<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 16, 1997
REGISTRATION NO. 333-36451
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
DELAWARE 4832 75-2451687
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of incorporation or
organization) Classification Code Number) Identification Number)
</TABLE>
---------------------
<TABLE>
<S> <C>
(FOR CO-REGISTRANTS, PLEASE SEE "TABLE OF CO-REGISTRANTS" ON THE FOLLOWING PAGE)
SCOTT K. GINSBURG
CHIEF EXECUTIVE OFFICER
433 EAST LAS COLINAS BOULEVARD 433 EAST LAS COLINAS BOULEVARD
IRVING, TEXAS 75039 IRVING, TEXAS 75039
(972) 869-9020 (972) 869-9020
(Address, including zip code, and telephone
number, (Name, address, including zip code, telephone
including area code, of registrant's principal number, including area code, of agent for
executive offices) service)
</TABLE>
---------------------
Copies to
JOHN D. WATSON, JR., ESQ.
MARK D. SPOTO, ESQ.
ALYSSA R. HARVEY, ESQ.
LATHAM & WATKINS
1001 PENNSYLVANIA AVENUE, N.W., SUITE 1300
WASHINGTON, D.C. 20004-2505
(202) 637-2200
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
================================================================================
<PAGE> 2
TABLE OF CO-REGISTRANTS
<TABLE>
<CAPTION>
PRIMARY STANDARD IRS
STATE OR OTHER INDUSTRIAL EMPLOYER
JURISDICTION OF CLASSIFICATION IDENTIFICATION
NAME INCORPORATION CODE NUMBER NUMBER
---- --------------- ---------------- --------------
<S> <C> <C> <C>
Evergreen Media Corporation of Chicago FM......... Delaware 4832 99-0248292
WLUP-FM License Corp.............................. Delaware 4832 75-2449662
Evergreen Media Corporation of the Bay Area....... Delaware 4832 59-2312787
KIOI License Corp................................. Delaware 4832 75-2449654
Evergreen Media Corporation of Illinois........... Delaware 4832 75-2490925
WRCX License Corp................................. Delaware 4832 75-2528716
Evergreen Media Corporation of Chicago AM......... Delaware 4832 59-2412802
WMVP-AM License Corp.............................. Delaware 4832 75-2449660
Evergreen Media Corporation of Dade County........ Delaware 4832 59-2312792
WVCG License Corp................................. Delaware 4832 75-2449668
Evergreen Media/Pyramid Corporation............... Delaware 4832 04-3221315
Evergreen Media/Pyramid Holdings Corporation...... Delaware 4832 04-3221316
Broadcast Architecture, Inc....................... Delaware 4832 04-3096275
Evergreen Media Corporation of Massachusetts...... Delaware 4832 04-3216274
WJMN License Corp................................. Delaware 4832 04-3216272
Evergreen Media Corporation of the Nation's
Capital......................................... Delaware 4832 75-2699485
WWRC License Corp................................. Delaware 4832 75-2697127
Evergreen Media Partners Corporation.............. Delaware 4832 13-3467127
Evergreen Media Corporation of Gotham............. Delaware 4832 36-3905992
Evergreen Media Corporation of New York........... Delaware 4832 54-1475267
WYNY License Corp................................. Delaware 4832 36-3906005
Evergreen Media Corporation of Detroit............ Delaware 4832 36-2826680
WKQI/WDOZ/WNIC License Corp....................... Delaware 4832 36-3906004
Evergreen Media Corporation of Chicagoland........ Delaware 4832 36-3604824
WEJM/WEJM-FM/WVAZ License Corp.................... Delaware 4832 36-3905998
Evergreen Media Corporation of Charlotte.......... Delaware 4832 62-1364794
WIOQ License Corp................................. Delaware 4832 36-3906002
Evergreen Media Corporation of Dallas............. Delaware 4832 75-2245927
KSKY License Corp................................. Delaware 4832 36-3906008
Evergreen Media Corporation of San Francisco...... Delaware 4832 75-2449639
KMEL License Corp................................. Delaware 4832 75-2449650
Evergreen Media Corporation of Houston............ Delaware 4832 75-2486583
Evergreen Media of Houston Limited Partnership.... Delaware 4832 75-2486577
KTRH License Limited Partnership.................. Delaware 4832 75-2486581
KLOL License Limited Partnership.................. Delaware 4832 75-2486580
Evergreen Media Corporation of Tiburon............ Delaware 4832 75-2674715
KKSF License Corp................................. Delaware 4832 75-2674717
KDFC (AM) License Corp............................ Delaware 4832 75-2674719
KDFC (FM) License Corp............................ Delaware 4832 75-2674720
Evergreen Media Corporation of Washington, D.C.... Delaware 4832 75-243256
Evergreen Media Corporation of St. Louis.......... Delaware 4832 75-2449637
WTOP License Limited Partnership.................. Delaware 4832 75-2528718
WASH License Limited Partnership.................. Delaware 4832 75-2528721
Evergreen Media Corporation of the Motor City..... Delaware 4832 75-2666019
WJLB License Corp................................. Delaware 4832 75-2666024
Evergreen Media Corporation of Michigan........... Delaware 4832 75-2666017
WMXD License Corp................................. Delaware 4832 75-2666023
</TABLE>
<PAGE> 3
TABLE OF CO-REGISTRANTS -- (CONTINUED)
<TABLE>
<CAPTION>
PRIMARY STANDARD IRS
STATE OR OTHER INDUSTRIAL EMPLOYER
JURISDICTION OF CLASSIFICATION IDENTIFICATION
NAME INCORPORATION CODE NUMBER NUMBER
---- --------------- ---------------- --------------
<S> <C> <C> <C>
WAXQ Inc.......................................... Delaware 4832 13-3387794
WAXQ License Corp................................. Delaware 4832 N/A
WMZQ Inc.......................................... Delaware 4832 04-2981015
WMZQ License Corp................................. Delaware 4832 N/A
Evergreen Media Corporation of the Liberty City... Delaware 4832 75-2674728
WDAS (FM) License Corp............................ Delaware 4832 75-2674731
WDAS (AM) License Corp............................ Delaware 4832 75-2674729
Riverside Broadcasting Co. Inc.................... Delaware 4832 13-2688382
WLTW License Corp................................. Delaware 4832 N/A
Evergreen Media Corporation of the Great Lakes.... Delaware 4832 75-2674722
WWWW/WDFN License Corp............................ Delaware 4832 75-2674723
VBE, Inc.......................................... Delaware 4832 13-3767758
Evergreen Media Corporation of the Capital City... Delaware 4832 75-2647157
WGAY License Corp................................. Delaware 4832 75-2647158
Evergreen Media Corporation of Chicago............ Delaware 4832 75-2708878
WPNT License Corp................................. Delaware 4832 75-2708647
Chancellor Broadcasting Licensee Company.......... Delaware 4832 75-2544625
Trefoil Communications, Inc....................... Delaware 4832 95-3278846
Shamrock Broadcasting, Inc........................ Delaware 4832 95-4068583
Shamrock Radio Licenses, Inc...................... Delaware 4832 95-4501833
Shamrock Broadcasting of Texas, Inc............... Texas 4832 71-0527506
Shamrock Broadcasting Licenses of Denver, Inc..... Delaware 4832 75-2688376
KIBB Inc.......................................... Delaware 4832 13-3930133
KYSR Inc.......................................... Delaware 4832 13-3547704
WLIT Inc.......................................... Delaware 4832 13-3930134
WDRQ Inc.......................................... Delaware 4832 13-3930136
Radio 100 L.L.C................................... Delaware 4832 N/A
Evergreen Media Corporation of Pennsylvania....... Delaware 4832 04-3216281
WJJZ License Corp................................. Delaware 4832 04-3216283
Evergreen Media Corporation of Miami.............. Delaware 4832 04-3216285
WEDR License Corp................................. Delaware 4832 04-3216278
Evergreen Media Corporation of Boston............. Delaware 4832 04-3221317
WXKS (AM) License Corp............................ Delaware 4832 04-3221319
WXKS (FM) License Corp............................ Delaware 4832 04-3221318
Evergreen Media Corporation of the Windy City..... Delaware 4832 04-3221712
WNUA License Corp................................. Delaware 4832 04-3221714
Evergreen Media Corporation of Philadelphia....... Delaware 4832 04-3221716
Evergreen Media Corporation of the Keystone
State........................................... Delaware 4832 04-3221374
KYLD License Corp................................. Delaware 4832 04-3221371
WYXR License Corp................................. Delaware 4832 04-3221718
WUSL License Corp................................. Delaware 4832 04-3221375
Evergreen Media Corporation of Rochester.......... Delaware 4832 04-3221755
KKBT License Corp................................. Delaware 4832 75-2449648
</TABLE>
<PAGE> 4
PROSPECTUS
OFFER TO EXCHANGE
8 3/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B FOR ALL OUTSTANDING
8 3/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A
OF
CHANCELLOR MEDIA CORPORATION
OF LOS ANGELES
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON NOVEMBER 17, 1997, UNLESS EXTENDED
------------------------------
Chancellor Media Corporation of Los Angeles ("CMCLA", and together with its
subsidiaries, the "Company") hereby offers (the "Exchange Offer"), upon the
terms and subject to the conditions set forth in this Prospectus and the
accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange
its outstanding 8 3/4% Senior Subordinated Notes due 2007, Series A (the
"Original Notes"), of which an aggregate of $200,000,000 in principal amount is
outstanding as of the date hereof, for an equal principal amount of newly issued
8 3/4% Senior Subordinated Notes due 2007, Series B (the "Exchange Notes"). The
Original Notes were issued on June 24, 1997 by Chancellor Radio Broadcasting
Company ("CRBC") and were assumed by the Company upon the merger of CRBC with
and into the Company on September 5, 1997. See "Business and
Properties -- Recent Developments -- The Chancellor Merger." The form and terms
of the Exchange Notes will be the same as the form and terms of the Original
Notes except that (i) the Exchange Notes will be registered under the Securities
Act of 1933, as amended (the "Securities Act") and hence will not bear legends
restricting the transfer thereof; and (ii) the holders of the Exchange Notes
will not be entitled to certain rights of the holders of Original Notes under
the Registration Rights Agreement, which rights will terminate upon the
consummation of the Exchange Offer. The Exchange Notes will evidence the same
debt as the Original Notes and will be entitled to the benefits of an indenture
dated as of June 24, 1997, governing the Original Notes and the Exchange Notes
(the "Indenture"). The Indenture provides for the issuance of both the Exchange
Notes and the Original Notes. The Exchange Notes and the Original Notes are
sometimes referred to herein collectively as the "Notes".
------------------------------
The Exchange Notes will mature on June 15, 2007. Interest on the Exchange
Notes will be payable semi-annually on each June 15 and December 15 commencing
December 15, 1997, at the rate of 8 3/4% per annum. The Exchange Notes will be
redeemable, in whole or in part, at the option of the Company, on or after June
15, 2002 at the redemption prices set forth herein, plus accrued and unpaid
interest, if any, to the date of redemption. In addition, on or prior to June
15, 2000, the Company may, at its option, redeem the Exchange Notes, in part,
with the net cash proceeds of one or more Public Equity Offerings (as defined),
at the redemption price set forth herein, plus accrued and unpaid interest, if
any, to the date of redemption; provided, however, that after any such
redemption the aggregate principal amount of the Notes outstanding must equal at
least 75% of the aggregate principal amount of the Original Notes originally
issued on June 24, 1997.
The Exchange Notes will be general unsecured obligations of the Company and
will rank pari passu in right of payment to the 9 3/8% Senior Subordinated Notes
due 2004 (the "9 3/8% Notes") of the Company, and will be subordinated in right
of payment to all existing and future Senior Debt of the Company. As of June 30,
1997, on a pro forma basis after giving effect to the Pending Transactions (as
defined), approximately $1.93 billion of Senior Debt and $200.0 million of debt
ranking pari passu to the Exchange Notes would have been outstanding. The
Exchange Notes will be fully and unconditionally guaranteed on a senior
subordinated basis by certain of the Company's direct and indirect subsidiaries
(the "Guarantors").
Upon a Change of Control (as defined), (i) the Company will have the option,
at any time on or prior to June 15, 2000, to redeem the Exchange Notes, in whole
but not in part, at a redemption price equal to 100% of the principal amount
thereof plus the Applicable Premium (as defined), together with accrued and
unpaid interest, if any, to the date of redemption, and (ii) if the Company does
not so redeem the Exchange Notes or if such Change of Control occurs after June
15, 2000, each holder will have the right to require the Company to repurchase
such holder's Exchange Notes at a price equal to 101% of their principal amount,
plus accrued and unpaid interest to the date of repurchase. In addition, the
Company will be obligated to offer to repurchase the Exchange Notes at 100% of
their principal amount, plus accrued and unpaid interest, if any, to the date of
repurchase, in the event of certain asset sales. See "Description of the
Exchange Notes."
(Continued on next page)
------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN
FACTORS WHICH HOLDERS OF ORIGINAL NOTES AND PROSPECTIVE PURCHASERS OF EXCHANGE
NOTES SHOULD CONSIDER IN CONNECTION WITH THIS EXCHANGE OFFER.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------------
THE DATE OF THIS PROSPECTUS IS OCTOBER 16, 1997
<PAGE> 5
(Continued from previous page)
The Original Notes are eligible for trading in the Private Offerings,
Resales and Trading through Automatic Linkages market (the "PORTAL" Markets") of
the National Association of Securities Dealers, Inc. Prior to this Exchange
Offer, there has been no public market for the Exchange Notes. If a market for
the Exchange Notes develops, the Exchange Notes could trade at a discount from
their principal amount. The Company does not intend to list the Exchange Notes
on any securities exchange or to seek approval for quotation on any automated
quotation system. There is no assurance that an active public market for the
Exchange Notes will develop.
The Company will accept for exchange any and all validly tendered Original
Notes on or prior to 5:00 p.m., New York City time, on November 17, 1997 (if and
as extended, the "Expiration Date"). Tenders of Original Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date. The
Exchange Offer is not conditioned upon any minimum principal amount of notes
being tendered for exchange. The Original Notes may be tendered only in integral
multiples of $1,000. In the event the Company terminates the Exchange Offer and
does not accept for exchange any Original Notes, the Company will promptly
return all previously tendered Original Notes to the holders thereof.
The Original Notes were originally issued and sold on June 24, 1997 in a
transaction not registered under the Securities Act in reliance upon the
exemption provided in Rule 144A and Regulation S of the Securities Act (the
"Offering"). Accordingly, the Original Notes may not be reoffered, resold or
otherwise pledged, hypothecated or transferred in the United States unless so
registered or unless an applicable exemption from the registration requirements
of the Securities Act is available. Based upon interpretations by the staff (the
"Staff") of the Securities and Exchange Commission (the "Commission") set forth
in no-action letters issued to third parties, the Company believes that the
Exchange Notes issued pursuant to the Exchange Offer in exchange for the
Original Notes may be offered for resale, resold and otherwise transferred by
holders thereof (other than any such holder which is (i) an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act, (ii) a
broker-dealer who acquired the Original Notes directly from the Company or (iii)
a broker-dealer who acquired the Original Notes as a result of market making or
other trading activities) without compliance with the registration and
prospectus delivery requirements of the Securities Act provided that such
Exchange Notes are acquired in the ordinary course of such holder's business and
such holder is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a distribution
of such Exchange Notes. Each broker-dealer that receives the Exchange Notes for
its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. Broker-dealers who
acquired Original Notes as a result of market making or other trading activities
may use this Prospectus, as supplemented or amended, in connection with resales
of the Exchange Notes. The Company has agreed that, for a period not to exceed
180 days after the Expiration Date, it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution." Any holder that cannot rely upon such interpretations must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction.
Any Original Notes not tendered and accepted in the Exchange Offer will
remain outstanding. To the extent that Original Notes are tendered and accepted
in the Exchange Offer, a holder's ability to sell untendered, or tendered but
unaccepted, Original Notes could be adversely affected. Following consummation
of the Exchange Offer, the holders of Original Notes will continue to be subject
to the existing restrictions on transfer thereof and the Company will have no
further obligation to such holders to provide for the registration under the
Securities Act of the Original Notes except under certain limited circumstances.
No assurance can be given as to the liquidity of the trading market for either
the Original Notes or the Exchange Notes.
The Company believes that none of the registered holders of the Original
Notes (the "Registered Holders") is an affiliate (as such term is defined in
Rule 405 under the Securities Act) of the Company. Prior to this Exchange Offer,
there has been no public market for the Original Notes. The Company does not
intend to list the Exchange Notes on any securities exchange or to seek approval
for quotation through any automated quotation system. There can be no assurance
that an active market for the Exchange Notes will develop. To
ii
<PAGE> 6
the extent that a market for the Exchange Notes does develop, the market value
of the Exchange Notes will depend on market conditions (such as yields on
alternative investments), general economic conditions, the Company's financial
condition and other conditions. Such conditions might cause the Exchange Notes,
to the extent that they are actively traded, to trade at a significant discount
from face value. See "Risk Factors -- Absence of Public Market for the Exchange
Notes."
The Company will not receive any proceeds from this Exchange Offer. The
Company has agreed to bear the expenses of this Exchange Offer. No underwriter
is being used in connection with this Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF THE ORIGINAL NOTES IN ANY JURISDICTION
IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
---------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THIS EXCHANGE OFFER COVERED BY THIS PROSPECTUS OR THE
ACCOMPANYING LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
THIS PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN
ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE
ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act with respect to the Exchange Offer. As
permitted by the rules and regulations of the Commission, this Prospectus omits
certain information, exhibits and undertakings contained in the Registration
Statement. For further information with respect to the Company and this Exchange
Offer, reference is made to the Registration Statement, including the exhibits
thereto and the financial statements, notes and schedules filed as a part
thereof.
The Company is subject to the informational requirements of the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy materials and other information with the
Commission. The reports, proxy materials and other information filed by the
Company with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Regional Offices of the Commission at Seven World Trade
Center, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials also can be
obtained from the Public Reference Section of the Commission, Washington, D.C.
20549 at prescribed rates. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of such
site is http://www.sec.gov. The Indenture requires the Company to file with the
Commission and provide to holders of the Notes the reports and other information
required to be filed with the Commission by the Exchange Act, whether or not the
Company is then subject to such requirements. See "Description of Exchange
Notes -- Reports."
iii
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Certain terms used in this Prospectus are defined
herein under the caption "Description of the Exchange Notes." As used herein,
unless the context otherwise requires, the term "Company" refers to Chancellor
Media Corporation of Los Angeles ("CMCLA") and its subsidiaries.
THE COMPANY
On September 5, 1997, pursuant to an Amended and Restated Agreement and
Plan of Merger, dated as of February 19, 1997 and amended and restated on July
31, 1997 (the "Chancellor Merger Agreement"), among Chancellor Broadcasting
Company ("Chancellor"), Chancellor Radio Broadcasting Company ("CRBC"),
Evergreen Media Corporation ("Evergreen"), Evergreen Mezzanine Holdings
Corporation ("EMHC") and Evergreen Media Corporation of Los Angeles ("EMCLA"),
among other things, (i) Chancellor was merged with and into EMHC, a direct and
wholly-owned subsidiary of Evergreen, with EMHC surviving the merger, and (ii)
CRBC was merged with and into EMCLA, a direct and wholly-owned subsidiary of
EMHC, with EMCLA surviving the merger (collectively, the "Chancellor Merger").
Following the Chancellor Merger, Evergreen changed its name to Chancellor Media
Corporation ("Chancellor Media"), EMHC changed its name to Chancellor Mezzanine
Holdings Corporation ("CMHC") and EMCLA changed its name to Chancellor Media
Corporation of Los Angeles ("CMCLA"). Chancellor Media and CMHC are holding
companies. The Company is the principal operating subsidiary of Chancellor
Media.
The Company is one of the largest radio broadcasting companies in the
United States. Upon consummation of all Pending Transactions (as defined) the
Company will own and operate 99 radio stations (73 FM and 26 AM) in 21 large
markets, including each of the nation's 12 largest radio revenue markets. The
Company's portfolio includes the first or second ranked station cluster in terms
of revenue share in 15 markets. On a pro forma basis after giving effect to the
Pending Transactions, the Company had net revenue and broadcast cash flow (as
defined) of approximately $396.0 million and $166.6 million, respectively, for
the six months ended June 30, 1997, and its pro forma broadcast cash flow margin
for such period would have been 42%.
The Company's strategy is to secure the leading clusters of radio stations
in each of the markets in which it operates. The Company's station portfolio
includes a total of 11 station clusters of four or five FM stations
("superduopolies"), with seven in the 12 largest radio markets -- Los Angeles,
New York, Chicago, San Francisco, Philadelphia, Washington, D.C. and
Detroit -- and four in other large markets -- Denver, Minneapolis/St. Paul,
Phoenix and Orlando. Consummation of the Pending Transactions will add 13
stations (10 FM and three AM) (without taking into account stations to be
disposed or exchanged in the Pending Transactions) to the Company's portfolio,
including five stations in its superduopoly markets, and will increase the
number of superduopoly markets from 11 to 12. Approximately 78% of pro forma
1996 net revenue would have been generated by the superduopoly markets.
The Company's portfolio is geographically diversified and employs a wide
variety of programming formats, including adult contemporary, contemporary hit
radio, urban, jazz, country, oldies, news/talk, rock and sports. Each of the
Company's stations targets a specific demographic audience within a market, with
the majority of the stations appealing primarily to 18 to 34 or 25 to 54 year
old men and/or women, the demographic groups most sought after by advertisers.
Management believes that, because of the size and diversity of its station
portfolio, the Company is not unduly reliant on the performance of any one
station or market. No single market to be served by the Company represented more
than 12.0% of the Company's pro forma 1996 broadcast cash flow.
The Company's principal executive office is located at 433 East Las Colinas
Boulevard, Suite 1130, Irving, Texas 75039, and its telephone number is (972)
869-9020.
1
<PAGE> 8
BUSINESS STRATEGY
The Company's senior management team, led by Scott K. Ginsburg and James de
Castro, has extensive experience in acquiring and operating large market radio
station groups. The Company's business strategy is to assemble and operate radio
station clusters in order to maximize broadcast cash flow generated in each
market. This strategy relies on the following six key elements.
Create Large Market Superduopolies. The Company seeks to be the owner and
operator of the leading superduopoly in the largest markets in the United
States. Management believes that the large revenue base in these markets, in
conjunction with operating synergies achievable through the operation of
multiple stations, will enable it to appeal to a wider universe of national and
local advertisers and to achieve a greater degree of profitability than that of
operators and broadcasters in smaller markets. The Pending Transactions will
complement the Company's existing stations in the Los Angeles, New York,
Chicago, Dallas, Houston, Denver and Nassau/Suffolk (Long Island) markets. The
Company expects to continue to selectively pursue acquisition opportunities in
the major markets in which it will compete as well as in other markets.
Maximize Superduopoly Revenue and Expense Synergies. The Company seeks to
capitalize on the revenue growth and expense savings opportunities of
superduopolies that have been created or that will be created by the Viacom
Acquisition (as defined), the Chancellor Merger and the Pending Transactions.
Superduopolies have only been permissible since the passage of the
Telecommunications Act of 1996 (the "1996 Act") in January 1996. Management
believes that substantial benefits can be derived from the successful
integration of these station cluster groups. Management also believes that radio
station clusters can attract increased revenues in a market by delivering larger
combined audiences to advertisers and by engaging in joint marketing and
promotional activities. In addition, management expects to realize significant
expense savings through the consolidation of facilities and through the
economies of scale created in areas such as national representation commissions,
employee benefits, insurance premiums and other operating costs.
Establish Strong Listener Loyalty. Management believes that strong
listener familiarity with a given radio station produces listener loyalty.
Management seeks to establish this familiarity through a variety of programming
and marketing techniques, including the development of high-profile on-air
personalities and creative station-sponsored promotional events, all of which
are designed to secure heightened listener awareness. The Company also conducts
extensive market research to help identify programming format opportunities and
attract new listeners, as has been the case with WKTU-FM in New York. After
operating WKTU-FM for nine months under the call letters and country music
format inherited from a prior operator, in February 1996 the Company began to
operate WKTU-FM as a rhythmic contemporary hits station. According to Arbitron,
WKTU-FM was ranked eleventh in its target demographic group as a country
station, and was ranked first in several key demographic groups (including its
target demographic group) in the first full ranking period after the station
changed its format. The station has continued to rank among the top five
stations in its target demographic group in subsequent periods. Management
believes that institutionalizing its radio stations in their markets through
programming, marketing and research ensures steady long-term audience share
ratings.
Maintain Strict Cost Controls. Management maintains a company-wide focus
on cost controls in an effort to maximize broadcast cash flow margins.
Management reviews station spending on a monthly basis. In addition, corporate
level employees maintain weekly sales reporting systems designed to enable
management to evaluate station performance on a current basis. The Company's
focus on maximizing superduopoly revenues and maintaining cost controls is
reflected by the fact that, for the last two years, the Company has achieved
broadcast cash flow margins of 40% or more. The Company also carefully monitors
capital expenditures.
Develop Experienced, Incentivized Management Team. The Company believes
that management depth is critical to achieving superior operating performance in
a portfolio as large as the Company's. The Company's senior management team of
Scott K. Ginsburg and James de Castro collectively have an aggregate of more
than 30 years of radio industry operating experience. This senior management
team is supported by an experienced team of veteran group operators and station
general managers. At the station level, the Company seeks to incentivize its
individual radio station managers and sales forces to outperform revenue and
broadcast
2
<PAGE> 9
cash flow budget expectations by granting quarterly and annual performance
measurement-based bonuses. The Company believes that the incentives it offers to
its employees, as well as its stature in the radio industry, will enable it to
continue to be successful in recruiting top industry employees.
Maximize Free Cash Flow. By emphasizing the revenue and expense synergies
achievable through the assembly and operation of superduopolies and by carefully
monitoring operating costs and capital expenditures, the Company seeks to
maximize broadcast cash flow and, ultimately, free cash flow (broadcast cash
flow less corporate general and administrative expenses, debt service, tax
payments, dividend requirements and capital expenditures). This focus on free
cash flow should facilitate reduction of leverage without undue dependence on
capital markets and position the Company to pursue attractive acquisitions.
3
<PAGE> 10
RECENT DEVELOPMENTS
For a further discussion of the transactions described below, see "Business
and Properties" and "Pro Forma Financial Information."
THE CHANCELLOR MERGER
- - On September 5, 1997, Evergreen, EMHC, EMCLA, Chancellor and CRBC
consummated the transactions contemplated by the Chancellor Merger
Agreement. Pursuant to the Chancellor Merger Agreement, (i) Chancellor was
merged (the "Parent Merger") with and into EMHC, a direct, wholly-owned
subsidiary of Evergreen, with EMHC remaining as the surviving corporation
and (ii) CRBC was merged (the "Subsidiary Merger") with and into EMCLA, a
direct, wholly-owned subsidiary of EMHC, with EMCLA remaining as the
surviving corporation. Upon the consummation of the Parent Merger, Evergreen
was renamed Chancellor Media Corporation ("Chancellor Media") and EMHC was
renamed Chancellor Mezzanine Holdings Corporation ("CMHC"). Upon the
consummation of the Subsidiary Merger, EMCLA was renamed Chancellor Media
Corporation of Los Angeles ("CMCLA"). Consummation of the Chancellor Merger
added 52 radio stations (36 FM and 16 AM) to the Company's portfolio of
stations, including 13 stations in markets in which the Company previously
operated.
COMPLETED EVERGREEN/CHANCELLOR MEDIA TRANSACTIONS
- - Since January 1, 1997, EMCLA (and, after September 5, 1997, CMCLA) and its
subsidiaries have completed (i) the acquisition of 17 radio stations for a
net purchase price of approximately $1.14 billion, (ii) the exchange of
seven stations for five stations and $6.0 million in cash and (iii) the sale
or other disposition of 10 radio stations for $269.3 million in cash and a
promissory note for $18.0 million.
COMPLETED CHANCELLOR TRANSACTIONS
- - Between January 1, 1997 and the date of the completion of the Chancellor
Merger, CRBC and its subsidiaries had completed (i) the acquisition of 24
radio stations for a net purchase price of approximately $1.07 billion, (ii)
the exchange of three stations for one station and $33.0 million in cash and
(iii) the sale of five radio stations for $108.3 million in cash.
PENDING TRANSACTIONS
- - THE GANNETT ACQUISITION. On April 4, 1997, EMCLA entered into three
separate asset purchase agreements (the "Gannett Agreements") with Pacific
and Southern Company, Inc., a subsidiary of Gannett Co., Inc. ("P&S"), under
which EMCLA agreed to acquire one FM and one AM station in Chicago, one FM
and one AM station in Houston and one FM station in Dallas, for an aggregate
purchase price of $340.0 million in cash, subject to an upward adjustment of
up to $10.0 million, depending on the timing of the consummation of the
transaction (the "Gannett Acquisition").
- - BONNEVILLE OPTION. On August 6, 1997, Evergreen and Chancellor paid $3.0
million to Bonneville International Corporation ("Bonneville") for an option
to exchange three of the Company's stations in Los Angeles and Washington,
D.C. plus an additional $57.0 million in cash for three of Bonneville's
stations in New York, Los Angeles and Houston (the "Bonneville Option"). The
Bonneville Option was exercised on October 1, 1997 and definitive exchange
documentation is presently being negotiated.
4
<PAGE> 11
- - DENVER ACQUISITION. On July 30, 1997, CRBC entered into an agreement to
acquire one FM station in Denver for $26.0 million in cash (the "Denver
Acquisition").
- - SFX EXCHANGE. On July 1, 1996, CRBC entered into an agreement to exchange
two FM stations in Jacksonville and $11.0 million in cash in return for four
stations (three FM and one AM) in Nassau/ Suffolk (Long Island) (the "SFX
Exchange"). The SFX Exchange is currently under review by the Antitrust
Division of the United States Department of Justice (the "DOJ") under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and, accordingly, there can be no assurance as to whether or when the
SFX Exchange may ultimately be consummated.
- - KATZ ACQUISITION. On July 14, 1997, Evergreen, Chancellor and Katz Media
Group, Inc. ("Katz") entered into an agreement pursuant to which a jointly
owned affiliate of Evergreen and Chancellor would acquire Katz, a
full-service media representation firm, in a transaction valued at
approximately $376.1 million at September 30, 1997 (the "Katz Acquisition").
Under the terms of the Katz Acquisition, shareholders of Katz would be
offered in a tender offer $11.00 in cash for each share of common stock
held. Additionally, debt of Katz and its subsidiaries of approximately $212
million at September 30, 1997 would be assumed or refinanced as part of the
Katz Acquisition. Consummation of the Katz Acquisition is subject to the
tender of a majority of Katz shares on a fully-diluted basis, approval of
the Katz shareholders and the receipt of certain regulatory approvals,
including the expiration or termination of the waiting period required under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"). In connection with its review under the HSR Act, the Antitrust
Division of the United States Department of Justice (the "DOJ") has issued a
second request for information concerning the Katz Acquisition. Chancellor
Media is in the process of providing that information. There can be no
assurance as to whether or when the Katz Acquisition may ultimately be
consummated. Additionally, assuming the Katz Acquisition may ultimately be
consummated, it is unclear if Katz would be a direct subsidiary of
Chancellor Media or of CMCLA, and holders of Notes should not presume that
Katz would be combined with CMCLA upon consummation of the Katz Acquisition.
The foregoing transactions other than the Katz Acquisition are collectively
referred to as the "Pending Transactions." Upon the consummation of all the
Pending Transactions, the Company's portfolio will consist of 99 radio stations
(73 FM and 26 AM).
THE FINANCING TRANSACTIONS
The financing for the Completed Evergreen/Chancellor Media Transactions,
the Completed Chancellor Transactions and the Pending Transactions has included:
- - EVERGREEN PREFERRED STOCK OFFERING. In June 1997, Evergreen issued and sold
5,990,000 shares of its $3.00 Convertible Exchangeable Preferred Stock (the
"$3.00 Convertible Preferred Stock") which generated net proceeds of $287.8
million which were contributed to EMCLA.
- - EMCLA SENIOR CREDIT FACILITY. On April 25, 1997, EMCLA and a syndicate of
commercial banks and financial institutions amended and restated EMCLA's
senior loan agreement (as amended on June 26, 1997 and August 7, 1997, the
"Senior Credit Facility") to, among other things, provide for a total
commitment of $1.75 billion, consisting of a $1.25 billion reducing
revolving credit facility and a $500.0 million term loan facility. The
commitments under the revolving credit facility and the term loan facility
were increased to $1.60 billion and $900.0 million, respectively, upon
consummation of the Chancellor Merger, and at such time, CMCLA borrowed
under the Senior Credit Facility to repay all amounts then outstanding under
the CRBC Restated Credit Agreement and the Chancellor Interim Financing (as
each term is defined below).
- - CRBC SUBORDINATED NOTES OFFERING. On June 24, 1997, CRBC issued and sold the
Original Notes, the net proceeds of $194.1 million of which were used to
repay borrowings under CRBC's previous senior credit agreement. The Original
Notes were assumed by the Company upon consummation of the Chancellor
Merger.
5
<PAGE> 12
- - CRBC RESTATED CREDIT AGREEMENT. On July 2, 1997, CRBC and a syndicate of
commercial banks and financial institutions amended and restated CRBC's
senior credit facility (as amended, the "CRBC Restated Credit Agreement")
to, among other things, provide for a total commitment of $750.0 million.
All amounts outstanding under the CRBC Restated Credit Agreement were repaid
with borrowings under the Senior Credit Facility at the closing of the
Chancellor Merger.
- - CHANCELLOR INTERIM FINANCING. On July 2, 1997, Chancellor borrowed funds
under an interim loan of $170.0 million (the "Chancellor Interim
Financing"). The Chancellor Interim Financing was repaid at the closing of
the Chancellor Merger with borrowings under the Senior Credit Facility that
had previously been distributed to EMHC.
- - STATION SALES PROCEEDS. The cash proceeds of radio station dispositions
have totalled $490.6 million.
6
<PAGE> 13
THE EXCHANGE OFFER
The Exchange Offer......... The Company is offering to exchange up to $200
million aggregate principal amount of Exchange
Notes for a like principal amount of Original
Notes. The Exchange Notes may be exchanged only in
multiples of $1,000 principal amount. The Company
will issue the Exchange Notes on or promptly after
the Expiration Date. See "The Exchange Offer."
Based on interpretations by the Staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that the
Exchange Notes issued pursuant to the Exchange
Offer in exchange for the Original Notes may be
offered for resale, resold and otherwise
transferred by any holder thereof (other than any
such holder which is (i) an "affiliate" of the
Company within the meaning of Rule 405 under the
Securities Act, (ii) a broker-dealer who acquired
the Original Notes directly from the Company or
(iii) a broker-dealer who acquired the Original
Notes as a result of market making or other trading
activities) without compliance with the
registration and prospectus delivery requirements
of the Securities Act, provided that such Exchange
Notes are acquired in the ordinary course of such
holder's business and such holder is not engaged
in, and does not intend to engage in, and has no
arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes. Each broker-dealer that receives the
Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale
of such Exchange Notes. See "Plan of Distribution."
To comply with the securities laws of certain
jurisdictions, it may be necessary to qualify for
sale or register the Exchange Notes prior to
offering or selling such Exchange Notes. If a
holder of Original Notes does not exchange such
Original Notes pursuant to the Exchange Offer, such
Original Notes will continue to be subject to the
restrictions on transfer contained in the legend
thereon. In general, the Original Notes may not be
offered or sold, unless registered under the
Securities Act, except pursuant to an exemption
from, or in a transaction not subject to the
Securities Act and applicable state securities
laws. See "The Exchange Offer -- Consequences of
Failure to Exchange" and "Description of Exchange
Notes".
Expiration Date............ The Exchange Offer will expire at 5:00 p.m., New
York City time, on November 17, 1997, unless
extended in which case the term "Expiration Date"
shall mean the latest date and time to which the
Exchange Offer is so extended.
Conditions to the Exchange
Offer.................... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company in
whole or in part and from time to time in its sole
discretion. See "The Exchange Offer -- Certain
Conditions to the Exchange Offer." The Exchange
Offer is not conditioned upon any minimum aggregate
principal amount of Original Notes being tendered
for exchange.
Procedures for Tendering
the Original Notes......... Each registered holder of Original Notes (a
"Registered Holder") wishing to tender such
Original Notes in the Exchange Offer must complete,
sign and date the Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and
7
<PAGE> 14
mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with such
Original Notes and any other required
documentation, to the Exchange Agent at the address
set forth herein. By executing the Letter of
Transmittal, each holder of the Original Notes
(other than Participating Broker-Dealers (as
defined)) must represent to the Company that, among
other things, (i) the Exchange Notes to be acquired
pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person
receiving such Exchange Notes, whether or not the
holder of the Original Notes, (ii) neither the
holder of the Original Notes nor any such other
person has an arrangement or understanding with any
person to participate in the distribution of such
Original Notes and (iii) neither the holder nor any
such person is an "affiliate," as defined in Rule
405 under the Securities Act, of the Company. Each
Registered Holder whose Original Notes are held
through DTC (as defined) and wishes to participate
in the Exchange Offer may do so through DTC's
Automated Tender Offer Program ("ATOP") by which
each tendering participant will agree to be bound
by the Letter of Transmittal. Any Original Notes
not accepted for exchange for any reason will be
returned without expense to the tendering holder
thereof as promptly as practicable after the
expiration or termination of the Exchange Offer.
See "The Exchange Offer -- Procedures for
Tendering Original Notes."
Special Procedures for
Beneficial Owners........ Any beneficial owner whose Original Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender such Original Notes should
contact such Registered Holder promptly and
instruct such Registered Holder to tender on such
beneficial owner's behalf. If such beneficial owner
wishes to tender on its own behalf, such beneficial
owner must, prior to completing and executing the
Letter of Transmittal and delivering its Original
Notes, either make appropriate arrangements to
register ownership of the Original Notes in such
owner's name or obtain a properly completed bond
power from the Registered Holder. The transfer of
registered ownership may take considerable time and
may not be able to be completed prior to the
Expiration Date. See "The Exchange Offer --
Procedures for Tendering Original Notes."
Guaranteed Delivery
Procedures............... Holders of Original Notes who wish to tender their
Original Notes and whose Original Notes are not
immediately available or who cannot deliver their
Original Notes or any other documents required by
the Letter of Transmittal to the Exchange Agent
prior to the Expiration Date, must tender their
Original Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer --
Guaranteed Delivery Procedures."
Withdrawal Rights.......... Tenders of Original Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the
Expiration Date. For a withdrawal to be effective,
a written or facsimile notice of withdrawal must be
received by the Exchange Agent at its address set
forth herein. Such notice must (i) specify the name
of the person having tendered the Original Notes to
be withdrawn; (ii) identify the Original Notes to
be withdrawn (including the certificate number or
numbers and principal amount of Original Notes to
be withdrawn); (iii) be signed by the holder
8
<PAGE> 15
in the same manner as the original signature on the
Letter of Transmittal by which such Original Notes
were tendered; and (iv) specify the name in which
the Original Notes are to be registered; if
different from that of the withdrawing holder. See
"The Exchange Offer -- Withdrawal Rights."
Acceptance of Original
Notes and Delivery of
Exchange Notes........... Subject to the satisfaction or waiver of the
conditions to the Exchange Offer, the Company will
accept for exchange any and all Original Notes
which are properly tendered in the Exchange Offer
prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Notes issued pursuant
to the Exchange Offer will be delivered promptly
following the Expiration Date. See "The Exchange
Offer -- Terms of the Exchange Offer."
Consequences of Failure to
Exchange................. Holders of Original Notes who do not exchange their
Original Notes for the Exchange Notes pursuant to
the Exchange Offer will continue to be subject to
the restrictions on transfer of such Original Notes
as set forth in the legend thereon. In general,
Original Notes that are not exchanged pursuant to
the Exchange Offer may not be offered or sold
except pursuant to a registration statement filed
under the Securities Act or an exemption from
registration thereunder and in compliance with
applicable state securities laws. In the event the
Company completes the Exchange Offer, the interest
rate on Original Notes will remain as stated
thereon and holders of Original Notes will have no
further rights under the Registration Rights
Agreements (as defined below).
Certain Tax
Considerations........... Latham & Watkins, counsel to the Company, has
advised the Company that because the Exchange Notes
should not be considered to differ materially from
the Original Notes, the exchange of Original Notes
for Exchange Notes should not result in any
material federal income tax consequences to holders
exchanging Original Notes for Exchange Notes. For a
full description of the basis of, and limitations
on, this opinion, see "Material Federal Income Tax
Considerations."
