURITIES, PREFERRED STOCK AND CLASS A COMMON STOCK
---------
SFX Broadcasting, Inc. (the "Company") may from time to time offer,
together or separately, its (i) debt securities (the "Debt Securities") which
may be either senior debt securities (the "Senior Debt Securities") or
subordinated debt securities (the "Subordinated Debt Securities"), (ii)
shares of its preferred stock, par value $.01 per share (the "Preferred
Stock"), and (iii) shares of its Class A Common Stock, par value $.01 per
share (the "Class A Common Stock"), in amounts, at prices and on terms to be
determined at the time of the offering. The Debt Securities, Preferred Stock
and Class A Common Stock are collectively called the "Securities."
The Securities offered pursuant to this Prospectus may be issued in one or
more series or issuances and will be limited to $500,000,000 in aggregate
initial public offering price. Certain specific terms of the particular
Securities in respect of which this Prospectus is being delivered will be set
forth in an accompanying Prospectus Supplement (the "Prospectus Supplement"),
including, where applicable, (i) in the case of Debt Securities, the specific
title, aggregate principal amount, the denomination, maturity, premium, if
any, the interest, if any (which may be at a fixed or variable rate), the
time and method of calculating payment of interest, if any, the place or
places where principal of (and premium, if any) and interest, if any, on such
Debt Securities will be payable, any terms of redemption at the option of the
Company or the holder, any sinking fund provisions, terms for any conversion
into Class A Common Stock, the initial public offering price, listing (if
any) on a securities exchange or quotation (if any) on an automated quotation
system, acceleration, if any, and other terms and (ii) in the case of
Preferred Stock, the specific title, the aggregate number of shares offered,
any dividend (including the method of calculating payment of dividends),
liquidation, redemption, voting and other rights, any terms for any
conversion or exchange into Class A Common Stock or Debt Securities, the
initial public offering price, listing (if any) on a securities exchange or
quotation (if any) on an automated quotation system and other terms. If so
specified in the applicable Prospectus Supplement, Debt Securities of a
series may be issued in whole or in part in the form of one or more temporary
or permanent global securities.
The Class A Common Stock is quoted on the Nasdaq National Market under the
trading symbol "SFXBA." Any Class A Common Stock sold pursuant to a
Prospectus Supplement will be quoted on the Nasdaq National Market, subject
to official notice of issuance.
Unless otherwise specified in a Prospectus Supplement, the Senior Debt
Securities, when issued, will be unsecured and will rank equally with all
other unsecured and unsubordinated indebtedness of the Company. The
Subordinated Debt Securities, when issued, will be subordinated in right of
payment to all Senior Debt (as defined in the applicable Prospectus
Supplement) of the Company.
The Prospectus Supplement will contain information concerning certain
United States federal income tax considerations, if applicable to the
Securities offered.
This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement relating to such Securities. Any
statement contained in this Prospectus will be deemed to be modified or
superseded by any inconsistent statement contained in an accompanying
Prospectus Supplement.
SEE "RISK FACTORS," BEGINNING ON PAGE 4, FOR A DISCUSSION OF CERTAIN RISK
FACTORS THAT SHOULD BE CONSIDERED BY INVESTORS.
---------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
---------
The Securities will be sold directly, through agents, underwriters or
dealers as designated from time to time, or through a combination of such
methods. If agents of the Company or any dealers or underwriters are involved
in the sale of the Securities in respect of which this Prospectus is being
delivered, the names of such agents, dealers or underwriters and any
applicable commissions or discounts will be set forth in or may be calculated
from the Prospectus Supplement with respect to such Securities. See "Plan of
Distribution" for possible indemnification arrangements with agents, dealers
and underwriters.
---------
The date of this Prospectus is December 10, 1996.
<PAGE>
IN CONNECTION WITH THE OFFERING OF CERTAIN SECURITIES, THE UNDERWRITERS
MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET
PRICES OF SUCH SECURITIES, OTHER SECURITIES OF THE COMPANY OR ANY SECURITIES
THE PRICES OF WHICH MAY BE USED TO DETERMINE PAYMENTS ON SUCH SECURITIES AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
No person is authorized to give any information or to make any
representations other than those contained in this Prospectus or a Prospectus
Supplement in connection with the offering described herein and therein, and
any information or representations not contained herein or therein must not
be relied upon as having been authorized by the Company or by any
underwriter, dealer or agent. This Prospectus may not be used to consummate
sales of Securities unless accompanied by a Prospectus Supplement relating to
such Securities. Neither this Prospectus nor any Prospectus Supplement shall
constitute an offer to sell or a solicitation of an offer to buy any of the
Securities covered by this Prospectus in any jurisdiction to any person to
whom it is unlawful to make such offer of solicitation in such jurisdiction.
The delivery of this Prospectus and the applicable Prospectus Supplement at
any time does not imply that the information herein is correct as of any time
subsequent to the date hereof.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the Securities
being offered by this Prospectus. This Prospectus, which constitutes a part
of the Registration Statement, does not contain all of the information set
forth in the Registration Statement, certain items of which are contained in
exhibits and schedules to the Registration Statement as permitted by the
rules and regulations of the Commission. For further information with respect
to the Company and the securities offered hereby, reference is made to the
Registration Statement, including the exhibits thereto, and the financial
statements and notes filed as a part thereof. Statements made in this
Prospectus concerning the contents of any contract, agreement or other
document filed with the Commission as an exhibit are not necessarily
complete. With respect to each such contract, agreement or other document
filed with the Commission as an exhibit, reference is made to the exhibit for
a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. The reports, proxy statements and other information filed by the
Company with the Commission pursuant to the informational requirements of the
Exchange Act may be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices at 7 World
Trade Center, 13th Floor, New York, New York 10048 and the Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such documents can also be obtained at prescribed rates from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. The Company is an electronic filer
under the EDGAR (Electronic Data Gathering, Analysis and Retrieval) system
maintained by the Commission. The Commission maintains a Web site
(http://www.sec.gov) on the Internet that contains reports, proxy and
information statements and other information regarding companies that file
electronically with the Commission. In addition, documents filed by the
Company can be inspected at the offices of The Nasdaq Stock Market, Inc.,
Reports Section, 1735 K Street, N.W., Washington, D.C. 20006.
2
<PAGE>
INCORPORATION BY REFERENCE
The following documents, which have been filed by the Company with the
Commission, are incorporated herein by reference:
(i) the Company's Annual Report on Form 10-K, as amended, for the
year ended December 31, 1995;
(ii) the Company's Quarterly Reports on Form 10-Q for the quarterly
periods ended March 31, 1996, June 30, 1996, and September 30,
1996;
(iii) the Company's Current Reports on Form 8-K dated April 18, 1996,
May 8, 1996, May 16, 1996, May 29, 1996, June 21, 1996, July
10, 1996 (as amended), August 8, 1996, October 3, 1996, October
30, 1996, November 1, 1996, and November 27, 1996; and
(iv) the description of the Company's Class A Common Stock contained
in the Company's Registration Statement on Form 8-A (File No.
0-22486) filed with the Commission on September 27, 1993, as
amended.
All documents and reports filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the termination of the offering of Securities shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from
the date of filing of such documents or reports.
Any statement contained in a document which is, or is deemed to be,
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein (or in any other subsequently filed document which also is, or is
deemed to be, incorporated by reference herein) modifies or supersedes the
previous statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy
of any document incorporated by reference in this Prospectus, other than
exhibits to any such document not specifically described above. Request for
such documents should be directed to SFX Broadcasting, Inc., 150 East 58th
Street, 19th Floor, New York, New York 10155, Attention: Timothy Klahs,
Director of Investor Relations; telephone number (212) 407-9191.
3
<PAGE>
RISK FACTORS
In addition to the other information contained or incorporated by
reference in this Prospectus or any Prospectus Supplement, the following
factors should be considered carefully by prospective investors in evaluating
the Company before purchasing any of the securities offered hereby. The
information contained or incorporated by reference in this Prospectus or any
Prospectus Supplement includes forward-looking statements that involve risks
and uncertainties, a number of which are identified in this "Risk Factors"
section. These risks and uncertainties include, without limitation, the
consummation of acquisitions and dispositions, integration of acquired
stations, leverage, limitations on the payment of dividends, regulation of
radio broadcasting and other factors. The Company's actual results may differ
materially from the results discussed in the forward-looking statements, due
to such risks and uncertainties.
RISKS RELATED TO PENDING ACQUISITIONS AND DISPOSITIONS
Consummation of the Company's pending acquisitions and dispositions is
subject to a number of factors, certain of which are beyond the Company's
control. In particular, consummation of the acquisitions and the dispositions
is subject to the prior approval by the Federal Communications Commission
(the "FCC") of the assignments or transfers of control of operating licenses
issued by the FCC and the continued operating performance of the stations to
be acquired or disposed such that there is no material adverse change in such
stations that would prevent consummation of any such transactions. As a
result of the elimination of the national ownership limits and the
liberalization of the local ownership limits effected by the
Telecommunications Act of 1996 (the "Recent Legislation"), acquisitions and
dispositions will be subject to antitrust review by the Federal Trade
Commission and the Department of Justice, Antitrust Division (the "Antitrust
Agencies"). The Antitrust Agencies have indicated their intention to review
matters related to the concentration of ownership within markets even when
the ownership in question is in compliance with the provisions of the Recent
Legislation. See "--Extensive Regulation of Radio Broadcasting."
The Company will also require financing in order to consummate the pending
acquisitions, which the Company may obtain through the issuance of
Securities, borrowings under the senior credit facility and proceeds from
dispositions. The ability of the Company to issue certain Securities or
borrow under the senior credit facility will be subject to meeting certain
financial tests. In addition, consummation of certain acquisitions is subject
to the prior approval of the Lenders under Company's senior credit facility
entered into on November 22, 1996. There can be no assurance that the
Company's existing stations, and the stations which the Company will acquire,
will achieve the cash flow levels required to issue certain Securities or
borrow under the senior credit facility.
RISKS ASSOCIATED WITH INTEGRATION OF THE STATIONS
As of January 1, 1996, the Company owned and operated, provided
programming to or sold advertising on behalf of 22 radio stations located in
eight markets. Since that time, the number of stations has more than tripled.
The Company's plans with respect to radio stations it has acquired and plans
to acquire involve, to a substantial degree, strategies to increase net
revenue while at the same time reducing operating expenses, as well as the
implementation of a new regional management structure and a modified senior
management team. Although the Company believes that its strategies are
reasonable, there can be no assurance that it will be able to implement its
plans without delay or that, when implemented, its efforts will result in the
increased net revenues or other benefits currently anticipated by the
Company. In addition, there can be no assurance that the Company will not
encounter unanticipated problems or liabilities in connection with the
implementation of the new management changes or the operation of the radio
stations to be acquired. The integration of the newly acquired stations into
the Company will require substantial attention from members of the Company's
senior management, which will limit the amount of time such members have
available to devote to the Company's existing operations. The Company
currently anticipates realizing certain cost savings and elimination of
non-recurring expenses as a result of the acquisitions. While management
believes that such cost savings and the elimination of non-recurring expenses
are reasonably achievable, the Company's ability to achieve such cost savings
and to eliminate such non-recurring expenses is subject to numerous factors,
many of which are beyond the Company's control. There can be no assurance
that the Company will realize any such cost savings.