Registration Rights
Agreement................ Pursuant to a registration rights agreement (the
"Registration Rights Agreement") among CRBC and the
initial purchasers of the Original Notes (the
"Initial Purchasers"), CRBC agreed (i) to file a
registration statement within 120 days after the
Issue Date with respect to an offer to exchange the
Original Notes for a like amount of Exchange Notes
and (ii) to use its reasonable best efforts to
cause such registration statement to become
effective under the Securities Act within 180 days
after the Issue Date. As a result of the merger of
CRBC with and into the Company, the Company has
assumed CRBC's obligations under the Registration
Rights Agreement. The Exchange Offer is intended to
satisfy the rights of holders of Original Notes
under the Registration Rights Agreement, which
rights terminate upon consummation of the Exchange
Offer. The holders of the Exchange Notes are not
entitled to any exchange or registration rights
with respect to the Exchange Notes.
Exchange Agent............. U.S. Trust Company of Texas, N.A. is the Exchange
Agent for the Exchange Offer. The address and
telephone number of the Exchange Agent are set
forth in the "The Exchange Offer -- Exchange
Agent."
9
<PAGE> 16
SUMMARY OF TERMS OF THE EXCHANGE NOTES
The Exchange Offer applies to $200.0 million aggregate principal amount of
the Original Notes. The form and terms of the Exchange Notes will be the same as
the form and terms of the Original Notes except that (i) the Exchange Notes will
be registered under the Securities Act, and, therefore, will not bear legends
restricting the transfer thereof and (ii) the holders of the Exchange Notes will
not be entitled to certain rights of the holders of the Original Notes under the
Registration Rights Agreement, which rights will terminate upon consummation of
the Exchange Offer. The Exchange Notes will evidence the same debt as the
Original Notes and both series of Notes will be entitled to the benefits of the
Indenture and treated as a single class of debt securities.
Issuer..................... Chancellor Media Corporation of Los Angeles, as
successor by merger to Chancellor Radio
Broadcasting Company. Prior to the Chancellor
Merger, Chancellor Media Corporation of Los Angeles
was named Evergreen Media Corporation of Los
Angeles.
Securities Offered......... $200,000,000 aggregate principal amount of 8 3/4%
Senior Subordinated Notes due 2007, Series B.
Maturity Date.............. June 15, 2007.
Interest Rate and Payment
Dates.................... The Exchange Notes will bear interest at a rate of
8 3/4% per annum. Interest on the Exchange Notes
will accrue from June 24, 1997 and will be payable
semi-annually on each June 15 and December 15,
commencing December 15, 1997.
Optional Redemption........ The Exchange Notes will be redeemable, in whole or
in part, at the option of the Company on or after
June 15, 2002 at the redemption prices set forth
herein, plus accrued and unpaid interest to the
date of redemption. In addition, on or prior to
June 15, 2000, the Company may, at its option,
redeem the Exchange Notes, in part, with the net
cash proceeds of one or more Public Equity
Offerings, at the redemption price set forth
herein, plus accrued and unpaid interest, if any,
to the date of redemption; provided, however, that
after any such redemption the aggregate principal
amount of Notes outstanding must equal at least 75%
of the aggregate principal amount of Original Notes
originally issued on June 24, 1997. See
"Description of the Exchange Notes -- Optional
Redemption."
Change of Control.......... If a Change of Control (as defined) occurs, (i) the
Company will have the option, at any time on or
prior to June 15, 2000, to redeem the Exchange
Notes in whole but not in part at a redemption
price equal to 100% of the principal amount thereof
plus the Applicable Premium, plus accrued and
unpaid interest, if any, to the date of redemption,
and (ii) if the Company does not so redeem the
Exchange Notes or if such Change of Control occurs
after June 15, 2000, the Company will be required
to offer to repurchase all outstanding Exchange
Notes at a price equal to 101% of their principal
amount, plus accrued and unpaid interest, if any,
to the date of repurchase. There can be no
assurance that the Company will have sufficient
funds to purchase all the Exchange Notes in the
event of a Change of Control or that the Company
would be able to obtain financing for such purpose
on favorable terms, if at all. In addition, the
Senior Credit Facility will restrict the Company's
ability to repurchase the Exchange Notes, including
pursuant to a Change of Control Offer (as defined).
The Senior Credit Facility also contains certain
other provisions relating to a change of control of
the Company. These provisions are generally broader
than the Change of Control provisions of the
Indenture. Consequently, certain events that may
give rise to a change of control under the Senior
Credit Facility may not give rise to a
10
<PAGE> 17
Change of Control under the Indenture. See "Risk
Factors -- Change of Control" and "Description of
the Exchange Notes -- Change of Control."
Offers to Purchase......... In the event of certain assets sales, the Company
will be required to offer to repurchase the
Exchange Notes (to the extent of any net proceeds
remaining following the Company's offer to purchase
the 9 3/8% Notes) at a price equal to 100% of their
principal amount, plus accrued and unpaid interest,
if any, to the date of repurchase. See "Description
of the Exchange Notes -- Certain
Covenants -- Limitation on Asset Sales."
Ranking.................... The Exchange Notes will be general unsecured
obligations of the Company and will rank pari passu
in right of payment to the Company's 9 3/8% Notes
and will be subordinated in right of payment to all
existing and future Senior Debt. As of June 30,
1997, on a pro forma basis after giving effect to
the Completed Transactions completed after such
date, the Chancellor Merger, the Pending
Transactions and the Financing Transactions and the
application of the net proceeds therefrom,
approximately $1.93 billion of Senior Debt
(represented by borrowings under the Senior Credit
Facility) would have been outstanding and
approximately $200.0 million of debt ranking pari
passu to the Exchange Notes would have been
outstanding. See "Description of the Exchange
Notes -- Subordination."
Guarantees................. The Exchange Notes will be fully and
unconditionally guaranteed (the "Guarantees") on a
senior subordinated basis by the Guarantors. The
obligation of the Guarantors with respect to the
Guarantees will be subordinated in right of
payment, to the same extent as the obligations of
the Company in respect of the Exchange Notes are
subordinated to all existing and future Senior
Debt, to all existing and future Guarantor Senior
Debt (as defined)(which includes the guarantee by
the guarantors of the Company's borrowings under
the Senior Credit Facility), and will rank pari
passu to the Guarantors' guarantee of the 9 3/8%
Notes. See "Description of the Exchange
Notes -- Guarantees."
Certain Covenants.......... The Indenture imposes certain limitations on the
ability of the Company and its subsidiaries to,
among other things, incur additional indebtedness,
incur liens, pay dividends or make certain other
restricted payments, consummate certain asset
sales, enter into certain transactions with
affiliates, engage in certain asset swaps, incur
indebtedness that is subordinate in right of
payment to any Senior Debt and senior in right of
payment to the Exchange Notes, impose restrictions
on the ability of a subsidiary to pay dividends or
make certain payments to the Company, enter into
sale and leaseback transactions, conduct business
other than the ownership and operation of radio
broadcast stations, merge or consolidate with any
other person or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially
all of the assets of the Company. See "Description
of the Exchange Notes -- Certain Covenants.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes pursuant to this Prospectus.
RISK FACTORS
See "Risk Factors" beginning on page 14 for a discussion of certain factors
that should be considered carefully in evaluating the Exchange Offer.
11
<PAGE> 18
SUMMARY PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial statements, a complete
set of which are included on pages P-1 through P-29 of this Prospectus, are
presented using the purchase method of accounting for all acquisitions and
reflect (i) the combination of consolidated historical financial data of EMCLA,
CRBC, each of the stations acquired in the Completed Evergreen/Chancellor Media
Transactions and the Completed Chancellor Transactions (collectively, the
"Completed Transactions") and each of the stations to be acquired in the Pending
Transactions and (ii) the elimination of the consolidated historical data of the
stations sold by EMCLA and CRBC in the Completed Transactions and stations to be
sold or swapped by the Company in the Pending Transactions.
The summary pro forma financial information set forth below under Company
Pro Forma Combined presents adjustments for (i) in the case of the Operating
Data and Other Data, the Completed Transactions, the 1996 Evergreen Offering (as
defined), the 1996 Preferred Stock Conversion (as defined), the Chancellor
Offerings (as defined), the Pending Transactions and the Financing Transactions
as if such transactions had occurred on January 1, 1996 and (ii) in the case of
the Balance Sheet Data, for the Completed Transactions consummated after June
30, 1997, the Chancellor Merger, the Pending Transactions and the Financing
Transactions as if such transactions had occurred on June 30, 1997. No
adjustments are presented to the unaudited pro forma condensed combined balance
sheet data or the unaudited pro forma condensed combined statement of operations
data in respect of the Katz Acquisition (as defined) because Katz may not be
combined with the Company upon consummation of the Katz Acquisition, and because
such transaction has not yet been completed and does not constitute the
acquisition of a significant business for purposes of Rule 3-05 and Rule 11-01
of Regulation S-X of the Commission's rules.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
---------------------- -----------------------
COMPANY COMPANY
PRO FORMA PRO FORMA
HISTORICAL COMBINED HISTORICAL COMBINED
---------- --------- ---------- ----------
(IN THOUSANDS EXCEPT MARGIN DATA)
<S> <C> <C> <C> <C>
OPERATING DATA:
Net revenues............................ $ 293,850 $ 731,201 $ 188,261 $ 395,969
Station operating expenses excluding
depreciation and amortization......... 174,344 420,706 111,162 229,396
Operating income (loss)................. 17,960 (43,421) 17,536 (10,275)
Interest expense........................ 37,527 171,326 22,741 85,847
Net loss................................ (16,194) (152,547) (491) (60,147)
Preferred stock dividends............... -- 38,400 -- 19,626
Net loss attributable to common stock... (16,194) (190,947) (491) (79,773)
OTHER DATA:
Broadcast cash flow(1).................. $ 119,506 $ 310,495 $ 77,099 $ 166,573
Broadcast cash flow margin.............. 41% 42% 41% 42%
EBITDA(1)............................... $ 111,709 $ 296,581 $ 71,448 $ 157,409
Ratio of earnings to fixed charges(2)... -- -- 1.33x --
BALANCE SHEET DATA (END OF PERIOD):
Working capital, excluding current
portion of long-term debt............. $ 67,921 N/A $ 79,345 $ 130,146
Intangible assets, net.................. 853,643 N/A 1,183,569 4,220,730
Total assets............................ 1,020,959 N/A 1,483,513 4,631,247
Long-term debt (including current
portion).............................. 358,000 N/A 525,000 2,326,553
Redeemable preferred stock.............. -- N/A -- 328,444
Stockholder's equity.................... 549,411 N/A 836,603 1,522,190
</TABLE>
12
<PAGE> 19
- ---------------
(1) Broadcast cash flow consists of station operating income excluding
depreciation and amortization, and corporate general and administrative
expense and non-cash stock option compensation expense. EBITDA consists of
operating income before depreciation, amortization and non-cash stock option
compensation expense. Although broadcast cash flow and EBITDA are not
calculated in accordance with generally accepted accounting principles, the
Company believes that broadcast cash flow and EBITDA are widely used in the
broadcast industry as a measure of a station group's operating performance.
Nevertheless, these measures should not be considered in isolation or as a
substitute for operating income, cash flows from operating activities or any
other measure for determining the Company's operating performance or
liquidity that is calculated in accordance with generally accepted
accounting principles. Broadcast cash flow and EBITDA do not take into
account the Company's debt service requirements and other commitments and,
accordingly, broadcast cash flow and EBITDA are not necessarily indications
of amounts that may be available for reinvestment in the Company's business
or other discretionary uses.
(2) For purposes of this calculation, "earnings" consist of income (loss) before
income taxes and fixed charges. "Fixed charges" consist of interest,
amortization of debt issuance costs and the component of rental expense
believed by management to be representative of the interest factor thereon.
Earnings were insufficient to cover fixed charges by $19,090 for the year
ended December 31, 1996. On a pro forma basis after giving effect to the
Completed Transactions, the Chancellor Merger, the 1996 Evergreen Offering,
the 1996 Preferred Stock Conversion, the Chancellor Offerings, the Pending
Transactions and the Financing Transactions, earnings were insufficient to
cover fixed charges by $213,600 and $81,990 for the year ended December 31,
1996 and the six months ended June 30, 1997, respectively.
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RISK FACTORS
Holders of Original Notes that are considering participating in the
Exchange Offer and prospective purchasers of Exchange Notes should carefully
consider, in addition to the other information contained in this Prospectus, the
following risk factors.
SUBSTANTIAL LEVERAGE; HISTORY OF NET LOSSES AND INSUFFICIENCY OF EARNINGS TO
COVER FIXED CHARGES
The Company has consolidated indebtedness that is substantial in relation
to its stockholders equity. The Company is subject to the terms of the Senior
Credit Facility, the indenture governing the 9 3/8% Notes (the "9 3/8%
Indenture"), the Indenture governing the Notes and the certificates of
designation governing two series of preferred stock, the 12 1/4% Senior
Cumulative Exchangeable Preferred Stock (the "12 1/4% Preferred Stock") and the
12% Exchangeable Preferred Stock (the "12% Preferred Stock"). The Senior Credit
Facility, the 9 3/8% Indenture, the Indenture and such certificates of
designation limit, but do not prohibit, the incurrence of additional
indebtedness by the Company. As of June 30, 1997, EMCLA and CRBC had outstanding
long-term indebtedness (including current portion) of approximately $525.0
million and $547.3 million, respectively. As of June 30, 1997, on a pro forma
basis after giving effect to those Completed Transactions consummated after such
date, the Chancellor Merger, the Pending Transactions and the Financing
Transactions, but without giving effect to the Katz Acquisition, the Company
would have had outstanding long term indebtedness (including current portion) of
approximately $2.33 billion, redeemable preferred stock with an aggregate
liquidation preference of approximately $328.4 million, an accumulated deficit
of $110.8 million and stockholder's equity of $1.52 billion. See
"Capitalization." In addition, the Company may be required to borrow up to $165
million under the Senior Credit Facility, to be distributed ultimately to
Chancellor Media to be used by Chancellor Media as the equity capital required
to finance the Katz Acquisition. Alternatively, the Company may refinance Katz'
existing credit facility with borrowings under the Senior Credit Facility and
assume the obligations under Katz' $100 million aggregate principal amount of
10 1/2% Senior Subordinated Notes due 2007, in addition to borrowings that may
be required to finance the purchase of Katz' common stock, should Katz
ultimately be combined with the Company. See "Business and Properties -- Recent
Developments -- Pending Transactions -- Katz Acquisition."
The degree to which the Company is leveraged could have material
consequences to the Company and the holders of the Exchange Notes, including,
but not limited to the following: (i) its ability to obtain additional financing
in the future for acquisitions, working capital, capital expenditures, and
general corporate or other purposes may be impaired, (ii) a substantial portion
of its cash flow will be required for debt service under the Senior Credit
Facility, the 9 3/8% Notes and the Notes and, as a result, will not be available
for other purposes, (iii) commencing in February 2001, the Company will have
substantial cash dividend requirements on the 12 1/4% Preferred Stock and,
commencing in January 2002, on the 12% Preferred Stock, (iv) the Company's level
of indebtedness could make it more vulnerable to economic downturns, limit its
ability to withstand competitive pressures and reduce its flexibility in
responding to changing business and economic conditions and (v) the agreements
governing its long-term debt (and, to a lesser extent, the 12 1/4% Preferred
Stock and the 12% Preferred Stock) contain numerous restrictive operating and
financial covenants with which it must comply. The failure by the Company to
comply with the covenants in such debt instruments could result in an event of
default thereunder, which could permit acceleration of the debt under such
instruments and in some cases acceleration of debt under other instruments that
contain cross-default or cross-acceleration provisions. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Description of Capital Stock,"
"Description of Certain Indebtedness" and "Description of the Exchange Notes."
The ability of the Company to satisfy its obligations under the Senior
Credit Facility, the 9 3/8% Indenture, the Indenture, and the certificates of
designation governing the 12 1/4% Preferred Stock and the 12% Preferred Stock
will depend upon the Company's future operating performance. Such operating
performance will be affected by prevailing economic conditions and financial,
business and other factors, certain of which are beyond the Company's control.
The Company anticipates that its operating cash flow, together with borrowings
under the Senior Credit Facility, will be sufficient to meet its operating
expenses and to service its debt and preferred stock dividend requirements as
they become due. However, if the Company is unable to
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service its indebtedness, whether upon acceleration of such indebtedness or in
the ordinary course of business, it will be forced to pursue one or more
alternative strategies such as selling assets, restructuring or refinancing its
indebtedness, or seeking additional equity capital. There can be no assurance
that any of these strategies could be effected on satisfactory terms, if at all,
or that the approval of the FCC could be obtained on a timely basis, or at all,
for the transfer of any of the stations' licenses in connection with a proposed
sale of assets.
The Company has historically experienced, on a consolidated basis, net
losses, principally as a result of significant interest charges, certain
non-recurring expenses and depreciation and amortization charges relating to the
acquisition of radio broadcasting stations. EMCLA's net loss attributable to
common stock for the years ended December 31, 1994, 1995 and 1996 and for the
six months ended June 30, 1997 was $3.5 million, $5.9 million, $16.2 million and
$0.5 million, respectively. CRBC's net loss attributable to common stock for the
years ended December 31, 1994, 1995 and 1996 and for the six months ended June
30, 1997 was $0.1 million, $11.5 million, $35.0 million and $30.4 million,
respectively. On a pro forma basis, after giving effect to the Completed
Transactions consummated after such date, the Chancellor Merger, the Pending
Transactions and the Financing Transactions, but without giving effect to the
Katz Acquisition, the Company's net loss attributable to common stock for the
year ended December 31, 1996 and the six months ended June 30, 1997 would have
been $190.9 million and $79.8 million, respectively. The acquisition of radio
broadcasting stations has been and will continue to be an important part of the
Company's operating strategy, and the Company expects that amortization charges
and interest expenses relating to past and possible future acquisitions will
continue to have a significant adverse effect on the Company's reported results.
NECESSITY OF GOVERNMENTAL REVIEWS AND APPROVALS PRIOR TO CONSUMMATION OF THE
PENDING TRANSACTIONS
Approval of the FCC is required for the issuance, renewal or transfer of
radio broadcast station operating licenses. In addition, the consummation of
each of the Pending Transactions is conditioned upon the expiration or
termination of the applicable waiting period under the HSR Act. To date, (i) the
FCC has approved the Gannett Acquisition, the Denver Acquisition and the SFX
Exchange, and the approval for each of these transactions (except the Denver
Acquisition) has become a final, nonappealable order, (ii) the waiting periods
required under the HSR Act for the Gannett Acquisition, the Denver Acquisition
and the Bonneville Option have expired or been terminated, and (iii) the waiting
periods required under the HSR Act for the SFX Exchange and the Katz Acquisition
have not expired or been terminated.
There can be no assurance that any governmental agency, including the FCC,
will approve or take any other required action with respect to any of the
Pending Transactions or the Katz Acquisition for which approval has not been
given or actions not taken or, if approvals are received or actions are taken,
that such approvals or actions will not require further, possibly numerous
divestitures, or be conditioned upon matters that would cause the Company to
abandon one or more of the Pending Transactions or the Katz Acquisition or that
no action will be brought challenging such approvals or actions, or, if such
challenge is made, as to the result thereof.
INTEGRATION OF ACQUISITIONS
The Company holds a significantly larger portfolio of radio stations than
the Company has held in the past. In addition, management is regularly involved
in discussions with third parties regarding potential acquisitions, and the
Company may pursue an active acquisition strategy that could result in
additional expansion in the future. As a result of the Company's acquisition
strategy, the Company's management will be required to manage a substantially
larger radio station group than historically has been the case. The Company's
future operations and earnings will be largely dependent on the Company's
ability to integrate the stations proposed to be acquired thereunder. The
Company must, among other things, integrate management and employee personnel
and combine certain administrative procedures. The integration of the stations
proposed to be acquired involve numerous other risks, including the potential
loss of key employees of acquired stations. There can be no assurance that the
Company will successfully integrate the stations proposed to be acquired, and
the failure to do so could have a material adverse effect on its results of
operations and financial condition. In addition, the need to focus management's
attention on the integration of
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these stations may limit the ability of the Company to successfully pursue other
opportunities for a period of time.
The acquisition strategy of the Company involves numerous other risks,
including increasing leverage and debt service requirements, the diversion of
management's attention from other business concerns and the potential loss of
key employees of acquired stations. The availability of additional acquisition
financing cannot be assured, and depending on the terms of the proposed
acquisitions and financings, could be restricted by the terms of the Senior
Credit Facility, the 9 3/8% Indenture, the Indenture, the certificates of
designation for the 12 1/4% Preferred Stock and the 12% Preferred Stock, or the
certificates of designation for Chancellor Media's 7% Convertible Preferred
Stock and $3.00 Convertible Preferred Stock. There can be no assurance that any
future acquisitions will not have a material adverse effect on the Company's
financial condition and results of operations.
KATZ ACQUISITION
The DOJ has issued a second request for information under the HSR Act in
connection with the Katz Acquisition. Accordingly, there can be no assurance as
to whether or when the Katz Acquisition may be consummated. Additionally,
assuming the Katz Acquisition may ultimately be consummated, it is unclear if
Katz would be a direct subsidiary of Chancellor Media or of CMCLA, and holders
of Notes should not presume that Katz would be combined with CMCLA upon
consummation of the Katz Acquisition. See "Business and Properties -- Recent
Developments -- Pending Transactions -- Katz Acquisition."
COMPETITIVE NATURE OF RADIO BROADCASTING
The radio broadcasting industry is a highly competitive business. The
success of each of the Company's stations will be dependent, to a significant
degree, upon its audience ratings and share of the overall advertising revenue
within its market. The Company's stations will compete for listeners and
advertising revenue directly with other radio stations, as well as with other
media, within their respective markets. The Company also will compete with other
broadcasting operators for acquisition opportunities, and prices for radio
stations in major markets have increased significantly in recent periods. To the
extent that the rapid pace of consolidation in the radio broadcasting industry
continues, certain competitors may emerge with larger portfolios of major market
radio stations, greater ability to deliver large audiences to advertisers and
more access to capital resources than the Company. The audience ratings and
market share for the Company are and will be subject to change and any adverse
change in a particular market could have a material and adverse effect on the
revenue of their stations located in that market. There can be no assurance that
any one of the Company's stations will be able to maintain or increase its
current audience ratings or advertising revenue market share.
The radio broadcasting industry is also subject to competition from new
media technologies that are being developed or introduced, such as the delivery
of audio programming by cable television systems, direct broadcast satellite
("DBS") systems and other digital audio broadcasting formats to local and
national audiences. In addition, the FCC has auctioned spectrum for a new
satellite-delivered Digital Audio Radio Service ("DARS"). These actions may
result in the introduction of several new national or regional multi-channel and
multi-format satellite radio services with sound quality equivalent to compact
discs. Another possible competitor to traditional radio is In Band On Channel
("IBOC") digital radio. IBOC could provide multi-channel, multi-format digital
radio services in the same band width currently occupied by traditional AM and
FM radio services. The Company cannot predict at this time the effect, if any,
that any such new technologies may have on the radio broadcasting industry.
ANTITRUST MATTERS
As a result of the recent consolidation of ownership in the radio broadcast
industry, the DOJ has been giving closer scrutiny to acquisitions in the
industry, including certain transactions involving the Company. The consummation
of the Pending Transactions and the Katz Acquisition are subject to notification
filing requirements, applicable waiting periods and possible review by the DOJ
or the United States Federal Trade Commission (the "FTC") under the HSR Act. To
date, the waiting periods for all such transactions except
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<PAGE> 23
the SFX Exchange and the Katz Acquisition have expired or been terminated. See
"-- Necessity of Governmental Reviews and Approvals Prior to Consummation of the
Pending Transactions" above and "Business and Properties -- Federal Regulation
of Radio Broadcasting Industry." The DOJ has issued a second request for
additional information in connection with the SFX Exchange and the Katz
Acquisition (as described above). DOJ review of certain transactions has caused,
and may continue to cause, delays in anticipated consummations of certain
transactions and, in some cases, may result in attempts by DOJ to enjoin such
transactions or negotiate modifications of the proposed transactions. Such
delays, injunctions and modifications could have an adverse effect on the
Company and may result in the abandonment of some otherwise attractive
transactions.
The DOJ has stated publicly that it has established certain revenue and
audience share concentration benchmarks with respect to radio station
acquisitions, above which a transaction may receive additional antitrust
scrutiny. However, to date, the DOJ has also investigated transactions that do
not meet or exceed these benchmarks and has cleared transactions that do exceed
the benchmarks. Given this uncertainty, the Company cannot predict whether it
will be required by the DOJ or the FTC to dispose of certain stations to be
acquired as a result of the Pending Transactions. Although the Company does not
believe that its acquisition strategy as a whole will be adversely affected in
any material respect by antitrust review (including review under the HSR Act) or
by additional divestitures that the Company may have to make as a result of
antitrust review, there can be no assurance that this will be the case.
RADIO BROADCASTING INDUSTRY SUBJECT TO FEDERAL REGULATION
The radio broadcasting industry is subject to extensive regulation by the
FCC under the Communications Act of 1934 as amended (as amended by the 1996 Act,
the "Communications Act"). Approval of the FCC is required for the issuance,
renewal or transfer of radio broadcast station operating licenses. See
"-- Necessity of Governmental Reviews and Approvals Prior to Consummation of the
Pending Transactions" above. In particular, the Company's business is dependent
upon its continuing to hold radio broadcasting licenses from the FCC that are
issued for terms of up to eight years. While in the vast majority of cases such
licenses are renewed by the FCC, there can be no assurance that any of the
stations' licenses will be renewed at their expiration dates, or that renewals,
if granted, will not include conditions or qualifications that could adversely
affect the Company's operations. In addition, the Communications Act and FCC
rules restrict alien ownership and voting of capital stock of, and
participations in the affairs of the Company. Moreover, laws, regulations and
policies may be changed significantly over time and there can be no assurance
that such changes will not have a material adverse affect on the business,
financial condition and results of operations of the Company.
The 1996 Act, which amended the Communications Act in a number of important
respects, has created significant new opportunities for radio broadcasters, but
also has created uncertainties as to how the FCC and the courts will enforce and
interpret the 1996 Act. Although the 1996 Act eliminated the national ownership
ceiling previously applicable to radio broadcasters and also loosened
restrictions previously applicable to ownership within single markets,
significant restrictions remain on permitted levels of local ownership. In
markets with 45 or more stations, ownership is limited to eight stations, no
more than five of which can be FM or AM; in markets with 30-44 stations,
ownership is limited to seven stations, no more than four of which can be FM or
AM; in markets with 15-29 stations, ownership is limited to six stations, no
more than four of which can be FM or AM; and in markets with 14 or fewer
stations, ownership is limited to no more than 50% of the market's total and no
more than three AM or FM. Compliance with the FCC's multiple ownership rules is
expected to cause the Company and other radio broadcasters to forego acquisition
opportunities that they might otherwise wish to pursue. Compliance with these
rules by third parties may also have a significant impact on the Company as, for
example, in precluding the consummation of swap transactions that would cause
such third parties to violate multiple ownership rules.
SUBORDINATION
The payment of principal, premium, if any, and interest on, and any other
amounts owing in respect of, the Exchange Notes will be subordinated to the
prior payment in full of all existing and future Senior Debt of the Company. The
Guarantors' Guarantees also will be subordinated in right of payment to
Guarantor Senior
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Debt of any Guarantor. Guarantor Senior Debt will include all existing and
future indebtedness of the Guarantors not expressly subordinated to other
indebtedness of the Guarantors, including indebtedness represented by the
guarantee of the Guarantors under the Credit Agreement. As of June 30, 1997, on
a pro forma basis after giving effect to the Completed Transactions consummated
after such date, the Chancellor Merger, the Pending Transactions and the
Financing Transactions, but without giving effect to the Katz Acquisition,
approximately $1.93 billion of Senior Debt would have been outstanding
(represented by borrowings under the Senior Credit Facility) and approximately
$570.0 million would have been available for additional borrowing under the
Revolving Loan Facility. The 9 3/8% Indenture and the Indenture limit the
incurrence by the Company and the Guarantors of additional Senior Debt and
Guarantor Senior Debt, respectively. In the event of the bankruptcy,
liquidation, dissolution, reorganization or other winding up of the Company, the
assets of the Company will be available to pay obligations on the Exchange Notes
only after all Senior Debt has been paid in full, and there may not be
sufficient assets remaining to pay amounts due on any or all of the Exchange
Notes. In addition, under certain circumstances, the Company may not pay
principal of, premium, if any, or interest on, or any other amounts owing in
respect of, the Exchange Notes, or purchase, redeem or otherwise retire the
Exchange Notes, if a payment default or a non-payment default exists with
respect to certain Senior Debt, including Senior Debt under the Senior Credit
Facility and, in the case of non-payment default, if a payment blockage notice
has been received by the Trustee (as defined). See "Description of the
Notes -- Subordination" and "Description of Indebtedness -- Senior Credit
Facility."
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Senior Credit Facility, the 9 3/8% Indenture, the Indenture and the
certificates of designations for the Company's preferred stock and the Senior
Credit Facility each contain certain covenants that restrict, among other
things, the Company's and its subsidiaries' ability to incur additional
indebtedness, incur liens, pay dividends or make certain other restricted
payments, consummate certain asset sales, enter into certain transactions with
affiliates, incur indebtedness that is subordinate in right of payment to any
Senior Debt and senior in right of payment to the Exchange Notes, impose
restrictions on the ability of a subsidiary to pay dividends or make certain
payments to the Company, enter into sale and leaseback transactions, conduct
business other than the ownership and operation of radio broadcast stations,
merge or consolidate with any other person or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of the assets of the
Company. The Senior Credit Facility requires the Company to maintain specified
financial ratios and to satisfy certain financial condition tests. The Company's
ability to meet those financial ratios and financial condition tests can be
affected by events beyond its control, and there can be no assurance that the
Company will meet those tests. A breach of any of these covenants could result
in a default under the Senior Credit Facility, the 9 3/8% Indenture, the
Indenture and other financial documents. In the event of an event of default
under the Senior Credit Facility, the 9 3/8% Indenture or the Indenture, the
lenders thereunder could elect to declare all amounts outstanding thereunder,
together with accrued interest, to be immediately due and payable. In the case
of the Senior Credit Facility, if the Company were unable to repay those
amounts, the lenders thereunder could proceed against the collateral granted to
them to secure that indebtedness. If the Senior Credit Facility indebtedness
were to be accelerated, there can be no assurance that the assets of the Company
would be sufficient to repay in full that indebtedness and the other
indebtedness of the Company, including the Exchange Notes. Substantially all the
assets of the Company and its subsidiaries have been pledged as security under
the Senior Credit Facility. See "Description of the Exchange Notes -- Certain
Covenants" and "Description of Indebtedness."
DEPENDENCE ON KEY PERSONNEL
The Company's business will be dependent upon the performance of certain
key individuals, including Thomas O. Hicks, the Chairman of the Company, Scott
K. Ginsburg, the President and Chief Executive Officer of the Company; James de
Castro, the Chief Operating Officer of the Company, and Matthew E. Devine, the
Chief Financial Officer of the Company. The loss of the services of Mr. Hicks,
Mr. Ginsburg, Mr. de Castro or Mr. Devine could have a material and adverse
effect on the Company. Additionally, Steven Dinetz, the Company's former
Co-Chief Operating Officer, has accepted a position as chief operating officer
of another radio broadcaster affiliated with Hicks Muse (as defined), and there
can be no assurance that the
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loss of Mr. Dinetz as Co-Chief Operating Officer of the Company will not have a
material and adverse effect on the Company.
CONTROL OF THE COMPANY
Affiliates of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse") hold
approximately 15% of the outstanding primary shares of the Common Stock of
Chancellor Media, and Mr. Ginsburg holds approximately 4% of the outstanding
primary shares of Common Stock of Chancellor Media. Additionally, three
directors of Chancellor Media are also principals or executive officers of Hicks
Muse. Accordingly, Hicks Muse will have substantial influence on all matters
submitted to a vote of the holders of Common Stock, and the combined voting
power of Hicks Muse and Mr. Ginsburg may have the effect of discouraging certain
types of transactions involving an actual or potential change of control of
Chancellor Media or the Company.
FRAUDULENT CONVEYANCE
Various fraudulent conveyance laws have been enacted for the protection of
creditors and may be utilized by a court to subordinate or avoid the Exchange
Notes or the Guarantees in favor of other existing or future creditors of the
Company or the Guarantors.
If a court in a lawsuit on behalf of any unpaid creditor of the Company or
a representative of the Company's creditors were to find that, at the time the
Original Notes were issued, CRBC (x) intended to hinder, delay or defraud any
existing or future creditor or contemplated insolvency with a design to prefer
one or more creditors to the exclusion in whole or in part of others or (y) did
not receive fair consideration or reasonably equivalent value for issuing such
Original Notes and CRBC (i) was insolvent, (ii) was rendered insolvent by reason
of such issuance, (iii) was engaged or about to engage in a business or
transaction for which its remaining assets constituted unreasonably small
capital to carry on its business or (iv) intended to incur, or believed that it
would incur, debts beyond its ability to pay such debts as they matured, such
court could void the Company's obligations under the Exchange Notes and void
such transactions. Alternatively, in such event, claims of the holders of such
Exchange Notes could be subordinated to claims of the other creditors of the
Company.
The Company's obligations under the Exchange Notes will be guaranteed by
each of the Guarantors. To the extent that a court were to find that (x) the
guarantee was incurred by the Guarantor with intent to hinder, delay or defraud
any present or future creditor or the Guarantor contemplated insolvency with a
design to prefer one or more creditors to the exclusion in whole or in part of
others or (y) the Guarantor did not receive fair consideration or reasonably
equivalent value for issuing the Guarantee and the Guarantor (i) was insolvent,
(ii) was rendered insolvent by reason of the issuance of the Guarantee, (iii)
was engaged or about to engage in a business or transaction for which the
remaining assets of the Guarantor constituted unreasonably small capital to
carry on its business or (iv) intended to incur, or believed that it would
incur, debts beyond its ability to pay such debts as they matured, the court
could void or subordinate the Guarantee in favor of such Guarantor's creditors.
Among other things, a legal challenge of any Guarantee on fraudulent conveyance
grounds may focus on the benefits, if any, realized by a Guarantor as a result
of the issuance by CRBC of the Original Notes.
To the extent that any Guarantee is avoided as a fraudulent conveyance or
held unenforceable for any other reason, holders of the Exchange Notes would
cease to have any claim in respect of such Guarantor and would be creditors
solely of the Company and the other Guarantors, if any. In such event, the
claims of the holders of the Exchange Notes against such Guarantor would be
subject to the prior payment of all liabilities and preferred stock claims of
the Guarantor. There can be no assurance that, after providing for all prior
claims and preferred stock interests, if any, there would be sufficient assets
to satisfy the claims of the holders of the Exchange Notes relating to any
voided portion of a guarantee.
Based upon financial and other information currently available to it,
management of the Company believes that the Exchange Notes and the Guarantees
are being incurred for proper purposes and in good faith and that the Company
and each of the Guarantors (i) are solvent and will continue to be solvent after
giving effect to the issuance of the Exchange Notes or Guarantee, as the case
may be, (ii) will have sufficient capital
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for carrying on its business after such issuance, and (iii) will be able to pay
its debts as they mature. See "Management's Discussions and Analysis of Results
of Operations and Financial Condition -- Liquidity and Capital Resources."
CHANGE OF CONTROL
Upon a Change of Control, the Company may be required to offer to purchase
all of the Exchange Notes then outstanding at 101% of their principal amount,
plus accrued interest to the date of repurchase. If a Change of Control were to
occur, there can be no assurance that the Company would have sufficient funds to
pay the purchase price for all the Exchange Notes that the Company might be
required to purchase. In the event that the Company were required to purchase
Exchange Notes pursuant to a Change of Control Offer, the Company expects that
it would need to seek third-party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that the Company would be able to obtain such financing on favorable
terms, if at all. In addition, the various financing arrangements of the Company
will restrict the Company's ability to repurchase the Exchange Notes, including
pursuant to a Change of Control Offer. Also, a Change of Control will result in
an event of default under the Senior Credit Facility and may cause the
acceleration of other Senior Debt, if any, in which case the subordination
provisions of the Exchange Notes would require payment in full of the Senior
Credit Facility and any such Senior Debt before repurchase of the Exchange
Notes. In addition, a Change of Control may result in the Company being required
to offer to redeem the 12 1/4% Preferred Stock and 12% Preferred Stock, and may
result in Chancellor Media being required to offer to redeem the 7% Convertible
Preferred Stock and the $3.00 Convertible Preferred Stock. See "Description of
the Exchange Notes -- Change of Control," "Description of the Exchange
Notes -- Subordination" and "Description of Indebtedness -- Senior Credit
Facility -- Change of Control." The inability to repay Senior Debt, if
accelerated, and to purchase all of the tendered Exchange Notes, would
constitute an event of default under the Indenture.
CONSEQUENCES OF FAILURE TO EXCHANGE ORIGINAL NOTES
The Exchange Notes will be issued in exchange for Original Notes only after
timely receipt by the Exchange Agent of such Original Notes, a properly
completed and duly executed Letter of Transmittal and all other required
documents. Therefore, holders of Original Notes desiring to tender such Original
Notes in exchange for the Exchange Notes should allow sufficient time to ensure
timely delivery. Neither the Exchange Agent nor the Company is under any duty to
give notification of defects or irregularities with respect to tenders of
Original Notes for exchange. Original Notes that are not tendered or are
tendered but not accepted will, following consummation of the Exchange Offer,
continue to be subject to the existing restrictions upon transfer thereof. in
addition, any holder of Original Notes who tenders in the Exchange Offer for the
purpose of participating in a distribution of the Exchange Notes will be
required to comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each broker-dealer
that receives Exchange Notes for its own account in exchange for Original Notes,
where such Original Notes were acquired by such broker-dealer as a result of
market-making activities or any other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. See "Plan of Distribution." To the extent that Original Notes are
tendered and accepted in the Exchange Offer, the trading market for untendered
and tendered but unaccepted Original Notes could be adversely affected. See
"Exchange Offer."
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Original Notes have not been registered under the Securities Act and
are subject to significant transfer restrictions. The Exchange Notes will
constitute a new issue of securities with no established trading market. The
Company does not intend to list the Exchange Notes on any national securities
exchange or to seek the admission thereof to trading in the National Association
of Securities Dealers Automated Quotation system. The Company has been advised
by the Initial Purchasers (as defined) that they intend to make a market in the
Exchange Notes. However, the Initial Purchasers are not obligated to do so, and
any market-making activity with respect to the Exchange Notes may be
discontinued at any time without notice. In
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addition, such market-making activity will be subject to the limits imposed by
the Exchange Act, and may be limited during the Exchange Offer. If a trading
market does not develop or is not maintained, holders of the Exchange Notes may
experience difficulty in reselling the Exchange Notes or may be unable to sell
them at all. If a trading market does not develop or is not maintained, holders
of the Exchange Notes may experience difficulty in reselling the Exchange Notes
or may be unable to sell them at all. If a market for the Exchange Notes
develops, any such market may be discontinued at any time. If a public trading
market develops for the Exchange Notes, future trading prices of the Exchange
Notes will depend on many factors, including, among other things, prevailing
interest rates, the Company's results of operations and the market for similar
securities. Depending on prevailing interest rates, the market for similar
securities and other factors, including the financial condition of the Company,
the Exchange Notes may trade at a discount from their principal amount.
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<PAGE> 28
THE EXCHANGE OFFER
PURPOSE AND EFFECTS OF THE EXCHANGE OFFER
The Original Notes were sold by CRBC on June 24, 1997 (the "Issue Date") to
the Initial Purchasers. The Initial Purchasers subsequently placed the Original
Notes with qualified institutional buyers in transactions not requiring
registration under the Securities Act or applicable state securities laws,
including sales pursuant to Rule 144A and Regulation S under the Securities Act.
As a condition to the sale of the Original Notes, CRBC and the Initial
Purchasers entered into the Registration Rights Agreement on June 24, 1997.
Pursuant to the Registration Rights Agreement, CRBC agreed that unless the
Exchange Offer is not permitted by applicable law or Commission policy, it would
(i) use its reasonable best efforts, within 120 days after the Issue Date, to
file with the Commission a registration statement (the "Registration Statement")
with respect to a registered offer to exchange the Original Notes for Exchange
Notes, (ii) use its reasonable best efforts to cause such Registration Statement
to be declared effective under the Securities Act within 180 days after the
Issue Date and (iii) use its reasonable best efforts to consummate the Exchange
Offer within 225 days after the Issue Date. The Company, as successor to CRBC
after the Chancellor Merger, has assumed CRBC's obligations under the Indenture
and the Registration Rights Agreement. A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The Registration Statement of which this Prospectus
is a part is intended to satisfy certain of the Company's obligations under the
Registration Rights Agreement.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company, upon the Registration Statement
being declared effective, will accept any and all Original Notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on the
Expiration Date and exchange them for Exchange Notes. The Company will issue
$1,000 principal amount of Exchange Notes in exchange for each $1,000 principal
amount of outstanding Original Notes accepted in the Exchange Offer. Holders may
tender some or all of their Original Notes pursuant to the Exchange Offer.
However, the Original Notes may be tendered only in integral multiples of
$1,000.
The Company will keep the Exchange Offer open for not less than 20 business
days or longer if required by applicable law, after the date notice of the
Exchange Offer is mailed to holders of the Original Notes.
The Exchange Notes will evidence the same debt as the Original Notes for
which they are exchanged, and are entitled to the benefits of the Indenture. The
form and terms of the Exchange Notes are the same as the form and terms of the
Original Notes except that the Exchange Notes have been registered under the
Securities Act and hence will not bear legends restricting the transfer thereof.
Holders do not have an appraisal or dissenters' rights under the Delaware
General Corporation Law or under the Indenture in connection with the Exchange
Offer. The Company intends to conduct the Exchange Offer in accordance with the
applicable requirements of Regulation 14E under the Exchange Act.
The Company shall be deemed to have accepted validly tendered Exchange
Notes when, as and if, the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
Holders for the purpose of receiving the Exchange Notes from the Company.
If any tendered Original Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Original Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders whose Original Notes are not tendered or are tendered but not
accepted in the Exchange Offer will continue to hold such Original Notes and
will be entitled to all the rights and preferences and subject to the
limitations applicable thereto under the Indenture. Following consummation of
the Exchange Offer, the holders will continue to be subject to the existing
restrictions upon transfer thereof and the Company will have no further
obligation to such holders to provide for the registration under the Securities
Act of the Original
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<PAGE> 29
Notes held by them. To the extent that Original Notes are tendered and accepted
in the Exchange Offer, the trading market for untendered and tendered but
unaccepted original Notes could be adversely affected.
Holders who tender Original Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of the
Original Notes pursuant to the Exchange Offer. The Company will pay all charges
and expenses, other than certain applicable taxes, in connection with the
Exchange Offer. See "-- Fees and Expenses; Solicitation of Tenders."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean November 17, 1997 unless the Company,
in its sole discretion extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date to which the Exchange Offer is so
extended.
In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
Registered Holders an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date. Such announcement may state that the Company is extending the Exchange
Offer for a specified period of time or on a daily basis until 5:00 p.m., New
York City time, on the date on which a specified percentage of Original Notes
are tendered.
The Company reserves the right (i) to delay accepting any Original Notes,
to extend the Exchange Offer or to terminate the Exchange Offer and not accept
Original Notes not previously accepted if any of the conditions set forth below
under "-- Certain Conditions to the Exchange Offer" shall have occurred and
shall not have been waived by the Company, by giving oral or written notice of
such delay, extension or termination to the Exchange Agent, or (ii) to amend the
terms of the Exchange Offer in any manner deemed by it to be advantageous to the
holders. Any such delay in acceptance, extension, termination or amendment will
be followed as promptly as practicable by oral or written notice thereof to the
holders. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to all
Registered Holders, and the Company will extend the Exchange Offer for a period
of five to ten business days, depending upon the significance of the amendment
and the manner of disclosure to Registered Holders, if the Exchange Offer would
otherwise expire during such five to ten business day period. During any
extension of the Expiration Date, all Original Notes previously tendered will
remain subject to the Exchange Offer and may be accepted for exchange by the
Company.
Without limiting the manner in which the Company may choose to make public
announcement of any extension, amendment or termination of the Exchange Offer,
the Company shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
INTEREST ON THE SENIOR NOTES
Interest accrues on the Original Notes, and will accrue on the Exchange
Notes, in each case, from June 24, 1997, at the rate of 8 3/4% per annum and
will be payable in cash semiannually in arrears on each June 15 and December 15,
commencing on December 15, 1997. No interest will be payable on the Original
Notes on the date of the exchange for the Exchange Notes and therefore no
interest will be paid thereon to the holders at such time.
PROCEDURES FOR TENDERING ORIGINAL NOTES
The tender to the Company of the Original Notes by a holder thereof as set
forth below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to tender
the Original Notes for exchange pursuant to the Exchange Offer must transmit a
properly completed and duly executed Letter of
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<PAGE> 30
Transmittal, including all other documents required by such Letter of
Transmittal, to the Exchange Agent at one of the addresses set forth below under
"-- Exchange Agent" on or prior to the Exchange Dates or, in the alternative,
comply with The Depositary Trust Company's ("DTC") ATOP procedures described
below. In addition, either (i) certificates for such Original Notes must be
received by the Exchange Agent along with the Letter of Transmittal, (ii) a
timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of
such Original Notes, if such procedure is available, into the Exchange Agent's
account at DTC pursuant to the procedure for book-entry transfer described
below, or properly transmitted Agent's Message (as defined below), must be
received by the Exchange Agent prior to the Expiration Date, or (iii) the holder
must comply with the guaranteed delivery procedures described below. THE METHOD
OF DELIVERY OF THE ORIGINAL NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY
MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
INSURE TIMELY DELIVERY. NO LETTER OF TRANSMITTAL OR ORIGINAL NOTES SHOULD BE
SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Original Notes surrendered for
exchange pursuant thereto are tendered (i) by a Registered Holder of the
Original Notes who has not completed the boxes entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution (as defined below). In the event
that signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantees must be by a firm
(an "Eligible Institution") that is a member of a recognized signature guarantee
medallion program (an "Eligible Program") within the meaning of Rule 17Ad-15
under the Exchange Act. If the Exchange Notes and/or Original Notes not
exchanged are to be delivered to an address other than that of the Registered
Holder appearing on the note register for the Original Notes, the signature on
the Letter of Transmittal must be guaranteed by an Eligible Institution. If the
Original Notes are registered in the name of a person other than the person
signing the Letter of Transmittal, the Original Notes surrendered for exchange
must be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Company in its
sole discretion, duly executed by the Registered Holder with the signature
thereon guaranteed by an Eligible Institution.
Any beneficial owner whose Original Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender Original Notes should contact the Registered Holder promptly and
instruct such Registered Holder to tender Original Notes on such beneficial
owner's behalf. If such beneficial owner wishes to tender such Original Notes
himself, such beneficial owner must, prior to completing and executing the
Letter of Transmittal and delivering such Original Notes in such beneficial
owner's name, either make appropriate arrangements to register ownership of the
Original Notes in such beneficial owner's name or obtain a properly completed
bond power from the Registered Holder of the Original Notes. The transfer of
registered ownership may take considerable time and may not be able to be
completed prior to the Expiration Date.
The Exchange Agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may utilize DTC's ATOP to tender.
Accordingly, participants in DTC's ATOP may, in lieu of physically completing
and signing the Letter of Transmittal and delivering it to the Exchange Agent,
electronically transmit their acceptance of the Exchange Offer by causing the
Depositary to transfer the Original Notes to the Exchange Agent in accordance
with the Depositary's ATOP procedures for transfer. The Depositary will then
send an Agent's Message to the Exchange Agent.
The term "Agent's Message" means a message transmitted by DTC received by
the Exchange Agent and forming part of the Book-Entry Confirmation, which states
that the Depositary has received an express acknowledgement from a participant
in DTC's ATOP that is tendering Original Notes which are the subject of such
book entry confirmation, that such participant has received and agrees to be
bound by the terms of the Letter of Transmittal (or, in the case of an Agent's
Message relating to guaranteed delivery, that such
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<PAGE> 31
participant has received and agrees to be bound by the applicable Notice of
Guaranteed Delivery), and that the agreement may be enforced against such
participant.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of the Original Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
tenders of any particular Original Note not properly tendered or to not accept
any particular Original Note which acceptance might, in the judgment of the
Company or its counsel, be unlawful. The Company also reserves the absolute
right at its sole discretion to waive any defects or irregularities or
conditions of the Exchange Offer as to any particular Original Note either
before or after the Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender the Original Notes in the
Exchange Offer). The interpretation of the terms and conditions of the Exchange
Offer as to any particular Original Note either before or after the Expiration
Date (including the Letter of Transmittal and instructions thereto) by the
Company shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with the tenders of Original Notes for exchange
must be cured within such reasonable period of time as the Company shall
determine. Neither the Company, the Exchange Agent nor any other person shall be
under any duty to give notification of any defect or irregularity with respect
to any tender of the Original Notes for exchange, nor shall any of them incur
any liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or person other than the
Registered Holder or holders of Original Notes, such Original Notes must be
endorsed or accompanied by a properly completed bond power, in either case
signed exactly as the names of the Registered Holder or holders that appear on
the Original Notes with the signature thereon guaranteed by an Eligible
Institution.
If the Letter of Transmittal or any Original Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such person should so indicate when signing and, unless waived by the
Company, proper evidence satisfactory to the Company of their authority to so
act must be submitted with the Letter of Transmittal.
By tendering, each holder will represent to the Company that, among other
things, the Exchange Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of the person receiving such
Exchange Notes, whether or not such person is the holder, that neither the
holder nor any such other person has an arrangement or understanding with any
person to participate in the distribution of such Exchange Notes and that
neither the holder nor any such other person is an "affiliate," as defined in
Rule 405 under the Securities Act, of the Company.
ACCEPTANCE OF ORIGINAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Original Notes
properly tendered and will issue the Exchange Notes promptly after acceptance of
the Original Notes. See "-- Certain Conditions to the Exchange Offer" below. For
purposes of the Exchange Offer, the Company shall be deemed to have accepted
properly tendered Original Notes for exchange when, and if, the Company has
given oral or written notice thereof to the Exchange Agent.
In all cases, issuance of Exchange Notes for Original Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Original Notes or
a timely Book-Entry Confirmation of such Original Notes into the Exchange
Agent's account at DTC, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Original Notes are
not accepted for any reason set forth in the terms and conditions of the
Exchange Offer or if certificates representing the Original Notes are submitted
for a greater principal amount than the holder desires to exchange, such
unaccepted or non-exchanged Original Notes will be returned without expense to
the tendering holder thereof (or, in the case of Original Notes tendered by
book-entry transfer into the Exchange Agent's account at DTC pursuant to the
book-entry transfer procedures
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<PAGE> 32
described below, such non-exchanged Original Notes will be credited to an
account maintained with DTC) as promptly as practicable after the expiration or
termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Original Notes at DTC for purposes of the Exchange Offer within two
business days after the date of this Prospectus, and any financial institution
that is a participant in DTC's systems may make book-entry delivery of the
Original Notes by causing DTC to transfer such Original Notes into the Exchange
Agent's account at DTC in accordance with DTC's procedure for transfer. However,
although delivery of the Original Notes may be effected through book-entry
transfer at DTC, the Letter of Transmittal or a facsimile thereof, with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "-- Exchange Agent" on or prior to the
Expiration Date or the guaranteed delivery procedures described below must be
complied with. Delivery of documents to the book-entry transfer facility does
not constitute delivery to the Exchange Agent.
THE METHOD OF DELIVERY OF ORIGINAL NOTES AND ALL OTHER DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER INSURANCE BE
OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE
TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Original Notes desires to tender such
Original Notes and the Original Notes are not immediately available, or time
will not permit such holder's Original Notes or other required documents to
reach the Exchange Agent before the Expiration Date, or the procedure for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if (i) the tender is made through an Eligible Institution, (ii) prior
to the Expiration Date, the Exchange Agent receives from such Eligible
Institution a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof) and Notice of Guaranteed Delivery (be telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of the Original Notes and the principal amount of Original
Notes tendered, stating that the tender is being made thereby and guaranteeing
that within three business days after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically tendered Original
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Age, and (iii) the
certificates for all physically tendered Original Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and all other
documents required by the Letter of Transmittal, are received by the Exchange
Agent within three business days after the date of execution of the Notice and
Guaranteed Delivery. Unless Original Notes being tendered by the above-described
method (or a timely Book-Entry Confirmation) are deposited with the Exchange
Agent within the time period set forth above (accompanied or preceded by a
properly completed Letter of Transmittal and any other required documents), the
Company may, at its option, reject the tender. Copies of a Notice of Guaranteed
Delivery which may be used by Eligible Institutions for the purposes described
in this paragraph are being delivered with this Prospectus and the related
Letter of Transmittal.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Original Notes (or a timely Book-Entry Confirmation) is
received by the Exchange Agent. Issuances of Exchange Notes in exchange for
Original Notes tendered pursuant to a Notice of Guaranteed Delivery or letter,
telegram or facsimile transmissions to similar effect (as provided above) by an
Eligible Institution will be made only against deposit of the Letter of
Transmittal (and any other required documents) by an Eligible Institution will
be made only against deposit of the Letter of Transmittal (and any other
required documents) and the tendered Original Notes (or a timely book-Entry
Confirmation).
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<PAGE> 33
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Original Notes for exchange (the "Transferor")
exchanges, assigns and transfers the Original Notes to the Company and
irrevocably constitutes and appoints the Exchange Agent as the Transferor's
agent and attorney-in-fact to cause the Original Notes to be assigned,
transferred and exchanged. The transferor represents and warrants that it has
full power and authority to tender, exchange, assign and transfer the Original
Notes and to acquire Exchange Notes issuable upon the exchange of such tendered
Original Notes, and that, when the same are accepted for exchange, the Company
will acquire good and unencumbered title to the tendered Original Notes, free
and clear of all liens, restriction, charges and encumbrances and not subject to
any adverse claim. The Transferor also warrants that it will, upon request,
execute and deliver any additional documents deemed by the Company to be
necessary or desirable to complete the exchange, assignment and transfer of
tendered Original Notes. The Transferor further agrees that acceptance of any
tendered Original Notes by the Company and the issuance of Exchange Notes in
exchange therefor shall constitute performance in full by the Company of its
obligations under the Registration Rights Agreement and that the company shall
have no further obligations or liabilities thereunder (except in certain limited
circumstances). All authority conferred by the Transferor will survive the death
or incapacity of the Transferor and every obligation of the Transferor shall be
binding upon the heirs, legal representatives, successors, assigns, executors
and administrators of such Transferor.
By tendering Original Notes, the Transferor certifies (a) that it is not an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act, that it is not a broker-dealer that owns Original Notes acquired directly
from CRBC or an affiliate of CRBC or the Company, that it is acquiring the
Exchange Notes offered hereby in the ordinary course of such Transferor's
business and that such Transferor has no arrangement with any person to
participate in the distribution of such Exchange Notes or (b) that it is an
"affiliate" (as so defined) of CRBC, the Company or of the Initial Purchasers,
and that it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable to it.
WITHDRAWAL RIGHTS
Tenders of Original Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date.
For a withdrawal to be effective, (i) a written or facsimile notice of
withdrawal must be received by the Exchange Agent at its address set forth below
under "-- Exchange Agent" or (ii) holders must comply with the appropriate
procedures of DTC's ATOP. Any such notice of withdrawal must (i) specify the
name of the person having tendered the Original Notes to be withdrawn, (ii)
identify the Original Notes to be withdrawn (including the serial number or
numbers and the principal amount of Original Notes to be withdrawn), (iii) be
signed by the holder in the same manner as the original signature on the Letter
of Transmittal by which such Original Notes were tendered and (iv) specify the
name in which such Original Notes are to be registered, if different from that
of the withdrawing holder. If Original Notes have been tendered pursuant to the
procedure for book-entry described above, any notice of withdrawal must specify,
in lieu of certificate numbers, the name and number of the account at DTC to be
credited with the withdrawn Original Notes and otherwise comply with the
procedures of such facility. Any questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties. Any
Original Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer. Any Original Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Original Notes tendered by book-entry transfer into the Exchange Agent's account
at DTC pursuant to the book-entry transfer procedures described above, such
Original Notes will be credited to an account maintained with DTC for the
Original Notes) as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Original Notes may be
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<PAGE> 34
retendered by following one of the procedures described under "-- Procedures for
Tendering Original Notes" above at any time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company's
obligation to accept for exchange, or exchange Exchange Notes for, any Original
Notes not theretofore accepted for exchange is subject to the following
conditions:
(a) no action or proceeding having been instituted or threatened in
any court or by or before any governmental agency with respect to the
Exchange Offer which, in the judgment of the Company, might impair the
ability of the Company to proceed with the Exchange Offer or have a
material adverse effect on the Company or there shall not have occurred any
material adverse development in any existing action or proceeding with
respect to the Company or any of its subsidiaries;
(b) there shall not have been any material change, or development
involving a prospective change, in the business or financial affairs of the
Company or any of its subsidiaries which, in the judgment of the Company,
would materially impair the Company's ability to consummate the Exchange
Offer or have a material adverse impact on the Company if the Exchange
Offer is consummated;
(c) there shall not have been proposed, adopted or enacted any law,
statute, rule or regulation which, in the judgment of the Company, might
materially impair the ability of the Company to proceed with the Exchange
Offer or have a material adverse effect on the Company if the Exchange
Offer is consummated; or
(d) all governmental approvals which the Company shall deem necessary
for the consummation of the Exchange Offer as contemplated hereby shall
have been obtained.
If the Company determines in good faith that any of the conditions are not
met, the Company may (i) refuse to accept any Original Notes and return all
tendered Original Notes to exchanging Holders, (ii) extend the Exchange Offer
and retain all Original Notes tendered prior to the expiration of the Exchange
Offer, subject, however, to the rights of holders to withdraw such Original
Notes (see "-- Withdrawal Rights") or (iii) waive certain of such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Original Notes which have not been withdrawn or revoked. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to all Registered Holders.
Holders have certain rights and remedies against the Company under the
Registration Rights Agreement. If, notwithstanding a failure of the conditions
stated above, (i) a registration statement concerning the Exchange Offer has not
been filed on or prior to the 120th day after the Closing Date, (ii) such
registration statement is not declared by the Commission on or prior to the
180th day after the Closing Date, (iii) such registration statement is declared
effective by the Commission and the Company does not exchange the Exchange Notes
for all Original Notes validly tendered on or prior to the 225th day after the
Closing Date or (iv) a registration statement for an offering to be made on a
continuous basis pursuant to Rule 415 under the Securities Act has been declared
effective by the Commission and ceases to be effective or usable during the 24
months after the Closing Date without being cured on the same day (each, a
"Registration Default"), then with respect to the first 90-day period following
the date on which such Registration Default occurs, Holders have the right to
receive, as liquidated damages, additional interest of 0.5% per annum until the
Registration Default has been cured. The amount of such additional interest
shall increase by 0.5% per annum at the beginning of each subsequent 90-day
period until all Registration Defaults are cured; provided, that such additional
interest shall not exceed 1.0% per annum at any one time. Such conditions are
not intended to modify those rights or remedies in any respect.
The foregoing conditions are for the benefit of the Company and may be
asserted by the Company in good faith regardless of the circumstances giving
rise to such conditions or may be waived by the Company in whole or in part at
any time and from time to time in its discretion. The failure by the Company at
any time to
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<PAGE> 35
exercise the foregoing rights shall not be deemed a waiver of any such right and
each such right shall be deemed an ongoing right which may be asserted at any
time and from time to time. In addition, the Company has reserved the right,
notwithstanding the satisfaction of each of the foregoing, to terminate or amend
the Exchange Offer.
EXCHANGE AGENT
U.S. Trust Company of Texas, N.A. has been appointed as Exchange Agent for
the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notices of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
<TABLE>
<S> <C> <C>
By Mail: By Hand Delivery: By Courier:
U.S. Trust Company of Texas, N.A. U.S. Trust Company of Texas, N.A. U.S. Trust Company of Texas, N.A.
Attn: Corporate Trust Attn: Corporate Trust Attn: Corporate Trust
P.O. Box 841 Cooper Station 111 Broadway -- Lower Level 770 Broadway -- 13th Floor
New York, New York 10276 New York, New York 10006-1906 New York, New York 10003-9598
Confirm by Telephone:
(800) 225-2398
(212) 420-6504 (fax)
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES; SOLICITATION OF TENDERS
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$0.7 million and include fees and expenses of the Exchange Agent and accounting
and legal fees.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Original Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes, or the Original Notes not tendered or tendered but
not accepted for exchange, are to be delivered to, or are to be registered or
issued in the name of, any person other than the Registered Holder of the
Original Notes tendered, or if tendered Original Notes are registered in the
name of any person other than the person signing the Letter of Transmittal, or
if a transfer tax is imposed for any reason other than the exchange of the
Original Notes pursuant to the Exchange Offer, then the amount of any such
transfer taxes (whether imposed on the original Registered Holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus or the accompanying Letter of Transmittal. If given or made,
such information or representations must not be relied upon as having been
authorized by the Company. This Prospectus and/or the accompanying Letter of
Transmittal does not constitute an offer to sell, or a solicitation of an offer
to buy, the Exchange Notes in any jurisdiction where, or to any person to
29
<PAGE> 36
whom, it is unlawful to make such an offer or a solicitation. Neither the
deliver of the Prospectus or the accompanying Letter of Transmittal, nor any
sale made thereunder shall, under any circumstances, create any implication that
there has not been any change in the facts set forth in this Prospectus or in
the affairs of the Company since the date hereof.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Original Notes, which is face value, as reflected in the Company's accounting
records on the date of the exchange. Accordingly, no gain or loss for accounting
purposes will be recognized. The costs of the Exchange Offer will be expensed
over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Original Notes who do not exchange their Original Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Original Notes as set forth in the legend
thereon. In general, the Original Notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to an exemption from, or in
a transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not intend to register the Original Notes under the
Securities Act. The Company believes that, based upon interpretations contained
in no-action letters issued to third parties by the Staff, the Exchange Notes
issued pursuant to the Exchange Offer in exchange for Original Notes may be
offered for resale, resold or otherwise transferred by holders thereof (other
than any such holder which is (i) an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act, (ii) a broker-dealer who acquired
the Original Notes directly from CRBC or (iii) a broker-dealer who acquired the
Original Notes as a result of market making or other trading activities) without
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such holders' business and such holder is not engaged in, and does not
intend to engage in, and has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes. Each broker-dealer that
receives Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution." If any Holder (other than a
broker-dealer described in the preceding sentence) has any arrangement or
understanding with respect to the distribution of the Exchange Notes to be
acquired pursuant to the Exchange Offer, such Holder (i) may not rely on the
applicable interpretations of the Staff and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. In addition, to comply with the
securities laws of certain jurisdictions, if applicable, the Exchange Notes may
not be offered or sold unless they have been registered or qualified for sale in
such jurisdiction or an exemption from registration or qualification is
available and is complied with.
FEDERAL INCOME TAX CONSEQUENCES
The exchange of Original Notes for Exchange Notes by holders will not be a
taxable exchange for federal income tax purposes, and holders should not
recognize any taxable gain or loss or any interest income as a result of such
exchange. See "Material Federal Income Tax Considerations."
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Original Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take.
To the extent that Original Notes are tendered and accepted in the Exchange
Offer, the trading market, if any, for the Original Notes could be adversely
affected. See "Risk Factors -- Consequences of Failure to Exchange Original
Notes." The Company may in the future seek to acquire untendered Original Notes
in open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Company has no present plan to acquire any Original
Notes which are not tendered in the Exchange Offer.
30
<PAGE> 37
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes. In consideration for issuing the Exchange Notes as contemplated
in this Prospectus, the Company will receive in exchange Original Notes in like
principal amount, which will be cancelled and as such will not result in any
increase in indebtedness of the Company.
31
<PAGE> 38
CAPITALIZATION
The following table sets forth (i) the actual capitalization of EMCLA at
June 30, 1997 and (ii) such capitalization as adjusted to give effect to those
Completed Transactions consummated since June 30, 1997, the Chancellor Merger,
the Pending Transactions and the Financing Transactions, but does not give
effect to the Katz Acquisition. See "Unaudited Pro Forma Condensed Combined
Financial Statements."
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term Debt:
Senior Credit Facility(1)................................. $ 525,000 $1,926,553
9 3/8% Senior Subordinated Notes due 2004................. -- 200,000
8 3/4% Senior Subordinated Notes due 2007................. -- 200,000
---------- ----------
Total Long-term Debt.............................. 525,000 2,326,553
Redeemable Preferred Stock:
12 1/4% Series A Senior Cumulative Exchangeable Preferred
Stock(2)............................................... -- 117,670
12% Exchangeable Preferred Stock(3)....................... -- 210,774
Stockholder's equity:
Common Stock.............................................. 1 1
Additional Paid-in Capital................................ 951,304 1,632,954
Accumulated Deficit....................................... (114,702) (110,765)
---------- ----------
Total Stockholder's Equity............................. 836,603 1,522,190
---------- ----------
Total Capitalization.............................. $1,361,603 $4,177,187
========== ==========
</TABLE>
- ---------------
(1) On April 25, 1997, EMCLA entered into the Senior Credit Facility (as amended
on June 26, 1997 and August 7, 1997), which amended and restated its prior
senior credit facility and repaid all amounts outstanding under its 11.59%
Senior Secured Notes due 1999 with borrowings under the Senior Credit
Facility. Upon the consummation of the Chancellor Merger, the total
commitment under the Senior Credit Facility was increased to $2,500,000.
(2) The stated value of such securities includes $17,670 of accreted dividends.
Such dividends will continue to accrete if not paid in cash through February
15, 2001, at which time the Company will be required to pay such dividends
in cash.
(3) The stated value of such securities includes $10,774 of accreted dividends.
Such dividends will continue to accrete if not paid in cash through January
15, 2002, at which time the Company will be required to pay such dividends
in cash.
32
<PAGE> 39
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The selected consolidated historical financial data presented below as of
and for each of the five years in the period ended December 31, 1996 have been
derived from the annual audited consolidated financial statements of EMCLA and
its subsidiaries, which consolidated financial statements have been audited by
KPMG Peat Marwick LLP, independent certified public accountants. The selected
consolidated historical financial data as of June 30, 1996 and 1997 and for the
six months ended June 30, 1996 and 1997 have been derived from the unaudited
historical consolidated financial statements of EMCLA and its subsidiaries. In
the opinion of management of the Company, the unaudited consolidated financial
data reflect all adjustments, which are of a normal recurring nature, necessary
for a fair presentation of the financial position and results of operations for
the unaudited periods. The historical results of operations for the six months
ended June 30, 1997, are not necessarily indicative of the results to be
expected for the full year. The consolidated historical financial results of
EMCLA and its subsidiaries are not comparable from period to period because of
the acquisition and disposition of various radio stations by EMCLA and its
subsidiaries during the periods covered (See "Pro Forma Financial Statements").
The following data should be read in conjunction with the historical
consolidated financial statements of EMCLA and its subsidiaries and the related
notes thereto, the unaudited pro forma condensed consolidated financial
statements of the Company and the related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997
--------- -------- -------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT RATIO, MARGIN AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Gross Revenues.......................... $ 61,935 $106,813 $125,478 $ 186,365 $ 337,405 $ 144,614 $ 216,177
Net Revenues............................ 53,969 93,504 109,516 162,931 293,850 126,362 188,261
Station operating expenses excluding
depreciation and amortization......... 34,968 60,656 68,852 97,674 174,344 80,313 111,162
Depreciation and amortization........... 11,596 33,524 30,596 47,005 93,749 44,012 53,912
Corporate general and administrative
expenses.............................. 1,717 2,378 2,672 4,475 7,797 3,198 5,651
Other nonrecurring costs(1)............. -- 7,002 -- -- -- -- --
--------- -------- -------- --------- --------- --------- ---------
Operating income (loss)................. 5,688 (10,056) 7,396 13,777 17,960 (1,161) 17,536
Interest expense........................ 10,112 13,878 13,809 19,199 37,527 19,039 22,741
Other (income) expense, net(2).......... 565 (3,185) (6,452) 236 (477) -- (13,323)
--------- -------- -------- --------- --------- --------- ---------
Income (loss) before income taxes and
extraordinary income.................. (4,989) (20,749) 39 (5,658) (19,090) (20,200) 8,118
Income tax expense (benefit)............ -- -- -- 192 (2,896) (3,705) 4,259
--------- -------- -------- --------- --------- --------- ---------
Income (loss) before extraordinary
item.................................. (4,989) (20,749) 39 (5,850) (16,194) (16,495) 3,859
Extraordinary loss on early
extinguishment of debt(3)............. 1,798 -- 3,585 -- -- -- 4,350
--------- -------- -------- --------- --------- --------- ---------
Net loss attributable to common stock... $ (6,787) $(20,749) $ (3,546) $ (5,850) $ (16,194) $ (16,495) $ (491)
========= ======== ======== ========= ========= ========= =========
OTHER DATA:
Broadcast cash flow(4).................. $ 19,001 $ 32,848 $ 40,664 $ 65,257 $ 119,506 $ 46,049 $ 77,099
Broadcast cash flow margin.............. 35% 35% 37% 40% 41% 36% 41%
EBITDA(4)............................... $ 17,284 $ 23,468 $ 37,992 $ 60,782 $ 111,709 $ 42,851 $ 71,448
Capital expenditures.................... 867 1,735 5,227 2,642 6,543 1,761 3,547
Ratio of earnings to fixed charges(5)... -- -- 1.0x -- -- -- 1.33x
BALANCE SHEET DATA (END OF PERIOD):
Working capital, excluding current
portion of long-term debt............. $ 13,456 $ 18,498 $ 19,952 $ 34,556 $ 67,921 $ 49,041 $ 79,345
Intangible assets, net.................. 181,022 212,517 233,494 458,787 853,643 779,237 1,183,569
</TABLE>
33
<PAGE> 40
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997
--------- -------- -------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT RATIO, MARGIN AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets............................ 234,852 283,505 297,990 552,347 1,020,959 956,544 1,483,513
Long-term debt (including current
portion).............................. 165,000 152,000 174,000 201,000 358,000 554,000 525,000
Stockholders' equity.................... 2,905 120,968 112,353 304,577 549,411 286,194 836,603
CASH FLOW DATA:
Net cash provided by operating
activities............................ $ 5,379 $ 14,959 $ 19,880 $ 40,387 $ 48,050 $ 17,365 $ 36,165
Net cash used in investing activities... (101,248) (76,163) (32,928) (192,112) (461,938) (365,969) (478,407)
Net cash provided by financing
activities............................ 97,329 62,043 11,683 153,939 413,518 347,051 444,068
</TABLE>
- ---------------
(1) Consists of a non-cash charge resulting from the grant of employee stock
options prior to Evergreen's initial public offering.
(2) Includes gain on dispositions of assets of $3,392, $6,991 and $13,323 in
1993, 1994 and the six months ended June 30, 1997 respectively.
(3) In connection with its debt refinancing in 1992, 1994 and the six months
ended June 30, 1997, EMCLA wrote off the unamortized balance of deferred
debt issuance costs of $1,798, $3,585 and $4,350, respectively, as an
extraordinary charge.
(4) Broadcast cash flow consists of station operating income excluding
depreciation and amortization, and corporate general and administrative
expense and non-cash stock option compensation expense. EBITDA consists of
operating income before depreciation, amortization and non-cash stock option
compensation expense. Although broadcast cash flow and EBITDA are not
calculated in accordance with generally accepted accounting principles, the
Company believes that broadcast cash flow and EBITDA are widely used in the
broadcast industry as a measure of a station group's operating performance.
Nevertheless, these measures should not be considered in isolation or as a
substitute for operating income, cash flows from operating activities or any
other measure for determining the Company's operating performance or
liquidity that is calculated in accordance with generally accepted
accounting principles. Broadcast cash flow and EBITDA do not take into
account the Company's debt service requirements and other commitments and,
accordingly, broadcast cash flow and EBITDA are not necessary indications of
amounts that may be available for reinvestment in the Company's business or
other discretionary uses.
(5) For purposes of this calculation, "earnings" consist of income (loss) before
income taxes and fixed charges. "Fixed charges" consist of interest,
amortization of debt issuance costs and the component of rental expense
believed by management to be representative of the interest factor thereon.
Earnings were insufficient to cover fixed charges by $4,989, $20,749, $5,658
and $19,090 for the years ended December 31, 1992, 1993, 1995, and 1996,
respectively and by $20,200 for the six months ended June 30, 1996.
34
<PAGE> 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Since the acquisition in May of 1995 of Broadcasting Partners, Inc.
("BPI"), an eleven-station radio broadcasting group owning eight stations in the
nation's ten largest radio markets (the "BPI Acquisition"), the Company has
engaged in an acquisition strategy concentrating on expanding the Company's
presence in the nation's largest radio markets. Implementation of this
acquisition strategy was significantly accelerated in 1996 and 1997 due to
passage of the 1996 Act and the associated relaxation of national and local
ownership limits. For a discussion of the various transactions completed and
agreements entered into since January 1, 1996 as part of the Company's
acquisition strategy, see "Pro Forma Financial Information" and "Business and
Properties -- Recent Developments."
The Company's results of operations from period to period have not
historically been comparable because of the impact of the various station
acquisitions and dispositions that the Company has completed. The chart below
summarizes the acquisitions and dispositions that the Company has completed from
January 1, 1994 through June 30, 1997:
<TABLE>
<CAPTION>
DATE OF NUMBER OF COST (PROCEEDS)
TRANSACTION TRANSACTION STATIONS MARKET(S) (IN THOUSANDS)
----------- ----------- -------------- --------- ---------------
<S> <C> <C> <C> <C>
Exchange 4/94 2 FM in return Exchanged Jacksonville for San Francisco $ 25,421
for 1 FM
BPI Acquisition 5/95 7 FM/4 AM New York, Chicago, Dallas, Detroit, 258,634
Charlotte
Pyramid Acquisition 1/96 9 FM/3 AM Chicago, Philadelphia, Boston, 316,343
Charlotte, Buffalo
Acquisition 5/96 1 FM Boston 34,000
Disposition 7/96 1 FM/1 AM Buffalo (19,500)
Disposition 8/96 1 FM Buffalo (12,500)
Acquisition 8/96 1 FM San Francisco 44,000
Acquisition 10/96 1 FM Miami 65,000
Exchange 11/96 1 FM in return Exchanged Boston for Washington, D.C. N/A
for 1 FM
Acquisition 1/97 1 FM/1 AM Detroit 30,000
Acquisition 1/97 2 FM/1 AM San Francisco 115,000
Acquisition 4/97 2 FM Detroit 168,000
Acquisition/Exchange 4/97 1 AM Washington, D.C. 22,500
Acquisition 5/97 1 FM/1 AM Philadelphia N/A
Disposition 5/97 1 FM Charlotte (10,000)
Acquisition 5/97 1 FM Chicago 75,750
Disposition 6/97 1 FM Chicago (75,000)
Disposition 6/97 1 FM Chicago (80,000)
</TABLE>
In the following analysis, management discusses the broadcast cash flow of
its radio station group. The performance of a radio station group is customarily
measured by its ability to generate broadcast cash flow. The two components of
broadcast cash flow are gross revenues (net of agency commissions) and operating
expenses (excluding depreciation and amortization, corporate general and
administrative expense and non-cash stock option compensation expense). The
primary source of revenues is the sale of broadcasting time for advertising. The
Company's most significant operating expenses for purposes of the computation of
broadcast cash flow are employee salaries and commissions, programming expenses,
and advertising and promotion expenses. The Company strives to control these
expenses by working closely with local station management. The Company's
revenues vary throughout the year. As is typical in the radio broadcasting
industry, the Company's first calendar quarter generally produces the lowest
revenues, and the fourth quarter generally produces the highest revenues.
Data on broadcast cash flow, although not calculated in accordance with
generally accepted accounting principles, is widely used in the broadcast
industry as a measure of a company's operating performance. Nevertheless, this
measure should not be considered in isolation or as a substitute for operating
income, cash
35
<PAGE> 42
flows from operating activities or any other measure for determining the
Company's operating performance or liquidity that is calculated in accordance
with generally accepted accounting principles. Broadcast cash flow does not take
into account the Company's debt service requirements and other commitments and,
accordingly, broadcast cash flow is not necessarily indicative of amounts that
may be available for dividends, reinvestment in the Company's business or other
discretionary uses.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
The Company's results of operations for the six months ended June 30, 1997
are not comparable to the results of operations for the six months ended June
30, 1996 due to the impact of various station dispositions and acquisitions
discussed elsewhere in this Prospectus and reflected in the table above.
Net revenues for the six months ended June 30, 1997 increased 49.0% to
$188.3 million compared to $126.4 for the six months ended June 30, 1996.
Station operating expenses excluding depreciation and amortization for the six
months ended June 30, 1997 increased 38.4% to $111.2 million compared to $80.3
million for the six months ended June 30, 1996. Station operating income
excluding depreciation and amortization and corporate, general and
administrative expense (broadcast cash flow) for the six months ended June 30,
1997 increased 67.4% to $77.1 million compared to $46.0 million for the six
months ended June 30, 1996.
The increase in net revenues, station operating expenses, and broadcast
cash flow for the six months ended June 30, 1997 was primarily attributable to
the impact of the various station acquisitions, dispositions, and time brokerage
agreements, in addition to the overall net operational improvements realized by
the Company's radio stations.
Depreciation and amortization for the six months ended June 30, 1997
increased 22.5% to $53.9 million compared to $44.0 million for the same period
in 1996. The increase represents additional depreciation and amortization due to
the impact of recent acquisitions, offset by decreases due to certain
intangibles which became fully amortized in 1996 and 1997.
Corporate general and administrative expenses for the six months ended June
30, 1997 increased 78.1% to $5.7 million compared to $3.2 million for the same
period in 1996. The increase is due to the growth of the Company, and the
related increase in properties and staff, primarily due to recent acquisitions.
As a result of the above factors, the Company realized $17.5 million of
operating income for the six months ended June 30, 1997 compared to an operating
loss of $1.2 million for the same period in 1996.
Interest expense for the six months ended June 30, 1997 increased 19.4% to
$22.7 million compared to $19.0 million for the same period in 1996. The net
increase in interest expense is due to additional bank borrowings to finance the
acquisitions discussed above offset by repayment of borrowings under the Senior
Credit Facility from the net proceeds of the dispositions discussed above, the
1996 Evergreen Offering and the Convertible Preferred Stock Offering.
The Company recorded a gain on disposition of assets of $13.3 million for
the six months ended June 30, 1997, related to the dispositions of WNKS-FM in
Charlotte ($3.5 million), WPNT-FM in Chicago ($0.5 million), and WEJM-FM in
Chicago ($9.3 million).
The income tax expense for the six months ended June 30, 1997 is comprised
of current federal and state tax expense and a deferred federal income tax
benefit.
The Company recorded an extraordinary charge of $4.4 million (net of a tax
benefit of $2.3 million) for the six months ended June 30, 1997, consisting of
the write-off of the unamortized balance of deferred debt issuance costs related
to the amendment and restatement of the Company's Senior Credit Facility on
April 25, 1997.
Dividends paid to Evergreen to enable Evergreen to pay dividends on its
preferred stock were $0.7 million for the six months ended June 30, 1997
compared to $2.4 million for the same period in 1996. The decrease in dividends
is due to the conversion of a total of 1,608,297 shares of Evergreen's formerly
outstanding
36
<PAGE> 43
convertible exchangeable preferred stock into a total of 5,025,916 shares of
Class A Common Stock and the redemption by Evergreen of the remaining 1,703
shares during 1996, offset by dividends paid to Evergreen to enable Evergreen to
pay dividends on its $3.00 Convertible Preferred Stock issued in June 1997.
The net loss attributable to common stock for the six months ended June 30,
1997 was $.5 million compared to a $16.5 million net loss for the same period in
1996. The increase is primarily due to a $13.3 million gain on the disposition
of assets offset by a $4.4 million extraordinary charge related to the write-off
of bank loan fees recorded in the second quarter of 1997.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
The Company's results of operations for the year ended December 31, 1996
are not comparable to the results of operations for the year ended December 31,
1995 due to the impact of the various station acquisitions and dispositions
discussed elsewhere in this Prospectus and reflected in the table above.
Net revenues for the year ended December 31, 1996 increased 80.4% to $293.9
million compared to $162.9 million for the year ended December 31, 1995. Station
operating expenses excluding depreciation and amortization for 1996 increased
78.5% to $174.3 million compared to $97.7 million in 1995. Station operating
income excluding depreciation and amortization and corporate general and
administrative expense (broadcast cash flow) for 1996 increased 83.1% or $54.2
million to $119.5 million compared to $65.3 million in 1995. The increase in net
revenues, station operating expenses, and broadcast cash flow was primarily
attributable to the impact of the various station acquisitions and dispositions
described elsewhere in this Prospectus, in addition to the overall net
operational improvements realized by the Company's radio stations.