4
<PAGE>
EXTENSIVE REGULATION OF RADIO BROADCASTING
Adoption of the Recent Legislation in February 1996 eliminated the
national limits and liberalized the local limits on radio station ownership
by a single company. However, the Antitrust Agencies are increasingly
scrutinizing acquisitions of radio stations and the entering into of joint
sales agreements ("JSAs") and local market agreements ("LMAs"). There can be
no assurance that policy and rule-making activities of the Antitrust Agencies
will not impact the Company's operations (including existing stations or
markets), expansion strategy or its ability to realize the benefits which
management had anticipated obtaining following the adoption of the Recent
Legislation.
The radio broadcasting industry is subject to extensive regulation by the
FCC. In particular, the Company's business depends on its continuing to hold,
and, in connection with acquisitions of radio stations, on it obtaining prior
FCC consent to assignments or transfers of control of broadcasting station
operating licenses issued by the FCC. There can be no assurance that the
Company's licenses will be renewed or that the FCC will approve future
acquisitions or dispositions. In addition, the number and locations of radio
stations the Company may acquire is limited by FCC rules and will vary
depending upon whether the interests in other radio stations or certain other
media properties of certain individuals affiliated with the Company are
attributable to those individuals. The issuance of shares of Class A Common
Stock, including those issuable pursuant to the conversion of other
securities of the Company and pursuant to all other rights, options or
warrants to purchase Class A Common Stock, that would cause Robert F.X.
Sillerman, the Executive Chairman of the Company, to hold directly voting
stock of the Company representing less than 50% of the total voting power of
the Company will require the Company to seek and obtain the consent of the
FCC. The Company intends to seek such consent.
The Congress and/or the FCC have under consideration, and in the future
may consider and adopt, new laws, regulations and policies regarding a wide
variety of matters that could affect, directly or indirectly, the operation,
ownership and profitability of the Company's radio broadcast stations, result
in the loss of audience share and advertising revenues for the Company's
radio broadcast stations, and affect the ability of the Company to acquire
additional radio broadcast stations or finance such acquisitions. In
particular, as of November 25, 1996, the FCC has outstanding a notice of
proposed rulemaking that, among other things, seeks comment on whether the
FCC should modify its attribution rules by (i) restricting the availability
of the single majority stockholder exemption, (ii) increasing the amount of
stock an investment company can own without attribution, (iii) attributing,
under certain circumstances, certain interests such as non-voting stock or
debt, and (iv) attributing, under certain circumstances, JSAs.
SUBSTANTIAL LEVERAGE; INABILITY TO SERVICE OBLIGATIONS
In connection with acquisitions, the Company has incurred and will incur
significant amounts of indebtedness. Subject to certain restrictions
contained in the Company's debt instruments, the Company may incur additional
indebtedness from time to time to finance acquisitions, for capital
expenditures or for other purposes. See "--Expansion Strategy; Need for
Additional Funds."
The degree to which the Company is and may become leveraged could have
material consequences to the Company and the holders of the Company's
securities, including, but not limited to, the following: (i) the Company's
ability to obtain additional financing in the future for acquisitions,
working capital, capital expenditures, general corporate or other purposes
may be impaired, (ii) a substantial portion of the Company's cash flow from
operations will be dedicated to the payment of the principal and interest on
its debt and dividends on capital stock and will not be available for other
purposes, (iii) the agreements governing the Company's debt contain or are
expected to contain restrictive financial and operating covenants, and the
failure by the Company to comply with such covenants could result in an event
of default under the applicable instruments, which could permit acceleration
of the debt under such instrument and in some cases acceleration of debt
under other instruments that contain cross-default or cross-acceleration
provisions and (iv) the Company's level of indebtedness could make it more
vulnerable to economic downturns, limit its ability to withstand competitive
pressures and limit its flexibility in reacting to changes in its industry
and general economic conditions. Certain of the Company's competitors operate
on a less leveraged basis, and have significantly greater operating and
financial flexibility, than the Company.
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The Company's ability to make scheduled payments of principal of, to pay
interest on or to refinance, its debt and to make dividend and redemption
payments on its capital stock depends on its future financial performance,
which, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors beyond its control, as
well as the success of the radio stations to be acquired and the integration
of these stations into the Company's operations. The Company's borrowings
under the senior credit facility will be, and other future borrowings may be,
at variable rates of interest, which will result in higher interest expense
in the event of increases in interest rates. There can be no assurance that
the Company's business will generate sufficient cash flow from operations or
that future working capital borrowings will be available in an amount which
enables the Company to service its debt, to make dividend, conversion and
redemption payments and to make necessary capital or other expenditures. The
Company may be required to refinance a portion of the principal amount of its
debt or the aggregate liquidation preference of the outstanding preferred
stock prior to their maturities. There can be no assurance that the Company
will be able to raise additional capital through the sale of securities, the
disposition of radio stations or otherwise for any such refinancing.
LIMITATIONS ON ABILITY TO PAY DIVIDENDS
The Company has never paid, and does not anticipate that in the
foreseeable future it will pay, any dividends on its Common Stock. Certain of
the Company's debt instruments include covenants restricting the Company's
ability to pay dividends or to make certain other distributions to
stockholders. In connection with the offering of any dividend-paying
Preferred Stock hereby, the applicable Prospectus Supplement will set forth
the amount available for distribution as of the end of the most recent fiscal
period under the Company's debt instruments.
In addition to the above restrictions imposed on the payment of dividends,
under Delaware law the Company is permitted to pay cash dividends on its
capital stock, only out of its surplus or, in the event that it has no
surplus, out its net profits for the year in which a dividend is declared or
for the immediately preceding fiscal year. Surplus is defined as the excess
of a company's total assets over the sum of its total liabilities plus the
par value of its outstanding capital stock. In order to pay dividends in
cash, the Company must have surplus or net profits equal to the full amount
of the cash dividend at the time such dividend is declared. In determining
the Company's ability to pay dividends, Delaware law permits the board of
directors of the Company to revalue the Company's assets and liabilities from
time to time to their fair market values in order to create surplus. The
Company cannot predict what the value of its assets or the amount of its
liabilities will be in the future and, accordingly, there can be no assurance
that the Company will be able to pay cash dividends on new issues of capital
stock.
HISTORICAL LOSSES
Although the Company had net income of $1.8 million for the year ended
December 31, 1994, the Company had net losses of $45.3 million, $4.4 million
and $17.8 million for the nine months ended September 30, 1996, and the years
ended December 31, 1995 and 1993, respectively. Depreciation and amortization
relating to past acquisitions and future acquisitions, interest expenses
under the Company's debt and dividend payments will continue to affect the
Company's net income (loss) in the future. There is no assurance that losses
will not continue or that the Company will become profitable in the future.
HOLDING COMPANY STRUCTURE; DEPENDENCE UPON OPERATIONS OF SUBSIDIARIES
Substantially all of the assets of the Company are held by the Company's
subsidiaries, and all of the Company's operating revenues are derived from
operations of such subsidiaries. In addition, future acquisitions may be made
through present or future subsidiaries of the Company. Therefore, the Company
will rely principally on dividends or advances from its subsidiaries to
provide the funds necessary for, among other things, the payment of dividends
and redemption payments on Preferred Stock and principal of and any interest
or premium on any Debt Securities and other indebtedness of the Company. The
Company's subsidiaries are subject to state-law restrictions on their ability
to pay dividends to the Company, such as those set forth with respect to the
Company in "--Limitations on Ability to Pay
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Dividends." Any right of the holders of the Debt Securities to participate in
the assets of any of the subsidiaries upon such subsidiary's liquidation or
recapitalization will be effectively subordinated to the claims of such
subsidiary's creditors and preferred stockholders (if any), except to the
extent the Company is itself recognized as a creditor of such subsidiary.
CHANGE OF CONTROL
Upon the occurrence of a change of control (as defined in the applicable
document) of the Company, the holders of certain preferred stock or certain
debt instruments will have the right, subject to certain conditions and
restrictions, to require the Company to repurchase their securities at a
price equal to 101% of the aggregate liquidation preference or the aggregate
principal amount thereof, as applicable, plus accrued and unpaid dividends or
interest, as applicable, to the date of repurchase. The repurchase price is
payable in cash. In addition, a change of control may constitute a default
under the Company's senior credit facility. If a change of control were to
occur, due to the highly leveraged nature of the Company, the Company might
not have the financial resources to repay all of its obligations under any
indebtedness that would become payable upon the occurrence of such change of
control. In addition, the Communications Act of 1934, as amended, and FCC
rules require the prior consent of the FCC to any change of control of the
Company. See "--Extensive Regulation of Radio Broadcasting" and
"--Substantial Leverage; Inability to Service Obligations."
EXPANSION STRATEGY; NEED FOR ADDITIONAL FUNDS
The Company's principal growth strategy is to operate and acquire
highly-ranked radio stations with attractive audience demographics in major
and medium-sized markets located throughout the United States. The Company
regularly explores acquisition opportunities; however, there can be no
assurance that the Company will consummate any acquisitions or be able to
identify stations to acquire in the future. Each acquisition will be subject
to the prior approval of the FCC and certain acquisitions will be subject to
the prior approval of the lenders under the Company's senior credit facility.
Furthermore, as a result of the Recent Legislation, future acquisitions may
be subject to antitrust review by the Antitrust Agencies, even if approved by
the FCC. In addition, the Company may require additional debt or equity
financing to finance properties it may seek to acquire in the future. The
availability of additional acquisition financing cannot be assured, and
depending on the terms of such acquisitions and financings, could be
restricted by the terms of certain debt instruments and preferred stock.
There can be no assurance that any future acquisitions will be successfully
integrated into the Company's operations or that such acquisitions will not
have a material adverse effect on the Company's financial condition and
results of operations. See "--Extensive Regulation of Radio Broadcasting" and
"--Risks Associated with Integration of the Stations."
COMPETITION
The radio broadcasting industry is highly competitive and the Company's
stations are located in highly competitive markets. Each of the Company's
stations competes for audience share and advertising revenue directly with
other FM and AM radio stations, as well as with other media, within its
respective market. The financial results of each of the Company's stations
are dependent to a significant degree upon its audience ratings and its share
of the overall advertising revenue within the station's geographic market.
The Company's audience ratings and market share are subject to change, and
any adverse change in audience rating or market share in any particular
market could have a material and adverse effect on the Company's net
revenues. Although the Company competes with other radio stations with
comparable programming formats in most of its markets, if another station in
the market were to convert its programming format to a format similar to one
of the Company's radio stations, if a new radio station were to adopt a
competitive format, or if an existing competitor were to strengthen its
operations, the Company's stations could suffer a reduction in ratings or
advertising revenue and could require the Company to incur increased
promotional and other expenses. In addition, certain of the Company's
stations compete, and in the future other stations may compete, with groups
of stations in a market operated by a single operator. As a result of the
Recent Legislation, the radio broadcasting industry has
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become increasingly consolidated, resulting in the existence of radio
broadcasting companies which are significantly larger, with greater financial
resources, than the Company. Furthermore, the Recent Legislation will permit
other radio broadcasting companies to enter the markets in which the Company
operates or may operate in the future. Although the Company believes that
each of its stations is able to compete effectively in its market, there can
be no assurance that any of the Company's stations will be able to maintain
or increase its current audience ratings and advertising revenue market
share. The Company's stations also compete with other advertising media such
as newspapers, television, magazines, billboard advertising, transit
advertising and direct mail advertising. Radio broadcasting is also subject
to competition from new media technologies that are being developed or
introduced, such as the delivery of audio programming by cable television
systems or the introduction of digital audio broadcasting. The Company cannot
predict the effect, if any, that any of these new technologies may have on
the radio broadcasting industry.
DEPENDENCE ON ECONOMIC FACTORS
Because the Company derives substantially all of its revenue from the sale
of advertising time, its revenues may be adversely affected by economic
conditions which affect advertisers. In particular, because approximately 75%
of the Company's revenue has generally been derived from local advertisers,
operating results in individual geographic markets will be adversely affected
by local or regional economic downturns. These economic downturns might have
an adverse impact on the Company's financial condition and results of
operations. In addition, revenues of radio stations may be affected by many
other factors, including: (i) the popularity of programming, including
programming such as sports programming where the Company makes long-term
commitments; (ii) regulatory restrictions on types of programming or
advertising; (iii) competition within national, regional or local markets
from programming on other stations or from other media; (iv) loss of market
share to other technologies; and (v) challenges to license renewals.
CONTROL BY MANAGEMENT
As of November 25, 1996, Mr. Sillerman, a Director and the Company's
Executive Chairman, may be deemed to be the beneficial owner of approximately
56.4% of the combined voting power of the Company, and Mr. Sillerman and
other members of the Company's management may be deemed to be the beneficial
owners of approximately 58.1% of the combined voting power of the Company.
The Class A Common Stock has one vote per share on all matters, whereas
the Class B Common Stock, par value $.01 per share ("Class B Common Stock"),
has ten votes per share except in certain matters. Accordingly, management
currently is able to control the vote on all matters except (i) in the
election of directors, with respect to which the holders of the Class A
Common Stock are entitled to elect, by a class vote, two-sevenths (2/7ths) of
the Company's directors (or if such number of directors is not a whole
number, the next higher whole number), (ii) in connection with any proposed
"going private" transaction between the Company and Mr. Sillerman or his
affiliates, with respect to which the holders of the Class A Common Stock and
the Class B Common Stock vote as a single class, with each share of Class A
Common Stock and of Class B Common Stock entitled to one vote per share and
(iii) as otherwise provided by law. In addition, if dividends on the 6-1/2%
Series D Cumulative Convertible Exchangeable Preferred Stock due May 31, 2007
("Series D Preferred Stock") are unpaid in an aggregate amount equal to six
full quarterly dividends and in certain other circumstances, the holders of
the Series D Preferred Stock, will be entitled to elect two additional
members of the Board of Directors of the Company. The control of the Company
by management may have the effect of discouraging certain types of
change-of-control transactions, including transactions in which the holders
of capital stock of the Company might otherwise receive a premium for their
shares over the then-current market price.
POTENTIAL CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES
Mr. Sillerman and other members of the Company's management have direct
and indirect investments and interests in Triathlon Broadcasting Company
("Triathlon"), a publicly-traded company which owns and operates radio
stations, including stations which are in the same market as certain of the
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Company's radio stations. These investments and interests (and any similar
investments and interests in the future) may give rise to certain conflicts
of interest as well as to potential attribution under FCC rules or invocation
of the FCC's cross-interest policy, which could restrict the Company's
ability to acquire radio stations in certain markets. See "--Extensive
Regulation of Radio Broadcasting." Pursuant to a consulting and marketing
agreement with Triathlon, Sillerman Communications Management Corporation
("SCMC"), an affiliate of Mr. Sillerman and Howard J. Tytel, a Director and
Executive Vice President of the Company, is obligated to offer to Triathlon
any radio broadcasting opportunities that come to its attention in medium and
small markets located west of the Mississippi River. The Company does not
intend to pursue acquisitions in the medium and small markets in the Midwest
and Western regions of the United States on which Triathlon primarily
focuses, except for three radio stations owned by the Company in the Wichita,
Kansas market, a market in which Triathlon has radio station ownership
interests. The Company has entered into a JSA with Triathlon whereby
Triathlon sells advertising time on the Company's stations operating in the
Wichita market. On April 15, 1996, the Company and SCMC entered into an
agreement (the "SCMC Termination Agreement"), pursuant to which SCMC assigned
to the Company its rights to receive fees for consulting and marketing
services payable by Triathlon, except for fees relating to certain
transactions pending at the date of such agreement, and the Company and SCMC
terminated an arrangement pursuant to which SCMC performed financial
consulting services for the Company.
SCMC has acted from time to time as the Company's financial advisor since
the Company's inception. SCMC is controlled by Mr. Sillerman, and Messrs.
Sillerman and Tytel are officers and directors of SCMC. SCMC acts in similar
capacities for Triathlon, which may seek to participate in business
opportunities which may be suitable for the Company.
RELIANCE ON KEY PERSONNEL
The Company's business is dependent to a significant extent upon the
performance of certain key individuals, including Mr. Sillerman, Michael G.
Ferrel and D. Geoffrey Armstrong. The Company has entered into a five-year
employment agreement with each of Messrs. Sillerman and Armstrong, effective
as of April 1, 1995. It is anticipated that the Company will enter into an
employment agreement with Mr. Ferrel. There can be no assurance that the
services of Messrs. Sillerman, Ferrel or Armstrong will continue to be
provided for the term of such agreements. Pursuant to Mr. Armstrong's
employment agreement, he has the right to terminate the agreement under
certain circumstances, entitling him to receive substantial payments. Messrs.
Sillerman's and Armstrong's employment agreements require that they devote
substantially all of their business time to the business and affairs of the
Company, except that Mr. Sillerman's agreement permits him to fulfill his
obligations as a director and officer of companies in which he currently
serves in such capacities and to devote a portion of his business time to
personal, non-broadcast investments or commitments or to certain broadcast
investments. The loss of the services of Messrs. Sillerman, Armstrong or
Ferrel could have a material adverse effect on the Company.
In addition, the Company has entered into employment agreements with
certain of the high-profile on-air personalities. However, there can be no
assurance that the Company will be able to retain any of these employees or
prevent them from competing with the Company in the event of their departure.
NO TRANSFER OF CAPITAL STOCK TO ALIENS
The Company's Restated Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), restricts the ownership, voting and transfer
of the Company's capital stock in accordance with the Communications Act of
1934, as amended (the "Communications Act"), and the rules of the FCC to
prohibit ownership of more than 25% of the Company's outstanding capital
stock, or more than 25% of the voting rights it represents (this percentage,
however, is 20% in the case of those subsidiaries of the Company that are
direct holders of FCC licenses), by or for the account of non-U.S. citizens
or their representatives or a foreign government or a representative thereof
or a corporation organized under the laws of a foreign country ("Aliens") or
corporations otherwise subject to domination or control by Aliens. As of
November 25, 1996, based upon reports filed with the Commission, the Company
believes that there are 1,071,429 shares of Class A Common Stock held by
Nomura Holdings America, Inc. ("Nomura"),
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representing 13.3% of the outstanding shares of Class A Common Stock and 5.7%
of the combined voting power of the Company. Because a substantial portion of
the common stock of Nomura is owned and voted by Aliens, the Company, in
order to comply with the requirements of the Communications Act and the rules
and regulations of the FCC promulgated thereunder, may decide not to permit
or recognize any issuance or transfer of its common stock to an Alien.
Failure to comply with these rules and regulations could result in the
imposition of penalties on the Company. This restriction on transfers to
Aliens may adversely affect the market for the Company's securities. In
addition, the Certificate of Incorporation provides that shares of capital
stock of the Company determined by the Board of Directors to be owned
beneficially by an Alien shall always be subject to redemption by the Company
by action of the Board of Directors to the extent necessary, in the judgment
of the Board of Directors, to comply with the alien ownership restrictions of
the Communications Act, and the FCC rules and regulations. See "Description
of Equity Securities--Certain Provisions of Certificate of Incorporation,
Bylaws and Statute--Foreign Ownership."
THE COMPANY
The Company is one of the largest radio station groups in the United
States and, as of November 25, 1996, owns and operates, provides programming
to or sells advertising on behalf of 69 radio stations in 20 markets. The
Company is diverse in terms of format and geographic markets. The Company was
organized in 1992 by Mr. Sillerman, the Executive Chairman and principal
stockholder of the Company, along with others. The principal executive
offices of the Company are located at 150 East 58th Street, 19th Floor, New
York, New York 10155 and its telephone number is (212) 407-9191.
USE OF PROCEEDS
Except as otherwise set forth in a Prospectus Supplement, the net proceeds
from the sale of the Securities will be used for future acquisitions (some of
which may already be contemplated) and other general corporate purposes,
including working capital, the repayment of existing debt and/or the
repurchase of securities of the Company. The precise amounts and timing of
the application of such net proceeds for such purposes will depend upon a
variety of factors, including the Company's funding requirements and the
availability of alternative sources of funding. The Company routinely reviews
acquisition opportunities. Any proposal to use proceeds from any offering of
Securities will be disclosed in the Prospectus Supplement relating to such
offering.
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth the Company's ratios (deficiencies) of
earnings to fixed charges and earnings to combined fixed charges and
preferred stock dividends for each of the periods set forth below.
<TABLE>
<CAPTION>
NINE MONTHS ENDED FISCAL YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
----------------------- -------------------------------------------
1996 1995 1995 1994 1993 1992
----------- ---------- ---------- ------ ----------- ----------
(ALL AMOUNTS, EXCEPT RATIOS, IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Ratio (Deficiency) of Earnings to Fixed
Charges ............................... $(30,084) $(3,802) $(4,396) 1.3x $(14,919) $(2,208)
Ratio (Deficiency) of Earnings to
Combined Fixed Charges and Preferred
Stock Dividends ....................... (33,635) (4,021) (4,687) 1.3x (15,476) (2,593)
</TABLE>
For purposes of computing the ratio (deficiency) of earnings to fixed
charges and the ratio of earnings to combined fixed charges and preferred
stock dividends, "earnings" consist of pretax income from continuing
operations plus fixed charges (excluding capitalized interest). "Fixed
charges" represent interest incurred (whether expensed or capitalized),
amortization of debt expense, and that portion of rental expense on operating
leases deemed to be the equivalent of interest.
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DESCRIPTION OF DEBT SECURITIES
GENERAL
Debt Securities Offered
Debt Securities may be issued from time to time under one or more
indentures, each dated as of a date on or prior to the issuance of the Debt
Securities to which it relates. Senior Debt Securities and Subordinated Debt
Securities may be issued pursuant to separate indentures (respectively, a
"Senior Indenture" and a "Subordinated Indenture"), in each case between the
Company and a trustee (a "Trustee"), which may be the same Trustee, and in
the form that has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part, subject to such amendments or supplements as
may be adopted from time to time. The Senior Indenture and the Subordinated
Indenture, as amended or supplemented from time to time, are sometimes
referred to individually as an "Indenture" and collectively as the
"Indentures." Each Indenture will be subject to and governed by the Trust
Indenture Act of 1939, as amended (the "TIA"). The statements made hereunder
relating to the Debt Securities and the Indentures are summaries of the
anticipated provisions thereof, do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, all of the
provisions of the applicable Indenture, including the definitions therein of
certain terms and those terms made part of such Indenture by reference to the
TIA, as in effect on the date of such Indenture, and to such Debt Securities.
Copies of the forms of the Indentures are filed as exhibits to the
Registration Statement of which this Prospectus is a part. See "Available
Information." Certain capitalized terms used below and not defined have the
respective meanings assigned to them in the applicable Indenture.