Depreciation and amortization for 1996 increased 99.4% to $93.7 million
compared to $47.0 million in 1995. The increase represents additional
depreciation and amortization expenses due to the impact of recent acquisitions,
offset by decreases due to certain intangibles which became fully amortized in
1995 and 1996.
Corporate general and administrative expenses for 1996 increased 74.2% to
$7.8 million compared to $4.5 million in 1995. The increase is due to the growth
of the Company, and related increase in properties and staff, primarily due to
recent acquisitions.
As a result of the above factors, operating income for 1996 increased 30.4%
to $18.0 million compared to $13.8 million in 1995.
Interest expense for 1996 increased 95.5% to $37.5 million compared to
$19.2 million in 1995. The net increase in interest expense was primarily due to
additional bank borrowings required to finance the acquisition of Pyramid
Communications, Inc. (the "Pyramid Acquisition"), a radio broadcasting company
with nine FM and three AM radio stations in five radio markets, as well as the
other station acquisitions referred to above, offset by repayment of borrowings
under the revolving credit portion of the Company's prior senior credit
agreement from the net proceeds of the 1996 Evergreen Offering, contributed to
the Company in an equity contribution, and an overall decrease in the Company's
borrowing rates.
The provision for income tax expense for the year ended December 31, 1996
is comprised of current federal and state taxes of $.5 million and $1.0 million,
respectively, and a deferred federal income tax benefit of $4.4 million. The
Company from time to time seeks to defer recognition of taxable gains upon the
disposition of radio properties by structuring dispositions as like-kind
exchanges under Section 1031 of the Internal Revenue Code of 1986, as amended,
under appropriate circumstances.
Dividends paid to Evergreen to enable Evergreen to pay dividends on its
preferred stock decreased $1.0 million to $3.8 million in 1996 compared to $4.8
million in 1995. The decrease in dividends is due to the conversion by Evergreen
of a total of 1,608,297 shares of Evergreen's formerly outstanding convertible
exchangeable preferred stock into a total of 5,025,916 shares of Evergreen's
Class A Common Stock and the redemption of the remaining 1,703 shares of
formerly outstanding convertible exchangeable preferred stock during 1996.
As a result of the above factors, the Company incurred a $16.2 million net
loss attributable to common stock in 1996 compared to a $5.9 million net loss in
1995.
37
<PAGE> 44
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
The Company's results of operations for the year ended December 31, 1995
are not comparable to the results of operations for the year ended December 31,
1994 due to the impact of the BPI Acquisition. The BPI Acquisition resulted in
the addition of seven FM and four AM radio stations, eight of which are in the
nation's ten largest radio markets.
Net revenues for the year ended December 31, 1995 increased 48.8% to $162.9
million compared to $109.5 million for the year ended December 31, 1994. Station
operating expenses excluding depreciation and amortization for 1995 increased
41.9% to $97.7 million compared to $68.9 million in 1994. Station operating
income excluding depreciation and amortization (broadcast cash flow) for 1995
increased 60.5% or $24.6 million to $65.3 million compared to $40.7 million in
1994. The increase in net revenues, station operating expenses, and broadcast
cash flow was attributable to the overall net operational improvements realized
by the Company's radio stations, in addition to the impact of the consolidation
of the results of operations of BPI since the consummation of the BPI
Acquisition on May 12, 1995.
Depreciation and amortization for 1995 increased 53.6% to $47.0 million
compared to $30.6 million in 1994. The net increase represents additional
depreciation and amortization expenses due to the impact of the BPI Acquisition
on May 12, 1995, offset by decreases due to certain intangible assets which
became fully amortized in 1995 and 1994.
Corporate general and administrative expenses for 1995 increased 67.5% to
$4.5 million compared to $2.7 million in 1994. The increase is due to the growth
of the Company primarily related to the BPI Acquisition.
As a result of the above factors, operating income for 1995 increased 86.3%
to $13.8 million compared to $7.4 million in 1994.
Interest expense for 1995 increased 39.0% to $19.2 million compared to
$13.8 million in 1994. The net increase in interest expense was due to
additional bank borrowings of approximately $186.0 million required to finance
the BPI Acquisition in May 1995, offset by the application of net proceeds of
approximately $132.7 million from Evergreen's public offering of Class A Common
Stock in July 1995, contributed to the Company in an equity contribution, and
overall decline in the Company's borrowing rates. The net proceeds from the
public offering were used to repay borrowings under the revolving credit portion
of the Company's prior senior credit agreement, which borrowings had been
incurred to finance the BPI Acquisition.
Other income (expense) comprised of interest income, gain on disposition of
assets and other expense, net was a $.2 million charge in 1995 compared to $6.5
million in income in 1994. Other income (expense) for the year ended December
31, 1994 includes a gain of approximately $7.3 million on the disposition of
WAPE-FM and WFYV-FM in Jacksonville, Florida, which closed in April 1994.
The provision for income tax expense for the year ended December 31, 1995
is comprised of current federal and state taxes of $.3 million and $.4 million,
respectively, and a deferred federal income tax benefit of $.5 million.
In connection with the restructuring of the Company's senior credit
agreement on November 29, 1994, the Company recorded an extraordinary charge of
$3.6 million, consisting of a write-off of the unamortized balance of deferred
debt issuance costs related to the debt retirement.
Dividends paid to Evergreen to enable Evergreen to pay dividends on its
preferred stock were $4.8 million in 1995 and 1994.
As a result of the above factors, the Company incurred a $5.9 million net
loss attributable to common stock in 1995 compared to an $3.5 million net loss
in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has generated sufficient cash flow from operations
to finance its existing operational requirements and debt service requirements,
and the Company anticipates that this will continue
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to be the case. The Company historically has used the proceeds of bank debt and
public equity offerings, supplemented by cash flow from operations not required
to fund operational requirements and debt service, to fund implementation of the
Company's acquisition strategy.
The total cash financing required to consummate the Pending Transactions
(assuming exercise of the Bonneville Option) is expected to be $520.5 million
(excluding a possible upward adjustment of $10.0 million for the Gannett
Acquisition). Of this amount, approximately $10.0 million has already been
advanced by the Company in the form of escrow deposits, $80.0 million is held by
a financial intermediary in connection with the deferred exchange of WLUP-FM for
one or more stations to be acquired by the Company and $3.0 million was paid to
Bonneville for the Bonneville Option. Accordingly, the Company will require at
least $427.5 million in additional financing to consummate the Pending
Transactions (assuming exercise of the Bonneville Option). The Company
anticipates that it will obtain any additional financing needed to complete the
Pending Transactions through borrowings under the Senior Credit Facility. In
addition to the foregoing long-term indebtedness, the Company may be required to
borrow up to $165 million under the Senior Credit Facility to be ultimately
distributed to Chancellor Media, to be used by Chancellor Media as the equity
capital to finance the Katz Acquisition. Alternatively, the Company may
refinance Katz' existing credit facility with borrowings under the Senior Credit
Facility and assume the obligations under Katz' $100 million aggregate principal
amount of 10 1/2% Senior Subordinated Notes due 2007, in addition to borrowings
that may be required to finance the purchase of Katz' common stock, should Katz
ultimately be combined with the Company. See "Business and Properties -- Recent
Developments -- Pending Transactions -- Katz Acquisition."
On April 25, 1997, EMCLA entered into the Senior Credit Facility which
amended and restated its prior senior credit facility. Under the amended
agreement, EMCLA established a $1.25 billion revolving facility (the "Revolving
Loan Facility") and a $500.0 million term loan facility (the "Term Loan
Facility"). Upon consummation of the Chancellor Merger, the aggregate
commitments under the Revolving Loan Facility and the Term Loan Facility were
increased to $1.60 billion and $900.0 million, respectively. The capital stock
of CMHC, CMCLA and CMCLA's subsidiaries are pledged to secure performance of the
Company's obligations under the Senior Credit Facility and CMHC's guarantee
thereof. At September 5, 1997, the Company had drawn $900.0 million of the Term
Loan Facility and $565.0 million of the Revolving Loan Facility. Required
repayments of principal amounts outstanding under the Term Loan Facility and
commitment reductions under the Revolving Loan Facility commence on September
30, 2000. See "Description of Certain Indebtedness -- Senior Credit Facility."
The Company's ability to make additional borrowings under the Senior Credit
Facility is subject to compliance with certain financial ratios and other
conditions set forth in the Senior Credit Facility. For additional information
regarding the Senior Credit Facility, see "Description of Certain
Indebtedness -- Senior Credit Facility." The Company from time to time may
explore other financing alternatives to supplement the financing available under
the Senior Credit Facility, including the public or private issuance of debt,
common equity or preferred equity securities.
After giving pro forma effect to those Completed Transactions consummated
after June 30, 1997, the Chancellor Merger, the Pending Transactions and the
Financing Transactions, but without giving effect to the Katz Acquisition, at
June 30, 1997, the Company would have had $2.33 billion in long term debt
outstanding, of which $1.93 billion would have consisted of the Company's
borrowings under the Senior Credit Facility. In addition to debt service
requirements under the Senior Credit Facility, the Company is required to pay
interest on the 9 3/8% Notes and the Notes. The 12 1/4% Preferred Stock and the
12% Preferred Stock of the Company do not require the payment of cash dividends
through February 14, 2001 and January 14, 2002, respectively, although the
Company will issue additional shares of such preferred stock, or incur
accretion, respectively, in lieu of cash dividends until such times. Cash
dividend requirements of Chancellor Media on its $3.00 Convertible Preferred
Stock and its 7% Convertible Preferred Stock are $25.7 million per year. Because
Chancellor Media is a holding company with no significant assets other than the
common stock of CMHC, Chancellor Media will rely solely on dividends from CMHC,
which in turn is expected to distribute dividends paid to it by CMCLA to
Chancellor Media, to permit Chancellor Media to pay cash dividends on the $3.00
Convertible Preferred Stock and the 7% Convertible Preferred Stock. The Senior
Credit Facility, the 9 3/8% Indenture, the
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Indenture and the certificates of designation for the 12% Preferred Stock and
the 12 1/4% Preferred Stock will limit, but not prohibit, the Company from
paying such dividends to CMHC.
Pursuant to the Senior Credit Facility, CMCLA is required to enter into
interest hedging agreements that result in the fixing or placing a cap on
CMCLA's floating rate debt so that not less than 50% of the principal amount of
total debt outstanding has a fixed or capped rate.
RECENTLY ISSUED ACCOUNTING PRINCIPLES
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Transfers of Financial Assets and
Extinguishments of Liabilities" ("SFAS No. 125"). SFAS No. 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. The provisions of SFAS No. 125 are
generally effective for transactions occurring after December 31, 1996. The
adoption of SFAS No. 125 is not expected to have a material impact on the
Company's financial statements.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No.
128"), which establishes new standards for computing and presenting earnings per
share. SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997 and requires restatement of all prior-period
earnings per share data. Early application of SFAS No. 128 is not permitted. The
Company's adoption of the provisions of SFAS No. 128 will result in the dual
presentation of basic and diluted earnings per share on the Company's income
statement. Diluted earnings per share as calculated under SFAS No. 128 is not
expected to materially differ from primary earnings per share amounts previously
presented.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 129, "Disclosure of Information about
Capital Structure" ("SFAS No. 129"). SFAS No. 129 is applicable to all entities
and requires that disclosure about an entity's capital structure include a brief
discussion of rights and privileges for securities outstanding. SFAS No. 129 is
effective for financial statements for periods ending after December 15, 1997.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"). SFAS No. 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. SFAS No. 130 is effective for financial statement
periods ending after December 15, 1997. Management does not anticipate that SFAS
No. 130 will have any effect on the Company's consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 establishes
standards for reporting information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. SFAS No. 131 is effective for financial
statement periods ending after December 15, 1997. Management does not anticipate
that SFAS No. 131 will have any effect on the Company's consolidated financial
statements.
CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS
KPMG Peat Marwick, LLP ("Peat Marwick") has previously served as the
auditors for Chancellor Media and the Company and has previously advised
Chancellor Media and the Company on federal, state and local tax matters. After
an evaluation by management of services provided by other independent accounting
firms, Chancellor Media and the Company dismissed Peat Marwick as their
independent accountants on September 23, 1997, and engaged Coopers & Lybrand
L.L.P. ("Coopers") as the new independent accountants for Chancellor Media and
the Company as of such date. The decision to dismiss Peat Marwick was approved
by the Board of Directors of Chancellor Media and the Company.
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Peat Marwick's reports on the financial statements of Chancellor Media and
the Company for the past two years did not contain an adverse opinion or a
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope or accounting principles. During the two most recent fiscal years of
Chancellor Media and the Company and the subsequent interim period preceding the
dismissal, there were no disagreements with Peat Marwick on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
Peat Marwick, would have caused Peat Marwick to make reference to the subject
matter of the disagreements in connection with its report. In addition, during
the two most recent fiscal years of Chancellor Media and the Company and the
subsequent interim period preceding the dismissal, there were no events of the
type requiring disclosure under Item 304(a)(1)(v) of Regulation S-K.
During the two most recent fiscal years of Chancellor Media and the Company
and the subsequent interim period preceding the dismissal of Peat Marwick,
Chancellor Media and the Company did not consult with Coopers regarding (i) the
application of accounting principles to a specified transaction (either
completed or proposed), (ii) the type of audit opinion that might be rendered on
the financial statements of Chancellor Media or CMCLA or (iii) any matter that
was the subject of a "disagreement" or a "reportable event" (as each term is
defined in Item 304(a)(2)(ii) of Regulation S-K). However, Coopers previously
served as the independent accountants for Chancellor and CRBC. In connection
with the Chancellor Merger, the Company discussed with Coopers various financial
statement issues related to its historical association with Chancellor and CRBC,
and also discussed the various filings submitted by Chancellor Media,
Chancellor, the Company and CRBC to the Commission in respect of the Chancellor
Merger, which filings included or incorporated by reference the financial
statements of Chancellor Media, Chancellor, the Company and CRBC.
Chancellor Media and the Company previously provided Peat Marwick with a
copy of the disclosures they made with respect to the change in accountants in
connection with the Current Report on Form 8-K, dated September 23, 1997 and
filed September 29, 1997, of Chancellor Media and CMCLA. Peat Marwick furnished
Chancellor Media and CMCLA with a letter addressed to the Commission stating
that it agreed with the statements made by Chancellor Media and CMCLA in such
Current Report, except that it was not in a position to agree or disagree with
the stated reasons for changing principal auditors, or with the statement that
the change was approved by the board of directors, or with the statements made
in the third paragraph of Item 4 of the Current Report on Form 8-K. A copy of
Peat Marwick's letter is attached as Exhibit 16.1 to the Registration Statement
of which this Prospectus is a part.
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BUSINESS AND PROPERTIES
On September 5, 1997, pursuant to the Chancellor Merger Agreement, among
other things, (i) Chancellor was merged with and into EMHC, a direct and
wholly-owned subsidiary of Evergreen, with EMHC surviving the merger, and (ii)
CRBC was merged with and into EMCLA, a direct and wholly-owned subsidiary of
EMHC, with EMCLA surviving the merger. Following the Chancellor Merger,
Evergreen changed its name to Chancellor Media Corporation, EMHC changed its
name to Chancellor Mezzanine Holdings Corporation and EMCLA changed its name to
Chancellor Media Corporation of Los Angeles. Chancellor Media and CMHC are
holding companies. The Company is the principal operating subsidiary of
Chancellor Media.
The Company is one of the largest radio broadcasting companies in the
United States. Upon consummation of all Pending Transactions, the Company will
own and operate 99 radio stations (73 FM and 26 AM) in 21 large markets,
including each of the nation's 12 largest radio revenue markets. The Company's
portfolio includes the first or second ranked station cluster in terms of
revenue share in 15 markets. On a pro forma basis, the Company had net revenue
and broadcast cash flow (as defined) of approximately $396.0 million and $166.6
million, respectively, for the six months ended June 30, 1997, and its pro forma
broadcast cash flow margin for such period would have been 42%.
The Company's strategy is to secure the leading clusters of radio stations
in each of the markets in which it operates. The Company's station portfolio
includes a total of 11 superduopolies, with seven in the 12 largest radio
markets -- Los Angeles, New York, Chicago, San Francisco, Philadelphia,
Washington, D.C. and Detroit -- and four in other large markets -- Denver,
Minneapolis/St. Paul, Phoenix and Orlando. Consummation of the Pending
Transactions will add 13 stations (10 FM and three AM) (without taking into
account stations to be disposed or exchanged in the Pending Transactions) to the
Company's portfolio, including five stations in its superduopoly markets.
Approximately 78% of pro forma 1996 net revenue would have been generated by the
superduopoly markets.
The Company's portfolio is geographically diversified and employs a wide
variety of programming formats, including adult contemporary, contemporary hit
radio, urban, jazz, country, oldies, news/talk, rock and sports. Each of the
Company's stations targets a specific demographic audience within a market, with
the majority of the stations appealing primarily to 18 to 34 or 25 to 54 year
old men and/or women, the demographic groups most sought after by advertisers.
Management believes that, because of the size and diversity of its station
portfolio, the Company is not unduly reliant on the performance of any one
station or market. No single market to be served by the Company represented more
than 12.0% of the Company's pro forma 1996 broadcast cash flow.
The Company's principal executive office is located at 433 East Las Colinas
Boulevard, Suite 1130, Irving, Texas 75039, and its telephone number is (972)
869-9020.
RECENT DEVELOPMENTS
CHANCELLOR MERGER
On September 5, 1997, Evergreen, EMHC, EMCLA, Chancellor and CRBC
consummated the transactions contemplated by the Chancellor Merger Agreement.
Pursuant to the Chancellor Merger Agreement, (i) Chancellor was merged with and
into EMHC, a direct, wholly-owned subsidiary of Evergreen, with EMHC remaining
as the surviving corporation and (ii) CRBC was merged with and into EMCLA, a
direct, wholly-owned subsidiary of EMHC, with EMCLA remaining as the surviving
corporation. Upon the consummation of the Parent Merger, Evergreen was renamed
Chancellor Media Corporation and EMHC was renamed Chancellor Mezzanine Holdings
Corporation. Upon the consummation of the Subsidiary Merger, EMCLA was renamed
Chancellor Media Corporation of Los Angeles. Consummation of the Chancellor
Merger added 52 radio stations (36 FM and 16 AM) to the Company's portfolio of
stations, including 13 stations in markets in which the Company previously
operated.
At the effective time of the Parent Merger (the "Parent Merger Effective
Time"), (i) each share of Evergreen's Class A Common Stock, par value $.01 per
share, and each share of Evergreen's Class B
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Common Stock, par value $.01 per share, outstanding immediately prior to the
Parent Merger Effective Time were reclassified, changed and converted into one
share of Common Stock of Chancellor Media, (ii) each share of Chancellor's Class
A Common Stock, par value $.01 per share, and each share of Chancellor's Class B
Common Stock, par value $.01 per share, outstanding immediately prior to the
Parent Merger Effective Time were converted into the right to receive 0.9091
shares of Common Stock of Chancellor Media, (iii) each share of Chancellor's 7%
Convertible Preferred Stock, par value $.01 per share, outstanding immediately
prior to the Parent Merger Effective Time was converted into the right to
receive one share of 7% Convertible Preferred Stock of Chancellor Media with
substantially identical powers, preferences and relative rights and (iv)
Evergreen assumed all options to acquire shares of Chancellor's Class A Common
Stock outstanding immediately prior to the Parent Merger Effective Time held by
certain officers, directors, employees and consultants of Chancellor and its
subsidiaries. Approximately 17.3 million shares of Chancellor Media Common Stock
were issued in the Parent Merger to the former common stockholders of
Chancellor, and approximately 1.8 million shares of Chancellor Media Common
Stock may be issued from time to time upon the exercise of the options assumed
by Chancellor Media in the Parent Merger. In addition, at the Parent Merger
Effective Time, CMHC repaid all amounts outstanding under the Chancellor Interim
Financing, in the principal amount of $133.0 million.
Furthermore, at the effective time of the Subsidiary Merger (the
"Subsidiary Merger Effective Time"), (i) each share of CRBC's 12 1/4% Series A
Senior Cumulative Exchangeable Preferred Stock, par value $.01 per share,
outstanding immediately prior to the Subsidiary Merger Effective Time was
converted into the right to receive one share of 12 1/4% Series A Senior
Cumulative Exchangeable Preferred Stock of CMCLA with substantially identical
powers, preferences and relative rights, (ii) each share of CRBC's 12%
Exchangeable Preferred Stock, par value $.01 per share, outstanding immediately
prior to the Subsidiary Merger Effective Time was converted into the right to
receive one share of 12% Exchangeable Preferred Stock of CMCLA with
substantially identical powers, preferences and relative rights, (iii) CMCLA
assumed all of the obligations under CRBC's $200,000,000 aggregate principal
amount 9 3/8% Notes and the 9 3/8% Indenture governing such securities, (iv)
CMCLA assumed all of the obligations under CRBC's $200,000,000 aggregate
principal amount Original Notes and the Indenture governing such securities and
(v) CMCLA refinanced, through additional borrowings under the Senior Credit
Facility, all amounts outstanding under the CRBC Restated Credit Agreement. The
aggregate amount of borrowings under the CRBC Restated Credit Agreement
refinanced by CMCLA consisted of principal in the amount of $416.0 million, plus
accrued interest.
COMPLETED EVERGREEN/CHANCELLOR MEDIA TRANSACTIONS
Since January 1, 1997, EMCLA (and, after September 5, 1997, CMCLA) and its
subsidiaries have completed (i) the acquisition of 17 radio stations for a net
purchase price of approximately $1.14 billion, (ii) the exchange of seven
stations for five stations and $6.0 million in cash and (iii) the sale or other
disposition of 10 radio stations for $269.3 million in cash and a promissory
note for $18.0 million.
On January 31, 1997, EMCLA acquired WWWW-FM and WDFN-AM in Detroit from
affiliates of Chancellor for $30.0 million in cash plus various other direct
acquisition costs (the "WWWW/WDFN Acquisition"). EMCLA had previously provided
certain sales and promotional functions to WWWW-FM and WDFN-AM under a joint
sales agreement since February 14, 1996 and subsequently operated the stations
under a time brokerage agreement since April 1, 1996.
On January 31, 1997, EMCLA acquired KKSF-FM and KDFC-FM/AM in San Francisco
from affiliates of The Brown Organization for $115.0 million in cash plus
various other direct acquisition costs (the "KKSF/KDFC Acquisition"). EMCLA had
previously been operating KKSF-FM and KDFC-FM/AM under a time brokerage
agreement since November 1, 1996. On July 21, 1997, EMCLA sold KDFC-FM to
Bonneville for $50.0 million in cash (the "Bonneville/KDFC Disposition"). The
assets of KDFC-FM are classified as assets held for sale on June 30, 1997 in
connection with the purchase price allocation of KKSF-FM and KDFC-FM/AM and no
gain or loss was recognized by EMCLA upon consummation of the sale.
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On April 1, 1997, EMCLA acquired WJLB-FM and WMXD-FM in Detroit from Secret
Communications L.P. ("Secret") for $168.0 million in cash plus various other
direct acquisition costs (the "Secret/ Detroit Acquisition"). EMCLA had
previously been operating WJLB-FM and WMXD-FM under time brokerage agreements
since September 1, 1996.
On April 3, 1997, EMCLA exchanged WQRS-FM in Detroit (which EMCLA acquired
on April 3, 1997 from Secret for $32.0 million in cash plus various other direct
acquisition costs) to affiliates of Greater Media Radio, Inc. ("Greater Media")
in return for WWRC-AM in Washington, D.C. and $9.5 million in cash (the "Greater
Media Exchange"). The net purchase price to EMCLA of WWRC-AM was therefore $22.5
million. EMCLA had previously been operating WWRC-AM under a time brokerage
agreement since June 17, 1996.
On May 1, 1997, EMCLA acquired WDAS-FM/AM in Philadelphia from affiliates
of Beasley FM Acquisition Corp. ("Beasley") for $103.0 million in cash plus
various other direct acquisition costs (the "Beasley Acquisition").
On May 15, 1997, EMCLA exchanged five of its six stations in Charlotte,
North Carolina (WPEG-FM, WBAV-FM/AM, WRFX-FM and WFNZ-AM) for two FM stations
(WIOQ-FM and WUSL-FM) owned by EZ Communications, Inc. ("EZ") in Philadelphia
(the "EZ Exchange"), and also sold EMCLA's sixth radio station in Charlotte,
WNKS-FM, to EZ for $10.0 million in cash and recognized a gain of $3.5 million
(the "EZ Sale" and, collectively with the EZ Exchange, the "EZ Transaction").
On May 30, 1997, EMCLA acquired WPNT-FM in Chicago from affiliates of
Century Broadcasting Company ("Century") for $75.7 million in cash (including
$2.0 million for the purchase of the station's account receivables) plus various
other direct acquisition costs (the "Century Acquisition"). On June 19, 1997,
EMCLA sold WPNT-FM in Chicago to Bonneville for $75.0 million in cash and
recognized a gain of $0.5 million (the "Bonneville/WPNT Disposition").
On June 3, 1997, EMCLA sold WEJM-FM in Chicago to affiliates of Crawford
Broadcasting ("Crawford") for $14.8 million in cash and recognized a gain of
$9.3 million (the "Crawford Disposition").
On July 2, 1997, EMCLA acquired WLTW-FM and WAXQ-FM in New York and
WMZQ-FM, WJZW-FM, WZHF-AM and WBZS-AM in Washington, D.C. from Viacom
International, Inc. ("Viacom") for approximately $612.4 million (including
various direct acquisition costs) (the "Evergreen Viacom Acquisition"). On July
7, 1997, EMCLA sold WJZW-FM in Washington, D.C. to affiliates of Capital
Cities/ABC Radio ("ABC") for $68.0 million in cash (the "ABC/Washington
Disposition"). The assets of WJZW-FM were accounted for as assets held for sale
in connection with the purchase price allocation of the Evergreen Viacom
Acquisition and no gain or loss was recognized by EMCLA upon consummation of the
sale.
On July 7, 1997, EMCLA sold the FCC authorizations and certain transmission
equipment previously used in the operation of KYLD-FM in San Francisco to
Susquehanna Radio Corp. ("Susquehanna") for $44.0 million in cash (the "San
Francisco Frequency Disposition"). Simultaneously therewith, CRBC sold the call
letters "KSAN-FM" (which CRBC previously used in San Francisco) to Susquehanna.
On July 7, 1997, EMCLA and CRBC entered a time brokerage agreement to enable
EMCLA to operate KYLD-FM on the frequency previously assigned to KSAN-FM, which
has an improved broadcast signal in the San Francisco market, and on July 7,
1997, CRBC changed the call letters of KSAN-FM to KYLD-FM. Upon the consummation
of the Chancellor Merger, the Company changed the format of the new KYLD-FM to
the format previously operated on the old KYLD-FM.
On July 14, 1997, EMCLA completed the disposition of WLUP-FM in Chicago to
Bonneville (the "Bonneville/WLUP Disposition" and, collectively with the
Bonneville/KDFC Disposition and the Bonneville/WPNT Disposition, the "Bonneville
Dispositions"). On October 7, 1997, the Company applied the net proceeds from
the disposition of WLUP-FM of $80.0 million in cash, plus an additional $3.5
million and various other direct acquisition costs, in a deferred exchange of
WLUP-FM for KZPS-FM and KDGE-FM in Dallas (the "Chicago/Dallas Exchange"). The
Company had previously operated KZPS-FM and KDGE-FM under time brokerage
agreements effective August 1, 1997.
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On August 13, 1997, EMCLA sold KDFC-AM in San Francisco and WBZS-AM and
WZHF-AM in Washington, D.C. to affiliates of Douglas Broadcasting ("Douglas")
for $18.0 million in the form of a promissory note (the "Douglas AM
Dispositions"). The promissory note bears interest at 7 3/4%, with a balloon
principal payment due four years after closing. At closing, Douglas was required
to post a $1.0 million letter of credit for the benefit of EMCLA that will
remain outstanding until all amounts due under the promissory note are paid.
On August 27, 1997, EMCLA sold WEJM-AM in Chicago to Douglas for $7.5
million in cash (the "Douglas Chicago Disposition").
The foregoing transactions, together with (i) the acquisition on January
17, 1996 of Pyramid Communications, Inc. for approximately $316.3 million; (ii)
the acquisition on May 3, 1996 of WKLB-FM in Boston for $34.0 million in cash;
(iii) the acquisition on August 14, 1996 of KYLD-FM in San Francisco for $44.0
million in cash; (iv) the acquisition on October 18, 1996 of WEDR-FM in Miami
for $65.0 million in cash; (v) the exchange on November 26, 1996 of WKLB-FM in
Boston for WGAY-FM in Washington, D.C.; and (vi) the dispositions on July 19,
1996 and August 1, 1996 of WHTT-FM/AM and WSJZ-FM in Buffalo for $32.0 million
are referred to as the "Completed Evergreen/Chancellor Media Transactions."
COMPLETED CHANCELLOR TRANSACTIONS
Between January 1, 1997 and the date of completion of the Chancellor
Merger, CRBC had completed (i) the acquisition of 24 radio stations for a net
purchase price of approximately $1.07 billion, (ii) the exchange of three
stations for one station and $33.0 million in cash and (iii) the sale of five
stations for $108.3 million in cash.
On January 23, 1997, CRBC acquired Colfax Communications, a radio
broadcasting company with eight FM stations and four AM stations located in four
markets (Minneapolis/St. Paul, Phoenix, Washington, D.C. and Milwaukee) (the
"Colfax Acquisition") for $383.7 million in cash (including acquisition costs).
On March 31, 1997, CRBC sold WMIL-FM and WOKY-AM in Milwaukee, which were
acquired as part of the Colfax Acquisition, for $41.3 million in cash (the
"Milwaukee Disposition").
On January 31, 1997, CRBC sold WWWW-FM and WDFN-AM in Detroit to EMCLA for
$30.0 million in cash plus various other direct transaction costs (the
"WWWW/WDFN Disposition").
On February 13, 1997, CRBC acquired three FM stations in Orlando, two FM
stations and one AM station in West Palm Beach and two FM stations in
Jacksonville from OmniAmerica Group for $166.0 million in cash (including
acquisition costs) and common stock of Chancellor valued at $15.0 million (the
"Omni Acquisition"). CRBC had been operating the Orlando stations acquired in
the Omni Acquisition pursuant to a time brokerage agreement since July 1, 1996.
On March 24, 1997, CRBC exchanged WEAT-FM/AM and WOLL-FM in West Palm Beach,
which were acquired as part of the Omni Acquisition, for KSTE-FM in Sacramento
and $33.0 million in cash (the "West Palm Beach Exchange"). CRBC had previously
been operating KSTE-FM under a time brokerage agreement since August 1, 1996.
Prior to consummating the West Palm Beach Exchange, CRBC had sold all of the
broadcast time on WEAT-FM/AM and WOLL-FM pursuant to a time brokerage agreement
since July 1, 1996.
On July 2, 1997, CRBC acquired KIBB-FM and KYSR-FM in Los Angeles, WLIT-FM
in Chicago and WDRQ-FM in Detroit from Viacom for approximately $500.8 million
(including various direct acquisition costs) (the "Chancellor Viacom
Acquisition" and, together with the Evergreen Viacom Acquisition, the "Viacom
Acquisition"). On August 11, CRBC sold WDRQ-FM in Detroit, to ABC for $37.0
million in cash (the "ABC/Detroit Disposition" and, together with the
ABC/Washington Disposition, the "ABC Dispositions").
The forgoing transactions, together with (i) the acquisition by CRBC on
February 14, 1996 of Trefoil Communications, Inc. and its wholly owned
subsidiary, Shamrock Broadcasting, Inc. (collectively, "Shamrock Broadcasting"),
a radio broadcasting company with 11 FM stations and 8 AM stations in 10 markets
for $408.0 million in cash (including acquisition costs) (the "Shamrock
Acquisition"), (ii) the exchange by CRBC on July 31, 1996 of KTBZ-FM in Houston
(which was acquired as part of the Shamrock Acquisition)
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and $5.6 million in cash for KIMN-FM and KALC-FM in Denver (the "Houston/Denver
Exchange") and (iii) the acquisition by CRBC on November 22, 1996 of WKYN-AM in
Cincinnati for $1.4 million in cash are referred to as the "Completed Chancellor
Transactions." The Completed Evergreen/Chancellor Media Transactions and the
Completed Chancellor Transactions are referred to collectively as the "Completed
Transactions."
PENDING TRANSACTIONS
Gannett Acquisition
On April 4, 1997, EMCLA entered into the Gannett Agreements with P&S,
pursuant to which EMCLA will acquire WGCI-AM and WGCI-FM in Chicago for $140.0
million, KKBQ-AM and KKBQ-FM in Houston for $110.0 million, and KHKS-FM in
Dallas for $90.0 million. The aggregate purchase price is subject to an upward
adjustment of up to $10.0 million depending on the timing of the closings. The
Gannett Agreements are independent with respect to each market and may be
consummated at different times. On April 10, 1997, EMCLA issued letters of
credit for the benefit of P&S in the aggregate amount of $34.0 million to secure
EMCLA's obligations under the Gannett Agreements.
The Company expects that it will ultimately borrow the funds necessary to
complete the Gannett Acquisition from the Senior Credit Facility. However, if
the Company does not have sufficient borrowing capacity under the Senior Credit
Facility or otherwise to consummate the Gannett Acquisition within the time
period specified in the Gannett Agreements, Chancellor Media has agreed,
pursuant to an alternative financing facility with certain lenders, to issue
common equity securities for the account of those lenders if the alternative
facility is drawn. The Company presently expects that it will be able to
consummate the Gannett Acquisition by drawing on the Senior Credit Facility and
that, as a result, Chancellor Media will not be required to make any draw under
an alternative facility.
Although there can be no assurances, the Company expects that the Gannett
Acquisition will be completed in the fourth quarter of 1997 or the first quarter
of 1998.
Denver Acquisition. On July 30, 1997, CRBC entered into an agreement to
acquire KXPK-FM in Denver from Ever Green Wireless LLC (which is unrelated to
the Company) for $26.0 million in cash (including $1.7 million paid by CRBC in
escrow) (the "Denver Acquisition"). CRBC also entered into an agreement to
operate KXPK-FM under a time brokerage agreement effective as of September 1,
1997. Although there can be no assurance, the Company expects that the Denver
Acquisition will be completed in the first quarter of 1998.
SFX Exchange. On July 1, 1996, CRBC entered into an agreement with SFX
pursuant to which CRBC agreed to exchange WAPE-FM and WFYV-FM in Jacksonville
and $11.0 million in cash to SFX Broadcasting Inc. ("SFX") in return for
WBAB-FM, WBLI-FM, WHFM-FM and WGBB-AM in Nassau/Suffolk (Long Island). CRBC has
been operating WBAB-FM, WBLI-FM, WHFM-FM and WGBB-FM pursuant to a time
brokerage agreement effective July 1, 1996 and SFX has been operating WAPE-FM
and WFYV-FM pursuant to time brokerage agreements each effective July 1, 1996.
The Company is unable to predict whether or when it will consummate the SFX
Exchange, as it is pending review by the DOJ under the HSR Act.
Bonneville Option. On August 6, 1997, Evergreen and Chancellor announced
that they had paid $3.0 million to Bonneville for an option to exchange EMCLA's
station WTOP-AM in Washington and CRBC's stations KZLA-FM in Los Angeles and
WGMS-FM in Washington and $57.0 million in cash for Bonneville's stations
WNSR-FM in New York, KLDE-FM in Houston and KBIG-FM in Los Angeles. The
Bonneville Option was exercised on October 1, 1997 and definitive exchange
documentation is presently being negotiated. The Company has entered time
brokerage agreements relating to these stations, which were effective on October
1, 1997 for WTOP-AM, KZLA-FM, WGMS-FM, KLDE-FM and KBIG-FM, and effective on
October 10, 1997 for WNSR-FM.
Katz Acquisition. On July 14, 1997, Evergreen, Chancellor and Katz entered
into an agreement pursuant to which a jointly owned affiliate of Evergreen and
Chancellor would acquire Katz, a full-service media
46
<PAGE> 53
representation firm, in a transaction valued at approximately $376.1 million.
Under the terms of the Katz Acquisition, shareholders of Katz would be offered
in a tender offer $11.00 in cash for each share of common stock held.
Additionally, debt of Katz and its subsidiaries of approximately $212 million at
September 30, 1997 would be assumed or refinanced as part of the Katz
Acquisition. Consummation of the Katz Acquisition is subject to the tender of a
majority of Katz shares on a fully-diluted basis, approval of the Katz
shareholders and the receipt of certain regulatory approvals, including the
expiration or termination of the waiting period required under the HSR Act. In
connection with its review under the HSR Act, the DOJ has issued a second
request for information concerning the Katz Acquisition. Chancellor Media is in
the process of providing that information. There can be no assurance as to
whether or when the Katz Acquisition may ultimately be consummated.
Additionally, assuming the Katz Acquisition may ultimately be consummated, it is
unclear if Katz would be a direct subsidiary of Chancellor Media or of CMCLA,
and holders of Notes should not presume that Katz would be combined with CMCLA
upon consummation of the Katz Acquisition.
The Gannett Acquisition, the Denver Acquisition, the SFX Exchange and the
Bonneville Option are referred to collectively as the "Pending Transactions."
FINANCING TRANSACTIONS
In addition to the various radio station transactions described above,
Chancellor, CRBC, Evergreen and EMCLA have undertaken the following financing
transactions:
On April 25, 1997, EMCLA entered into the Senior Credit Facility (as
amended on June 26, 1997 and August 7, 1997) with certain banks and financial
institutions and Toronto Dominion (Texas), Inc. as Administrative Agent for such
lenders. Pursuant to the Senior Credit Facility, EMCLA's previous facility was
refinanced and increased to a total commitment of $1.75 billion and, upon
consummation of the Chancellor Merger, such total commitment increased to $2.50
billion.
On June 16, 1997 Evergreen completed its private offering of 5,500,000
shares of $3.00 Convertible Preferred Stock for aggregate gross proceeds of
$275.0 million and on June 20, 1997, the initial purchasers of the $3.00
Convertible Preferred Stock exercised an over-allotment option granted by
Evergreen to acquire an additional 490,000 shares of the $3.00 Convertible
Preferred Stock for additional gross proceeds of $24.5 million. The net proceeds
of $287.8 million were contributed to the Company and were used to repay
borrowings under the Senior Credit Facility and subsequently were reborrowed as
part of the financing of the Evergreen Viacom Acquisition.
On June 24, 1997, CRBC completed its private offering of the Original
Notes. The net proceeds of the offering of Original Notes of $194.1 million were
used to repay borrowings under CRBC's previous senior credit agreement. The
Original Notes were assumed by the Company.
On July 2, 1997, CRBC entered into the CRBC Restated Credit Agreement with
certain lenders and Bankers Trust Company as Managing Agent for such lenders.
Pursuant to the CRBC Restated Credit Agreement, CRBC's credit facility was
refinanced and increased to a total commitment of $750.0 million. Additionally,
on July 2, 1997 Chancellor borrowed funds under an interim loan of $170.0
million. These financing transactions were used to finance the Chancellor Viacom
Acquisition. Upon consummation of the Chancellor Merger, all borrowings under
the CRBC Restated Credit Agreement and the Chancellor Interim Financing were
refinanced or repaid by CMHC and the Company. See "Management's Discussion and
Analysis of Financial Conditions and Results of Operations -- Liquidity and
Capital Resources."
The foregoing transactions are referred to collectively as the "Financing
Transactions."
47
<PAGE> 54
BROADCAST PROPERTIES
The following table sets forth selected information with respect to the
portfolio of radio stations that are owned by the Company as of October 7, 1997.