Existing Indebtedness
Certain of the Company's existing debt instruments impose, and future debt
instruments may impose, certain restrictions on the Company, including
restrictions on the payment of dividends, incurrence of debt and consummation
of certain acquisitions and dispositions, and require the Company to maintain
certain financial ratios. The Company's 10 3/4% Senior Subordinated Notes Due
2006 (the "1996 Notes") are general unsecured obligations of the Company and
are subordinated in right of payment to certain other debt of the Company.
The indenture governing the 1996 Notes contains certain covenants which
restrict the ability of the Company to make certain payments, incur
additional indebtedness, pay dividends, make other distributions, incur
certain liens, merge, consolidate, transfer substantially all of its assets,
enter into certain transactions with affiliates, engage in sale and leaseback
transactions, issue or sell capital stock of a subsidiary and engage in
certain business activities. As of November 25, 1996, the Company has
outstanding $450.0 million in aggregate principal amount of 1996 Notes.
The Company's senior credit facility, as in effect on November 25, 1996,
provides the Company with the ability to borrow up to $225.0 million under
certain circumstances. The senior credit facility is secured by a pledge of
all of the capital stock of the Company's subsidiaries and by a security
interest in substantially all of the assets of the Company and its
subsidiaries. Certain covenants in the senior credit facility restrict the
Company's ability to make offerings of equity or debt securities, pay
dividends, consolidate, merge, effect certain asset sales and enter new lines
of business. In addition, the Company is obligated to comply with certain
financial ratios. Borrowings under the senior credit facility bear interest
at a variable rate. As of November 25, 1996, the Company has outstanding
borrowings under the senior credit facility of $15.0 million, which currently
bear interest at an annual rate of 9.75%.
TERMS
The Debt Securities will be unsecured obligations of the Company. The
Indebtedness (as such term is defined in the applicable Prospectus
Supplement) represented by (i) Senior Debt Securities will rank pari passu in
right of payment with all other unsecured and unsubordinated Indebtedness of
the Company and (ii) Subordinated Debt Securities will be subordinated in
right of payment to the prior payment in full of all Senior Debt of the
Company. See "--Ranking." The particular terms of the Debt Securities offered
by a Prospectus Supplement will be described in such Prospectus Supplement,
along with any applicable modifications of or additions to the general terms
of the Debt Securities as described herein and in the
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applicable Indenture and any applicable United States federal income tax
considerations. Accordingly, for a description of the terms of any series of
Debt Securities, reference must be made to both the Prospectus Supplement
relating thereto and the description of the Debt Securities set forth in this
Prospectus.
Each Indenture will provide for the issuance by the Company from time to
time of its Debt Securities in one or more series. The aggregate principal
amount of Debt Securities which may be issued under each Indenture will be
unlimited and each Indenture will set forth the specific terms of any series
of Debt Securities or provide that such terms shall be set forth in, or
determined pursuant to, an authorizing resolution and/or a supplemental
indenture, if any, relating to such series.
The specific terms of each series of Debt Securities will be set forth in
the applicable Prospectus Supplement relating thereto, including, without
limitation, the following, as applicable:
1. the title of such Debt Securities (which shall distinguish the Debt
Securities of that particular series from securities of any other series) and
whether such Debt Securities are Senior Debt Securities or Subordinated Debt
Securities;
2. the aggregate principal amount of such Debt Securities and any limit on
such aggregate principal amount that may be authenticated and delivered under
an Indenture;
3. the price or prices (expressed as a percentage of the principal amount
thereof) at which such Debt Securities will be issued and, if other than the
principal amount thereof, the portion of the principal amount thereof payable
upon declaration of acceleration of the maturity thereof, or, if applicable,
the portion of the principal amount of such Debt Securities that is
convertible into Class A Common Stock or the method by which any such portion
shall be determined;
4. if convertible into Class A Common Stock, the terms on which such Debt
Securities are convertible, including the initial conversion price, the
conversion period, any events requiring an adjustment of the applicable
conversion price and any requirements relating to the reservation of such
shares of Class A Common Stock for purposes of conversion;
5. the date or dates on which the principal of such Debt Securities will
be payable and, if applicable, the terms on which such maturity may be
extended;
6. the rate or rates (which may be fixed or variable) at which such Debt
Securities will bear interest, if any;
7. the date or dates from which any such interest will accrue, the dates
on which any such interest will be payable, the record dates for such
interest payment dates, the persons to whom such interest shall be payable,
and the basis upon which interest shall be calculated if other than that of a
360-day year of twelve 30-day months;
8. the place or places where the principal of and interest, if any, on
such Debt Securities will be payable, where such Debt Securities may be
surrendered for registration of transfer, conversion or exchange and where
notices or demands to or upon the Company in respect of such Debt Securities
and the applicable Indenture may be served;
9. the period or periods, if any, within which, the price or prices at
which and the other terms and conditions upon which such Debt Securities may,
pursuant to any optional or mandatory redemption provisions, be redeemed, as
a whole or in part, at the option of the Company;
10. the dates, if any, on which, and the price or prices at which, the
Debt Securities of the series will be repurchased by the Company at the
option at the Holders thereof and other detailed terms and provisions of such
repurchase obligations;
11. the denominations in which the Debt Securities of the series shall be
issuable;
12. the obligation, if any, of the Company to redeem, repay or purchase
such Debt Securities pursuant to any Sinking Fund (as defined in the
applicable Indenture) or analogous provision or at the option of a holder
thereof, and the period or periods within which, the price or prices at which
and the other terms and conditions upon which such Debt Securities will be
redeemed, repaid or purchased, as a whole or in part, pursuant to such
obligations;
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13. whether the payments of principal of or interest, if any, on such Debt
Securities may be determined with reference to an index, formula or other
method and the manner in which such amounts shall be determined;
14. whether the Debt Securities are issued at a discount below their
principal amount and provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity
thereof ("Original Issue Discount Debt Securities") and material United
States federal income tax, accounting and other considerations applicable to
such Original Issue Discount Debt Securities;
15. whether the interest, if any, on the Debt Securities is to be payable,
at the election of the Company or a holder thereof, in cash or additional
Debt Securities of such series ("PIK Debt Securities") and the period or
periods within which, and the terms and conditions upon which, such election
may be made, and material United States federal income tax, accounting and
other considerations applicable to such PIK Debt Securities;
16. provisions, if any, granting special rights to the holders of Debt
Securities of any series upon the occurrence of such events as may be
specified;
17. any deletions from, modifications of or additions to the Events of
Default (as defined below) of the Company with respect to Debt Securities of
any series, whether or not such Events of Default are consistent with the
Events of Default described herein;
18. whether Debt Securities of any series are to be issuable initially in
temporary global form and whether any Debt Securities of any series are to be
issuable in permanent global form and, if so, whether beneficial owners of
interests in any such security in permanent global form may exchange such
interests for Debt Securities of such series and of like tenor of any
authorized form and denomination and the circumstances under which any such
exchanges may occur, if other than in the manner provided in the applicable
Indenture, and, if Debt Securities of the series are to be issuable as a
Global Debt Security (as defined below), the identity of the depository for
such series;
19. the applicability, if any, of the legal defeasance and covenant
defeasance provisions of the applicable Indenture to the Debt Securities of
such series;
20. any additions to or changes in the covenants set forth herein that
apply to Debt Securities of the series; and
21. any other terms of the series (which terms shall not be inconsistent
with the provisions of the Indenture under which the Debt Securities are
issued).
Reference is made to the applicable Prospectus Supplement for information
with respect to any deletions from, modifications of or additions to the
Events of Default or covenants of the Company that are described below,
including any addition of a covenant or other provision providing event risk
or similar protection.
PRINCIPAL, MATURITY AND INTEREST
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of each series will be issued only in registered form,
without coupons, in all appropriate denominations as may be set forth in the
applicable Indenture or specified in, or pursuant to, an authorizing
resolution and/or supplemental indenture, if any, relating to such series of
Debt Securities.
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
any authorized denomination of other Debt Securities of the same series and
of a like aggregate principal amount and tenor upon surrender of such Debt
Securities at the corporate trust office of the applicable Trustee or at the
office of any registrar designated by the Company for such purpose. In
addition, subject to certain limitations imposed upon Debt Securities issued
in book-entry form, the Debt Securities of any series may be surrendered for
registration of transfer or exchange thereof at the corporate trust office of
the applicable Trustee or at the office of any
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registrar designated by the Company for such purpose. No service charge will
be made for any registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection with certain transfers and exchanges. The
Company may change any registrar without notice.
RANKING
Senior Debt Securities
The Senior Debt Securities will constitute unsecured senior obligations of
the Company and will rank pari passu in right of payment with all other
unsecured senior obligations of the Company. However, the Senior Debt
Securities will be effectively subordinated in right of payment to all
secured Indebtedness of the Company to the extent of the value of the assets
securing such Indebtedness and will be effectively subordinated to all
indebtedness and other liabilities (including trade payables) of the
Company's Subsidiaries. In addition, substantially all of the assets of the
Company are owned by its subsidiaries. Therefore, the Company's rights and
the rights of its creditors, including holders of Debt Securities, to
participate in the assets of any Subsidiary upon the Subsidiary's liquidation
or recapitalization will be subject to the prior claims of the Subsidiary's
creditors, including the lenders under the Company's senior credit facilty.
See "Risk Factors--Holding Company Structure; Dependence Upon Operations of
Subsidiaries."
Subordinated Debt Securities
Unless otherwise provided in the applicable Prospectus Supplement, the
payment of principal of, premium on, if any, and interest on any Subordinated
Debt Securities will be subordinated in right of payment, as set forth in the
applicable Subordinated Indenture, to the prior payment in full of all Senior
Debt, whether outstanding on the date of the Subordinated Indenture or
thereafter incurred.
Unless otherwise provided in the applicable Prospectus Supplement, upon
any distribution to creditors of the Company in a liquidation or dissolution
of the Company or in a bankruptcy, reorganization, insolvency, receivership
or similar proceeding relating to the Company or its property, or in an
assignment for the benefit of creditors or any marshalling of Company's
assets and liabilities, the holders of Senior Debt will be entitled to
receive payment in full of principal (and premium, if any) and interest, if
any, due in respect of such Senior Debt (including interest after the
commencement of any such proceeding at the rate specified in the applicable
Senior Debt, whether or not an allowable claim) before the Holders of
Subordinated Debt Securities will be entitled to receive any payment with
respect to the Subordinated Debt Securities; and until the principal (and
premium, if any) and interest, if any, with respect to Senior Debt are paid
in full, any distribution to which the Holders of Subordinated Debt
Securities would be entitled will be made to the Holders of Senior Debt
(except that, in either case, Holders of Subordinated Debt Securities may
receive (i) securities that are subordinated at least to the same extent as
the Subordinated Debt Securities to Senior Debt and any securities issued in
exchange for Senior Debt and (ii) payments made from the trust described
below under "--Legal Defeasance and Covenant Defeasance").
Unless otherwise provided in the applicable Prospectus Supplement, the
Company also may not make any payment upon or in respect of the Subordinated
Debt Securities (except as described above) if (i) a default in the payment
of the principal of, premium, if any, or interest on Designated Senior Debt
(as such term is defined in the applicable Prospectus Supplement) occurs and
is continuing or (ii) any other default occurs and is continuing with respect
to Designated Senior Debt that permits holders of Designated Senior Debt as
to which such default relates to accelerate its maturity and the Trustee
receives a notice of such default (a "Payment Blockage Notice") from the
Company or the holders of any Designated Senior Debt. Payments on the
Subordinated Debt Securities may and shall be resumed (i) in the case of a
payment default, upon the date on which such default is cured or waived and
(ii) in the case of a nonpayment default, the earlier of the date on which
such nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received, unless the maturity
of any Designated Senior Debt has been accelerated. No new period of payment
blockage may be
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commenced unless and until (i) 360 days have elapsed since the effectiveness
of the immediately prior Payment Blockage Notice and (ii) all scheduled
payments of principal of, premium on, if any, and interest on the
Subordinated Debt Securities that have come due have been paid in full. No
nonpayment default that existed or was continuing on the date of delivery of
any Payment Blockage Notice to the Trustee shall be, or be made, the basis
for a subsequent Payment Blockage Notice.
The Subordinated Indenture will further require that the Company promptly
notify the holders of Senior Debt if payment of the Subordinated Debt
Securities is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of Subordinated Debt Securities may
recover less ratably than creditors of the Company who are holders of Senior
Debt or other creditors of the Company who are not subordinated to holders of
Senior Debt. Unless otherwise specified in the applicable Prospectus
Supplement, the Subordinated Indenture will not limit the amount of
additional Indebtedness, including Senior Debt, that the Company and its
Subsidiaries may incur. In addition, substantially all of the assets of the
Company are owned by its subsidiaries. Therefore, the Company's rights and
the rights of its creditors, including holders of Debt Securities, to
participate in the assets of any subsidiary upon the subsidiary's liquidation
or recapitalization will be subject to the prior claims of the subsidiary's
creditors, including the lenders under the Company's senior credit facility.
See "Risk Factors--Holding Company Structure; Dependence Upon Operations of
Subsidiaries."
CONVERSION
The terms and conditions, if any, upon which any series of Debt Securities
will be convertible into Class A Common Stock will be set forth in the
Prospectus Supplement relating thereto. Such terms will include the
conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the Holders of
such series of Debt Securities or at the option of the Company, the events
requiring an adjustment of the conversion price and provisions affecting
conversion in the event of the redemption of such series of Debt Securities.
CERTAIN COVENANTS
The applicable Prospectus Supplement will describe any material covenants
in respect of any series of Debt Securities.
EVENTS OF DEFAULT AND REMEDIES
Unless otherwise provided in the applicable Prospectus Supplement, each
Indenture will provide that each of the following constitutes an "Event of
Default": (i) default for 30 days in the payment when due of interest on any
Debt Securities of such series (whether or not prohibited by the
subordination provisions, if any, of such Indenture); (ii) default in payment
when due of the principal of or premium, if any, on any Debt Securities of
such series (whether or not prohibited by the subordination provisions, if
any, of such Indenture); (iii) failure by the Company to comply with the
certain enumerated covenants and provisions that will be described in the
applicable Prospectus Supplement; (iv) failure by the Company for 60 days
after notice to comply with any of its other agreements in such Indenture or
any Debt Securities of such series; (v) default under any mortgage, indenture
or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company or
any of its Subsidiaries (or the payment of which is guaranteed by the Company
or any of its Subsidiaries) whether such Indebtedness or Guarantee now
exists, or is created after the date of such Indenture, which default (a) is
caused by a failure to pay principal of or premium, if any, or interest on
such Indebtedness prior to the expiration of the grace period provided in
such Indebtedness on the date of such default (a "Payment Default") or (b)
results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates an amount in excess of the amount specified in the
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applicable Prospectus Supplement; (vi) failure by the Company or any of its
Subsidiaries to pay final judgments aggregating in an amount in excess of the
amount specified in the applicable Prospectus Supplement, which judgments are
not paid, discharged or stayed for a period of 60 days; and (vii) certain
events of bankruptcy or insolvency with respect to the Company, any of its
Significant Subsidiaries (as such term is defined in the applicable
Prospectus Supplement) or any group of Subsidiaries that, taken together,
would constitute a Significant Subsidiary.
If any Event of Default with respect to a series of Debt Securities occurs
and is continuing, the Trustee or the Holders of at least 25% in principal
amount of the then outstanding Debt Securities of such series may declare all
the Debt Securities of such series to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising
from certain events of bankruptcy or insolvency with respect to the Company,
any Significant Subsidiary or any group of Subsidiaries that, taken together,
would constitute a Significant Subsidiary, all outstanding Debt Securities
will become due and payable without further action or notice. Holders of any
Debt Securities of a particular series may not enforce the Indenture pursuant
to which they were issued or the applicable Debt Securities except as
provided in such Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Debt Securities of a
particular series may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of the Debt Securities notice of
any continuing Default or Event of Default (except a Default or Event of
Default relating to the payment of principal or interest) if it determines
that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company had elected to redeem any Debt Securities of such
series pursuant to any optional redemption provisions of the Indenture, an
equivalent premium shall also become and be immediately due and payable to
the extent permitted by law upon the acceleration of the Debt Securities. If
an Event of Default occurs prior to certain dates to be designated in the
Indenture by reason of any willful action (or inaction) taken (or not taken)
by or on behalf of the Company with the intention of avoiding the prohibition
on redemption of any Debt Securities of such series prior to such date or
dates, then any premium shall also become immediately due and payable to the
extent permitted by law upon the acceleration of any Debt Securities of such
series.
The Holders of a majority in aggregate principal amount of any Debt
Securities of a particular series then outstanding may by notice to the
Trustee on behalf of the Holders of all of such Debt Securities waive any
existing Default or Event of Default and its consequences under the Indenture
except a continuing Default or Event of Default in the payment of interest
on, or the principal of, any such Debt Securities.
The Company will be required to deliver to the Trustee annually a
statement regarding compliance with the Indenture, and the Company will be
required upon becoming aware of any Default or Event of Default, to deliver
to the Trustee a statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee or stockholder of the Company, as such,
shall have any liability for any obligations of the Company under any Debt
Securities of any series or any Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder
of Debt Securities by accepting a Debt Security waives and releases all such
liability. The waiver and release are part of the consideration for issuance
of the Debt Securities. Such waiver may not be effective to waive liabilities
under the federal securities laws and it is the view of the Commission that
such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise provided in the Prospectus Supplement, the Company may,
at its option and at any time, elect to have all of its obligations
discharged with respect to the outstanding Debt Securities of any series
("Legal Defeasance") except for (i) the rights of Holders of outstanding Debt
Securities of such
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series to receive payments in respect of the principal of, premium, if any,
and interest on such Debt Securities when such payments are due from the
trust referred to below, (ii) the Company's obligations with respect to the
issuance of temporary Debt Securities, registration of Debt Securities,
replacement of mutilated, destroyed, lost or stolen Debt Securities and
maintenance of an office or agency for payment and of money for security
payments held in trust, (iii) the rights, powers, trusts, duties and
immunities of the Trustee, and the Trustee's obligations in connection
therewith and (iv) the Legal Defeasance provisions of the Indenture. In
addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that
are described in the Indenture ("Covenant Defeasance"), and thereafter any
omission to comply with such obligations shall not constitute a Default or
Event of Default with respect to the Debt Securities. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "--Events
of Default and Remedies" will no longer constitute an Event of Default with
respect to the Debt Securities.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders of the Debt Securities to be defeased, cash in U.S.
Dollars, non-callable Government Securities (as such term is defined in the
applicable Prospectus Supplement), or a combination thereof, in such amounts
as will be sufficient, in the opinion of a nationally-recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
interest on the outstanding Debt Securities to be defeased (in the case of
Legal Defeasance) and all Debt Securities (in the case of Covenant
Defeasance) on the stated maturity or on the applicable redemption date, as
the case may be, and the Company must specify whether the Debt Securities are
being defeased to maturity or to a particular redemption date; (ii) in the
case of Legal Defeasance, the Company must deliver to the Trustee an opinion
of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the date of
the Indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the Holders of the outstanding Debt Securities to
be defeased will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, the Company must deliver to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Debt Securities will not
recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred; (iv) no Default or Event
of Default with respect to the series to be defeased shall have occurred and
be continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such deposit)
or, insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date of
deposit (or greater period of time in which any such deposit of trust funds
may remain subject to bankruptcy or insolvency laws insofar as those apply to
the deposit by the Company); (v) such Legal Defeasance or Covenant Defeasance
will not result in a breach or violation of, or constitute a default under,
any material agreement or instrument (other than the Indenture) to which the
Company is a party or by which the Company is bound; (vi) the Company must
have delivered to the Trustee an opinion of counsel to the effect that, as of
the date of such opinion, (A) the trust funds will not be subject to rights
of holders of Indebtedness other than the Debt Securities, and, (B) assuming
no intervening bankruptcy of the Company between the date of deposit and the
91st day following the deposit and assuming no Holder of Debt Securities is
an insider of the Company, after the 91st day following the deposit, the
trust funds will not be subject to the effects of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally under any applicable United States or state law; (vii) the Company
must deliver to the Trustee an Officers' Certificate (as such term is defined
in the applicable Indenture) stating that the deposit was not made by the
Company with the intent of preferring the Holders of Debt Securities over the
other creditors of the Company with the intent of defeating, hindering,
delaying or
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defrauding creditors of the Company or others; and (viii) the Company must
deliver to the Trustee an Officers' Certificate and an opinion of counsel,
each stating that all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
Unless otherwise provided in the Prospectus Supplement, a Holder may
transfer or exchange Debt Securities in accordance with the applicable
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and other government charges
required by law or permitted by the applicable Indenture. The Company is not
required to transfer or exchange any Debt Security selected for redemption.
Also, the Company is not required to transfer or exchange any Debt Security
for a period of 15 days before a selection of Debt Securities to be redeemed.
AMENDMENT, SUPPLEMENT AND WAIVER
Unless otherwise provided in the Prospectus Supplement and except as
provided in the next two succeeding paragraphs, the Indenture or the Debt
Securities may be amended or supplemented with the consent of the Holders of
at least a majority in principal amount of such Debt Securities then
outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, Debt Securities),
and any existing default or compliance with any provision of the Indenture or
the Debt Securities may be waived with the consent of the Holders of a
majority in principal amount of such then-outstanding Debt Securities
(including consents obtained in connection with a purchase of, or tender
offer or exchange offer for, such Debt Securities).
Without the consent of each Holder affected, an amendment or waiver may
not (with respect to any Debt Securities held by a non-consenting Holder):
(i) reduce the principal amount of Debt Securities whose Holders must consent
to an amendment, supplement or waiver, (ii) reduce the principal of or change
the fixed maturity of any Debt Security or alter the provisions with respect
to the redemption of the Debt Securities (other than provisions relating to
repurchase at the option of the holder), (iii) reduce the rate of or change
the time for payment of interest on any Debt Security, (iv) waive a Default
or Event of Default in the payment of principal of or premium, if any, or
interest on the Debt Securities (except a rescission of acceleration of a
particular series of Debt Securities by the Holders of at least a majority in
aggregate principal amount of the outstanding Debt Securities of such series
and a waiver of the payment default that resulted from such acceleration),
(v) make any Debt Security payable other than as stated in the Debt
Securities, (vi) make any change in the provisions of the applicable
Indenture relating to waivers of past Defaults or the rights of Holders of
Debt Securities to receive payments of principal of or premium, if any, or
interest on the Debt Securities, (vii) waive a redemption payment with
respect to any Debt Security (other than a payment required pursuant to a
repurchase at the option of the holder) or (viii) make any change in the
foregoing amendment and waiver provisions. In addition, any amendment to (a)
any provisions of the applicable Indenture which relate to subordination and
(b) the any covenants relating to a repurchase at the option of the holder
including, in each case, the related definitions, will require the consent of
the Holders of at least 75% in aggregate principal amount of the Debt
Securities of such series then outstanding if such amendment would adversely
affect the rights of Holders of Debt Securities of such series.