<TABLE>
<CAPTION>
RANKING OF
STATION'S STATION RANKING
MARKET BY AUDIENCE TARGET IN TARGET
MARKET(1) REVENUE(2) STATION SHARE(%)(3) STATION FORMAT DEMOGRAPHICS DEMOGRAPHICS(4)
- -------------------- ---------- ----------- ----------- --------------------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Los Angeles, CA 1 KKBT-FM 4.5 Urban Contemporary Women 18-34 2
KYSR-FM 2.8 Hot Adult Contemporary Persons 25-54 18
KIBB-FM 1.6 Rhythmic Adult Persons 25-54 18
Contemporary
KLAC-AM 2.2 Adult Standards/Sports Persons 35-64 21
KZLA-FM+ 2.5 Country Persons 25-54 10
New York, NY 2 WKTU-FM 4.7 Rhythmic Contemporary Hits Persons 25-54 5
WLTW-FM 6.0 Soft Adult Contemporary Persons 25-54 1
WAXQ-FM 2.0 Classic Rock Persons 25-54 12
WHTZ-FM 3.5 Contemporary Hit Radio Persons 18-34 6
Chicago, IL 3 WMVP-AM 1.4 Personality/Sports Men 25-54 18
WRCX-FM 3.2 Mainstream Rock Men 18-34 1
WVAZ-FM 4.2 Black Adult Women 25-54 3
WNUA-FM 3.9 Contemporary Jazz Persons 25-54 5
WLIT-FM 4.8 Soft Adult Contemporary Persons 25-54 1
San Francisco, CA 4 KIOI-FM 3.2 Adult Contemporary Women 25-54 2
KMEL-FM 3.9 Contemporary Hits Persons 18-34 1
KKSF-FM 3.6 Contemporary Jazz Persons 25-54 4
KNEW-AM 1.0 Country/Sports Persons 25-54 34
KYLD-FM 4.2 Contemporary Hits Persons 18-34 13
KABL-AM 2.5 Adult Standards Persons 35-64 12
KISQ-FM 2.7 70's Oldies Persons 25-54 8
Dallas, TX 5 KSKY-AM 0.1 Inspirational N/M N/M
KDGE-FM 3.0 Alternative Rock Persons 18-34 5
KZPS-FM 3.8 Classic Rock Persons 25-54 4
Philadelphia, PA 6 WYXR-FM 3.5 Adult Contemporary Women 18-49 3
WJJZ-FM 3.9 Contemporary Jazz Persons 35-54 4
WDAS-FM 4.9 Urban Contemporary Persons 25-54 2
WDAS-AM 1.2 Gospel N/M N/M
WUSL-FM 5.0 Urban Contemporary Women 18-34 1
WIOQ-FM 3.6 Contemporary Hit Women 18-34 3
Radio/Dance
Houston, TX 7 KTRH-AM 4.5 News/Sports Men 25-54 3
KLOL-FM 3.2 Album Rock Men 18-34 2
Washington, D.C. 8 WTOP-AM+ 2.9 News/Sports Men 25-54 10
WASH-FM 4.6 Adult Contemporary Women 25-54 2
WGAY-FM 3.9 Adult Contemporary Persons 35-64 6
WWRC-AM 0.9 News/Talk Persons 35-64 24
WMZQ-FM 5.0 Country Persons 25-54 5
WBIG-FM 4.7 Oldies Persons 25-54 2
WGMS-FM+ 4.1 Classical Persons 35-64 3
WTEM-AM 1.0 Sports/Talk Men 18-49 18
Boston, MA 9 WJMN-FM 6.3 Contemporary Hits Women 18-24 2
WXKS-FM 6.2 Contemporary Hits Women 25-34 1
WXKS-AM 1.7 Nostalgia Women 45-54 12
Atlanta, GA 10 WFOX-FM 4.3 Oldies Persons 25-54 10
</TABLE>
48
<PAGE> 55
<TABLE>
<CAPTION>
RANKING OF
STATION'S STATION RANKING
MARKET BY AUDIENCE TARGET IN TARGET
MARKET(1) REVENUE(2) STATION SHARE(%)(3) STATION FORMAT DEMOGRAPHICS DEMOGRAPHICS(4)
- -------------------- ---------- ----------- ----------- --------------------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Detroit, MI 11 WKQI-FM 4.7 Adult Contemporary Women 25-54 4
WNIC-FM 7.2 Adult Contemporary Women 25-54 1
WYUR-AM(5) N/M Adult Contemporary Women 25-54 N/M
WWWW-FM 3.6 Country Women 25-54 9
WDFN-AM 1.3 Sports/Talk Men 25-49 11
WJLB-FM 8.1 Urban Contemporary Persons 18-34 1
WMXD-FM 4.3 Black Adult Persons 25-54 4
Miami/Ft.
Lauderdale, FL 12 WVCG-AM 0.6 Brokered(6) N/M N/M
WEDR-FM 4.9 Urban Contemporary Persons 25-54 6
Denver, CO 15 KRRF-AM 0.6 Talk Men 25-54 18
KXKL-FM 4.2 Oldies Persons 25-54 7
KVOD-FM 1.8 Classical Persons 25-54 19
KIMN-FM 2.7 70's Oldies Persons 25-54 13
KALC-FM 4.8 Hot Adult Contemporary Persons 18-34 1
Minneapolis/St.
Paul, MN 16 KTCZ-FM 4.4 Progressive Album Rock Men 25-49 2
KTCJ-AM(7) 0.2 Progressive Album Rock Men 25-49 20
KDWB-FM 6.9 Contemporary Hit Radio Persons 18-34 2
KFAN-AM 1.8 Sports Men 18-49 11
KEEY-FM 6.9 Country Persons 25-54 3
KQQL-FM 5.0 Oldies Persons 25-54 4
WRQC-FM(8) 4.5 Young Country Persons 18-49 7
Phoenix, AZ 17 KMLE-FM 6.0 Country Persons 25-54 3
KISO-AM 0.8 Urban Adult Contemporary Persons 25-54 25
KOOL-FM 6.0 Oldies Persons 25-54 2
KOY-AM 5.1 Adult Standards Persons 35-64 10
KYOT-FM 3.1 Contemporary Jazz Persons 25-54 13
KZON-FM 3.7 Alternative Rock Persons 18-34 4
Cincinnati, OH 20 WUBE-FM(9) 8.6 Country Persons 25-54 1
WUBE-AM 0.4 Nostalgia Persons 35-64 24
WYGY-FM(9) 3.3 Young Country Men 18-34 8
WKYN-AM 0.7 Sports/Talk Men 18-49 15
Pittsburgh, PA 24 WWSW-AM(10) 0.3 Oldies Persons 25-54 24
WWSW-FM 5.6 Oldies Persons 25-54 4
Sacramento, CA 25 KGBY-FM 3.8 Adult Contemporary Women 25-54 2
KHYL-FM 4.1 Oldies Persons 25-54 6
KFBK-AM 10.5 News/Talk Persons 25-54 2
KSTE-AM 2.9 Talk Persons 25-54 15
Orlando, FL 26 WOCL-FM 4.4 Oldies Persons 25-54 10
WOMX-FM 4.7 Adult Contemporary Persons 25-54 1
WJHM-FM 8.2 Urban Contemporary Persons 18-34 1
WXXL-FM 6.9 Contemporary Hit Radio Persons 18-34 2
Nassau/Suffolk (Long
Island) NY(11) 44 WALK-FM 6.2 Adult Contemporary Persons 25-54 1
WALK-AM 0.3 Adult Contemporary Persons 35-64 38
Jacksonville, FL 47 WAPE-FM+ 8.1 Contemporary Hit Radio Women 18-34 1
WFYV-FM+ 8.6 Album Oriented Rock Men 25-54 1
Riverside/ San
Bernardino, CA 64 KGGI-FM 6.2 Contemporary Hit Radio Persons 18-34 1
KMRZ-AM 0.4 Oldies Men 25-54 32
</TABLE>
- ---------------
N/M: Not meaningful
+ Indicates station to be disposed in a Pending Transaction.
(1) Actual city of license may differ from metropolitan market served in
certain cases.
(2) Ranking of principal radio market served by the station among all U.S.
radio broadcast markets by aggregate 1996 gross radio broadcasting revenue
as reported by James H. Duncan, Duncan's Radio Market Guide (1997 ed.).
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<PAGE> 56
(3) Information derived from The Arbitron Company, Spring 1997, Local Market
Reports in the specified markets for listeners age 12+, Monday to Sunday,
6:00 a.m. to Midnight. Copyright, The Arbitron Company.
(4) Information derived from The Arbitron Company, Spring 1997, Local Market
Reports in the specified markets for the Target Demographics specified for
listening Monday to Sunday, 6:00 a.m. to Midnight. Copyright, The Arbitron
Company.
(5) The Company has historically brokered WYUR-AM to third parties.
(6) The Company sells airtime on WVCG-AM to third parties for broadcast of
specialty programming on a variety of topics.
(7) Programming provided to KTCJ-AM via simulcast of programming broadcast on
KTCZ-FM. The format of KTCJ-AM was changed to Classic Country with a
target demographic of Persons 35-64 effective April 25, 1997.
(8) The format of WRQC-FM was changed to Album Rock with a target demographic
of Men 18-34 effective April 15, 1997.
(9) WUBE-FM and WYGY-FM are sold in combination.
(10) Programming provided to WWSW-AM via simulcast of programming broadcast on
WWSW-FM.
(11) Nassau/Suffolk (Long Island) may be considered part of the greater New
York market, although it is reported separately as a matter of convention.
PENDING ACQUISITIONS
The following table sets forth selected information with respect to the
radio stations that will be acquired by the Company in the Pending Transactions.
<TABLE>
<CAPTION>
RANKING OF
STATION'S STATION RANKING
MARKET BY AUDIENCE TARGET IN TARGET
MARKET(1) REVENUE(2) STATION SHARE(%)(3) STATION FORMAT DEMOGRAPHICS DEMOGRAPHICS(4)
- -------------------- ---------- ----------- ----------- ------------------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Los Angeles, CA 1 KBIG-FM 2.4 Adult Contemporary Persons 25-54 14
New York, NY 2 WNSR-FM 1.2 Modern Adult Contemporary Women 25-44 12
Chicago, IL 3 WGCI-AM 1.4 Urban/R&B Persons 18-34 25
WGCI-FM 5.6 Urban Oldies Persons 25-54 2
Dallas, TX 5 KHKS-FM 8.0 Contemporary Hits Women 18-34 1
Houston, TX 7 KKBQ-AM 0.2 Country Persons 25-54 34
KKBQ-FM 4.3 Fresh Country Persons 25-54 6
KLDE-FM 7.2 Oldies Persons 25-54 2
Denver, CO 15 KXPK-FM 3.1 Alternative Persons 18-49 11
Nassau/Suffolk (Long
Island) NY 44 WBAB-FM 2.8 Album Rock Men 25-49 3
WBLI-FM 3.9 Adult Contemporary Women 25-54 2
WHFM-FM N/M Album Rock Men 25-49 N/M
WGBB-AM N/M News/Talk Persons 25-54 N/M
</TABLE>
- ---------------
N/M: Not meaningful
(1) Actual city of license may differ from metropolitan market served in
certain cases.
(2) Ranking of principal radio market served by the station among all U.S.
radio broadcast markets by aggregate 1996 gross radio broadcasting revenue
as reported by James H. Duncan, Duncan's Radio Market Guide (1997 ed.).
(3) Information derived from The Arbitron Company, Spring 1997, Local Market
Reports in the specified markets for listeners age 12+, Monday to Sunday,
6:00 a.m. to Midnight. Copyright, The Arbitron Company.
(4) Information derived from The Arbitron Company, Spring 1997, Local Market
Reports in the specified markets for the Target Demographics specified for
listening Monday to Sunday, 6:00 a.m. to Midnight. Copyright, The Arbitron
Company.
COMPANY STRATEGY
The Company's senior management team, led by Scott K. Ginsburg and James de
Castro has extensive experience in acquiring and operating large market radio
station groups. The Company's business strategy is to assemble and operate radio
station clusters in order to maximize broadcast cash flow generated in each
market. This strategy relies on the following six key elements.
Create Large Market Superduopolies. The Company seeks to be the owner and
operator of the leading superduopoly in the largest markets in the United
States. Management believes that the large revenue base in these markets, in
conjunction with operating synergies achievable through the operation of
multiple stations,
50
<PAGE> 57
will enable it to appeal to a wider universe of national and local advertisers
and to achieve a greater degree of profitability than that of operators and
broadcasters in smaller markets. The Pending Transactions will complement the
Company's existing stations in the Los Angeles, New York, Chicago, San
Francisco, Dallas, Houston, Denver and Nassau/Suffolk (Long Island) markets. The
Company expects to continue to selectively pursue acquisition opportunities in
the major markets in which it will compete as well as in other markets.
Maximize Superduopoly Revenue and Expense Synergies. The Company seeks to
capitalize on the revenue growth and expense savings opportunities of
superduopolies that have been created or that will be created by the Viacom
Acquisition, the Chancellor Merger and the Pending Transactions. Superduopolies
have only been permissible since the passage of the 1996 Act in January 1996.
Management believes that substantial benefits can be derived from the successful
integration of these station cluster groups. Management also believes that radio
station clusters can attract increased revenues in a market by delivering larger
combined audiences to advertisers and by engaging in joint marketing and
promotional activities. In addition, management expects to realize significant
expense savings through the consolidation of facilities and through the
economies of scale created in areas such as national representation commissions,
employee benefits, insurance premiums and other operating costs.
Establish Strong Listener Loyalty. Management believes that strong
listener familiarity with a given radio station produces listener loyalty.
Management seeks to establish this familiarity through a variety of programming
and marketing techniques, including the development of high-profile on-air
personalities and creative station-sponsored promotional events, all of which
are designed to secure heightened listener awareness. The Company also conducts
extensive market research to help identify programming format opportunities and
attract new listeners, as has been the case with WKTU-FM in New York. After
operating WKTU-FM for nine months under the call letters and country music
format inherited from a prior operator, in February 1996 the Company began to
operate WKTU-FM as a rhythmic contemporary hits station. According to Arbitron,
WKTU-FM was ranked eleventh in its target demographic group as a country
station, and was ranked first in several key demographic groups (including its
target demographic group) in the first full ranking period after the station
changed its format. The station has continued to rank among the top five
stations in its target demographic group in subsequent periods. Management
believes that institutionalizing its radio stations in their markets through
programming, marketing and research ensures steady long-term audience share
ratings.
Maintain Strict Cost Controls. Management maintains a company-wide focus
on cost controls in an effort to maximize broadcast cash flow margins.
Management reviews station spending on a monthly basis. In addition, corporate
level employees maintain weekly sales reporting systems designed to enable
management to evaluate station performance on a current basis. The Company's
focus on maximizing superduopoly revenues and maintaining cost controls is
reflected by the fact that, for the last two years, the Company has achieved
broadcast cash flow margins of 40% or more. The Company also carefully monitors
capital expenditures.
Develop Experienced, Incentivized Management Team. The Company believes
that management depth is critical to achieving superior operating performance in
a portfolio as large as the Company's. The Company's senior management team of
Scott K. Ginsburg and James de Castro collectively have an aggregate of more
than 30 years of radio industry operating experience This senior management team
is supported by an experienced team of veteran group operators and station
general managers. At the station level, the Company seeks to incentivize its
individual radio station managers and sales forces to outperform revenue and
broadcast cash flow budget expectations by granting quarterly and annual
performance measurement-based bonuses. The Company believes that the incentives
it offers to its employees, as well as its stature in the radio industry, will
enable it to continue to be successful in recruiting top industry employees.
Maximize Free Cash Flow. By emphasizing the revenue and expense synergies
achievable through the assembly and operation of superduopolies and by carefully
monitoring operating costs and capital expenditures, the Company seeks to
maximize broadcast cash flow and, ultimately, free cash flow (broadcast cash
flow less corporate general and administrative expenses, debt service, tax
payments, dividend requirements and
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<PAGE> 58
capital expenditures). This focus on free cash flow should facilitate reduction
of leverage without undue dependence on capital markets and position the Company
to pursue attractive acquisitions.
ADVERTISING
The primary source of the Company's revenues is the sale of broadcasting
time for local, regional and national advertising. On a pro forma basis
approximately 71% of the Company's gross revenues would have been generated from
the sale of local advertising in 1996. The Company believes that radio is one of
the most efficient, cost-effective means for advertisers to reach specific
demographic groups. The advertising rates charged by the Company's radio
stations are based primarily on (i) a station's ability to attract audiences in
the demographic groups targeted by its advertisers (as measured principally by
quarterly Arbitron rating surveys that quantify the number of listeners tuned to
the station at various times) and (ii) the supply of and demand for radio
advertising time. Advertising rates generally are the highest during morning and
evening drive-time hours.
Depending on the format of a particular station, there are predetermined
numbers of advertisements that are broadcast each hour. The Company determines
the number of advertisements broadcast hourly that can maximize available
revenue dollars without jeopardizing listening levels. Although the number of
advertisements broadcast during a given time period may vary, the total number
of advertisements broadcast on a particular station generally does not vary
significantly from year to year.
A station's sales staff generates most of its local and regional
advertising sales. To generate national advertising sales, the Company engages
an advertising representative for each of its stations that specializes in
national sales and is compensated on a commission-only basis. Most advertising
contracts are short-term and generally run only for a few weeks.
COMPETITION
The radio broadcasting industry is a highly competitive business. The
success of each of the Company's stations is dependent, to a significant degree,
upon its audience ratings and share of the overall advertising revenue within
its market. The Company's radio stations compete for listeners and advertising
revenues directly with other radio stations, as well as with other media, within
their respective markets. Radio stations compete for listeners primarily on the
basis of program content and by hiring on-air talent that appeals to a
particular demographic group. By building a strong listener base comprised of a
specific demographic group in each of its markets, the Company is able to
attract advertisers who seek to reach those listeners. Other media, including
broadcast television, cable television, newspapers, magazines, direct mail
coupons and billboard advertising also compete with the Company's stations for
advertising revenues. The Company also competes with other broadcasting
operators for acquisition opportunities, and prices for radio stations in major
markets have increased significantly in recent periods. To the extent that the
rapid pace of consolidation in the radio broadcasting industry continues,
certain competitors may emerge with larger portfolios of major market radio
stations, greater ability to deliver large audiences to advertisers and more
access to capital resources than does the Company. The audience ratings and
market share for the Company are and will be subject to change and any adverse
change in a particular market could have a material and adverse effect on the
revenue of its stations located in that market. There can be no assurance that
any one of the Company's stations will be able to maintain or increase its
current audience ratings or advertising revenue market share.
The radio broadcasting industry is also subject to competition from new
media technologies that are being developed or introduced, such as the delivery
of audio programming by cable television systems, direct broadcast satellite
("DBS") systems and other digital audio broadcasting formats to local and
national audiences. In addition, the FCC has auctioned spectrum for a new
satellite-delivered Digital Audio Radio Service ("DARS"). These actions may
result in the introduction of several new national or regional satellite radio
services with sound quality equivalent to compact discs. Another possible
competitor to traditional radio is In Band On Channel ("IBOC") digital radio.
IBOC could provide multi-channel, multi-format digital radio services in the
same band width currently occupied by traditional AM and FM radio services. The
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<PAGE> 59
Company cannot predict at this time the effect, if any, that any such new
technologies may have on the radio broadcasting industry.
FEDERAL REGULATION OF RADIO BROADCASTING INDUSTRY
Introduction. The radio broadcasting industry is subject to extensive and
changing regulation over, among other things, program content, technical
operations and business and employment practices.
The ownership, operation and sale of radio broadcast stations (including
those licensed to the Company) are subject to the jurisdiction of the FCC, which
acts under authority granted by the Communications Act. The Communications Act
prohibits the assignment or transfer of control of an FCC license without the
prior consent of the FCC. In determining whether to grant requests for consent
to such assignments or transfers, and in determining whether to grant or renew a
radio broadcast license, the FCC considers a number of factors pertaining to the
licensee (and proposed licensee), including: limitations on alien ownership and
the common ownership of television broadcast, radio broadcast and daily
newspaper properties, the "character" of the licensee (and proposed licensee)
and those persons or entities that have "attributable" interests, and compliance
with the Anti-Drug Abuse Act of 1988. Among other things, the FCC assigns
frequency bands for radio broadcasting; determines the particular frequencies,
locations and operating power of radio broadcast stations; issues, renews,
revokes and modifies radio broadcast station licenses; regulates equipment used
by radio broadcast stations; adopts and implements regulations and policies that
directly or indirectly affect the ownership, operation, program content and
employment and business practices of radio broadcast stations; and has the power
to impose penalties for violations of its rules and the Communications Act.
The following is a brief summary of certain provisions of the
Communications Act and specific FCC rules and policies. Reference should be made
to the Communications Act, FCC rules, and the public notices and rulings of the
FCC for further information concerning the nature and extent of federal
regulation of radio broadcast stations.
Failure to observe these or other FCC rules and policies may result in the
imposition of various sanctions, including admonishment, monetary forfeitures,
the grant of "short" (less than the maximum eight-year term) renewal terms or,
for particularly egregious violations, the denial of a license renewal
application, the revocation of FCC licenses, or the denial of FCC consent to
acquire additional broadcast properties.
License Renewal. Radio broadcast licenses are granted for maximum terms of
up to eight years. They may be renewed through an application to the FCC, and,
in certain instances, licensees are entitled to renewal expectancies. During
certain periods when a renewal application is pending, competing applicants may
file for the radio frequency being used by the renewal applicant, although the
FCC is prohibited from considering such competing applications if the existing
license has satisfied certain obligations. Petitions to deny license renewals
can be filed by interested parties, including members of the public. The FCC is
required to hold hearings on a renewal application in certain circumstances.
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<PAGE> 60
The following table sets forth, for the portfolio of stations that are or
will be owned by the Company, (assuming the consummation of all Pending
Transactions and the exercise by the Company of the Bonneville Option) (i) the
date of acquisition by the Company (if applicable), (ii) the frequency of each
station and (iii) the date of expiration of each station's main FCC broadcast
license:
<TABLE>
<CAPTION>
DATE OF EXPIRATION DATE
STATION MARKET(1) ACQUISITION FREQUENCY OF FCC LICENSE
------- --------- ----------- ---------- ----------------
<S> <C> <C> <C> <C>
KKBT-FM Los Angeles, CA 5/89 92.3 MHz 12/97*
KYSR-FM Los Angeles, CA 9/97 98.7 MHz 12/97*
KIBB-FM Los Angeles, CA 9/97 100.3 MHz 12/97*
KLAC-AM Los Angeles, CA 9/97 570 kHz 12/97*
KZLA-FM+ Los Angeles, CA 9/97 93.9 MHz 12/97*
KBIG-FMS Los Angeles, CA Pending 104.3 MHz 12/97*
WKTU-FM New York, NY 5/95 103.5 MHz 6/98
WLTW-FM New York, NY 7/97 106.7 MHz 6/98
WAXQ-FM New York, NY 7/97 104.3 MHz 6/98
WHTZ-FM New York, NY 9/97 100.3 MHz 6/98
WNSR-FMS New York, NY Pending 105.1 MHz 6/98
WMVP-AM Chicago, IL 5/84 1000 kHz 12/03
WRCX-FM Chicago, IL 12/93 103.5 MHz 12/96*
WVAZ-FM Chicago, IL 5/95 102.7 MHz 12/03
WNUA-FM Chicago, IL 1/96 95.5 MHz 12/03
WLIT-FM Chicago, IL 9/97 93.9 MHz 12/03
WGCI-FMS Chicago, IL Pending 107.5 MHz 12/03
WGCI-AMS Chicago, IL Pending 1390 kHz 12/03
KIOI-FM San Francisco, CA 4/94 101.3 MHz 12/97*
KMEL-FM San Francisco, CA 11/92 106.1 MHz 12/97*
KKSF-FM San Francisco, CA 1/97 103.7 MHz 12/97*
KNEW-AM San Francisco, CA 9/97 910 kHz 12/97*
KYLD-FM(2) San Francisco, CA 9/97 94.9 MHz 12/97*
KABL-AM San Francisco, CA 9/97 960 kHz 12/97*
KISQ-FM San Francisco, CA 9/97 98.1 MHz 12/97*
KSKY-AM Dallas, TX 5/95 660 kHz 8/05
KDGE-FM Dallas, TX 10/97 94.5 MHz 8/05
KZPS-FM Dallas, TX 10/97 92.5 MHz 8/05
KHKS-FMS Dallas, TX Pending 106.1 MHz 8/05
WYXR-FM Philadelphia, PA 1/96 104.5 MHz 8/98
WJJZ-FM Philadelphia, PA 1/96 106.1 MHz 8/98
WDAS-AM Philadelphia, PA 5/97 1480 kHz 8/98
WDAS-FM Philadelphia, PA 5/97 105.3 MHz 8/98
WIOQ-FM Philadelphia, PA 5/97 102.1 MHz 8/98
WUSL-FM Philadelphia, PA 5/97 98.9 MHz 8/98
KTRH-AM Houston, TX 6/93 740 kHz 8/05
KLOL-FM Houston, TX 6/93 101.1 MHz 8/05
KKBQ-FMS Houston, TX Pending 92.9 MHz 8/05
KKBQ-AMS Houston, TX Pending 790 kHz 8/05
KLDE-FMS Houston, TX Pending 94.5 MHz 8/05
WTOP-AM+ Washington, D.C. 11/92 1500 kHz 10/02
WASH-FM Washington, D.C. 11/92 97.1 MHz 10/02
WGAY-FM Washington, D.C. 11/96 99.5 MHz 10/02
WWRC-AM Washington, D.C. 4/97 980 kHz 10/02
WMZQ-FM Washington, D.C. 7/97 98.7 MHz 10/02
WBIG-FM Washington, D.C. 9/97 100.3 MHz 10/03
WGMS-FM+ Washington, D.C. 9/97 103.5 MHz 10/03
WTEM-AM Washington, D.C. 9/97 570 kHz 10/03
WJMN-FM Boston, MA 1/96 94.5 MHz 4/98
WXKS-FM Boston, MA 1/96 107.9 MHz 4/98
WXKS-AM Boston, MA 1/96 1430 kHz 4/98
WFOX-FM Atlanta, GA 9/97 97.1 MHz 4/03
</TABLE>
54
<PAGE> 61
<TABLE>
<CAPTION>
DATE OF EXPIRATION DATE
STATION MARKET(1) ACQUISITION FREQUENCY OF FCC LICENSE
------- --------- ----------- ---------- ----------------
<S> <C> <C> <C> <C>
WKQI-FM Detroit, MI 5/95 95.5 MHz 10/03
WNIC-FM Detroit, MI 5/95 100.3 MHz 10/03
WYUR-AM Detroit, MI 5/95 1310 kHz 10/03
WWWW-FM Detroit, MI 1/97 106.7 MHz 10/03
WDFN-AM Detroit, MI 1/97 1130 kHz 10/03
WJLB-FM Detroit, MI 4/97 97.9 MHz 10/03
WMXD-FM Detroit, MI 4/97 92.3 MHz 10/03
WVCG-AM Miami/Ft. Lauderdale, FL 7/83 1080 kHz 2/03
WEDR-FM Miami/Ft. Lauderdale, FL 10/96 99.1 MHz 2/03
KRRF-AM Denver, CO 9/97 1280 kHz 4/05
KXKL-FM Denver, CO 9/97 105.1 MHz 4/05
KVOD-FM Denver, CO 9/97 92.5 MHz 4/05
KIMN-FM Denver, CO 9/97 100.3 MHz 4/05
KALC-FM Denver, CO 9/97 105.9 MHz 4/97*
KXPK-FMS Denver, CO Pending 96.5 MHz 4/05
KTCZ-FM Minneapolis/St. Paul, MN 9/97 97.1 MHz 4/05
KTCJ-AM Minneapolis/St. Paul, MN 9/97 690 kHz 4/05
KDWB-FM Minneapolis/St. Paul, MN 9/97 101.3 MHz 4/05
KFAN-AM Minneapolis/St. Paul, MN 9/97 1130 kHz 4/05
KEEY-FM Minneapolis/St. Paul, MN 9/97 102.1 MHz 4/05
KQQL-FM Minneapolis/St. Paul, MN 9/97 107.9 MHz 4/05
WRCQ-FM Minneapolis/St. Paul, MN 9/97 100.3 MHz 4/05
KMLE-FM Phoenix, AZ 9/97 107.9 MHz 10/97*
KISO-AM Phoenix, AZ 9/97 1230 kHz 10/05
KOOL-FM Phoenix, AZ 9/97 94.5 MHz 10/05
KOY-AM Phoenix, AZ 9/97 550 kHz 10/05
KYOT-FM Phoenix, AZ 9/97 95.5 MHz 10/05
KZON-FM Phoenix, AZ 9/97 101.5 MHz 10/97*
WUBE-FM Cincinnati, OH 9/97 105.1 MHz 10/03
WUBE-AM Cincinnati, OH 9/97 1230 kHz 10/03
WYGY-FM Cincinnati, OH 9/97 96.5 MHz 10/03
WKYN-AM Cincinnati, OH 9/97 1160 kHz 10/03
WWSW-AM Pittsburgh, PA 9/97 970 kHz 8/98
WWSW-FM Pittsburgh, PA 9/97 94.5 MHz 8/98
KGBY-FM Sacramento, CA 9/97 92.5 MHz 12/97*
KHYL-FM Sacramento, CA 9/97 101.1 MHz 12/97*
KFBK-AM Sacramento, CA 9/97 1530 kHz 12/97*
KSTE-AM Sacramento, CA 9/97 650 kHz 12/97*
WOCL-FM Orlando, FL 9/97 105.9 MHz 2/03
WOMX-FM Orlando, FL 9/97 105.1 MHz 2/03
WJHM-FM Orlando, FL 9/97 101.9 MHz 2/03
WXXL-FM Orlando, FL 9/97 106.7 MHz 2/03
WALK-FM Nassau/Suffolk
(Long Island), NY 9/97 97.5 MHz 6/98
WALK-AM Nassau/Suffolk
(Long Island), NY 9/97 1370 kHz 6/98
WBAB-FMS Nassau/Suffolk
(Long Island), NY Pending 102.3 MHz 6/98
WBLI-FMS Nassau/Suffolk
(Long Island), NY Pending 106.1 MHz 6/98
WHFM-FMS Nassau/Suffolk
(Long Island), NY Pending 95.3 MHz 6/98
WGBB-AMS Nassau/Suffolk
(Long Island), NY Pending 1240 kHz 6/98
WAPE-FM+ Jacksonville, FL 9/97 95.1 MHz 2/03
WFYV-FM+ Jacksonville, FL 9/97 104.5 MHz 2/03
</TABLE>
55
<PAGE> 62
<TABLE>
<CAPTION>
DATE OF EXPIRATION DATE
STATION MARKET(1) ACQUISITION FREQUENCY OF FCC LICENSE
- ------------------ ---------------------------- ---------- ----------- -----------------
<S> <C> <C> <C> <C>
KGGI-FM Riverside/San Bernardino, CA 9/97 99.1 MHz 12/97*
KMRZ-AM Riverside/San-Bernardino, CA 9/97 1290 kHz 12/97*
</TABLE>
- ---------------
* Indicates pending renewal application.
+ Indicates station to be disposed in a Pending Transaction.
S Indicates station to be acquired in a Pending Transaction.
(1) Actual city of license may differ from metropolitan market served in certain
cases.
Ownership Matters. Under the Communications Act, a broadcast license may
not be granted to or held by any corporation that has more than one-fifth of its
capital stock owned or voted by aliens or their representatives, by foreign
governments or their representatives, or by non-U.S. corporations. Under the
Communications Act, a broadcast license also may not be granted to or held by
any corporation that is controlled, directly or indirectly, by any other
corporation more than one-fourth of whose capital stock is owned or voted by
aliens or their representatives, by foreign governments or their
representatives, or by non-U.S. corporations, if the FCC finds that the public
interest will be served by the refusal or revocation of such license. The
Company has been advised that the FCC staff has interpreted this provision of
the Communications Act to require an affirmative public interest finding before
a broadcast license may be granted to or held by any such corporation and that
the FCC has made such an affirmative finding only in limited circumstances.
These restrictions apply in modified form to other forms of business
organizations, including partnerships. The Company therefore may be restricted
from having more than one-fourth of its stock owned or voted by aliens, foreign
governments or non-U.S. corporations. The respective Certificates of
Incorporation of Chancellor Media, CMHC and the Company prohibit alien ownership
and control that are intended to facilitate compliance with the provisions of
the Communications Act applicable to alien ownership. The Company believes that
in light of current levels of alien ownership of the Company's capital stock,
the foregoing restrictions are not likely to have a material impact on
Chancellor Media, CMHC or the Company.
The Communications Act and FCC rules also generally prohibit the common
ownership, operation or control of a radio broadcast station and a television
broadcast station serving the same local market, and of a radio broadcast
station and a daily newspaper serving the same local market. Under these
"cross-ownership" rules, absent waivers, the Company would not be permitted to
acquire any daily newspaper or television broadcast station (other than
low-power television) in a local market where it then owned any radio broadcast
station. In October 1996, the Commission issued a Notice of Inquiry to explore
possible changes in the newspaper/broadcast cross-ownership waiver policy with
respect to newspaper/radio combinations, including the possibility of adopting a
waiver policy based on market size or on the number of independently owned media
in a market.
The 1996 Act eliminated national ownership caps on ownership of AM and FM
radio stations. Prior to the 1996 Act, radio groups were limited to ownership of
20 FM stations and 20 AM stations on a national basis. Additionally, the 1996
Act increased local ownership limits. Prior to the 1996 Act, a single owner was
limited to owning two FMs and two AMs in a single large radio market with common
ownership of three stations, including two in the same service, permitted in
smaller markets. After the 1996 Act, local ownership limits were increased as
follows: in markets with 45 or more stations, ownership is limited to eight
stations, no more than five of which can be in the same service; in markets with
30-44 stations, ownership is limited to seven stations, no more than four of
which can be in the same service; in markets with 15-29 stations, ownership is
limited to six stations, no more than four of which can be in the same service;
and in markets with 14 or fewer stations, ownership is limited to no more than
50% of the market's total with no more than three stations in the same service.
Because of these multiple ownership rules and the cross-interest policy
described below, a purchaser of capital stock of Chancellor Media or the Company
who acquires an attributable interest in the Company may violate the FCC's rules
if it also has an "attributable" interest in other television or radio stations,
or in daily newspapers, depending on the number and location of those radio or
television stations or daily newspapers. Such a purchaser also may be restricted
in the companies in which it may invest, to the extent that those investments
give rise to an attributable interest. If an attributable stockholder of the
Company violates any of
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<PAGE> 63
these ownership rules, the Company may be unable to obtain from the FCC one or
more authorizations needed to conduct its radio station business and may be
unable to obtain FCC consents for certain future acquisitions.
The FCC generally applies its television/radio/newspaper cross-ownership
rules, and its broadcast multiple ownership rules, by considering the
"attributable," or cognizable, interests held by a person or entity. A person or
entity can have an interest in a radio station, television station or daily
newspaper by being an officer, director, partner or stockholder of a company
that owns that station or newspaper. Whether that interest is cognizable under
the FCC's ownership rules is determined by the FCC's attribution rules. If an
interest is attributable, the FCC treats the person or entity who holds that
interest as the "owner" of the radio station, television station or daily
newspaper in question, and therefore subject to the FCC's ownership rules.
In the case of corporations, the interest of officers, directors and
persons or entities that directly or indirectly have the right to vote 5% or
more of the corporation's voting stock (or 10% or more of such stock in the case
of insurance companies, investment companies, bank trust departments and certain
other "passive investors" that hold such stock for investment purposes only) are
generally attributed with ownership of whatever radio stations, television
stations, and daily newspapers the corporation owns. Likewise, the interest of
an officer or a director of a corporate parent (as well as the corporate parent)
is generally attributed with ownership of whatever the subsidiary owns.
In the case of a partnership, the interest of a general partner is
attributable, as is the interest of any limited partner who is "materially
involved" in the media-related activities of the partnership. Debt instruments,
non-voting stock, options and warrants for voting stock that have not yet been
exercised, limited partnership interests where the limited partner is not
"materially involved" in the media-related activities of the partnership, and
minority voting stock interests in corporations where there is a single holder
of more than 50% of the outstanding voting stock, generally do not subject their
holders to attribution.
The FCC has issued a Notice of Proposed Rulemaking (the "NPRM") that
contemplates tightening attribution standards where parties have multiple
nonattributable interests in and relationships with stations that would be
prohibited by the FCC's cross-interest rules, if the interests/relationships
were attributable. The NPRM contemplates that this change in attribution will
apply only to persons holding debt or equity interests that exceed certain
benchmarks.
In addition, the FCC has a "cross-interest" policy that under certain
circumstances could prohibit a person or entity with an attributable interest in
a broadcast station or daily newspaper from having a "meaningful"
nonattributable interest in another broadcast station or daily newspaper in the
same local market. Among other things, "meaningful" interests could include
significant equity interests (including non-voting stock, voting stock, and
limited partnership interests) and significant employment positions. This policy
may limit the permissible investments that an equity investor in the Company may
make or hold. If the FCC determines that a stockholder of the Company has
violated this cross-interest policy, the Company may be unable to obtain from
the FCC one or more authorizations needed to conduct its radio station business
and may be unable to obtain FCC consents for certain future acquisitions.
Programming and Operation. The Communications Act requires broadcasters to
serve the "public interest." The FCC has gradually relaxed or eliminated many of
the more formalized procedures it had developed in the past to promote the
broadcast of certain types of programming responsive to the needs of a station's
community of license. A licensee continues to be required, however, to present
programming that is responsive to community problems, needs and interests and to
maintain certain records demonstrating such responsiveness. Complaints from
listeners concerning a station's programming often will be considered by the FCC
when it evaluates the licensee's renewal application, but such complaints may be
filed and considered at any time. Stations also must follow various FCC rules
that regulate, among other things, political advertising, sponsorship
identification, and technical operations (including limits on radio frequency
radiation). In addition, licensees must develop and implement programs designed
to promote equal employment opportunities. The broadcast of obscene and indecent
material and the advertisement of contests and lotteries are regulated by FCC
rules, as well as by state and other federal laws.
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<PAGE> 64
Time Brokerage Agreements. Over the past three years, a number of radio
stations, including certain of the Company's stations, have entered into what
commonly are referred to as "Time Brokerage Agreements," or "TBAs" (certain
types of these agreements also are known as "Local Marketing Agreements," or
"LMAs"). These agreements may take various forms. Separately-owned and licensed
stations may agree to function cooperatively in terms of programming,
advertising sales, and other matters, subject to the licensee of each station
maintaining independent control over the programming and other operations of its
own station and compliance with the requirements of antitrust laws. One typical
type of TBA is a programming agreement between two separately-owned radio
stations that serve a common service area, whereby the licensee of one station
programs substantial portions of the broadcast day on the other licensee's
station (subject to ultimate editorial and other controls being exercised by the
latter licensee), and sells advertising time during those program segments. The
FCC staff has held that such agreements do not violate the Communications Act as
long as the licensee of the station that is being substantially programmed by
another entity maintains complete responsibility for, and control over,
operations of its broadcast station and otherwise ensures compliance with
applicable FCC rules and policies.
A station that brokers more than 15% of the broadcast time, on a weekly
basis, on another station in the same market will be considered to have an
attributable ownership interest in the brokered station for purposes of the
FCC's ownership rules, discussed above. As a result, a broadcast station may not
enter into a TBA that allows it to program more than 15% of the broadcast time,
on a weekly basis, of another local station that it could not own under the
FCC's local multiple ownership rules. FCC rules also prohibit a broadcast
licensee from simulcasting more than 25% of its programming on another station
in the same broadcast service (i.e., AM-AM or FM-FM) where the two stations
serve substantially the same geographic area, whether the licensee owns the
stations or owns and programs the other through a TBA arrangement.
Proposed Changes. The FCC is considering various proposals to modify its
broadcast "attribution" rules. Among the proposals are (i) raising the basic
benchmark for attributing ownership from 5% to 10% of the licensee's voting
stock, (ii) raising the attribution benchmark for certain institutional
investors from 10% to 20%, (iii) limiting the applicability of the single
majority shareholder rule (discussed above) to treat as attributable large stock
interests coupled with other debt or securities and (iv) treating non-voting
stock as attributable in certain circumstances. The FCC is also considering
changes to its multiple ownership rules to encourage minority ownership of radio
and television broadcast stations.
The FCC has under consideration, and may in the future consider and adopt,
new laws, regulations and policies regarding a wide variety of matters that
could, directly or indirectly, affect the operation, ownership and financial
performance of the Company's radio broadcast stations, result in the loss of
audience share and advertising revenues for the Company's radio broadcast
stations, and affect the ability of the Company to acquire additional radio
broadcast stations or finance such acquisitions. Such matters include: changes
to the license renewal process; the FCC's equal employment opportunity rules and
other matters relating to minority and female involvement in the broadcasting
industry; proposals to change rules relating to political broadcasting;
technical and frequency allocation matters; AM stereo broadcasting; proposals to
permit expanded use of FM translator stations; proposals to restrict or prohibit
the advertising of beer, wine and other alcoholic beverages on radio; changes in
the FCC's cross-interest, multiple ownership and cross-ownership policies;
changes to broadcast technical requirements; proposals to allow telephone
companies to deliver audio and video programming to the home through existing
phone lines; proposals to limit the tax deductibility of advertising expenses by
advertisers; proposals to auction to the highest bidder the right to use the
radio broadcast spectrum, instead of granting FCC licenses and subsequent
license renewals; and proposals to reinstate the "Fairness Doctrine" which
requires a station to present coverage of opposing views in certain
circumstances. It is also possible that Congress may enact additional
legislation that could have a material impact on the operation, ownership and
financial performance of the Company's radio stations over and above the already
substantial impact of the 1996 Act.
The FCC has taken initial steps to authorize the use of a new technology,
DARS, to deliver audio programming by satellite. The FCC is also considering
various proposals for terrestrial DARS. DARS may provide a medium for the
delivery of multiple new audio programming formats to local and national
audiences.
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<PAGE> 65
It is not known at this time whether this technology also may be used in the
future by existing radio broadcast stations either on existing or alternate
broadcasting frequencies.
The Company cannot predict what other matters might be considered in the
future, nor can it judge in advance what impact, if any, the implementation of
any of these proposals or changes might have on its business.
Federal Antitrust Laws. The FTC and the DOJ evaluate transactions
requiring a pre-acquisition filing under the HSR Act to determine whether those
transactions should be challenged under the federal antitrust laws. These
agencies (particularly the DOJ) recently have been increasingly active in their
review of radio station acquisitions where an operator proposes to acquire new
stations in its existing markets.
As part of its increased scrutiny of radio station acquisitions, the DOJ
has stated publicly that it believes that TBAs and other similar agreements
customarily entered into in connection with radio station transfers prior to the
expiration of the waiting period under the HSR Act could violate the HSR Act.
Since then, the DOJ has stated publicly that it will apply its new policy
prohibiting TBAs in connection with purchase agreements until the expiration or
termination of the HSR waiting period on a prospective basis.
The DOJ has stated publicly that it has established certain revenue and
audience share concentration benchmarks with respect to radio station
acquisitions, above which a transaction may receive additional antitrust
scrutiny. However, to date, the DOJ has also investigated transactions that do
not meet or exceed these benchmarks and has cleared transactions that do exceed
the benchmarks. Given this uncertainty, the Company cannot predict whether it
will be required by the DOJ or the FTC to dispose of certain stations to be
acquired as a result of the Pending Transactions. Although the Company does not
believe that its acquisition strategy as a whole will be adversely affected in
any material respect by antitrust review (including review under the HSR Act) or
by additional divestitures that the Company may have to make as a result of
antitrust review, there can be no assurance that this will be the case.
EMPLOYEES
The Company has approximately 3,900 employees. Certain employees at the
Company's stations in New York, Los Angeles, Chicago, San Francisco, Washington,
D.C., Philadelphia, Detroit and Cincinnati (approximately 300 employees), are
represented by unions. The Company believes that its relations with its
employees and these unions are generally good.
The Company employs several high-profile on-air personalities who have
large, loyal audiences in their respective markets. The Company believes that
its relationships with its on-air talent are valuable, and it generally enters
into employment agreements with these individuals.
PROPERTIES AND FACILITIES
The types of properties required to support each of the Company's existing
or to be acquired radio stations include offices, studios, transmitter sites and
antenna sites. A station's studio is generally housed with its office in a
downtown or business district. A station's transmitter sites and antenna sites
generally are located in a manner that provides maximum market coverage.
The studios and offices of the Company's stations and its corporate
headquarters are located in leased or owned facilities. The terms of these
leases expire in one to ten years. The Company either owns or leases its
transmitter and antenna sites. These leases have expiration dates that range
from one to eight years.
The Company does not anticipate any difficulties in renewing those leases
that expire within the next several years or in leasing other space, if
required.
No one property is material to the Company's overall operations. The
Company believes that its properties are in good condition and suitable for its
operations. The Company owns substantially all of the equipment used in its
radio broadcasting business.
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<PAGE> 66
The principal executive offices of the Company are located at 433 East Las
Colinas Boulevard, Suite 1130, Irving, Texas 75039. The telephone number of the
Company at that address is (972) 869-9020.
LEGAL PROCEEDINGS
In August 1993, the Company terminated an agreement with Sagittarius
Broadcasting Company (an affiliate of Infinity Broadcasting Corporation) and One
Twelve, Inc. (collectively, the "Claimants") pursuant to which programming
featuring radio personality Howard Stern was broadcast on radio station WLUP-AM
(now WMVP-AM) in Chicago. The Claimants allege that termination of the agreement
was wrongful and have sued the Company in the Supreme Court of the State of New
York, County of New York (the "Court"). The agreement required payments to the
Claimants in the amount of $2.6 million plus five percent of advertising
revenues generated by the programming over the three-year term of the agreement.
A total of approximately $680,000 was paid to the Claimants pursuant to the
agreement prior to termination. Claimants' complaint alleged claims for breach
of contract, indemnification, breach of fiduciary duty and fraud. Claimants'
aggregate prayer for relief totaled $45.0 million. On July 12, 1994, the Court
granted the Company's motion to dismiss Claimants' claims for fraud and breach
of fiduciary duty. On June 6, 1995, the Court denied the Claimants' motion for
summary judgment on their contract and indemnification claims and this order has
been affirmed on appeal. On May 17, 1996, after the close of discovery, the
Company filed a motion for summary judgment, seeking the dismissal of the
remaining claims in the original complaint. On July 1, 1996, Claimants moved for
leave to amend their complaint in order to add claims for breach of the covenant
of good faith and fair dealing, tortious interference with business advantage
and prima facie tort. In the proposed amended complaint, Claimants seek
compensatory and punitive damages in excess of $25.0 million. On March 13, 1997,
the Court denied the Company's motion for summary judgment, allowed Claimants'
request to amend the complaint to add a claim for breach of the covenant of good
faith and fair dealing and denied Claimants' request to amend the complaint to
add claims for tortious interference with business advantage and prima facia
tort. On April 25, 1997, the Company filed a notice of appeal of the denial of
the Company's motion for summary judgment. On September 11, 1997, a five-judge
panel on the N.Y. State Supreme Court Appellate Division heard oral arguments on
this matter. The Company believes that it acted within its rights in terminating
the agreement.
The Company is also involved in various other claims and lawsuits which are
generally incidental to its business. The Company is vigorously contesting all
such matters and believes that their ultimate resolution will not have a
material adverse effect on its consolidated financial position or results of
operations.
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<PAGE> 67
MANAGEMENT AND BOARD OF DIRECTORS
The directors and executive officers of Chancellor Media, CMHC and CMCLA
are:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Thomas O. Hicks........................... 50 Chairman of the Board and Director
Scott K. Ginsburg......................... 44 President, Chief Executive Officer and
Director
James E. de Castro........................ 44 Chief Operating Officer and Director
Matthew E. Devine......................... 48 Chief Financial Officer and Chief Accounting
Officer, Secretary
Thomas J. Hodson.......................... 53 Director
Perry Lewis............................... 59 Director
Jeffrey A. Marcus......................... 50 Director
John H. Massey............................ 57 Director
Eric C. Neuman............................ 52 Director
Lawrence D. Stuart, Jr.................... 52 Director
Steven Dinetz............................. 49 Director
Vernon E. Jordan, Jr...................... 62 Director
</TABLE>
THOMAS O. HICKS
Mr. Hicks was elected Chairman of the Board and a director of Chancellor
Media, CMHC and CMCLA upon the consummation of the Chancellor Merger. He had
been Chairman and a director of Chancellor and CRBC prior to the Chancellor
Merger, since April 1996. Mr. Hicks is Chairman of the Board and Chief Executive
Officer of Hicks Muse, a private investment firm located in Dallas, St. Louis,
New York and Mexico City specializing in strategic investments, leveraged
acquisitions and recapitalizations. From 1984 to May 1989, Mr. Hicks was
Co-Chairman of the Board and Co-Chief Executive Officer of Hicks & Haas,
Incorporated, a Dallas based private investment firm. Mr. Hicks serves as a
director of Sybron International Corporation, Inc., Berg Electronics Corp.,
Neodata Corporation, D.A.C. Vision Inc. and Olympus Real Estate Corporation.
SCOTT K. GINSBURG
Mr. Ginsburg was elected President, Chief Executive Officer and a director
of Chancellor Media, CMHC and CMCLA upon the consummation of the Chancellor
Merger. Mr. Ginsburg had been Chairman of the Board, Chief Executive Officer and
a director of Evergreen prior to the Chancellor Merger. He had been Chairman of
Evergreen since 1990, and Chief Executive Officer of Evergreen since 1988. Mr.
Ginsburg was President of Evergreen from 1988 to 1993 and held various positions
with H&G Communications, Inc. from 1987 to 1988. Mr. Ginsburg entered the radio
broadcasting business in 1983.
JAMES E. DE CASTRO
Mr. de Castro was elected Co-Chief Operating Officer and a director of
Chancellor Media, CMHC and CMCLA upon the consummation of the Chancellor Merger.
Mr. de Castro was previously President of Evergreen since 1993 and Chief
Operating Officer and a director of Evergreen since 1989. From 1987 to 1988, Mr.
de Castro held various positions with H&G Communications, Inc. and predecessor
entities. From 1981 to 1989, Mr. de Castro was general manager of radio stations
WLUP-FM and WLUP-AM (now known as WMVP-AM) in Chicago, and from 1989 to 1992,
Mr. de Castro was general manager of radio station KKBT-FM in Los Angeles.
MATTHEW E. DEVINE
Mr. Devine was elected Chief Financial Officer, Chief Accounting Officer
and Secretary of Chancellor Media, CMHC and CMCLA upon consummation of the
Chancellor Merger. Prior thereto, Mr. Devine had
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<PAGE> 68
been an Executive Vice President of Evergreen since 1993, Chief Financial
Officer, Treasurer and Secretary of Evergreen since 1988 and a director of
Evergreen since 1989.
THOMAS J. HODSON
Mr. Hodson became a director of Chancellor Media, CMHC and CMCLA upon
consummation of the Chancellor Merger. Mr. Hodson had previously served as a
director of Evergreen since 1992. Mr. Hodson became President of Columbia Falls
Aluminum Company in 1994. He had been a Vice President of Stephens, Inc. from
1986 through 1993.
PERRY LEWIS
Mr. Lewis became a director of Chancellor Media, CMHC and CMCLA upon
consummation of the Chancellor Merger. Mr. Lewis had previously served as a
director of Evergreen since Evergreen acquired Broadcasting Partners, Inc.
("BPI") in 1995. Mr. Lewis was the Chairman of BPI from its inception in 1988
until its merger with Evergreen, and was Chief Executive Officer of BPI from
1993 to 1995. Mr. Lewis is a founder of Morgan, Lewis, Githens & Ahn, an
investment banking and leveraged buyout firm which was established in 1982. Mr.
Lewis serves as director of Aon Corporation, ITI Technologies, Inc., Gradall
Industries, Inc. and Stuart Entertainment, Inc.
JEFFREY A. MARCUS
Mr. Marcus became a director of Chancellor Media, CMHC and CMCLA upon
consummation of the Chancellor Merger. Mr. Marcus currently serves as the
Chairman and Chief Executive Officer of Marcus Cable Company, the ninth largest
cable television multiple system operator (MSO) in the United States which
serves over 1.2 million customers and which Mr. Marcus formed in 1990. Until
November 1988, Mr. Marcus served as Chairman and Chief Executive Officer of
WestMarc Communications, Inc., an MSO formed through the merger in 1987 of
Marcus Communications, Inc. and Western TeleCommunications, Inc. Mr. Marcus has
more than 29 years experience in the cable television business. Mr. Marcus is a
co-owner of the Texas Rangers Baseball Club and serves as a director or trustee
of several charitable and civic organizations.
JOHN H. MASSEY
Mr. Massey became a director of Chancellor Media, CMHC and CMCLA upon
consummation of the Chancellor Merger. Until August 2, 1996, Mr. Massey served
as the Chairman of the Board and Chief Executive Officer of Life Partners Group,
Inc., an insurance holding company, having assumed those offices in October
1994. Prior to joining Life Partners, he served, since 1992, as the Chairman of
the Board of, and currently serves as a director of, FSW Holdings, Inc., a
regional investment banking firm. Since 1986, Mr. Massey has served as a
director of Gulf-California Broadcast Company, a private holding company that
was sold in May 1996. From 1986 to 1992, he also was President of
Gulf-California Broadcast Company. From 1976 to 1986, Mr. Massey was President
of Gulf Broadcast Company, which owned and operated 6 television stations and 11
radio stations in major markets in the United States. Mr. Massey currently
serves as a director of Central Texas Bankshare Holdings, Inc., Hill Bank and
Trust Co., Hill Bancshares Holdings, Inc., Bank of The Southwest of Dallas,
Texas, Columbus State Bank, Columbine JDS Systems, Inc., The Paragon Group,
Inc., the Brazos Fund Group Inc. and Sunrise Television Group, Inc.
ERIC C. NEUMAN
Mr. Neuman became a director of Chancellor Media, CMHC and CMCLA upon
consummation of the Chancellor Merger. Mr. Neuman previously served as a
director of Chancellor and CRBC since April 1996. Since May 1993, Mr. Neuman has
been an officer of Hicks Muse and is currently serving as Senior Vice President.
From 1985 to 1993, Mr. Neuman was a Managing General Partner of Communications
Partners, Ltd., a private investment firm specializing in media and
communications businesses.
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LAWRENCE D. STUART, JR.
Mr. Stuart became a director of Chancellor Media, CMHC and CMCLA upon
consummation of the Chancellor Merger. Mr. Stuart previously served as a
director of Chancellor and CRBC since January 1997. Since October 1995, Mr.
Stuart has served as a Managing Director and Principal of Hicks Muse. Prior to
joining Hicks Muse, from 1990 to 1995 he served as the managing partner of the
Dallas office of the law firm Weil, Gotshal & Manges LLP.
STEVEN DINETZ
Mr. Dinetz was elected Co-Chief Operating Officer and a director of
Chancellor Media, CMHC, and CMCLA upon the consummation of the Chancellor
Merger. On September 22, 1997, Mr. Dinetz indicated to the Company that he was
accepting a position as chief operating officer of a radio broadcaster
affiliated with Hicks Muse; accordingly, Mr. Dinetz no longer serves as Co-Chief
Operating Officer of Chancellor Media, CMHC and CMCLA, but continues to serve as
a director for each such entity. Mr. Dinetz previously served as President,
Chief Executive Officer and a Director of Chancellor and CRBC since its
formation and prior thereto was the President and Chief Executive Officer and a
Director of Chancellor Communications, a predecessor entity of Chancellor. Prior
to joining Chancellor Communications, Mr. Dinetz served as a radio broadcasting
consultant and, from October 1988 to January 1993, as the President and Chief
Executive Officer of D&D Broadcasting, which Mr. Dinetz formed to acquire
KOSI-FM and KEZW-AM in Denver, Colorado from Group W. Broadcasting, Inc. in a
leveraged acquisition. Mr. Dinetz has more than 20 years experience in the radio
broadcasting industry and has previously managed 14 radio stations throughout
the United States, including stations in top 40 radio markets such as New York
City, Miami-Fort Lauderdale, Dallas-Fort Worth and Denver.
VERNON E. JORDAN, JR.
Mr. Jordan became a director of Chancellor Media, CMHC and CMCLA on October
14, 1997. Mr. Jordan currently serves as a senior partner in the Washington,
D.C. office of the law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P. Mr.
Jordan serves as a director of American Express Company, Bankers Trust Company,
Bankers Trust New York Corporation, Dow Jones & Company, Inc., the Ford
Foundation, Howard University, J.C. Penney Company, Inc., Revlon Group, Revlon,
Inc., Ryder System, Inc., Sara Lee Corporation, Union Carbide Corporation, Xerox
Corporation, LBJ Foundation, National Academy Foundation and the Roy Wilkins
Foundation.
COMPENSATION OF DIRECTORS
Directors who are also officers of Chancellor Media, CMHC and CMCLA receive
no additional compensation for their services as directors. Effective for the
1997 fiscal year, directors of Chancellor Media, CMHC and CMCLA who are not
officers will receive (i) a fee of $12,000 per annum, (ii) a $1,000 fee for
attendance at meetings or, if applicable, a $500 fee for attendance at meetings
by telephone, (iii) a $500 fee for attendance at a committee meeting held on the
same day as a regularly scheduled meeting and (iv) a $750 fee for attendance at
a committee meeting held on a day other than a regularly scheduled meeting day.
Directors of Chancellor Media, CMHC and CMCLA are also reimbursed for travel
expenses and other out-of-pocket costs incurred in connection with such
meetings. Additionally, all non-employee directors of Chancellor Media, CMHC and
CMCLA in office on the day of Chancellor Media's annual stockholders meeting are
entitled to an award of options to purchase 7,500 shares of Common Stock at an
exercise price equal to the fair market value of such shares on the date of
grant.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth all compensation, including bonuses, stock
option awards and other payments, paid or accrued by the Company for the three
fiscal years ending December 31, 1996, to the individuals serving as the
Company's Chief Executive Officer and each of the Company's other executive
officers serving in such capacity at the end of the last completed fiscal year
whose total annual salary and
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bonus exceeded $100,000 during the fiscal year ended December 31, 1996. Each of
these individuals has been and continues to be an employee of the Company, and
the compensation amounts in the following tables represent all compensation paid
to each such individual in connection with his or her position with the Company
and its subsidiaries taken as a whole.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------- ------------- SECURITIES
NAME AND OTHER ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) STOCK AWARDS OPTIONS PAYOUTS COMPENSATION
------------------ ---- -------- -------- --------------- ------------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Scott K. Ginsburg.... 1996 $750,000 $956,000 -- -- 187,500 -- $9,776(2)
Chairman and Chief 1995 650,000 -- -- -- -- -- 7,663(2)
Executive Officer 1994 574,000 50,000 -- -- -- 11,020(2)
James E. de Castro... 1996 $750,000 $704,000 -- -- 37,500 -- $2,455(2)
President and Chief 1995 650,000 125,000 -- -- 150,000 -- 2,455(2)
Operating Officer 1994 500,000 50,000 -- -- 75,000 -- 27,455(3)
Matthew E. Devine.... 1996 $300,000 $352,000 -- -- 18,750 -- --
Executive Vice 1995 275,000 63,000 -- -- 75,000 -- --
President, Chief 1994 194,000 25,000 -- -- 75,000 -- --
Financial Officer,
and Treasurer
Kenneth J. O'Keefe... 1996 $250,000(4) $210,000 -- -- 150,000 -- --
Executive Vice 1995 -- -- -- -- -- -- --
President Operations 1994 -- -- -- -- -- -- --
</TABLE>
- ---------------
(1) The aggregate annual amount of prerequisites and other personal benefits,
securities or property does not exceed $50,000 or 10% of the total of the
annual salary and bonus for the named officer.
(2) Payment of term life insurance policy.
(3) Includes payment of a term life insurance policy and payments to Mr. de
Castro as compensation to offset increased costs and other expenses
associated with Mr. de Castro's temporary relocation to Los Angeles,
California, undertaken at the request of the Company. These amounts were
$2,455 and $25,000, respectively.
(4) Represents compensation for the period beginning March 1, 1996, when Mr.
O'Keefe joined the Company.
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<PAGE> 71
Option Grants in Last Fiscal Year. The following table sets forth
information regarding options to purchase Evergreen's formerly outstanding Class
A Common Stock (each share of which has been reclassified, changed and converted
into one share of Common Stock of Chancellor Media) granted by the Company to
its Chief Executive Officer and the other executive officers named in the
Summary Compensation Table during the 1996 fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS GRANT DATE VALUE
---------------------------------------------- --------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED TO GRANT DATE
GRANTED EMPLOYEES IN EXERCISE OR BASE PRESENT VALUE
NAME (#)(1)(2) FISCAL YEAR PRICE ($/SHARE) EXPIRATION DATE ($)(4)
---- ---------- ------------ ---------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Scott K. Ginsburg........ 150,000 25.5% $21.33(2) 12/31/05 $1,792,500
37,500 6.4% 24.50(3) 12/31/05 478,125
James E. de Castro....... 37,500 6.4% 24.50(3) 12/31/04 436,875
Matthew E. Devine........ 18,750 3.2% 24.50(3) 12/31/04 218,438
Kenneth J. O'Keefe....... 150,000 25.5% 21.33(2) 03/01/06 1,545,000
</TABLE>
- ---------------
(1) Represents options to purchase shares of Common Stock granted under
Chancellor Media's 1995 Stock Option Plan for Executive Officers and Key
Employees (the "1995 Stock Option Plan"). The options awarded to Mr.
Ginsburg are exercisable in whole or part beginning on January 1, 2001, and
expire on December 31, 2005. The options awarded to Mr. de Castro and Mr.
Devine are exercisable in whole or part beginning January 1, 2000, and
expire on December 31, 2004. The options awarded to Mr. O'Keefe are
exercisable in whole or part beginning February 28, 1999, and expire on
March 1, 2006. The Compensation Committee of Chancellor Media under certain
circumstances has the discretion to accelerate the exercisability of the
options in connection with the occurrence of a change in control of
Chancellor Media. The options may expire earlier upon the occurrence of
certain merger or consolidation transactions involving Chancellor Media.
Chancellor Media is not required to issue and deliver any certificate for
shares of Common Stock purchased upon exercise of the option or any portion
thereof prior to fulfillment of certain conditions, including the completion
of registration or qualification of such shares of Common Stock under
federal or state securities laws and the payment to Chancellor Media of all
amounts required to be withheld upon exercise of the options under any
federal, state or local tax law. The holder of an option has no rights or
privileges of a stockholder in respect of any shares of Common Stock
purchasable upon exercise of the options unless and until certificates
representing such shares shall have been issued by Chancellor Media to such
holder. Once exercisable, the options are exercisable by the holder or, upon
the death of such holder, by his personal representatives or by any person
empowered to do so under such holder's will or under the applicable laws of
descent and distribution. The options are not transferable except by will or
by the applicable laws of descent and distribution.
(2) Represents the estimated fair value of Class A Common Stock of Evergreen on
December 29, 1995, the last trading day before December 31, 1995, the date
of the grant.
(3) Represents the estimated fair value of Class A Common Stock of Evergreen on
December 30, 1996, the last trading day before December 31, 1996, the date
of the grant.
(4) The present value of each grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions: dividend yield of 0% for all years; expected volatility of
44.5%; risk-free interest rate of 6.0% and expected life of seven years.
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<PAGE> 72
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END VALUES
The following table sets forth information concerning option exercises in
the year ended December 31, 1996 by the Company's Chief Executive Officer and
the other executive officers named in the Summary Compensation Table, and the
value of each such executive officer's unexercised options at December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Scott K. Ginsburg.......... -- -- -- 187,500 -- 475,500
James E. de Castro......... 15,000 418,050 547,500 187,500 12,608,775 475,500
Matthew E. Devine.......... -- -- 150,000 93,750 2,874,000 237,750
Kenneth J. O'Keefe......... -- -- -- 150,000 -- 475,500
</TABLE>
- ---------------
(1) Based upon a per share price for Common Stock of $24.50. This price
represents the closing price for the Class A Common Stock of Evergreen on
the Nasdaq National Market System on December 30, 1996.
EMPLOYMENT AGREEMENTS
Ginsburg Employment Agreement
On September 4, 1997, Evergreen and EMCLA entered into a new employment
agreement (the "Ginsburg Employment Agreement") with Mr. Ginsburg, President and
Chief Executive Officer of Chancellor Media, CMHC and CMCLA, to be effective on
the closing date of the Chancellor Merger. The Ginsburg Employment Agreement,
which has a term that extends through September 5, 2002 and which Mr. Ginsburg
may extend for an additional five-year term, provides for an initial annual base
salary of $1,000,000 for the first year of the employment agreement, to be
increased each year by a percentage equal to the percentage change in the
consumer price index during the preceding year. In addition, the Ginsburg
Employment Agreement provides for an annual bonus of up to $3,000,000 based upon
the financial performance of Chancellor Media in relation to certain annual
performance targets which are defined in the Ginsburg Employment Agreement. The
Ginsburg Employment Agreement provides that, on the closing date of the
Chancellor Merger and on each of the first four anniversaries thereof on which
Mr. Ginsburg remains employed by Chancellor Media, Mr. Ginsburg shall be granted
options to purchase 100,000 shares of Chancellor Media Common Stock. If Mr.
Ginsburg's employment is terminated without "cause" (as defined in the Ginsburg
Employment Agreement) or if Mr. Ginsburg terminates his employment for "good
reason" (as defined in the Ginsburg Employment agreement) prior to the fifth
annual anniversary of the consummation of the Chancellor Merger, Mr. Ginsburg
will receive on such termination date a number of options equal to 500,000 minus
the number of options previously granted to Mr. Ginsburg pursuant to the
preceding sentence prior to such date. In addition, in recognition of Mr.
Ginsburg's rights under his prior employment agreement, the Company granted Mr.
Ginsburg an option to acquire an additional 150,000 shares of Chancellor Media
Common Stock on the closing date of the Chancellor Merger. The Ginsburg
Employment Agreement provides that all options granted pursuant to the Ginsburg
Employment Agreement will be exercisable for ten years from the date of grant of
the option (notwithstanding any termination of employment), at a price per share
equal to the market price for Chancellor Media Common Stock at the close of
trading on the day immediately preceding the date of the grant. The Ginsburg
Employment Agreement provides that, in the event of termination of Mr.
Ginsburg's employment by Chancellor Media without "cause" or by Mr. Ginsburg
with "good reason," the Company shall make a one-time cash payment to Mr.
Ginsburg in a gross amount such that the net payments retained by Mr. Ginsburg
(after payment by the Company of any excise taxes imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended, with respect to such payment) shall
equal $20,000,000. The Ginsburg Employment Agreement further provides that, in
the event of termination of Mr. Ginsburg's employment by reason of expiration or
non-renewal of the Ginsburg Employment Agreement, the Company shall make a
one-time cash payment to Mr. Ginsburg equal to two times the amount of his
annual base salary for the contract year in which his employment terminates. The
Ginsburg Employment
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Agreement provides that Mr. Ginsburg will have registration rights with respect
to all Chancellor Media Common Stock acquired by Mr. Ginsburg at any time which
rights are no less favorable to Mr. Ginsburg as the registration rights held by
Hicks Muse and its affiliates with respect to the common stock of Chancellor
immediately prior to the consummation of the Chancellor Merger.
de Castro Employment Agreement
On September 4, 1997, Evergreen and EMCLA entered into a new employment
agreement (the "de Castro Employment Agreement") with Mr. de Castro, Chief
Operating Officer of Chancellor Media, CMHC and CMCLA, to be effective on the
closing date of the Chancellor Merger. The de Castro Employment Agreement, which
has a term that extends through September 5, 2002, provides for an initial
annual base salary of $900,000 for the first year of the employment agreement,
to be increased each year by a percentage equal to the percentage change in the
consumer price index during the preceding year. In addition, the de Castro
Employment Agreement provides for an annual bonus of up to $3,000,000 based upon
a percentage of the amount by which Chancellor Media exceeds an annual
performance target which is defined in the de Castro Employment Agreement. The
de Castro Employment Agreement provides that, on the closing date of the
Chancellor Merger and on each of the first four anniversaries thereof on which
Mr. de Castro remains employed by Chancellor Media, Mr. de Castro shall be
granted options to purchase 100,000 shares of Chancellor Media Common Stock. If
Mr. de Castro's employment is terminated without "cause" (as defined in the de
Castro Employment Agreement) or if Mr. de Castro terminates his employment for
"good reason" (as defined in the de Castro Employment agreement) prior to the
fifth annual anniversary of the consummation of the Chancellor Merger, Mr. de
Castro will receive on such termination date a number of options equal to
500,000 minus the number of options previously granted to Mr. de Castro pursuant
to the preceding sentence prior to such date. In addition, in recognition of Mr.
de Castro's rights under his prior employment agreement, the Company granted Mr.
de Castro an option to acquire an additional 112,500 shares of Chancellor Media
Common Stock on the closing date of the Chancellor Merger. The de Castro
Employment Agreement provides that all options granted pursuant to the de Castro
Employment Agreement will be exercisable for ten years from the date of grant of
the option (notwithstanding any termination of employment), at a price per share
equal to the market price for Chancellor Media Common Stock at the close of
trading on the day immediately preceding the date of the grant. The de Castro
Employment Agreement provides that, in the event of termination of Mr. de
Castro's employment by Chancellor Media without "cause" or by Mr. de Castro with
"good reason," the Company shall make a one-time cash payment to Mr. de Castro
in a gross amount such that the net payments retained by Mr. de Castro (after
payment by Chancellor Media of any excise taxes imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended, with respect to such payment) shall
equal $5,000,000. The de Castro Employment Agreement further provides that, in
the event of termination of Mr. de Castro's employment by Mr. de Castro for
other than "good reason," in exchange for Mr. de Castro's agreement not to
induce any employee of any radio station owned by Chancellor Media and its
subsidiaries to terminate such employment or to become employed by any other
radio station, Chancellor Media shall continue to pay Mr. de Castro his
applicable base salary through the fifth anniversary of the closing date of the
Chancellor Merger. In such event, Chancellor Media also has the right, in
exchange for the payment at the end of each calendar year until each calendar
year through December 31, 2002, of an annual amount equal to the product of Mr.
de Castro's average bonus multiplied by the fraction of each such calendar year
which precedes the fifth anniversary of the consummation of the Chancellor
Merger, to require that Mr. de Castro not be employed by or perform activities
on behalf of or have ownership interest in any radio broadcasting station
serving the same market as any radio station owned by Chancellor Media and its
subsidiaries. The de Castro Employment Agreement further provides that if Mr. de
Castro's employment is terminated by reason of expiration or non-renewal of the
de Castro Employment Agreement, Chancellor Media shall make a one-time cash
payment to Mr. de Castro equal to two times the amount of his annual base salary
for the contract year in which such employment terminates.
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<PAGE> 74
Devine Employment Agreement
On September 4, 1997, Evergreen and EMCLA entered into a new employment
agreement (the "Devine Employment Agreement") with Mr. Devine, Senior Vice
President and Chief Financial Officer of Chancellor Media, CMHC and CMCLA, to be
effective on the closing date of the Chancellor Merger. The Devine Employment
Agreement, which has a term that extends through September 5, 2002, provides for
an initial annual base salary of $500,000 for the first year of the employment
agreement, to be increased each year by $25,000. In addition, the Devine
Employment Agreement provides for an annual bonus of up to $1,000,000 based upon
a percentage of the amount by which Chancellor Media exceeds an annual
performance target which is defined in the Devine Employment Agreement. The
Devine Employment Agreement provides that, on the closing date of the Chancellor
Merger and on each of the first four anniversaries thereof on which Mr. Devine
remains employed by Chancellor Media, Mr. Devine shall be granted options to
purchase 75,000 shares of Chancellor Media Common Stock. If Mr. Devine's
employment is terminated without "cause" (as defined in the Devine Employment
Agreement) or if Mr. Devine terminates his employment for "good reason" (as
defined in the Devine Employment Agreement) prior to the fifth annual
anniversary of the consummation of the Chancellor Merger, Mr. Devine will
receive on such termination date a number of options equal to 375,000 minus the
number of options previously granted to Mr. Define pursuant to the preceding
sentence prior to such date. In addition, in recognition of Mr. Devine's rights
under his prior employment agreement, the Company granted Mr. Devine an option
to acquire an additional 56,250 shares of Chancellor Media Common Stock on the
closing date of the Chancellor Merger. The Devine Employment Agreement provides
that all options granted pursuant to the Devine Employment Agreement will be
exercisable for ten years from the date of grant of the option (notwithstanding
any termination of employment), at a price per share equal to the market price
for Chancellor Media Common Stock at the close of trading on the day immediately
preceding the date of the grant. The Devine Employment Agreement provides that,
in the event of termination of Mr. Devine's employment by Chancellor Media
without "cause" or by Mr. Devine with "good reason," the Company shall make a
one-time cash payment to Mr. Devine in a gross amount such that the net payments
retained by Mr. Devine (after payment by Chancellor Media of any excise taxes
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, with
respect to such payment) shall equal $2,000,000. The Devine Employment Agreement
further provides that, in the event of termination of Mr. Devine's employment by
Mr. Devine for other than "good reason," in exchange for Mr. Devine's agreement
not to induce any employee of any radio station owned by Chancellor Media and
its subsidiaries to terminate such employment or to become employed by any other
radio station, Chancellor Media shall continue to pay Mr. Devine his applicable
base salary through the earlier of the fifth anniversary of the closing date of
the Chancellor Merger or the second anniversary of the termination of employment
(the "Cessation Date"). In such event, Chancellor Media also has the right, in
exchange for the payment at the end of each calendar year through the year which
includes the Cessation Date of an annual amount equal to the product of Mr.
Devine's average bonus multiplied by the fraction of each such calendar year
which precedes the Cessation Date, to require that Mr. Devine not be employed by
or perform activities on behalf of or have an ownership interest in any radio
broadcasting station serving the same market as any radio station owned by
Chancellor Media and its subsidiaries. The Devine Employment Agreement further
provides that if Mr. Devine's employment is terminated by reason of expiration
or non-renewal of the Devine Employment Agreement, Chancellor Media shall make a
one-time cash payment to Mr. Devine equal to two times the amount of his annual
base salary for the contract year in which such employment terminates.
Dinetz Employment Agreement
Mr. Dinetz has previously entered into an employment agreement (the "Dinetz
Employment Agreement") with Chancellor and CRBC pursuant to which he served as
President and Chief Executive Officer of Chancellor and CRBC. The Dinetz
Employment Agreement is currently scheduled to expire on December 31, 2000,
unless earlier terminated, and provides for a base salary of $500,000 per year
plus an annual bonus of up to $200,000 based on performance criteria established
by Chancellor's Board of Directors at the beginning of each fiscal year. Each
December 31 during the term of the Dinetz Employment Agreement, Mr. Dinetz's
base salary for the next succeeding year shall be adjusted based upon the
Consumer Price Index, provided that his annual base salary shall never be less
than $500,000. Unless either party gives written notice to the contrary
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<PAGE> 75
prior to December 31 of each year the Dinetz Employment Agreement is in effect
the employment agreement will automatically be extended for an additional year
so that, as of each December 31, the remaining term of the Dinetz Employment
Agreement will be five years. The employment agreement also provides for
participation by Mr. Dinetz in all benefit programs maintained by Chancellor or
its subsidiaries and provides for certain life, health and disability insurance
coverage for Mr. Dinetz.
The Dinetz Employment Agreement may be terminated by Chancellor and CRBC at
any time prior to the completion of the five year stated term. If Chancellor and
CRBC terminate the Dinetz Employment Agreement other than for cause (as defined
in the Dinetz Employment Agreement), or if Mr. Dinetz voluntarily terminates the
Dinetz Employment Agreement for good reason (as defined in the Dinetz Employment
Agreement), Chancellor and CRBC must pay Mr. Dinetz severance compensation equal
to two years of Mr. Dinetz's base salary; provided, however, that if the
decision to terminate the Dinetz Employment Agreement results from the failure
of Chancellor or CRBC to meet certain specified financial performance criteria,
Mr. Dinetz will be entitled to receive severance compensation equal to one year
of Mr. Dinetz's base salary.
In 1994, pursuant to his former employment agreement with Chancellor, Mr.
Dinetz was granted options (the "Dinetz Options") to purchase 5,976,415 shares
of nonvoting stock, including (i) options vesting equally over five years (from
January 10, 1994) to purchase up to 3,307,722 shares at an exercise price of
$1.00 per share and (ii) options vesting equally over five years (from October
12, 1994) to purchase up to 2,668,582 shares at an exercise price of $1.25 per
share, in each case with such exercise price to increase at a compound rate of
9% per annum. Of the options granted, options for 1,062,004 shares contained a
feature which conditioned their exercise upon CRBC's attaining certain rates of
return ("IRR Options"). In September 1995, CRBC agreed with Mr. Dinetz to amend
the IRR Options to remove the rate of return feature. CRBC further agreed to
amend the exercise price for the Dinetz Options to provide that all options
previously exercisable at $1.00 per share will be exercisable at $1.25 per share
and that all options previously exercisable at $1.25 per share will be
exercisable at $1.40 per share. The Dinetz Options were also amended to remove
the annual compounding of the exercise price. In accordance with their terms,
the Dinetz Options were adjusted in connection with the recapitalization of
Chancellor's common stock immediately prior to the consummation of the initial
public offering of Chancellor's Class A Common Stock and, after adjustment for
the Chancellor Merger, Mr. Dinetz presently owns options to acquire 443,237
shares of Common Stock of Chancellor Media at $8.25 per share and options to
acquire 341,606 shares of Common Stock of Chancellor Media at $9.24 per share.
In addition, on February 9, 1996, Mr. Dinetz was granted options to purchase,
after giving effect to the Chancellor Merger, 68,182 shares of Common Stock of
Chancellor Media pursuant to Chancellor's Stock Award Plan.
The Company expects to honor the terms of Mr. Dinetz' employment agreement
in connection with his change of position on September 22, 1997. See "Management
and Board of Directors -- Steven Dinetz" above.
O'Keefe Employment Agreement
In February of 1996, Evergreen entered into an employment agreement (the
"O'Keefe Employment Agreement") with Mr. O'Keefe that has a term through
February 28, 1999 and provides for an annual base salary beginning at $300,000
in 1996 and increasing incrementally to $350,000 in 1998. Mr. O'Keefe was
nominated for election to the Board of Directors of Evergreen pursuant to the
terms of his employment agreement. In addition, the agreement provides for Mr.
O'Keefe to receive an annual incentive bonus based upon a percentage of the
amount by which Evergreen exceeds certain annual performance targets as defined
in the agreement. The agreement also provides that Mr. O'Keefe is eligible for
certain options to purchase Common Stock. Pursuant to the agreement, Mr. O'Keefe
was awarded options to purchase 150,000 shares of Common Stock. The stock
options vest and become exercisable subject to Mr. O'Keefe's continued
employment by Evergreen through February 28, 1999. However, Mr. O'Keefe may be
eligible to exercise the options on a pro rata basis in the event he is
terminated prior to February 28, 1999 upon certain events specified in his
employment agreement, including Mr. O'Keefe's death or disability, a change in
control of Evergreen, termination without cause and a material breach of the
employment agreement by Evergreen
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<PAGE> 76
leading to the resignation of Mr. O'Keefe. The agreement terminates upon the
death of Mr. O'Keefe and may be terminated by Evergreen upon the disability of
Mr. O'Keefe or for or without "cause" (as defined in the agreement). During the
term of the agreement, Mr. O'Keefe is prohibited from engaging in certain
activities competitive with the business of Evergreen. However, with the
approval of Evergreen, Mr. O'Keefe may engage in activities not directly
competitive with the business of Evergreen as long as such activities do not
materially interfere with Mr. O'Keefe's employment obligations. On March 1,
1997, Evergreen and Mr. O'Keefe amended the O'Keefe Employment Agreement in
order to make certain provisions of the O'Keefe Employment Agreement comparable
to those contained in Mr. de Castro's and Mr. Devine's former employment
agreement.
On September 4, 1997, Evergreen and EMCLA entered into an employment
agreement (the "O'Keefe Amendment") with Mr. O'Keefe, Executive Vice
President -- Operations of Chancellor Media, CMHC and CMCLA. As a result of the
O'Keefe Amendment, the O'Keefe Employment Agreement is to expire as of December
31, 1997, and the O'Keefe Amendment is effective on January 1, 1998. The O'Keefe
Amendment, which has a term through December 31, 2000, provides for an initial
annual base salary of $500,000 for the first year of the employment agreement,
to be increased each year by $25,000. In addition, the O'Keefe Amendment
provides for an annual bonus of up to $600,000, based upon the financial
performance of Chancellor Media in relation to certain annual performance
targets which are defined in the O'Keefe Amendment. The O'Keefe Amendment
provides that, on January 1, 1998, 1999 and 2000, assuming that Mr. O'Keefe
remains employed by Chancellor Media on such dates, Mr. O'Keefe shall be granted
options to purchase 50,000 shares of Chancellor Media Common Stock. Furthermore,
with respect to the option to purchase 150,000 shares of Chancellor Media Common
Stock granted under the O'Keefe Employment Agreement, (i) all such options will
become exercisable on February 28, 1999 if Mr. O'Keefe remains employed by
Chancellor Media on such date, (ii) if Mr. O'Keefe's employment is terminated as
a result of Mr. O'Keefe's death or disability or resignation by Mr. O'Keefe
following a material breach of the O'Keefe Amendment by Chancellor Media, a
prorated portion of such options will become exercisable and (iii) if Mr.