Notwithstanding the foregoing, without the consent of any Holder of Debt
Securities, the Company and the Trustee may amend or supplement the Indenture
or the Debt Securities to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Debt Securities in addition to or in place of
certificated Debt Securities, to provide for the assumption of the Company's
obligations to Holders of Debt Securities in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the Holders of Debt Securities or that does not adversely affect
the legal rights under the Indenture of any such Holder, or to comply with
requirements of the Commission in order to maintain the qualification of the
Indenture under the TIA.
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THE TRUSTEE
The Trustee for each series of Debt Securities will be identified in the
applicable Prospectus Supplement. Each Indenture will contain certain
limitations on the right of a Trustee thereunder, as a creditor of the
Company, to obtain payment of claims in certain cases, or to realize on
certain property received in respect of any such claim as security or
otherwise.
The holders of a majority in principal amount of all outstanding Debt
Securities of a series (or if more than one series is affected thereby, of
all series so affected, voting as a single class) will have the right to
direct the time, method and place of conducting any proceeding for exercising
any remedy or power available to the Trustee for such series.
In case an Event of Default shall occur (and shall not be cured) under any
Indenture relating to a series of Debt Securities and is known to the Trustee
under such Indenture, such Trustee shall exercise such of the rights and
powers vested in it by such Indenture and use the same degree of care and
skill in its exercise as a prudent person would exercise or use under the
circumstances in the conduct of his own affairs. Subject to such provisions,
no Trustee will be under any obligation to exercise any of its rights or
powers under the applicable Indenture at the request of any of the Holders of
Debt Securities unless they shall have offered to such Trustee security and
indemnity satisfactory to it.
GOVERNING LAW
Unless otherwise stated in the applicable Prospectus Supplement, the
Indenture and the Debt Securities will be governed by the laws of the State
of New York.
BOOK-ENTRY, DELIVERY AND FORM
The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a global Debt
Security (the "Global Debt Security") will be described in the Prospectus
Supplement relating to that series. The Company anticipates that the
following provisions will apply to all depositary arrangements.
Any such Global Debt Security will be deposited on the date of the closing
of the sale of such series of Debt Securities (each, a "Closing Date") with,
or on behalf of, The Depositary Trust Company (the "Depositary") and
registered in the name of Cede & Co., as nominee of the Depositary (such
nominee being referred to herein as the "Global Debt Security Holder").
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers, banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively,
the "Indirect Participants" or the "Depositary's Indirect Participants") that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly. Persons who are not Participants may beneficially own
securities held by or on behalf of the Depositary only through the
Depositary's Participants or the Depositary's Indirect Participants.
Unless otherwise provided in the Prospectus Supplement, the Company
expects that pursuant to procedures established by the Depositary (i) upon
deposit of the Global Debt Security, the Depositary will credit the accounts
of Participants designated by the underwriters, if any, with portions of the
principal amount of the Global Debt Security and (ii) ownership of the Debt
Securities evidenced by the Global Debt Security will be shown on, and the
transfer of ownership thereof will be effected only through, records
maintained by the Depositary (with respect to the interests of the
Depositary's Participants), the Depositary's Participants and the
Depositary's Indirect Participants. Prospective purchasers are advised that
the laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer Debt Securities evidenced by the Global Debt Security will be
limited to such extent.
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So long as the Global Debt Security Holder is the registered owner of any
Debt Securities, the Global Debt Security Holder will be considered the sole
Holder under the Indenture of any series of Debt Securities evidenced by such
Global Debt Security. Beneficial owners of Debt Securities evidenced by such
Global Debt Security will not be considered the owners or Holders thereof
under the Indenture for any purpose, including with respect to the giving of
any directions, instructions or approvals to the Trustee thereunder. Neither
the Company nor the Trustee will have any responsibility or liability for any
aspect of the records of the Depositary or for maintaining, supervising or
reviewing any records of the Depositary relating to the Debt Securities.
Payments in respect of the principal of, premium, if any, and interest on
any Debt Securities registered in the name of the Global Debt Security Holder
on the applicable record date will be payable by the Trustee to or at the
direction of the Global Debt Security Holder in its capacity as the
registered Holder under the Indenture. Under the terms of the Indenture, the
Company and the Trustee may treat the persons in whose names Debt Securities,
including the Global Debt Security, are registered as the owners thereof for
the purpose of receiving such payments. Consequently, neither the Company nor
the Trustee has or will have any responsibility or liability for the payment
of such amounts to beneficial owners of Debt Securities. The Depositary will
credit accounts of the relevant Participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant security as shown on the records of the Depositary. Payments by the
Depositary's Participants and the Depositary's Indirect Participants to the
beneficial owners of Debt Securities will be governed by standing
instructions and customary practice and will be the responsibility of the
Depositary's Participants or the Depositary's Indirect Participants.
Certificated Securities
Unless otherwise provided in the Prospectus Supplement, subject to certain
conditions, any person having a beneficial interest in the Global Debt
Security may, upon request to the Trustee, exchange such beneficial interest
for Debt Securities in the form of a definitive registered certificate
("Certificated Securities"). Upon any such issuance, the Trustee is required
to register such Certificated Securities in the name of, and cause the same
to be delivered to, such person or persons (or the nominee of any thereof).
In addition, if (i) the Company notifies the Trustee in writing that the
Depositary is no longer willing or able to act as a depositary and the
Company is unable to locate a qualified successor within 90 days or (ii) the
Company, at its option, notifies the Trustee in writing that it elects to
cause the issuance of Debt Securities in the form of Certificated Securities
under the Indenture, then, upon surrender by the Global Debt Security Holder
of its Global Debt Security, Debt Securities in such form will be issued to
each person that the Global Debt Security Holder and the Depositary identify
as being the beneficial owner of the related Debt Securities.
Neither the Company nor the Trustee will be liable for any delay by the
Global Debt Security Holder or the Depositary in identifying the beneficial
owners of Debt Securities and the Company and the Trustee may conclusively
rely on, and will be protected in relying on, instructions from the Global
Debt Security Holder or the Depositary for all purposes.
Same-Day Settlement and Payment
Unless otherwise provided in the Prospectus Supplement, the Indenture will
require that payments in respect of the Debt Securities (excluding non-cash
payments in respect of PIK Debt Securities) represented by the Global Debt
Security (including principal, premium, if any, and interest) be made by wire
transfer of immediately available funds to the accounts specified by the
Global Debt Security Holder. Any series of Debt Securities represented by the
Global Debt Security are expected to trade in the Depositary's Same-Day Funds
Settlement System, and any permitted secondary market trading activity in
such Debt Securities will, therefore, be required by the Depositary to be
settled in immediately available funds. The Company expects that any
secondary trading in the Certificated Securities will also be settled in
immediately available funds.
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DESCRIPTION OF EQUITY SECURITIES
GENERAL
The Certificate of Incorporation provides that the aggregate number of
shares of all classes of stock that the Company has authority to issue is
121,210,000 shares, consisting of 111,200,000 shares of common stock, par
value $.01 per share, and 10,010,000 shares of preferred stock, par value
$.01 per share. The Company's authorized shares of common stock consist of
100,000,000 shares of Class A Common Stock, 10,000,000 shares of Class B
Common Stock and 1,200,000 shares of Class C Common Stock, par value $.01 per
Share ("Class C Common Stock"). Of the Company's 10,010,000 authorized shares
of preferred stock, 4,000 shares have been designated as Series B Redeemable
Preferred Stock ("Series B Preferred Stock"), 2,000 shares have been
designated as Series C Redeemable Convertible Preferred Stock ("Series C
Preferred Stock") and 2,990,000 shares have been designated as 6 1/2% Series
D Cumulative Convertible Exchangeable Preferred Stock due May 31, 2007
("Series D Preferred Stock").
As of November 25, 1996, the issued and outstanding common stock and
preferred stock of the Company was approximately as follows:
<TABLE>
<CAPTION>
NUMBER OF
CLASS OF STOCK SHARES
- ------------------------ -----------
<S> <C>
Series B Preferred Stock 1,000
Series C Preferred Stock 2,000
Series D Preferred Stock 2,990,000
Class A Common Stock ... 8,063,347
Class B Common Stock ... 1,064,936
</TABLE>
All issued and outstanding shares are fully-paid and non-assessable.
The shares of Series B Preferred Stock are entitled to a liquidation
preference of $1,000 per share, ranking senior to the Company's common stock,
and are not entitled to receive dividends or to vote, except as otherwise
required by law. The Company is obligated to redeem the outstanding shares of
Series B Preferred Stock in October 1997 at a price per share equal to the
liquidation preference.
The shares of Series C Preferred Stock are entitled to a liquidation
preference of $1,000 per share and cumulative annual dividends of 6.0% of
their liquidation preference, as to both of which they rank senior to the
Company's common stock and the Series B Preferred Stock. The Series C
Preferred Stock does not have any voting rights, except as otherwise required
by law. The Company is entitled to redeem the Series C Preferred Stock prior
to September 1998, and the holders of Series C Preferred Stock are entitled
after September 2000 to cause the Company to purchase their Series C
Preferred Stock in whole or in part, at a price per share equal to the
liquidation preference, plus accrued and unpaid dividends. If an event of
default under the Certificate of Designations of the Series C Preferred Stock
occurs and is not timely cured, the holders of Series C Preferred Stock may
convert their shares into a number of shares of Class A Common Stock equal to
the quotient of (i) the number of shares of Series C Preferred Stock then
outstanding, divided by (ii) 75% of the average closing bid and ask price per
share of Class A Common Stock for the immediately prior 30-day period.
The shares of Series D Preferred Stock are entitled to a liquidation
preference of $50 per share and cumulative annual dividends of 6.5% of their
liquidation preference, as to both of which they rank senior to the Company's
common stock, the Series B Preferred Stock and the Series C Preferred Stock.
The Series D Preferred Stock does not have any voting rights, except as
required by law and except that, upon the Company's failure to meet certain
obligations to the holders of Series D Preferred Stock, the holders thereof
will be entitled to elect two additional members to the Company's Board of
Directors. The Series D Preferred Stock is subject to mandatory redemption in
May 2007, at a price per share equal to the liquidation preference, plus
accrued and unpaid dividends. The Series D Preferred Stock is redeemable at
the Company's option after June 1999 at the redemption prices set forth in
the Certificate of Designations of the Series D Preferred Stock. The holders
of Series D Preferred Stock may convert each such share into 1.0987 shares of
Class A Common Stock at any time prior to their redemption. At the
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Company's option, the Series D Preferred Stock is exchangeable into 6 1/2%
Convertible Subordinated Exchange Notes due 2007, which will contain
substantially the same terms, covenants and conditions as the Series D
Preferred Stock, as well as customary events of default provisions. Upon a
Change of Control (as defined in the Certificate of Designations of the
Series D Preferred Stock), the holders of Series D Preferred Stock may,
subject to certain conditions and restrictions, require the Company to
repurchase their shares at 101% of their liquidation preference, plus accrued
and unpaid dividends, payable in cash or in shares of Class A Common Stock.