O'Keefe's employment is terminated without "cause" (as defined in the O'Keefe
Amendment) or there is a "change of control" (as defined in the O'Keefe
Amendment), all such options shall become exercisable. The O'Keefe Amendment
provides that all options described in the O'Keefe Amendment will be exercisable
for seven years from the date of grant of the option, and that all options
granted pursuant to the O'Keefe Amendment will be granted at a price per share
equal to the market price for Chancellor Media Common Stock on the date of the
grant. The O'Keefe Amendment provides that, in the event of termination of Mr.
O'Keefe's employment by Chancellor Media without "cause," Chancellor Media shall
pay Mr. O'Keefe his base salary and a prorated annual bonus and provide health
and life insurance coverage until the earlier of the expiration of the term of
the O'Keefe Amendment or the date on which Mr. O'Keefe becomes employed in a
position providing similar compensation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The members of the compensation committee of Chancellor Media, CMHC and
CMCLA have not yet been determined. It is expected that the members of the
compensation committee of Chancellor Media CMHC and CMCLA will be determined at
an upcoming meeting of the Board of Directors of Chancellor Media, CMHC and
CMCLA.
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<PAGE> 77
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of September 15, 1997, all of the common stock of CMCLA is held
beneficially and of record by CMHC. As of September 15, 1997, all of the common
stock of CMHC is held beneficially and of record by Chancellor Media. The
following table lists information regarding beneficial ownership of Chancellor
Media Common Stock as of September 15, 1997 by directors and executive officers
of Chancellor Media and their affiliates, as well as all directors and executive
officers as a group. As a result of the consummation of the Chancellor Merger,
Chancellor Media is uncertain as to the status of ownership of the former
stockholders of Evergreen and Chancellor that beneficially owned 5% or more of
the respective classes of common stock, which 5% stockholders are not directors
or executive officers of Chancellor Media. Accordingly, Chancellor Media
believes that such information would not be useful to investors, and no
information regarding such non-affiliated stockholders is attempted to be
presented below.
<TABLE>
<CAPTION>
NAME OF STOCKHOLDER SHARES PERCENT(1)
------------------- ------ ----------
<S> <C> <C>
Scott K. Ginsburg.......................................... 2,364,066(2) 4.4%
James E. de Castro......................................... 660,000(3) 1.1%
Steven Dinetz.............................................. 432,493(4) *
Matthew E. Devine.......................................... 281,250(5) *
Thomas O. Hicks............................................ 9,363,525(6) 15.7%
Perry J. Lewis............................................. 59,274(7) *
Thomas J. Hodson........................................... 7,500(8) *
Eric C. Neuman............................................. 909 *
John H. Massey............................................. 21,212(9) *
Jeffrey A. Marcus.......................................... 43,939(10) *
Lawrence D. Stuart, Jr. ................................... 4,955 *
Hicks, Muse Affiliates..................................... 9,363,525(11) 15.7%
All directors and executive officers as a group............ 13,164,123(12) 21.5%
</TABLE>
- ---------------
* Less than one percent.
(1) Assumes that 59,613,500 primary shares of Chancellor Media Common Stock
were issued and outstanding immediately after consummation of the
Chancellor Merger.
(2) Includes option to purchase 250,000 shares and 7,200 shares that are held
by Mr. Ginsburg as custodian for his children.
(3) Consists of options to purchase 660,000 shares.
(4) Includes (i) options to purchase 424,175 shares, (ii) 545 shares held by an
individual retirement account for the benefit of Mr. Dinetz and (iii) 500
shares held by Mr. Dinetz's daughter. Mr. Dinetz disclaims beneficial
ownership of the shares of Chancellor Media Common Stock that are not owned
by him of record.
(5) Consists of options to purchase 281,250 shares.
(6) Includes 312,423 shares owned of record by Mr. Hicks, 173,376 shares owned
of record by Mr. Hicks as trustee for certain trusts of which his children
are beneficiaries and 3,050 shares owned of record by Mr. Hicks as
co-trustee of a trust for the benefit of unrelated parties. Also includes
1,224,376 shares owned of record by the Chancellor Business Trust and
7,650,289 shares owned by five limited partnerships of which the ultimate
general partners are entities controlled by Mr. Hicks or Hicks Muse. Mr.
Hicks is the controlling stockholder of Hicks Muse and serves as Chairman
of the Board, President, Chief Executive Officer, Chief Operating Officer
and Secretary of Hicks Muse. Accordingly, Mr. Hicks may be deemed to be the
beneficial owner of all or a portion of the stock owned of record by such
limited partnerships. Mr. Hicks disclaims beneficial ownership of shares of
stock not owned of record by him.
(7) Consists of 51,774 shares owned of record by Mr. Lewis and options to
purchase 7,500 shares.
(8) Consists of options to purchase 7,500 shares.
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<PAGE> 78
(9) Consists of options to purchase 12,121 shares and 9,091 shares held by Mr.
Massey's wife as her separate property.
(10) Includes options to purchase 12,121 shares.
(11) Includes 312,423 shares owned of record by Thomas O. Hicks, 173,376 shares
owned by Mr. Hicks as trustee for certain trusts of which his children are
beneficiaries, 3,050 shares owned of record by Mr. Hicks as co-trustee of a
trust for the benefit of unrelated parties, 1,224,376 shares owned of
record by the Chancellor Business Trust and 7,650,289 shares owned of
record by five limited partnerships of which the ultimate general partners
are entities controlled by Mr. Hicks or Hicks Muse. Mr. Hicks is the
controlling stockholder of Hicks Muse and serves as Chairman of the Board,
President, Chief Executive Officer, Chief Operating Officer and Secretary
of Hicks Muse. Accordingly, Mr. Hicks may be deemed to be the beneficial
owner of all or a portion of the stock owned of record by such limited
partnerships. John R. Muse, Charles W. Tate, Jack D. Furst, Lawrence D.
Stuart, Jr., Michael J. Levitt and Alan B. Menkes are officers, directors
and minority stockholders of Hicks Muse and as such may be deemed to share
with Mr. Hicks the power to vote or dispose of shares of stock to be held
by such partnerships. Messrs. Hicks, Muse, Tate, Furst, Stuart, Levitt and
Menkes disclaim the existence of a group and each of them disclaims
beneficial ownership of shares of stock not owned of record by him.
(12) Includes options to purchase 1,654,667 shares.
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<PAGE> 79
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Financial Monitoring and Oversight Agreement. Chancellor Media, CMHC and
CMCLA are subject to a financial monitoring and oversight agreement, dated April
1, 1996, as amended on September 4, 1997, (the "Financial Monitoring and
Oversight Agreement") with Hicks, Muse & Co. Partners, L.P. ("Hicks Muse
Partners"), an affiliate of Hicks Muse. Pursuant thereto, the Company pays to
Hicks Muse Partners an annual fee at the end of each fiscal year to an amount
not less than $1.0 million, subject to increase or decrease (but not below $1.0
million), based upon changes in the Consumer Price Index. Hicks Muse Partners is
also entitled to reimbursement for any out-of-pocket expenses incurred by it in
connection with rendering services under the Financial Monitoring and Oversight
Agreement. In addition, Hicks Muse Partners, its affiliates and shareholders,
and their respective directors, officers, agents, employees and affiliates are
indemnified from and against all claims, actions, proceedings, demands,
liabilities, damages, judgments, assessments, losses and costs, including fees
and expenses, arising out of or in connection with the services rendered by
Hicks Muse Partners in connection with the Financial Monitoring and Oversight
Agreement.
The Financial Monitoring and Oversight Agreement provides that the
agreement will terminate at such time as Thomas O. Hicks and his affiliates
collectively cease to beneficially own at least two-thirds of the number of
shares of Common Stock beneficially owned by them, collectively, immediately
following the Parent Merger Effective Time.
Termination of Financial Advisory Agreement. In connection with the
consummation of the Chancellor Merger Agreement, a Financial Advisory Agreement
among Chancellor, CRBC and HM2/Management Partners, L.P. ("HM2/Management"), an
affiliate of Hicks Muse, was terminated. In consideration thereof, in lieu of
any payments required to be made under the Financial Advisory Agreement in
respect of the transactions contemplated by the Chancellor Merger Agreement,
HM2/Management was paid a fee of $10.0 million in cash upon consummation of the
Chancellor Merger Agreement.
Registration Rights. Chancellor Media is subject to that certain Amended
and Restated Stockholders Agreement, dated as of February 14, 1996, as amended
on September 4, 1997 (the "Chancellor Stockholders Agreement"), among Chancellor
and certain holders of the Common Stock held by former stockholders of
Chancellor, which provides for certain registration rights for the shares of
Common Stock held by such holders. In addition, Chancellor Media is subject to
two additional registration rights agreements relating to the Common Stock held
by former stockholders of Chancellor (collectively with the Chancellor
Stockholders Agreement, the "Registration Rights Agreements"). Each of the
Registration Rights Agreements relates to shares of Common Stock held by certain
affiliates of Hicks Muse.
Other Relationships. Vernon E. Jordan, Jr., a director of Chancellor Media,
CMHC and CMCLA, also serves on the board of directors of Bankers Trust Company
and Bankers Trust New York Corporation. Affiliates of Bankers Trust Company and
Bankers Trust New York Corporation have provided a variety of commercial
banking, investment banking and financial advisory services to Chancellor Media,
CMCLA and CRBC, and expect to continue to provide such services to Chancellor
Media and CMCLA in the future.
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<PAGE> 80
DESCRIPTION OF THE EXCHANGE NOTES
The Exchange Notes will be issued under an indenture, dated as of June 24,
1997, by and among CRBC, the Guarantors named therein and U.S. Trust Company of
Texas, N.A., as trustee (the "Trustee"), as supplemented by that First
Supplemental Indenture, dated as of September 5, 1997, by and among the Company,
the Guarantors named therein and the Trustee (as supplemented, the "Indenture").
A copy of the Indenture may be obtained from the Company upon written request.
The Original Notes were issued on June 24, 1997 by CRBC and were assumed by the
Company upon the consummation of the Chancellor Merger. See "Business and
Properties -- Recent Developments -- The Chancellor Merger." The following
summary of all of the provisions of the Indenture considered by the Company to
be material to a prospective investor in the Exchange Notes does not purport to
be complete and is subject to, and is qualified in its entirety by reference to,
the Trust Indenture Act of 1939, as amended (the "TIA"), and to all of the
provisions of the Indenture, including the definitions of certain terms therein,
and those terms made a part of the Indenture by reference to the TIA as in
effect on the date of the Indenture. The definitions of certain terms used in
the following summary are set forth below under "-- Certain Definitions." The
Trustee also serves as trustee under (i) the 9 3/8% Indenture, (ii) the
Indenture, dated February 26, 1996, between CRBC and the Trustee, as
supplemented by that First Supplemental Indenture, dated September 5, 1997,
between the Company and the Trustee, governing the 12 1/4% Subordinated Exchange
Debentures due 2008 of the Company and (iii) the Indenture, dated January 23,
1997, between CRBC and the Trustee, as supplemented by that First Supplemental
Indenture, dated September 5, 1997, between the Company and the Trustee,
governing the 12% Subordinated Exchange Debentures due 2009 of the Company.
The Exchange Notes will be unsecured obligations of the Company and will
rank pari passu in right of payment to the 1996 Notes and will be subordinated
in right of payment to all Senior Debt of the Company. The Exchange Notes will
be guaranteed on a senior subordinated basis by the Guarantors.
The Exchange Notes will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Initially,
the Trustee will act as paying agent and registrar for the Exchange Notes. The
Exchange Notes may be presented for registration or transfer and exchange at the
offices of the registrar, which initially will be the Trustee's corporate trust
office. The Company may change any paying agent and registrar without notice to
the holders. The Company will pay principal (and premium, if any) on the
Exchange Notes at the Trustee's corporate office in New York, New York. At the
Company's option, such amounts may be paid at the Trustee's corporate trust
office or by check mailed to the registered address of the holders.
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes will be limited to $200,000,000 aggregate principal
amount and will mature on June 15, 2007. Interest on the Exchange Notes will
accrue at the rate of 8 3/4% per annum and will be payable semiannually on each
June 15 and December 15, commencing on December 15, 1997, to the persons who are
registered holders at the close of business on the June 1 and December 1
immediately preceding the applicable interest payment date. Interest on the
Exchange Notes will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from the Issue Date. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
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<PAGE> 81
OPTIONAL REDEMPTION
The Exchange Notes will be redeemable, at the Company's option, in whole at
any time or in part from time to time, on and after June 15, 2002, at the
following redemption prices (expressed as percentages of the principal amount)
if redeemed during the twelve-month period commencing on June 15 of the years
set forth below, plus, in each case, accrued and unpaid interest thereon to the
date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C> <C>
2002............................................................. 104.375%
2003............................................................. 102.917
2004............................................................. 101.458
2005 and thereafter.............................................. 100.000
</TABLE>
In addition, on or prior to June 15, 2000, the Company may, at its option,
use the net cash proceeds of one or more Public Equity Offerings (as defined
below) to redeem the Exchange Notes, in part, at a redemption price equal to
108.75% of the principal amount thereof plus accrued and unpaid interest thereon
to the date of redemption; provided, however, that after any such redemption the
aggregate principal amount of the Notes outstanding must equal at least 75% of
the aggregate principal amount of the Original Notes originally issued on June
24, 1997. In order to effect a redemption with proceeds of a Public Equity
Offering, the Company shall send the redemption notice in the manner specified
in the Indenture not later than 60 days after the consummation of such Public
Equity Offering.
In addition, at any time on or prior to June 15, 2000, the Exchange Notes
may also be redeemed as a whole at the option of the Company upon the occurrence
of a Change of Control (as defined below), upon not less than 30 nor more than
60 days prior notice (but in no event more than 90 days after the occurrence of
such Change of Control) mailed by first-class mail to each holder's registered
address, at a redemption price equal to 100% of the principal amount thereof
plus the Applicable Premium (as defined below) as of, and accrued and unpaid
interest, if any, to, the date of redemption (the "Redemption Date") (subject to
the right of holders of record on the relevant record date to receive interest
due on the relevant interest payment date in respect of then outstanding
Exchange Notes).
"Applicable Premium" means, with respect to an Exchange Note at any
Redemption Date, the greater of (i) 1.0% of the principal amount of such
Exchange Note and (ii) (a) the present value of all remaining required interest
and principal payments due on such Exchange Note and all premium payments
relating thereto assuming a redemption date of June 15, 2002, computed using a
discount rate equal to the Treasury Rate (as defined below) plus 100 basis
points minus (b) the then outstanding principal amount of such Exchange Note
minus (c) accrued interest paid on the redemption date.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15 (519)
("Statistical Release") which has become publicly available at least two
business days prior to the Redemption Date (or, if such Statistical Release is
no longer published, any publicly available source or similar market data)) most
nearly equal to the period from the Redemption Date to June 15, 2002; provided,
however, that if the period from the Redemption Date to June 15, 2002 is not
equal to the constant maturity of a United States Treasury security for which a
weekly average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the period from the Redemption Date to June 15, 2002 is
less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
Selection. In the case of any partial redemption, selection of the Exchange
Notes for redemption will be made by the Trustee on a pro rata basis, by lot or
by such other method as the Trustee in its sole discretion shall deem to be fair
and appropriate, although no Exchange Note of $1,000 in original principal
amount or less will be redeemed in part. If any Exchange Note is to be redeemed
in part only, the notice of redemption relating to such Exchange Note shall
state the portion of the principal amount thereof to be redeemed. A new
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<PAGE> 82
Exchange Note in principal amount equal to the unredeemed portion thereof will
be issued in the name of the holder thereof upon cancellation of the original
Exchange Note.
The Senior Credit Facility restricts the Company's ability to optionally
redeem the Exchange Notes.
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control,
each holder may have the right to require that the Company repurchase all or a
portion of such holder's Exchange Notes pursuant to the offer described below
(the "Change of Control Offer"), at a purchase price equal to 101% of the
principal amount thereof plus accrued interest, if any, to the date of
repurchase.
The Indenture provides that, prior to the mailing of the notice referred to
below, but in any event within 30 days following the date on which a Change of
Control occurs, the Company covenants to (i) repay in full all Indebtedness
under the Credit Agreement (and terminate all commitments thereunder) or offer
to repay in full all such Indebtedness (and terminate all such commitments) and
to repay the Indebtedness owed to (and terminate the commitments of) each lender
which has accepted such offer or (ii) obtain the requisite consents under the
Credit Agreement to permit the repurchase of the Exchange Notes as provided
below. The Company will first comply with the covenant in the preceding sentence
before it will be required to repurchase Exchange Notes pursuant to the
provisions described below; provided that the Company's failure to comply with
the covenant described in the preceding sentence shall constitute an Event of
Default described under clause (iii) under "-- Events of Default."
Within 30 days following the date upon which a Change of Control occurs,
the Company must send, by first class mail, a notice to each holder, with a copy
to the Trustee, which notice shall govern the terms of the Change of Control
Offer. Such notice will state, among other things, the purchase date, which must
be no earlier than 30 days nor later than 45 days from the date such notice is
mailed, other than as may be required by law (the "Change of Control Payment
Date"). Upon compliance by the Company with the covenant described in the
immediately preceding paragraph, the Company's failure to make a Change of
Control Offer in accordance with this "Change of Control" covenant, and, upon
the making of a Change of Control Offer, the failure of the Company to pay, on
or before the Change of Control Payment Date, the purchase price for the
Exchange Notes validly tendered pursuant to the Change of Control Offer, shall
constitute an Event of Default described under clauses (iii) and (ii),
respectively, under "-- Events of Default." Holders electing to have a Exchange
Note purchased pursuant to a Change of Control Offer will be required to
surrender the Exchange Note, properly endorsed for transfer together with such
other customary documents as the Company may reasonably request, to the paying
agent at the address specified in the notice prior to the close of business on
the business day prior to the Change of Control Payment Date.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the purchase
of Exchange Notes pursuant to a Change of Control Offer.
This "Change of Control" covenant will not apply in the event of (i)
certain transactions with Permitted Holders (as defined below) and (ii) changes
in a majority of the Board of Directors of Chancellor Media, CMHC or CMCLA so
long as a majority of each such Board of Directors continues to consist of
Continuing Directors (as defined below). In addition, this covenant is not
intended to afford holders of the Exchange Notes protection in the event of
certain highly leveraged transactions, reorganizations, restructurings, mergers
and other similar transactions that might adversely affect the holders of the
Exchange Notes but would not constitute a Change of Control. However, the
Indenture contains limitations on the ability of the Company to incur additional
Indebtedness and to engage in certain mergers, consolidations and sales of
assets, whether or not a Change of Control is involved. See "-- Certain
Covenants -- Limitation on Incurrence of Additional Indebtedness," "-- Certain
Covenants -- Limitation on Asset Sales," "-- Certain Covenants -- Limitation on
Asset Swaps" and "-- Certain Covenants -- Merger, Consolidation and Sale of
Assets."
If a Change of Control were to occur, there can be no assurance that the
Company would have sufficient funds to pay the purchase price for all Exchange
Notes that the Company might be required to purchase. In
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<PAGE> 83
the event that the Company were required to purchase Exchange Notes pursuant to
a Change of Control Offer, the Company expects that it would need to seek
third-party financing to the extent it does not have available funds to meet its
purchase obligations. However, there can be no assurance that the Company would
be able to obtain such financing on favorable terms, if at all. In addition, the
Senior Credit Facility restricts the Company's ability to repurchase the
Exchange Notes, including pursuant to a Change of Control Offer. See
"Description of Indebtedness -- Senior Credit Facility."
With respect to the sale of assets, the phrase "all or substantially all"
as used in the Indenture varies according to the facts and circumstances of the
subject transaction, has no clearly established meaning under relevant law and
is subject to judicial interpretation. Accordingly, in certain circumstances
there may be a degree of uncertainty in ascertaining whether a particular
transaction would involve a disposition of "all or substantially all" of the
assets of a person and therefore it may be unclear whether a Change of Control
has occurred and whether the Exchange Notes are subject to a Change of Control
Offer.
Without the consent of each holder of the Exchange Notes affected thereby,
after the mailing of the notice of the Change of Control Offer, no amendment to
the Indenture may, directly or indirectly, affect the Company's obligation to
purchase the Exchange Notes or amend, modify or change the obligation of the
Company to consummate a Change of Control Offer or waive any default in the
performance thereof or modify any of the provisions or definitions with respect
to any such offer. In addition, the Trustee may not waive the right of any
holder of the Exchange Notes to require the repurchase of his or her Exchange
Notes upon a Change of Control.
SUBORDINATION
The payment of all Obligations on the Exchange Notes is subordinated and
junior in right of payment to the prior payment in full in cash or Cash
Equivalents (or such payment duly provided for to the satisfaction of the
holders of Senior Debt) of all Obligations on Senior Debt. Upon any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, to creditors upon any liquidation, dissolution, winding
up, reorganization, assignment for the benefit of creditors or marshalling of
assets of the Company or in a bankruptcy, reorganization, insolvency,
receivership or other similar proceeding relating to the Company or its
property, whether voluntary or involuntary, all Obligations due or to become due
upon all Senior Debt will first be paid in full in cash or Cash Equivalents (or
such payment duly provided for to the satisfaction of the holders of Senior
Debt) before any payment or distribution of any kind or character is made on
account of any Obligations on the Exchange Notes, or for the acquisition of any
of the Exchange Notes for cash or property or otherwise. If any default occurs
and is continuing in the payment when due, whether at maturity, upon any
redemption, by declaration or otherwise, of any principal of, or interest on, or
any other amounts owing with respect to any Senior Debt, no payment of any kind
or character (except (i) in Qualified Capital Stock issued by the Company to pay
interest on the Exchange Notes or issued in exchange for the Exchange Notes,
(ii) in securities substantially identical to the Exchange Notes issued by the
Company in payment of interest accrued thereon or (iii) in securities issued by
the Company which are subordinated to the Senior Debt at least to the same
extent as the Exchange Notes and having a Weighted Average Life to Maturity at
least equal to the remaining Weighted Average Life to Maturity of the Exchange
Notes (the issuance of such subordinated securities to be consented to by the
holders of at least a majority of the outstanding amount of Senior Debt
consisting of each class of Designated Senior Debt then outstanding, which
subordinated securities will be issued in exchange for outstanding Exchange
Notes or to pay interest accrued on outstanding Exchange Notes)), will be made
by the Company or any other Person on behalf of the Company with respect to any
Obligations on the Exchange Notes or to acquire any of the Exchange Notes for
cash or property or otherwise. In addition, if any other event of default occurs
and is continuing (or if such an event of default would occur upon any payment
with respect to the Exchange Notes or would arise upon the passage of time as a
result of such payment) with respect to any Designated Senior Debt (as such
event of default is defined in the instrument creating or evidencing such
Designated Senior Debt) and such event of default permits the holders of such
Designated Senior Debt then outstanding to accelerate the maturity thereof and
if the Representative for the respective issue of Designated Senior Debt gives
written notice of the event of default to the Trustee (a "Default Notice"),
then, unless and until all such events of default have
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<PAGE> 84
been cured or waived or have ceased to exist or the Company and the Trustee
receive notice from the Representative for the respective issue of Designated
Senior Debt terminating the Blockage Period (as defined below), during the 180
days after the delivery of such Default Notice (the "Blockage Period"), neither
the Company nor any other Person on behalf of the Company will make any payment
of any kind or character (except (i) in Qualified Capital Stock issued by the
Company to pay interest on the Exchange Notes or issued in exchange for the
Exchange Notes, (ii) in securities substantially identical to the Exchange Notes
issued by the Company in payment of interest accrued thereon or (iii) in
securities issued by the Company which are subordinated to the Senior Debt at
least to the same extent as the Exchange Notes and having a Weighted Average
Life to Maturity at least equal to the remaining Weighted Average Life to
Maturity of the Exchange Notes (the issuance of such subordinated securities to
be consented to by the holders of at least a majority of the outstanding amount
of Senior Debt consisting of each class of Designated Senior Debt then
outstanding, which subordinated securities will be issued in exchange for
outstanding Exchange Notes or to pay interest accrued on outstanding Exchange
Notes)) with respect to any Obligations on the Exchange Notes or to acquire any
of the Exchange Notes for cash or property or otherwise. Notwithstanding
anything herein to the contrary, in no event will a Blockage Period extend
beyond 180 days from the date the payment on the Exchange Notes was due and only
one such Blockage Period may be commenced within any 360 consecutive days. No
event of default which existed or was continuing on the date of the commencement
of any Blockage Period with respect to the Designated Senior Debt initiating
such Blockage Period shall be, or be made, the basis for commencement of a
second Blockage Period by the Representative of such Designated Senior Debt
whether or not within a period of 360 consecutive days, unless such event of
default has been cured or waived for a period of not less than 90 consecutive
days (it being acknowledged that any subsequent action, or any breach of any
financial covenants for a period commencing after the date of commencement of
such Blockage Period that, in either case, would give rise to an event of
default pursuant to any provision under which an event of default previously
existed or was continuing, shall constitute a new event of default for this
purpose).
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Debt, including
the holders of the Exchange Notes, may recover less, ratably, than holders of
Senior Debt.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants. For purposes
of the following description of such covenants, the term "Company" shall mean
CRBC prior to September 5, 1997 and CMCLA thereafter.
Limitation on Incurrence of Additional Indebtedness. The Indenture provides
that neither the Company nor any of its Subsidiaries will, directly or
indirectly, create, incur, assume, guarantee, acquire or become liable for,
contingently or otherwise (collectively "incur"), any Indebtedness other than
Permitted Indebtedness. Notwithstanding the foregoing limitations, the Company
or any Subsidiary may incur Indebtedness if on the date of the incurrence of
such Indebtedness, after giving effect to the incurrence of such Indebtedness
and the receipt and application of the proceeds thereof, the Company's Leverage
Ratio is less than 7.0 to 1.
Limitation on Restricted Payments. The Indenture provides that neither the
Company nor any of its Subsidiaries will, directly or indirectly, (a) declare or
pay any dividend or make any distribution (other than dividends or distributions
payable in Qualified Capital Stock of the Company) on shares of the Company's
Capital Stock, (b) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or any warrants, rights or options to acquire
shares of any class of such Capital Stock, other than the exchange of such
Capital Stock or any warrants, rights or options to acquire shares of any class
of such Capital Stock for Qualified Capital Stock or warrants, rights or options
to acquire Qualified Capital Stock, (c) make any principal payment on, purchase,
defease, redeem, prepay, decrease or otherwise acquire or retire for value,
prior to any scheduled final maturity, scheduled repayment or scheduled sinking
fund payment, any Indebtedness of the Company or its Subsidiaries that is
subordinate or junior in right of payment to the Exchange Notes, or (d) make any
Investment (other than Permitted Investments) (each of the foregoing prohibited
actions set forth in clauses (a), (b), (c) and (d) being referred to as a
"Restricted Payment"), if, at the time of such Restricted Payment or immediately
after giving effect thereto, (i) a Default or an Event of
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Default has occurred and is continuing, (ii) the Company is not able to incur at
least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in
compliance with the "Limitation on Incurrence of Additional Indebtedness"
covenant, or (iii) the aggregate amount of Restricted Payments made subsequent
to the 1996 Notes Issue Date (the amount expended for such purposes, if other
than in cash, being the fair market value of such property as determined by the
Board of Directors of the Company in good faith) exceeds the sum of: (A) (x)100%
of the aggregate Consolidated EBITDA of the Company (or, in the event such
Consolidated EBITDA shall be a deficit, minus 100% of such deficit) accrued
subsequent to the 1996 Notes Issue Date to the most recent date for which
financial information is available to the Company, taken as one accounting
period, less (y) 1.4 times Consolidated Interest Expense for the same period
plus (B) 100% of the aggregate net proceeds, including the fair market value of
property other than cash as determined by the Board of Directors of the Company
in good faith, received by the Company from any Person (other than a Subsidiary
of the Company) from the issuance and sale on or after the 1996 Notes Issue Date
of Qualified Capital Stock of the Company (excluding any net proceeds from
issuances and sales financed directly or indirectly using funds borrowed from
the Company or any Subsidiary of the Company, until and to the extent such
borrowing is repaid, but including the proceeds from the issuance and sale of
any securities convertible into or exchangeable for Qualified Capital Stock to
the extent such securities are so converted or exchanged and including any
additional proceeds received by the Company upon such conversion or exchange)
plus (C) without duplication of any amounts included in clause (iii)(B) above,
100% of the aggregate net proceeds, including the fair market value of property
other than cash (valued as provided in clause (iii)(B) above), received by the
Company as a capital contribution (excluding any net proceeds from a Public
Equity Offering by Chancellor to the extent used to redeem the Exchange Notes)
on or after the 1996 Notes Issue Date.
Notwithstanding the foregoing, these provisions do not prohibit: (1) the
payment of any dividend or the making of any distribution within 60 days after
the date of its declaration if the dividend or distribution would have been
permitted on the date of declaration; (2) the acquisition of Capital Stock or
warrants, options or other rights to acquire Capital Stock either (i) solely in
exchange for shares of Qualified Capital Stock or warrants, options or other
rights to acquire Qualified Capital Stock, or (ii) through the application of
the net proceeds of a substantially concurrent sale for cash (other than to a
Subsidiary of the Company) of shares of Qualified Capital Stock or warrants,
options or other rights to acquire Qualified Capital Stock; (3) the acquisition
of Indebtedness of the Company that is subordinate or junior in right of payment
to the Exchange Notes, either (i) solely in exchange for shares of Qualified
Capital Stock (or warrants, options or other rights to acquire Qualified Capital
Stock) or for Indebtedness of the Company which is subordinate or junior in
right of payment to the Exchange Notes, at least to the extent that the
Indebtedness being acquired is subordinated to the Exchange Notes and has a
Weighted Average Life to Maturity no less than that of the Indebtedness being
acquired or (ii) through the application of the net proceeds of a substantially
concurrent sale for cash (other than to a Subsidiary of the Company) of shares
of Qualified Capital Stock (or warrants, options or other rights to acquire
Qualified Capital Stock) or Indebtedness of the Company which is subordinate or
junior in right of payment to the Exchange Notes, at least to the extent that
the Indebtedness being acquired is subordinated to the Exchange Notes and has a
Weighted Average Life to Maturity no less than that of the Indebtedness being
refinanced; (4) payments by the Company to fund the operating expenses of CMHC
in an amount not to exceed $500,000 per annum; (5) payments by the Company to
CMHC to enable CMHC to make payments pursuant to (a) the Financial Monitoring
and Oversight Agreements or (b) the Tax Sharing Agreement; (6) payments by the
Company to repurchase, or enable CMHC to repurchase, Capital Stock or other
securities of CMHC from employees of CMHC or the Company in an aggregate amount
not to exceed $5.0 million subsequent to the 1996 Notes Issue Date; (7) payments
to enable CMHC to redeem or repurchase stock purchase or similar rights in an
aggregate amount not to exceed $500,000 subsequent to the 1996 Notes Issue Date;
(8) payments, not to exceed $100,000 in the aggregate subsequent to the 1996
Notes Issue Date, to enable CMHC to make cash payments to holders of its Capital
Stock in lieu of the issuance of fractional shares of its Capital Stock; and (9)
payments made pursuant to any merger, consolidation or sale of assets effected
in accordance with the "Merger, Consolidation and Sale of Assets" covenant;
provided, however, that no such payment may be made pursuant to this clause (9)
unless, after giving effect to such transaction (and the incurrence of any
Indebtedness in connection therewith and the use of the proceeds
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thereof), the Company would be able to incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with the "Limitation on
Incurrence of Additional Indebtedness" covenant such that after incurring that
$1.00 of additional Indebtedness, the Leverage Ratio would be less than 5.5 to
1; provided, however, that in the case of clauses (5)(a), (6), (7), (8) and (9),
no Default or Event of Default shall have occurred or be continuing at the time
of such payment or as a result thereof. In determining the aggregate amount of
Restricted Payments made subsequent to the Issue Date, amounts expended pursuant
to clauses (1), (2), (3) (but only to the extent that Indebtedness is acquired
in exchange for, or with the net proceeds from, the issuance of Qualified
Capital Stock or warrants, options or other rights to acquire Qualified Capital
Stock), (5)(a), (6), (7), (8) and (9) shall be included in such calculation.
Limitation on Asset Sales. The Indenture provides that neither the Company
nor any of its Subsidiaries will consummate an Asset Sale unless (i) the Company
or the applicable Subsidiary, as the case may be, receives consideration at the
time of such Asset Sale at least equal to the fair market value of the assets
sold or otherwise disposed of (as determined in good faith by management of the
Company or, if such Asset Sale involves consideration in excess of $2,500,000 by
the Board of Directors, as evidenced by a board resolution), (ii) at least 75%
of the consideration received by the Company or the Subsidiary, as the case may
be, from such Asset Sale is cash or Cash Equivalents (other than in the case
where the Company is exchanging all or substantially all the assets of one or
more broadcast businesses operated by the Company (including by way of the
transfer of capital stock) for all or substantially all the assets (including by
way of the transfer of capital stock) constituting one or more broadcast
businesses operated by another Person, in which event the foregoing requirement
with respect to the receipt of cash or Cash Equivalents shall not apply) and is
received at the time of such disposition and (iii) upon the consummation of an
Asset Sale, the Company applies, or causes such Subsidiary to apply, such Net
Cash Proceeds within 180 days of receipt thereof either (A) to repay the
principal of any Senior Debt (and, to the extent such Senior Debt relates to
principal under a revolving credit or similar facility, to obtain a
corresponding reduction in the commitments thereunder), (B) to reinvest, or to
be contractually committed to reinvest pursuant to a binding agreement, in
Productive Assets and, in the latter case, to have so reinvested within 360 days
of the date of receipt of such Net Cash Proceeds, or (C) to purchase Exchange
Notes and 1996 Notes (pro rata among the holders of Exchange Notes and 1996
Notes tendered to the Company for purchase, based upon the aggregate principal
amount of the Exchange Notes and the 1996 Notes so tendered) tendered to the
Company for purchase at a price equal to 100% of the principal amount thereof,
plus accrued interest thereon to the date of purchase, pursuant to an offer to
purchase made by the Company as set forth below (a "Net Proceeds Offer");
provided, however, that, prior to making any Net Proceeds Offer, the Company
shall, to the extent required pursuant to the 9 3/8% Indenture as in effect on
the Issue Date, offer to use such Net Cash Proceeds to repurchase and use all or
a portion of such Net Cash Proceeds to repurchase 1996 Notes, in which event the
Company shall be required to use only the Net Cash Proceeds remaining after such
repurchase to make the Net Proceeds Offer contemplated by this covenant;
provided further, that if at any time any non-cash consideration received by the
Company or any Subsidiary of the Company, as the case may be, in connection with
any Asset Sale is converted into or sold or otherwise disposed of for cash, then
such conversion or disposition shall be deemed to constitute an Asset Sale
hereunder and the Net Cash Proceeds thereof shall be applied in accordance with
clause (iii) above; provided, further that the Company may defer making a Net
Proceeds Offer until the aggregate Net Cash Proceeds from Asset Sales (taking
into account any Net Cash Proceeds used to repurchase 1996 Notes pursuant to the
second immediately preceding proviso) to be applied equals or exceeds
$5,000,000.
Subject to the deferral right set forth in the final proviso of the
preceding paragraph, each notice of a Net Proceeds Offer will be mailed, by
first class mail, to holders of Exchange Notes as shown on the applicable
register of holders of Exchange Notes not more than 180 days after the relevant
Asset Sale or, in the event the Company or a Subsidiary has entered into a
binding agreement as provided in (B) above, within 180 days following the
termination of such agreement but in no event later than 360 days after the
relevant Asset Sale. Such notice will specify, among other things, the purchase
date (which will be no earlier than 30 days nor later than 45 days from the date
such notice is mailed, except as otherwise required by law) and will otherwise
comply with the procedures set forth in the Indenture. Upon receiving notice of
the Net Proceeds Offer, holders of Exchange Notes may elect to tender their
Exchange Notes in whole or in part in integral multiples of $1,000. To the
extent holders properly tender Exchange Notes and 1996 Notes in an amount
exceeding the
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Net Proceeds Offer, subject to the limitations set forth in the immediately
preceding paragraph, the Company shall select the 1996 Notes and the Exchange
Notes to be repurchased on a pro rata basis (based upon the aggregate principal
amount of Exchange Notes and 1996 Notes tendered). To the extent that the
aggregate principal amount of Exchange Notes and 1996 Notes tendered pursuant to
any Net Proceeds Offer is less than the amount of Net Cash Proceeds subject to
such Net Proceeds Offer, the Company may use any remaining portion of such Net
Cash Proceeds not required to fund the repurchase of tendered Exchange Notes for
any purposes otherwise permitted by the Indenture. Upon the consummation of any
Net Proceeds Offer, the amount of Net Cash Proceeds subject to any future Net
Proceeds Offer from the Asset Sales giving rise to such Net Cash Proceeds shall
be deemed to be zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Exchange Notes pursuant to a Net Proceeds Offer.
Limitation on Asset Swaps. The Indenture provides that the Company will
not, and will not permit any Subsidiary to, engage in any Asset Swaps, unless:
(i) at the time of entering into the agreement to swap assets and immediately
after giving effect to the proposed Asset Swap, no Default or Event of Default
shall have occurred and be continuing or would occur as a consequence thereof;
(ii) the Company would, after giving pro forma effect to the proposed Asset
Swap, have been permitted to incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with the "Limitation on
Incurrence of Additional Indebtedness" covenant; (iii) the respective fair
market values of the assets being purchased and sold by the Company or any of
its Subsidiaries (as determined in good faith by the management of the Company
or, if such Asset Swap includes consideration in excess of $2,500,000, by the
Board of Directors, as evidenced by a board resolution) are substantially the
same at the time of entering into the agreement to swap assets; and (iv) at the
time of the consummation of the proposed Asset Swap, the percentage of any
decline in the fair market value (determined as aforesaid) of the asset or
assets being acquired by the Company and its Subsidiaries shall not be
significantly greater than the percentage of any decline in the fair market
value (determined as aforesaid) of the assets being disposed of by the Company,
calculated from the time the agreement to swap assets was entered into;
provided, however, that this covenant shall not apply to any of the transactions
of EMCLA and its subsidiaries pending as of June 18, 1997.
Limitations on Transactions with Affiliates. The Indenture provides that
neither the Company nor any of its Subsidiaries will, directly or indirectly,
enter into or permit to exist any transaction (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any
service) with or for the benefit of any of its Affiliates (other than
transactions between the Company and a Wholly-Owned Subsidiary of the Company or
among Wholly-Owned Subsidiaries of the Company) (an "Affiliate Transaction"),
other than Affiliate Transactions on terms that are no less favorable than those
that might reasonably have been obtained in a comparable transaction on an
arm's-length basis from a person that is not an Affiliate; provided, however,
that for a transaction or series of related transactions involving value of
$1,000,000 or more, such determination will be made in good faith by a majority
of members of the Board of Directors of the Company and by a majority of the
disinterested members of the Board of Directors of the Company, if any;
provided, further, that for a transaction or series of related transactions
involving value of $5,000,000 or more, the Board of Directors of the Company has
received an opinion from a nationally recognized investment banking firm that
such Affiliate Transaction is fair, from a financial point of view, to the
Company or such Subsidiary. The foregoing restrictions will not apply to
reasonable and customary directors' fees, indemnification and similar
arrangements and payments thereunder, or to any obligations of the Company under
the Financial Monitoring and Oversight Agreements, the Tax Sharing Agreement or
any employment agreement with any officer of the Company (provided that each
amendment of any of the foregoing agreements shall be subject to the limitations
of this covenant), as well as reasonable and customary investment banking,
financial advisory, commercial banking and similar fees and expenses paid to BT
Securities Corporation and its Affiliates.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Indenture provides that neither the Company nor any of its
Subsidiaries will, directly or indirectly, create or otherwise cause or permit
to exist or become effective any encumbrance or restriction on the ability of
any Subsidiary to (a) pay dividends or make any other distributions on its
Capital Stock; (b) make loans or advances or pay any
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Indebtedness or other obligation owed to the Company or any of its Subsidiaries;
or (c) transfer any of its property or assets to the Company, except for such
encumbrances or restrictions existing under or by reason of: (1) applicable law,
(2) the Indenture, (3) customary non-assignment provisions of any lease
governing a leasehold interest of the Company or any Subsidiary, (4) any
instrument governing Acquired Indebtedness, which encumbrance or restriction is
not applicable to any Person, or the properties or assets of any Person, other
than the Person, or the property or assets of the Person, so acquired, (5)
agreements permitted under the 9 3/8% Indenture existing on the Issue Date
(including the Credit Agreement), as such agreements are from time to time in
effect; provided, however, that any amendments or modifications of such
agreements which affect the encumbrances or restrictions of the types subject to
this covenant shall not result in such encumbrances or restrictions being less
favorable to the Company in any material respect, as determined in good faith by
the Board of Directors of the Company, than the provisions as in effect before
giving effect to the respective amendment or modification, (6) an agreement
effecting a refinancing, replacement or substitution of Indebtedness issued,
assumed or incurred pursuant to an agreement referred to in clause (2), (4) or
(5) above or any other agreement evidencing Indebtedness permitted under the
Indenture; provided, however, that the provisions relating to such encumbrance
or restriction contained in any such refinancing, replacement or substitution
agreement or any such other agreement are not less favorable to the Company in
all material respects as determined in good faith by the Board of Directors of
the Company than the provisions relating to such encumbrance or restriction
contained in agreements referred to in such clause (2), (4) or (5), or (7)
restrictions on the transfer of assets subject to any Lien permitted under the
Indenture imposed by the holder of such Lien.