The Certificate of Designations of the Series D Preferred Stock contains
certain convenants which, among other things, limit the ability of the
Company and its subsidiaries to engage in transactions with their affiliates.
PREFERRED STOCK
Terms
The following description of the Preferred Stock summarizes certain
general terms and provisions of each series of Preferred Stock to which any
Prospectus Supplement may relate. Certain other terms of a particular series
of Preferred Stock will be summarized in the Prospectus Supplement relating
to such series. The summaries of the terms of the Preferred Stock below and
in any Prospectus Supplement do not, and will not, purport to be complete and
are subject to, and qualified in their entirety by reference to, the
Company's Certificate of Incorporation (as it may be amended from time to
time) and the certificate of designations establishing a series of Preferred
Stock (each, a "Certificate of Designations"), which will be filed with the
Commission as an exhibit to or incorporated by reference in the Registration
Statement of which this Prospectus forms a part, at or prior to the time of
the issuance of such series of Preferred Stock.
The Board of Directors is authorized (without further stockholder action)
to provide for issuance of the Preferred Stock of the Company from time to
time, in one or more series, and to fix the dividend rate, conversion or
exchange rights, voting rights, terms of redemption, redemption price or
prices, liquidation preferences and qualifications, limitations and
restrictions thereof with respect to each series.
An applicable Prospectus Supplement will set forth or describe other
specific terms regarding each series of Preferred Stock offered thereby,
including, without limitation:
1. the title and stated value of such Preferred Stock;
2. the number of shares of such Preferred Stock offered, the liquidation
preference per share and the initial offering price of such Preferred Stock;
3. the dividend rate, period and/or payment date applicable to such
Preferred Stock;
4. the date from which dividends on such Preferred Stock shall accumulate,
if applicable;
5. whether the shares of Preferred Stock may be issued at a discount below
their liquidation preference ("Original Issue Discount Preferred Stock"), and
material United States federal income tax, accounting and other
considerations applicable to Original Issue Discount Preferred Stock.
6. whether the dividends, if any, on the Preferred Stock are to be
payable, at the election of the Company or a holder thereof, in cash or in
additional shares of Preferred Stock ("PIK Preferred Stock") and the period
or periods within which, and the terms and conditions upon which, such
election may be made, and material United States federal income tax,
accounting and other considerations applicable to such PIK Preferred Stock;
7. the provision for a sinking fund, if any, for such Preferred Stock;
8. the provision for redemption, if applicable, of such Preferred Stock;
9. any listing of such Preferred Stock on any securities exchange or any
quotation on an automated quotation system;
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10. the terms and conditions, if applicable, upon which such Preferred
Stock will be convertible into Class A Common Stock or exchangeable for Debt
Securities, including the conversion price or exchange rate, as the case may
be (or the manner of calculation thereof);
11. a discussion of federal tax considerations applicable to such
Preferred Stock;
12. the relative ranking and preference of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of the
affairs of the Company;
13. any limitations on issuance of any series of Preferred Stock ranking
senior to or on a parity with such series or Preferred Stock as to dividend
rights and rights upon liquidation, dissolution or winding up of the affairs
of the Company;
14. the voting powers, if any, of such Preferred Stock, in addition to
those set forth below; and
15. any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock.
The Preferred Stock will have no preemptive rights. All of the Preferred
Stock, upon payment in full therefor, will be fully-paid and nonassessable.
Dividends
Unless otherwise set forth in an applicable Prospectus Supplement, the
holders of the Preferred Stock of each series shall be entitled to receive,
when, as and if declared by the Board of Directors of the Company, out of the
funds of the Company legally available therefor, dividends at such rate and
on such dates and on such terms as shall be set forth in the Prospectus
Supplement relating to such series. Different series of the Preferred Stock
may be entitled to dividends at different rates or based upon different
methods of determination. Such rate may be fixed or variable or both. Each
such dividend will be payable to the holders of record as they appear on the
stock books of the Company on such record dates as will be fixed by the Board
of Directors of the Company or a duly authorized committee thereof. Dividends
on any series of the Preferred Stock may be cumulative or noncumulative, as
provided in the Prospectus Supplement relating thereto.
Ranking
The Preferred Stock to which any Prospectus Supplement may relate, except
as set forth in such Prospectus Supplement, will rank junior in right of
payment to the Series D Preferred Stock of the Company as to dividends and
upon liquidation, dissolution or winding up of the Company. The Preferred
Stock will rank senior in right of payment to the Company's common stock as
to dividends and upon liquidation, dissolution or winding up of the Company,
except as set forth in the Prospectus Supplement relating thereto.
Conversion
The terms and conditions, if any, upon which any series of Preferred Stock
will be convertible into Class A Common Stock will be set forth in the
Prospectus Supplement relating thereto. Such terms will include the
conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of
such series of Preferred Stock or at the option of the Company, the events
requiring an adjustment of the conversion price and provisions affecting
conversion in the event of the redemption of such series of Preferred Stock.
Exchange
The Prospectus Supplement may provide that the Company may, at its option,
exchange, in whole or in part, any series of Preferred Stock for Debt
Securities. The terms, notice and procedures for any such exchange will be
set forth in the applicable Prospectus Supplement.
Voting Rights
Unless otherwise provided in the applicable Prospectus Supplement, holders
of record of each series of Preferred Stock will have no voting rights,
except as required by law and as provided in the applicable Certificate of
Designations.
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Redemption Provisions
The Preferred Stock of each series will have such optional or mandatory
redemption terms, if any, as shall be set forth in the applicable Prospectus
Supplement.
Certain Covenants
The applicable Prospectus Supplement will describe any material covenants
in respect of any series of Preferred Stock.
Transfer Agent and Registrar
The transfer agent, registrar and dividend disbursement agent for the
Preferred Stock will be designated in the applicable Prospectus Supplement.
The registrar for shares of Preferred Stock will send notices to stockholders
of any meetings at which holders of the Preferred Stock have the right to
elect directors of the Company or to vote on any other matter.
COMMON STOCK
Dividends
No dividends have ever been paid on the Company's common stock, and none
are anticipated to be paid in the foreseeable future. However, holders 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 of common stock, unless the same dividend is simultaneously declared or
paid on each share of the other classes of common stock. In the case of any
stock dividend, holders of shares of Class A Common Stock are entitled to
receive the same percentage dividend (payable in shares of Class A Common
Stock) as the holders of shares of Class B Common Stock (payable in shares of
Class B Common Stock) and the holders of shares of Class C Common Stock
(payable in shares of Class C Common Stock). The Company's ability to pay
dividends is limited by the terms of its senior credit facility. See "Risk
Factors--Limitations on Ability to Pay Dividends."
Voting Rights
Holders of Class A Common Stock and Class B Common Stock vote as a single
class on all matters submitted to a vote of the stockholders, with each share
of Class A Common Stock entitled to one vote and each share of Class B Common
Stock entitled to ten votes, except (i) for the election of directors, (ii)
with respect to any "going private" transaction between the Company and Mr.
Sillerman or any of his affiliates and (iii) as otherwise provided by law.
In the election of directors, the holders of Class A Common Stock, voting
as a separate class, are entitled to elect two-sevenths (currently three) of
the Company's directors (each, a "Class A Director"). Any person nominated by
the Board of Directors for election by the holders of Class A Common Stock as
a director of the Company must be qualified to be an Independent Director (as
defined in the Certificate of Incorporation). In the event of the death,
removal or resignation of a director elected by the holders of Class A Common
Stock prior to the expiration of his term, the vacancy on the Board of
Directors created thereby may be filled by a person appointed by a majority
of the directors then in office, although less than a quorum. Any person
appointed to fill any such vacancy must, however, be qualified to be an
Independent Director. The holders of Class A Common Stock and Class B Common
Stock voting as a single class, with each share of Class A Common Stock
entitled to one vote and each share of Class B Common Stock entitled to ten
votes, are entitled to elect the remaining directors. The holders of common
stock are not entitled to cumulative votes in the election of directors. Each
of Mr. Sillerman and SCMC has agreed to abstain, and has agreed to cause each
of his and its respective affiliated transferees to abstain, from voting in
any election of Class A Directors.
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The holders of the Class A Common Stock and Class B Common Stock vote as a
single class with respect to any proposed "going private" transaction with
Mr. Sillerman or any of his affiliates, with each share of Class A Common
Stock and Class B Common Stock entitled to one vote. Except as required by
law, the holders of Class C Common Stock have no voting rights.
Under Delaware law, the affirmative vote of the holders of a majority of
the outstanding shares of any class of common stock is required to approve,
among other things, a change in the designations, preferences or limitations
of such class of common stock.
Liquidation Rights
Upon liquidation, dissolution, or winding-up of the Company, the holders
of Class A Common Stock are entitled to share ratably with the holders of
Class B Common Stock and Class C Common Stock all assets available for
distribution after payment in full of creditors.
Other Provisions
Each share of Class B Common Stock is convertible, subject to compliance
with FCC rules and regulations, at the option of its holder, into one share
of Class A Common Stock at any time. Each share of Class B Common Stock and
Class C Common Stock converts automatically into one share of Class A Common
Stock upon its sale or other transfer to a party not affiliated with the
Company, subject (as are all conversions of the Company's capital stock) to
compliance with FCC rules and regulations. The holders of common stock are
not entitled to preemptive or subscription rights. The shares of common stock
presently outstanding are validly issued, fully-paid and nonassessable. In
any merger, consolidation or business combination, the consideration to be
received per share by holders of Class A Common Stock must be identical to
that received by holders of Class B Common Stock and Class C Common Stock,
except that in any such transaction in which shares of common stock are
distributed, such shares may differ as to voting rights to the extent that
voting rights now differ among the classes of common stock. No class of
common stock may be subdivided, consolidated, reclassified or otherwise
changed unless concurrently the other classes of common stock are subdivided,
consolidated, reclassified or otherwise changed in the same proportion and in
the same manner.
Transfer Agent and Registrar
The transfer agent and registrar for the Class A Common Stock and Class B
Common Stock is Chase Mellon Shareholder Services LLC.
The foregoing descriptions of the preferred stock and common stock are
summaries, and reference is herein made to the detailed provisions of the
Certificate of Incorporation (including, without limitation, the Certificate
of Designations relating to any series of preferred stock, filed hereafter
and incorporated by reference herein) and the Company's Bylaws, copies of
which are incorporated by reference herein.
CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION, BYLAWS AND STATUTE
Limitation of Directors' Liability and Indemnification
The General Corporation Law of the State of Delaware (the "DGCL") provides
that a corporation may limit the liability of each director to the
corporation or its stockholders for monetary damages except for liability (i)
for any breach of the directors duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases and
(iv) for any transaction from which the director derives an improper personal
benefit. The Certificate of Incorporation provides for the elimination and
limitation of the personal liability of directors of the Company for monetary
damages to the fullest extent permitted by the DGCL. In addition, the
Certificate of Incorporation provides that if the DGCL is amended to
authorize the further elimination or limitation of the liability of a
director, then the liability of the directors shall be eliminated or limited
to the fullest extent permitted by the DGCL, as so amended. The effect of
this provision is to eliminate the rights of
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the Company and its stockholders (through stockholders' derivative suits on
behalf of the Company) to recover monetary damages against a director for
breach of the fiduciary duty of care as a director (including breaches
resulting from negligent or grossly negligent behavior) except in the
situations described in clauses (i) through (iv) above. This provision does
not limit or eliminate the rights of the Company or any stockholder to seek
non-monetary relief such as an injunction or rescission in the event of a
breach of a director's duty of care. In addition, the Certificate of
Incorporation and the Bylaws provide for indemnification of directors by the
Company in certain circumstances.
Section 203 of the DGCL
The Company is subject to the "business combination" statute of the DGCL,
an anti-takeover law enacted in 1988. In general, Section 203 of the DGCL
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 a person became an "interested
stockholder," unless (i) prior to such date the board of directors of the
corporation approved either the "business combination" or the transaction
which resulted in the stockholder becoming an "interested stockholder," (ii)
upon consummation of the transaction which resulted in the stockholder
becoming an "interested stockholder," 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 (iii) on or
subsequent to such date the "business combination" is approved by the board
of directors and authorized at an annual or special meeting of stockholders
by the affirmative vote of at least 66% of the outstanding voting stock which
is not owned by the "interested stockholder." A "business combination"
includes mergers, stock or asset sales and other transactions resulting in a
financial benefit to the "interested stockholders." An "interested
stockholder" is a person who, together with affiliates and associates, owns
(or within three years, did own) 15% or more of the corporation's voting
stock. Although Section 203 permits the Company to elect not to be governed
by its provisions, the Company to date has not made this election. As a
result of the application of Section 203, potential acquirers of the Company
may be discouraged from attempting to effect an acquisition transaction with
the Company, thereby possibly depriving holders of the Company's securities
of certain opportunities to sell or otherwise dispose of such securities at
above-market prices pursuant to such transactions.
Foreign Ownership
The Certificate of Incorporation restricts the ownership, voting and
transfer of the capital stock of the Company, in accordance with the
Communications Act, and the rules of the FCC, to prohibit ownership of more
than 25% of the Company's outstanding capital stock, or more than 25% of the
voting rights it represents (such percentage, however, is 20% in the case of
those subsidiaries that are direct holders of FCC licenses), by or for the
account of Aliens or corporations otherwise subject to domination or control
by Aliens. The Company has determined that, because of the ownership by
Nomura of a significant amount of Class A Common Stock and the fact that
Aliens own a substantial portion of Nomura's own voting common stock, the
Company may prohibit acquisitions by Aliens of additional shares of the
Company's equity securities, including the Class A Common Stock, in light of
the provisions of the Communications Act, the rules of the FCC and the
Certificate of Incorporation. In addition, the Certificate of Incorporation
provides that capital stock of the Company determined by the Board of
Directors to be owned beneficially by an Alien shall always be subject to
redemption by the Company by action of the Board of Directors to the extent
necessary, in the judgment of the Board of Directors, to comply with the
alien ownership restrictions of the Communications Act and the FCC rules and
regulations.
The Certificate of Incorporation authorizes the Board of Directors of the
Company to adopt such provisions as it deems necessary to enforce these
prohibitions. The Company established certain procedures and controls
designed to implement the aforesaid prohibitions. Specifically, at the time
the
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Company's equity securities are presented for transfer, the Company's
transfer agent inquires as to whether the shares are to be transferred to or
for the account of an Alien, an entity with Alien ownership or an entity that
would be considered Alien by the FCC. If so, the proposed transfer may not be
permitted.
PLAN OF DISTRIBUTION
The Company may sell Securities to one or more underwriters, which may
include, without limitation, Goldman, Sachs & Co., Lehman Brothers Inc. and
BT Securities Corporation, for public offering and sale by them, and also may
sell Securities directly to investors or to other purchasers or through
dealers or agents. Any such underwriter, dealer or agent involved in the
offer and sale of the Securities will be named in an applicable Prospectus
Supplement.
The distribution of the Securities may be effected from time to time in
one or more transactions at a fixed price or prices, which may be changed, or
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Sales of Class A Common
Stock offered hereby may be effected from time to time in one or more
transactions on the Nasdaq National Market or in negotiated transactions or a
combination of such methods of sale.
In connection with distributions of Class A Common Stock or otherwise, the
Company may enter into hedging transactions with broker-dealers in connection
with which such broker-dealers may sell Class A Common Stock registered
hereunder in the course of hedging through short sales the positions they
assume with the Company.
In connection with the sale of Securities, underwriters, dealers or agents
may receive compensation from the Company or from purchasers of Securities
for whom they may act as agents in the form of discounts, concessions or
commissions. Underwriters may sell Securities to or through dealers, and such
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agents. Underwriters, dealers and agents who participate
in the distribution of Securities may be deemed to be underwriters, and any
discounts or commissions received by them from the Company and any profit on
the resale of Securities by them may be deemed to be underwriting discounts
and commissions, under the Securities Act. Any such underwriter, dealer or
agent will be identified, and any such compensation received from the Company
will be described, in the Prospectus Supplement. Unless otherwise indicated
in a Prospectus Supplement, an agent will be acting on a best effort basis
and a dealer will purchase Securities as a principal, and may then resell
such Securities at varying prices to be determined by the dealer.
Under agreements which may be entered into by the Company, underwriters,
dealers and agents who participate in the distribution of Securities may be
entitled to indemnification by the Company against and contribution toward
certain civil liabilities, including liabilities under the Securities Act,
and to reimbursement by the Company for certain expenses.
If so indicated in a Prospectus Supplement, the Company will authorize
agents and underwriters or dealers to solicit offers by certain purchasers to
purchase Securities from the Company at the public offering price set forth
in the Prospectus Supplement pursuant to delayed delivery contracts providing
for payment and delivery on a specified date in the future. Such contracts
will be subject to only those conditions set forth in the Prospectus
Supplement, and the Prospectus Supplement will set forth the commission
payable for solicitation of such offers.
Certain of the underwriters, dealers or agents and their associates may
engage in transactions with and perform services for the Company in the
ordinary course of business.
The Securities may or may not be listed on a national securities exchange
or quoted on an automated quotation system (other than the Class A Common
Stock, which is quoted on the Nasdaq National Market). Any Class A Common
Stock sold pursuant to a Prospectus Supplement will be listed on the Nasdaq
National Market, subject to official notice of issuance. Any underwriters to
whom Securities are
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<PAGE>
sold by the Company for public offering and sale may make a market in such
Securities, but such underwriters will not be obligated to do so and may
discontinue any market-making activities at any time without notice. No
assurances can be given that there will be an active trading market for the
Securities.
Each of Goldman, Sachs & Co., Lehman Brothers Inc. and BT Securities
Corporation have provided, and continue to provide, investment banking
services to the Company for which they have received customary fees.
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for the
Company by Baker & McKenzie, New York, New York. Mr. Tytel, who has an equity
interest in and is an executive officer and director of the Company, is Of
Counsel to Baker & McKenzie. Fisher Wayland Cooper Leader & Zaragoza LLP,
Washington D.C., has represented the Company with respect to legal matters
under the Communications Act and the rules and regulations promulgated
thereunder by the FCC. The validity of the Securities offered hereby will be
passed upon for any underwriters or agents by Latham & Watkins, New York, New
York.
EXPERTS
The consolidated financial statements of the Company and its subsidiaries
at December 31, 1995 and 1994, and for each of the three years in the period
ended December 31, 1995, the financial statements of KKRW-FM (a division of
CBS, Inc.) at December 31, 1995 and 1994, and for the years then ended, the
consolidated financial statements of MMR at December 31, 1995 and 1994, and
for the years then ended, the financial statements of WKSS 95.7-FM (a
division of Precision Media Corporation) at December 31, 1995 and 1994, and
for the years then ended and the financial statements of KTXQ-FM and KRRW-FM
(divisions of CBS Inc.) at December 31, 1995 and 1994, and for the years then
ended, incorporated by reference herein, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their reports with respect
thereto, and are incorporated by reference herein in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of Liberty Broadcasting, Inc., at
December 31, 1995 and 1994, and for the years ended December 31, 1995 and
1994, and the nine months ended December 31, 1993, and the combined financial
statements of HMW Communications, Inc.--Selected Operations (combination of
six radio stations to be sold) as of December 31, 1995 and 1994, for the year
ended December 31, 1995, and various periods from January 6, 1994, to
December 31, 1994, incorporated by reference herein, have been audited by
Coopers & Lybrand L.L.P., independent accountants, as set forth in their
reports with respect thereto, and are incorporated by reference herein in
reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing.
The financial statements of Prism Radio Partners, L.P. as of December 31,
1995 and 1994, and for each of the three years in the period ended December
31, 1995, incorporated by reference herein, have been audited by KPMG Peat
Marwick L.L.P., independent certified public accountants, to the extent and
for the period indicated in their report with respect thereto and are
incorporated by reference herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The financial statements of ABS Greenville Partners, L.P. at December 31,
1995, and for the year then ended, incorporated by reference herein, have
been audited by Cheely Burcham Eddins Rokenbrod & Carroll, independent
auditors, as set forth in their report with respect thereto, and are
incorporated by reference herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The financial statements of Texas Coast Broadcasters, Inc. at December 31,
1995 and 1994, and for the years then ended, incorporated by reference
herein, have been audited by Mohle, Adams, Till, Guidry & Wallace, LLP,
independent auditors, as set forth in their report with respect thereto, and
are incorporated by reference herein in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
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The combined balance sheets of the Secret Communications Stations:
Cleveland, Ohio, Indianapolis, Indiana, and Pittsburgh, Pennsylvania at June
30, 1996 and 1995, and the related combined statements of operations and cash
flows for the year ended June 30, 1996, and the eleven-month period ended
June 30, 1995, incorporated by reference herein, have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
with respect thereto, and are incorporated by reference in reliance upon the
authority of said firm as experts in giving said reports.
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NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH
THIS PROSPECTUS SUPPLEMENT RELATES, NOR DO THEY CONSTITUTE AN OFFER TO SELL,
OR THE SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT UNAUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
---------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Supplement
Certain Definitions and Market and Industry
Data .......................................... S-2
Summary ........................................ S-3
Risk Factors ................................... S-21
Capitalization ................................. S-26
Unaudited Pro Forma Condensed Combined
Financial Statements .......................... S-27
Management's Discussion and Analysis of
Financial Condition and Results of Operations S-45
Certain Relationships and Related Transactions S-52
Agreements Related to the Pending Acquisitions
and the Pending Dispositions .................. S-54
Description of Series E Preferred Stock ....... S-58
Certain Federal Income Tax Considerations ..... S-91
Underwriting ................................... S-98
Prospectus
Available Information .......................... 2
Incorporation by Reference ..................... 3
Risk Factors ................................... 4
The Company .................................... 10
Use of Proceeds ................................ 10
Ratios of Earnings to Fixed Charges and
Earnings to Combined Fixed Charges and
Preferred Stock Dividends ..................... 10
Description of Debt Securities ................. 11
Description of Equity Securities ............... 21
Plan of Distribution ........................... 27
Legal Matters .................................. 28
Experts ........................................ 28
</TABLE>
PROSPECTUS SUPPLEMENT
2,250,000 SHARES
SFX BROADCASTING, INC. [LOGO]
12 5/8% SERIES E CUMULATIVE
EXCHANGEABLE PREFERRED STOCK
BT SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
JANUARY 17, 1997