Prohibition on Incurrence of Senior Subordinated Debt. The Indenture
prohibits the Company from incurring or suffering to exist Indebtedness that is
senior in right of payment to the Exchange Notes and is expressly subordinate in
right of payment to any other Indebtedness of the Company.
Limitation on Preferred Stock of Subsidiaries. The Indenture provides that
the Company will not permit any of its Subsidiaries to issue any Preferred Stock
(other than to the Company or to a Wholly-Owned Subsidiary of the Company) or
permit any Person (other than the Company or a Wholly-Owned Subsidiary of the
Company) to own any Preferred Stock (other than Acquired Preferred Stock;
provided that at the time the issuer of such Acquired Preferred Stock becomes a
Subsidiary of the Company or merges with the Company or any of its Subsidiaries,
and after giving effect to such transaction, the Company shall be able to incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) in
compliance with the "Limitation on Incurrence of Additional Indebtedness"
covenant).
Limitation on Liens. The Indenture provides that neither the Company nor
any of its Subsidiaries will create, incur, assume or suffer to exist any Liens
upon any of their respective assets, except for (a) Permitted Liens, (b) Liens
to secure Senior Debt or guarantees thereof permitted under the Indenture, (c)
Liens permitted under the 9 3/8% Indenture existing on the Issue Date, (d) Liens
in favor of the Trustee, (e) Liens to secure Guarantor Senior Debt permitted
under the Indenture, and (f) any Lien to secure the replacement, refunding,
extension or renewal, in whole or in part, of any Indebtedness described in the
foregoing clauses; provided that, to the extent any such clause limits the
amount secured or the asset subject to such Liens, no extension or renewal will
increase the assets subject to such Liens or the amount secured thereby beyond
the assets or amounts set forth in such clauses.
Limitation on Sale and Leaseback Transactions. The Indenture provides that
neither the Company nor any of its Subsidiaries will enter into any Sale and
Leaseback Transaction, except that the Company or any Subsidiary may enter into
a Sale and Leaseback Transaction if, immediately prior thereto, and after giving
effect to such Sale and Leaseback Transaction (the Indebtedness thereunder being
equivalent to the Attributable Value thereof) the Company could incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) in
compliance with the "Limitation on Incurrence of Additional Indebtedness"
covenant.
Guarantees of Certain Indebtedness. The Indenture provides that the Company
will not permit any of its Subsidiaries, directly or indirectly, to incur,
guarantee or secure through the granting of Liens, the payment of any
Indebtedness under the Credit Agreement or any refunding or refinancing thereof,
in each case, unless
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such Subsidiary, the Company and the Trustee execute and deliver a supplemental
indenture pursuant to which such Subsidiary becomes a Guarantor of the Exchange
Notes and which evidences such Subsidiary's Guarantee of the Exchange Notes,
such Guarantee to be a senior subordinated unsecured obligation of such
Subsidiary. Neither the Company nor any such Guarantor shall be required to make
a notation on the Exchange Notes or its Guarantee to reflect any such subsequent
Guarantee. Nothing in this covenant shall be construed to permit any Subsidiary
of the Company to incur Indebtedness otherwise prohibited by the "Limitation of
Incurrence of Additional Indebtedness" covenant.
Limitation on Line of Business. The Indenture provides that for so long as
any Exchange Notes are outstanding, the Company and its Subsidiaries will engage
solely in the ownership and operation of broadcast businesses or businesses
reasonably related thereto.
Merger, Consolidation and Sale of Assets. The Indenture provides that the
Company may not, in a single transaction or a series of related transactions,
consolidate with or merge with or into, or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its assets to, another
Person or adopt a plan of liquidation unless (i) either (A) the Company is the
survivor of such merger or consolidation or (B) the surviving or transferee
Person is a corporation, partnership or trust organized and existing under the
laws of the United States, any state thereof or the District of Columbia and
such surviving or transferee Person expressly assumes by supplemental indenture
all of the obligations of the Company under the Exchange Notes and the
Indenture; (ii) immediately after giving effect to such transaction and the use
of proceeds therefrom (on a pro forma basis, including any Indebtedness incurred
or anticipated to be incurred in connection with such transaction), the Company
or the surviving or transferee Person is able to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness" covenant; (iii)
immediately after giving effect to such transaction (including any Indebtedness
incurred or anticipated to be incurred in connection with the transaction) no
Default or Event of Default has occurred and is continuing; and (iv) the Company
has delivered to the Trustee an Officers' Certificate and Opinion of Counsel,
each stating that such consolidation, merger or transfer complies with the
Indenture, that the surviving Person agrees by supplemental indenture to be
bound thereby, and that all conditions precedent in the Indenture relating to
such transaction have been satisfied. For purposes of the foregoing, the
transfer (by lease, assignment, sale or otherwise, in a single transaction or
series of related transactions) of all or substantially all of the properties
and assets of one or more Subsidiaries, the Capital Stock of which constitutes
all or substantially all of the properties and assets of the Company, will be
deemed to be the transfer of all or substantially all of the properties and
assets of the Company.
GUARANTEES
Each Guarantor fully and unconditionally guarantees, jointly and severally,
to each holder and the Trustee, subject to subordination provisions
substantially the same as those described above, the full and prompt payment of
principal of and interest on the Exchange Notes, and of all other obligations
under the Indenture.
The Indebtedness evidenced by each Guarantee (including the payment of
principal of, premium, if any, and interest on the Exchange Notes) is
subordinated to Guarantor Senior Debt (defined with respect to the Indebtedness
of a Guarantor in the same manner as Senior Debt is defined with respect to the
Company) on the same terms as the Exchange Notes are subordinated to Senior Debt
and will rank pari passu to the Guarantor's guarantee of the 1996 Notes. See
"-- Subordination." In addition, the Guarantors have substantial additional
Guarantor Senior Debt (relating to guarantees of the borrowings under the Credit
Agreement).
The obligations of each Guarantor are limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor (including, without limitation, any guarantees under the Credit
Agreement) and after giving effect to any collections from or payments made by
or on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Guarantee or pursuant to its contribution obligations under
the Indenture, result in the obligations of the Guarantor under the Guarantee
not constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Guarantor that
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makes a payment or distribution under a Guarantee are entitled to a contribution
from each other Guarantor in a pro rata amount based on the Adjusted Net Assets
of each Guarantor.
Each Guarantor may consolidate with or merge into or sell its assets to the
Company or to another Guarantor without limitation. Each Guarantor may
consolidate with or merge into or sell all or substantially all its assets to a
corporation, partnership or trust other than the Company or another Guarantor
(whether or not affiliated with the Guarantor). Upon the sale or disposition of
a Guarantor (or all or substantially all of its assets) to a Person (whether or
not an Affiliate of such Guarantor) which is not a Subsidiary of the Company,
which is otherwise in compliance with the Indenture, such Guarantor shall be
deemed released from all its obligations under the Indenture and its Guarantee
and such Guarantee shall terminate; provided, however, that any such termination
shall occur only to the extent that all obligations of such Guarantor under the
Credit Agreement and all of its guarantees of, and under all of its pledges of
assets or other security interests which secure, Indebtedness of the Company
shall also terminate upon such release, sale or transfer; provided, further,
that the consideration received by the Company in connection with such sale or
other disposition shall be applied in accordance with the covenant. See
"-- Certain Covenants -- Limitation on Asset Sales."
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on the Exchange Notes when the same becomes due
and payable and the Default continues for a period of 30 days (whether or not
such payment is prohibited by the subordination provisions of the Indenture);
(ii) the failure to pay the principal on any Exchange Notes, when such principal
becomes due and payable, at maturity, upon redemption or otherwise (whether or
not such payment is prohibited by the subordination provisions of the
Indenture); (iii) a default in the observance or performance of any other
covenant or agreement contained in the Exchange Notes or the Indenture which
default continues for a period of 30 days after the Company receives written
notice thereof specifying the default from the Trustee or holders of at least
25% in aggregate principal amount of outstanding Exchange Notes; (iv) the
failure to pay at the final stated maturity (giving effect to any extensions
thereof) the principal amount of any Indebtedness of the Company or any
Subsidiary of the Company, or the acceleration of the final stated maturity of
any such Indebtedness, if the aggregate principal amount of such Indebtedness,
together with the aggregate principal amount of any other such Indebtedness in
default for failure to pay principal at the final stated maturity (giving effect
to any extensions thereof) or which has been accelerated, aggregates $5,000,000
or more at any time, in each case after a 10-day period during which such
default shall not have been cured or such acceleration rescinded; (v) one or
more judgments in an aggregate amount in excess of $5,000,000 (which are not
covered by insurance as to which the insurer has not disclaimed coverage) being
rendered against the Company or any of its Significant Subsidiaries and such
judgments remain undischarged or unstayed for a period of 60 days after such
judgment or judgments become final and non-appealable; and (vi) certain events
of bankruptcy, insolvency or reorganization affecting the Company or any of its
Significant Subsidiaries.
Upon the happening of any Event of Default specified in the Indenture, the
Trustee may, and the Trustee upon the request of holders of 25% in principal
amount of the Exchange Notes shall, or the holders of at least 25% in principal
amount of outstanding Exchange Notes may, declare the principal of and accrued
but unpaid interest, if any, on all the Exchange Notes to be due and payable by
notice in writing to the Company and the Trustee specifying the respective Event
of Default and that it is a "notice of acceleration" (the "Acceleration
Notice"), and the same (i) shall become immediately due and payable or (ii) if
there are any amounts outstanding under the Credit Agreement, will become due
and payable upon the first to occur of an acceleration under the Credit
Agreement or five Business Days after receipt by the Company and the
Representative under the Credit Agreement of such Acceleration Notice (unless
all Events of Default specified in such Acceleration Notice have been cured or
waived). If an Event of Default with respect to bankruptcy proceedings relating
to the Company occurs and is continuing, then such amount will ipso facto become
and be immediately due and payable without any declaration or other act on the
part of the Trustee or any holder of the Exchange Notes.
The Indenture provides that, at any time after a declaration of
acceleration with respect to the Exchange Notes as described in the preceding
paragraph, the holders of a majority in principal amount of the Exchange
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Notes then outstanding (by notice to the Trustee) may rescind and cancel such
declaration and its consequences if (i) the rescission would not conflict with
any judgment or decree of a court of competent jurisdiction, (ii) all existing
Events of Default have been cured or waived except nonpayment of principal or
interest on the Exchange Notes that has become due solely by such declaration of
acceleration, (iii) to the extent the payment of such interest is lawful,
interest (at the same rate specified in the Exchange Notes) on overdue
installments of interest and overdue payments of principal which has become due
otherwise than by such declaration of acceleration, has been paid, (iv) the
Company has paid the Trustee its reasonable compensation and reimbursed the
Trustee for its expenses, disbursements and advances and (v) in the event of the
cure or waiver of a Default or Event of Default of the type described in clause
(vi) of the description of Events of Default in the first paragraph above, the
Trustee has received an Officers' Certificate and an Opinion of Counsel that
such Default or Event of Default has been cured or waived. The holders of a
majority in principal amount of the Exchange Notes may waive any existing
Default or Event of Default under the Indenture, and its consequences, except a
default in the payment of the principal of or interest on any Exchange Notes.
The Company is required to deliver to the Trustee, within 120 days after
the end of the Company's fiscal year, a certificate indicating whether the
signing officers know of any Default or Event of Default that occurred during
the previous year and whether the Company has complied with its obligations
under the Indenture. In addition, the Company will be required to notify the
Trustee of the occurrence and continuation of any Default or Event of Default
within five business days after the Company becomes aware of the same.
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default thereunder should occur and be continuing,
the Trustee will be under no obligation to exercise any of the rights or powers
under the Indenture at the request or direction of any of the holders of the
Exchange Notes unless such holders have offered to the Trustee reasonable
indemnity or security against any loss, liability or expense. Subject to such
provision for security or indemnification and certain limitations contained in
the Indenture, the holders of a majority in principal amount of the outstanding
Exchange Notes have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on the Trustee.
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
The Company may terminate its obligations under the Indenture at any time,
and the obligations of the Guarantors with respect thereto shall terminate, by
delivering all outstanding Exchange Notes to the Trustee for cancellation and
paying all sums payable by it thereunder. The Company, at its option, (i) will
be discharged from any and all obligations with respect to the Exchange Notes,
and each Guarantor will be discharged from any and all obligations with respect
to its Guarantee, (except for certain obligations of the Company to register the
transfer or exchange of such Exchange Notes, replace stolen, lost or mutilated
Exchange Notes, maintain paying agencies and hold moneys for payment in trust)
or (ii) need not comply with certain of the restrictive covenants with respect
to the Indenture, if the Company deposits with the Trustee, in trust, U.S. Legal
Tender or U.S. Government Obligations or a combination thereof which, through
the payment of interest thereon and principal in respect thereof in accordance
with their terms, will be sufficient to pay all the principal of and interest on
the Exchange Notes on the dates such payments are due in accordance with the
terms of such Exchange Notes as well as the Trustee's fees and expenses. To
exercise either such option, the Company is required to deliver to the Trustee
(A) an Opinion of Counsel or a private letter ruling issued to the Company by
the IRS to the effect that the holders of the Exchange Notes will not recognize
income, gain or loss for federal income tax purposes as a result of the deposit
and related defeasance and will be subject to federal income tax on the same
amount and in the same manner and at the same times as would have been the case
if such option had not been exercised and, in the case of an Opinion of Counsel
furnished in connection with a Discharge pursuant to clause (i) above,
accompanied by a private letter ruling issued to the Company by the IRS to such
effect, (B) subject to certain qualifications, an Opinion of Counsel to the
effect that funds so deposited will not be subject to avoidance under applicable
Bankruptcy Law, and (C) an Officers' Certificate and an Opinion of Counsel to
the effect that the Company has complied with all conditions precedent to the
defeasance. Notwithstanding the foregoing, the Opinion of Counsel required by
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clause (A) above need not be delivered if all Exchange Notes not therefore
delivered to the Trustee for cancellation (i) have become due and payable, (ii)
will become due and payable on the maturity date within one year, or (iii) are
to be called for redemption within one year under arrangements satisfactory to
the Trustee for the giving of notice of redemption by the Trustee in the name,
and at the expense, of the Company.
REPORTS TO HOLDERS
The Company will file with the Trustee and provide to the holders of the
Exchange Notes, within 15 days after it files them with the Commission, copies
of the annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may by rules
and regulations prescribe) which the Company files with the Commission pursuant
to Section 13 or 15(d) of the Exchange Act. In the event the Company is no
longer required to furnish such reports to its securityholders pursuant to the
Exchange Act, the Company will cause its consolidated financial statements,
comparable to those which would have been required to appear in annual or
quarterly reports, to be delivered to the holders of the Exchange Notes.
MODIFICATION OF THE INDENTURE
From time to time, the Company and the Trustee, together, without the
consent of the holders of the Exchange Notes, may amend or supplement the
Indenture for certain specified purposes, including curing ambiguities, defects
or inconsistencies. Other modifications and amendments of the Indenture may be
made with the consent of the holders of a majority in principal amount of the
then outstanding Exchange Notes, except that, without the consent of each holder
of the Exchange Notes affected thereby, no amendment may, directly or
indirectly: (i) reduce the amount of Exchange Notes whose holders must consent
to an amendment; (ii) reduce the rate of or change the time for payment of
interest, including defaulted interest, on any Exchange Notes; (iii) reduce the
principal of or change the fixed maturity of any Exchange Notes, or change the
date on which any Exchange Notes may be subject to redemption or repurchase, or
reduce the redemption or repurchase price therefor; (iv) make any Exchange Notes
payable in money other than that stated in the Exchange Notes; (v) make any
change in provisions of the Indenture protecting the right of each holder of a
Note to receive payment of principal of and interest on such Note on or after
the due date thereof or to bring suit to enforce such payment or permitting
holders of a majority in principal amount of the Exchange Notes to waive
Defaults or Events of Default; or (vi) after the Company's obligation to
purchase the Exchange Notes arises under the Indenture, amend, modify or change
the obligation of the Company to make or consummate a Change of Control Offer or
a Net Proceeds Offer or waive any default in the performance thereof or modify
any of the provisions or definitions with respect to any such offers.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"1996 Notes" means the $200.0 million aggregate principal amount of 9 3/8%
Senior Subordinated Notes due 2004 of CRBC, issued pursuant to an indenture,
dated as of February 14, 1996, as the same may be modified or amended from time
to time and future refinancings thereof.
"1996 Notes Issue Date" means February 14, 1996.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Subsidiary of the
Company or at the time it merges or consolidates with the Company or any of its
Subsidiaries or assumed in connection with the acquisition of assets from such
Person and not incurred by such Person in connection with, or in anticipation or
contemplation of, such Person becoming a Subsidiary of the Company or such
acquisition, merger or consolidation.
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"Acquired Preferred Stock" means Preferred Stock of any Person at the time
such Person becomes a Subsidiary of the Company or at the time it merges or
consolidates with the Company or any of its Subsidiaries and not issued by such
Person in connection with, or in anticipation or contemplation of, such
acquisition, merger or consolidation.
"Adjusted Net Assets" of a Guarantor at any date shall mean the lesser of
the amount by which (x) the fair value of the property of such Guarantor exceeds
the total amount of liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and contingent liabilities
incurred or assumed on such date), but excluding liabilities under the Guarantee
of such Guarantor at such date, and (y) the present fair salable value of the
assets of such Guarantor at such date exceeds the amount that will be required
to pay the probable liability of such Guarantor on its debts (after giving
effect to all other fixed and contingent liabilities incurred or assumed on such
date and after giving effect to any collection from any Subsidiary of such
Guarantor in respect of the obligations of such Subsidiary under the Guarantee),
excluding debt in respect of the Guarantee, as they become absolute and matured.
"Affiliate" means a Person who, directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Company. The term "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Asset Acquisition" means (i) an Investment by the Company or any
Subsidiary of the Company in any other Person pursuant to which such Person
shall become a Subsidiary of the Company or shall be consolidated or merged with
the Company or any Subsidiary of the Company or (ii) the acquisition by the
Company or any Subsidiary of the Company of assets of any Person comprising a
division or line of business of such Person.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Subsidiaries (excluding any Sale and Leaseback Transaction or any pledge of
assets or stock by the Company or any of its Subsidiaries) to any Person other
than the Company or a Wholly-Owned Subsidiary of the Company of (i) any Capital
Stock of any Subsidiary of the Company or (ii) any other property or assets of
the Company or any Subsidiary of the Company other than in the ordinary course
of business; provided, however, that for purposes of the "Limitation on Asset
Sales" covenant, Asset Sales shall not include (a) a transaction or series of
related transactions for which the Company or its Subsidiaries receive aggregate
consideration of less than $500,000, (b) transactions permitted under the
"Limitation on Asset Swaps" covenant or (c) transactions permitted under the
"Merger, Consolidation and Sale of Assets" covenant.
"Asset Swap" means the execution of a definitive agreement, subject only to
FCC approval and other customary closing conditions, that the Company in good
faith believes will be satisfied, for a substantially concurrent purchase and
sale, or exchange, of Productive Assets between the Company or any of its
Subsidiaries and another Person or group of affiliated Persons; provided that
any amendment to or waiver of any closing condition which individually or in the
aggregate is material to the Asset Swap shall be deemed to be a new Asset Swap.
"Attributable Value" in respect of a sale and leaseback arrangement of any
property means, as at the time of determination, the greater of (i) the fair
market value of the property subject to such arrangement (as determined in good
faith by the Board of Directors of the Company) or (ii) the present value
(discounted at the interest rate borne by the Exchange Notes, compounded
annually) of the total obligations of the lessee for rental payments during the
remaining term of the lease included in such arrangement.
"Capitalized Lease Obligation" means, as to any Person, the obligation of
such Person to pay rent or other amounts under a lease to which such Person is a
party that is required to be classified and accounted for as a capital lease
obligation under GAAP and, for purposes of this definition, the amount of such
obligation at any date shall be the capitalized amount of such obligation at
such date, determined in accordance with GAAP.
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"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated) of capital stock, including each class of common stock and Preferred
Stock of such Person and (ii) with respect to any Person that is not a
corporation, any and all partnership or other equity interests of such Person.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc.; (iii) commercial paper maturing no more than one year from the
date of creation thereof and, at the time of acquisition, having a rating of at
least A-1 from Standard & Poor's Corporation or at least P-1 from Moody's
Investors Service, Inc.; (iv) certificates of deposit or bankers' acceptances
maturing within one year from the date of acquisition thereof issued by any
commercial bank organized under the laws of the United States of America or any
state thereof or the District of Columbia or any U.S. branch of a foreign bank
having at the date of acquisition thereof combined capital and surplus of not
less than $200,000,000; (v) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clause (i) above
entered into with any bank meeting the qualifications specified in clause (iv)
above; and (vi) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (i) through (v)
above.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company to any Person or group of related Persons for purposes of Section 13(d)
of the Exchange Act (a "Group") (whether or not otherwise in compliance with the
provisions of the Indenture), other than (x) in the event the Chancellor Merger
is not consummated, to Hicks Muse or any of its Affiliates, officers and
directors or to Steven Dinetz and (y) if the Chancellor Merger is consummated,
from and after the effective date thereof, to Hicks Muse or any of its
Affiliates, officers and directors or to Steven Dinetz or Scott K. Ginsburg (the
"Permitted Holders"); or (ii) a majority of the Board of Directors of Chancellor
Media, CMHC or CMCLA shall consist of Persons who are not Continuing Directors;
or (iii) the acquisition by any Person or Group (other than the Permitted
Holders) of the power, directly or indirectly, to vote or direct the voting of
securities having more than 50% of the ordinary voting power for the election of
directors of Chancellor Media, CMHC or CMCLA.
"Commodity Agreement" means any commodity futures contract, commodity
option or other similar agreement or arrangement entered into by the Company or
any of its Subsidiaries designed to protect the Company or any of its
Subsidiaries against fluctuations in the price of commodities actually used in
the ordinary course of business of the Company and its Subsidiaries.
"Consolidated EBITDA" means, with respect to any Person, for any period,
the sum (without duplication) of (i) Consolidated Net Income and (ii) to the
extent Consolidated Net Income has been reduced thereby, (A) all income taxes of
such Person and its Subsidiaries paid or accrued in accordance with GAAP for
such period (other than income taxes attributable to extraordinary or
nonrecurring gains or losses), (B) Consolidated Interest Expense and (C)
Consolidated Non-Cash Charges, all as determined on a consolidated basis for
such Person and its Subsidiaries in conformity with GAAP.
"Consolidated Interest Expense" means, with respect to any Person for any
period, without duplication, the sum of (i) the interest expense of such Person
and its Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP, including, without limitation, (a) any amortization of
debt discount, (b) the net cost under Interest Swap Obligations (including any
amortization of discounts), (c) the interest portion of any deferred payment
obligation, (d) all commissions, discounts and other fees and charges owed with
respect to letters of credit, bankers' acceptance financing or similar
facilities, and (e) all accrued interest and (ii) the interest component of
Capitalized Lease Obligations paid or accrued by such person and its
Subsidiaries during such period as determined on a consolidated basis in
accordance with GAAP.
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"Consolidated Net Income" of any Person means, for any period, the
aggregate net income (or loss) of such Person and its Subsidiaries for such
period on a consolidated basis, determined in accordance with GAAP; provided
that there shall be excluded therefrom, without duplication, (a) gains and
losses from Asset Sales (without regard to the $500,000 limitation set forth in
the definition thereof) or abandonments or reserves relating thereto and the
related tax effects, (b) items classified as extraordinary or nonrecurring gains
and losses, and the related tax effects according to GAAP, (c) the net income
(or loss) of any Person acquired in a pooling of interests transaction accrued
prior to the date it becomes a Subsidiary of such first referred to Person or is
merged or consolidated with it or any of its Subsidiaries, (d) the net income of
any Subsidiary to the extent that the declaration of dividends or similar
distributions by that Subsidiary of that income is restricted by contract,
operation of law or otherwise and (e) the net income of any Person, other than a
Subsidiary, except to the extent of the lesser of (x) dividends or distributions
paid to such first referred to Person or its Subsidiary by such Person and (y)
the net income of such Person (but in no event less than zero), and the net loss
of such Person shall be included only to the extent of the aggregate Investment
of the first referred to Person or a consolidated Subsidiary of such Person.
"Consolidated Non-Cash Charges" means, with respect to any Person for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Subsidiaries reducing Consolidated Net Income of such Person
and its Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP (excluding any such charges constituting an extraordinary
or nonrecurring item).
"Continuing Director" means, as of the date of determination, any Person
who (i) was a member of the Board of Directors of Chancellor or CRBC on the date
of the Indenture or becomes a director upon consummation of the Chancellor
Merger, (ii) was nominated for election or elected to the Board of Directors of
Chancellor Media, CMHC or CMCLA with the affirmative vote of a majority of the
Continuing Directors who were members of such Board of Directors at the time of
such nomination or election, or (iii) is a representative of a Permitted Holder.
"Credit Agreement" means the Credit Agreement, dated on or about February
14, 1996, as amended and restated as of January 23, 1997, among Chancellor,
CRBC, the lenders from time to time party thereto and Bankers Trust Company as
managing agent, together with the related documents thereto (including, without
limitation, any guarantee agreements and security documents), in each case, as
such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including by way of adding Subsidiaries of CRBC as additional
borrowers or guarantors thereunder) all or any portion of the Indebtedness under
such agreement or any successor or replacement agreement and whether by the same
or any other agent, lender or group of lenders.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its Subsidiaries against fluctuations in currency values.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Designated Guarantor Senior Debt" means (i) Indebtedness guaranteed by a
Guarantor under or in respect of the Credit Agreement and (ii) any other
Indebtedness constituting Guarantor Senior Debt which, at the time of
determination, has an aggregate principal amount of at least $25,000,000 and is
specifically designated in the instrument evidencing such Guarantor Senior Debt
as "Designated Guarantor Senior Debt" by the Guarantor.
"Designated Senior Debt" means (i) Indebtedness under or in respect of the
Credit Agreement and (ii) any other Indebtedness constituting Senior Debt which,
at the time of determination, has an aggregate principal amount of at least
$25,000,000 and is specifically designated in the instrument evidencing such
Senior Debt as "Designated Senior Debt" by the Company.
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"Disqualified Capital Stock" means any Capital Stock which, by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures (excluding any
maturity as the result of an optional redemption by the issuer thereof) or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof (except, in each case,
upon the occurrence of a Change of Control), in whole or in part, on or prior to
the final maturity date of the Exchange Notes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"Financial Monitoring and Oversight Agreements" means the Financial
Monitoring and Oversight Agreement among Hicks, Muse & Co. Partners, L.P., CRBC
and Chancellor, as in effect on the Issue Date, and the Financial Advisory
Agreement among HM2/Management Partners, L.P., CRBC and Chancellor, as in effect
on the 1996 Notes Issue Date, or as amended in connection with the Chancellor
Merger as described under "Certain Relationships and Related
Transactions -- Financial Monitoring and Oversight Agreement" and
"-- Termination of Financial Advisory Agreement."
"GAAP" means generally accepted accounting principles as in effect in the
United States of America as of the Issue Date.
"Guarantors" mean (i) initially, Chancellor Broadcasting Licensee Company,
Trefoil Communications, Inc., Shamrock Broadcasting, Inc., Shamrock Broadcasting
of Texas, Inc., Shamrock Radio Licenses, Inc., and Shamrock Broadcasting
Licenses of Denver, Inc., and (ii) each of the Company's Subsidiaries that,
subsequent to the Original Notes Issue Date, executes a supplemental indenture
in which such Subsidiary agrees to be bound by the terms of the Indenture as a
Guarantor; provided that any Person constituting a Guarantor as described above
shall cease to constitute a Guarantor when its respective Guarantee is released
in accordance with the terms thereof.
"Guarantor Senior Debt" means any Indebtedness of a Guarantor (including
any interest accruing subsequent to the filing of a petition of bankruptcy at
the rate provided for in the documentation with respect thereto, whether or not
such interest is an allowed claim under applicable law), whether outstanding on
the Issue Date or thereafter created, incurred or assumed, unless, in the case
of any particular Indebtedness, the instrument creating or evidencing the same
or pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Guarantees. Without
limiting the generality of the foregoing, "Guarantor Senior Debt" shall also
include the principal of, premium, if any, interest (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on, and all other amounts
owing in respect of, and all monetary obligations of every nature under, (x) the
Credit Agreement, including, without limitation, obligations to pay principal
and interest, reimbursement obligations under letters of credit, fees, expenses
and indemnities, and (y) all Interest Swap Obligations. Notwithstanding the
foregoing, "Guarantor Senior Debt" shall not include any of the following
amounts (whether or not constituting Indebtedness as defined in this Indenture):
(i) any Indebtedness of a Guarantor to a Subsidiary of such Guarantor; (ii)
Indebtedness and other amounts owing to trade creditors incurred in connection
with obtaining goods, materials or services; (iii) Indebtedness represented by
Disqualified Capital Stock; (iv) any liability for federal, state, local or
other taxes owed or owing by a Guarantor; (v) any Indebtedness which is, by its
express terms, subordinated in right of payment to any other Indebtedness of
such Guarantor; and (vi) guarantees of the 1996 Notes.
"Indebtedness" means with respect to any Person, without duplication, any
liability of such Person (i) for borrowed money, (ii) evidenced by bonds,
debentures, notes or other similar instruments, (iii) constituting Capitalized
Lease Obligations, (iv) incurred or assumed as the deferred purchase price of
property, or pursuant to conditional sale obligations and title retention
agreements (but excluding trade accounts payable arising in the ordinary course
of business), (v) for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction, (vi) for Indebtedness of
others guaranteed by such Person, (vii) for Interest Swap Obligations, Commodity
Agreements and Currency Agreements and (viii) for Indebtedness of any other
Person of the type referred to in clauses (i) through (vii) which are secured by
any
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Lien on any property or asset of such first referred to Person, the amount of
such Indebtedness being deemed to be the lesser of the value of such property or
asset or the amount of the Indebtedness so secured. The amount of Indebtedness
of any Person at any date shall be the outstanding principal amount of all
unconditional obligations described above, as such amount would be reflected on
a balance sheet prepared in accordance with GAAP, and the maximum liability at
such date of such Person for any contingent obligations described above.
"Interest Swap Obligations" means the obligations of any Person under any
interest rate protection agreement, interest rate future, interest rate option,
interest rate swap, interest rate cap or other interest rate hedge or
arrangement.
"Investment" means (i) any transfer or delivery of cash, stock or other
property of value in exchange for Indebtedness, stock or other security or
ownership interest in any Person by way of loan, advance, capital contribution,
guarantee or otherwise and (ii) an investment deemed to have been made by the
Company at the time any entity which was a Subsidiary of the Company ceases to
be such a Subsidiary in an amount equal to the value of the loans and advances
made, and any remaining ownership interest in, such entity immediately following
such entity ceasing to be a Subsidiary of the Company. The amount of any
non-cash Investment shall be the fair market value of such Investment, as
determined conclusively in good faith by management of the Company unless the
fair market value of such Investment exceeds $1.0 million, in which case the
fair market value shall be determined conclusively in good faith by the Board of
Directors of the Company at the time such Investment is made.
"Issue Date" means the date of original issuance of the Original Notes.
"Leverage Ratio" shall mean, as to any Person, the ratio of (i) the sum of
the aggregate outstanding amount of Indebtedness of such Person and its
Subsidiaries as of the date of calculation on a consolidated basis in accordance
with GAAP to (ii) the Consolidated EBITDA of such Person for the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
determination.
For purposes of this definition, the aggregate outstanding principal amount
of Indebtedness of the Person and its Subsidiaries for which such calculation is
made shall be determined on a pro forma basis as if the Indebtedness giving rise
to the need to perform such calculation had been incurred and the proceeds
therefrom had been applied, and all other transactions in respect of which such
Indebtedness is being incurred had occurred, on the last day of the Four Quarter
Period. In addition to the foregoing, for purposes of this definition,
"Consolidated EBITDA" shall be calculated on a pro forma basis after giving
effect to (i) the incurrence of the Indebtedness of such Person and its
Subsidiaries (and the application of the proceeds therefrom) giving rise to the
need to make such calculation and any incurrence (and the application of the
proceeds therefrom) or repayment of other Indebtedness, other than the
incurrence or repayment of Indebtedness pursuant to working capital facilities,
at any time subsequent to the beginning of the Four Quarter Period and on or
prior to the date of determination, as if such incurrence (and the application
of the proceeds thereof), or the repayment, as the case may be, occurred on the
first day of the Four Quarter Period and (ii) any Asset Sales or Asset
Acquisitions (including, without limitation, any Asset Acquisition giving rise
to the need to make such calculation as a result of such Person or one of its
Subsidiaries (including any Person who becomes a Subsidiary as a result of such
Asset Acquisition) incurring, assuming or otherwise becoming liable for
Indebtedness) at any time on or subsequent to the first day of the Four Quarter
Period and on or prior to the date of determination, as if such Asset Sale or
Asset Acquisition (including the incurrence, assumption or liability for any
such Indebtedness and also including any Consolidated EBITDA associated with
such Asset Acquisition) occurred on the first day of the Four Quarter Period.
Furthermore, in calculating "Consolidated Interest Expense" for purposes of the
calculation of "Consolidated EBITDA," (i) interest on Indebtedness determined on
a fluctuating basis as of the date of determination (including Indebtedness
actually incurred on the date of the transaction giving rise to the need to
calculate the Leverage Ratio) and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum equal to
the rate of interest on such Indebtedness as in effect on the date of
determination and (ii) notwithstanding (i) above, interest determined on a
fluctuating basis, to the extent such interest is covered by Interest Swap
Obligations, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
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"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents (including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents)
received by the Company or any of its Subsidiaries from such Asset Sale net of
(i) reasonable out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees
and sales commissions, recording fees, title insurance premiums, appraisers fees
and costs reasonably incurred in preparation of any asset or property for sale),
(ii) taxes paid or reasonably estimated to be payable (calculated based on the
combined state, federal and foreign statutory tax rates applicable to the
Company or the Subsidiary engaged in such Asset Sale) and (iii) repayment of
Indebtedness secured by assets subject to such Asset Sale; provided that if the
instrument or agreement governing such Asset Sale requires the transferor to
maintain a portion of the purchase price in escrow (whether as a reserve for
adjustment of the purchase price or otherwise) or to indemnify the transferee
for specified liabilities in a maximum specified amount, the portion of the cash
or Cash Equivalents that is actually placed in escrow or segregated and set
aside by the transferor for such indemnification obligation shall not be deemed
to be Net Cash Proceeds until the escrow terminates or the transferor ceases to
segregate and set aside such funds, in whole or in part, and then only to the
extent of the proceeds released from escrow to the transferor or that are no
longer segregated and set aside by the transferor.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing, or otherwise relating to, any
Indebtedness.
"Permitted Indebtedness" means, without duplication, (i) the Exchange
Notes; (ii) the Guarantees; (iii) Indebtedness of the Company incurred pursuant
to the Credit Agreement in an aggregate principal amount at any time outstanding
not to exceed the sum of the aggregate commitments pursuant to the Credit
Agreement as initially in effect on the 1996 Notes Issue Date reduced by the
aggregate principal amount permanently repaid with the proceeds of Asset Sales;
(iv) Indebtedness outstanding on the 1996 Notes Issue Date; (v) Interest Swap
Obligations; provided that such Interest Swap Obligations are entered into to
protect the Company from fluctuations in interest rates of its Indebtedness;
(vi) additional Indebtedness of the Company or any of its Subsidiaries not to
exceed $10,000,000 in principal amount outstanding at any time (which amount
may, but need not, be incurred under the Credit Agreement); (vii) Refinancing
Indebtedness; (viii) Indebtedness owed by the Company to any Wholly-Owned
Subsidiary or by any Subsidiary to the Company or any Wholly-Owned Subsidiary of
the Company; and (ix) guarantees by Subsidiaries of any Indebtedness permitted
to be incurred pursuant to the Indenture.
"Permitted Investments" means (i) Investments by the Company or any
Subsidiary to acquire the stock or assets of any Person (or Indebtedness of such
Person acquired in connection with a transaction in which such Person becomes a
Subsidiary of the Company) engaged in the broadcast business or businesses
reasonably related thereto; provided that if any such Investment or series of
related Investments involves an Investment by the Company in excess of
$5,000,000, the Company is able, at the time of such Investment and immediately
after giving effect thereto, to incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with the "Limitation on
Incurrence of Additional Indebtedness" covenant, (ii) Investments received by
the Company or its Subsidiaries as consideration for a sale of assets, including
an Asset Sale effected in compliance with the "Limitation on Asset Sales"
covenant, (iii) Investments by the Company or any Wholly-Owned Subsidiary of the
Company in any Wholly-Owned Subsidiary of the Company (whether existing on the
Issue Date or created thereafter) or any Person that after such Investments, and
as a result thereof, becomes a Wholly-Owned Subsidiary of the Company and
Investments in the Company by any Wholly-Owned Subsidiary of the Company, (iv)
cash and Cash Equivalents, (v) Investments in securities of trade creditors,
wholesalers or customers received pursuant to any plan of reorganization or
similar arrangement and (vi) additional Investments in an aggregate amount not
to exceed $2,500,000 at any time outstanding.
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"Permitted Liens" means (i) Liens for taxes, assessments and governmental
charges to the extent not required to be paid under the Indenture, (ii)
statutory Liens of landlords and carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen or other like Liens to the extent not required to be paid
under the Indenture, (iii) pledges or deposits to secure lease obligations or
nondelinquent obligations under workers' compensation, unemployment insurance or
similar legislation, (iv) Liens to secure the performance of public statutory
obligations that are not delinquent, performance bonds or other obligations of a
like nature (other than for borrowed money), in each case incurred in the
ordinary course of business, (v) easements, rights-of-way, restrictions, minor
defects or irregularities in title and other similar charges or encumbrances
incurred in the ordinary course of business not interfering in any material
respect with the business of the Company or its Subsidiaries, (vi) Liens upon
specific items of inventory or other goods and proceeds of any Person securing
such Person's obligations in respect of letters of credit or bankers'
acceptances issued or created for the account of such Person to facilitate the
purchase, shipment or storage of such inventory or other goods in the ordinary
course of business, (vii) judgment and attachment Liens not giving rise to an
Event of Default, (viii) leases or subleases granted to others in the ordinary
course of business consistent with past practice not interfering in any material
respect with the business of the Company or its Subsidiaries, (ix) any interest
or title of a lessor in the property subject to any lease, whether characterized
as capitalized or operating other than any such interest or title resulting from
or arising out of a default by the Company or its Subsidiaries of its
obligations under such lease and (x) Liens arising from filing UCC financing
statements for precautionary purposes in connection with true leases of personal
property that are otherwise permitted under the Indenture and under which the
Company or any of its Subsidiaries is a lessee.
"Person" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a governmental
agency or political subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Productive Assets" means assets of a kind used or usable by the Company
and its Subsidiaries in broadcast businesses or businesses reasonably related
thereto, and specifically includes assets acquired through Asset Acquisitions.
"Public Equity Offering" means an underwritten public offering of Capital
Stock (other than Disqualified Capital Stock) of the Company or Chancellor,
pursuant to an effective registration statement filed with the Commission in
accordance with the Securities Act; provided, however, that, in the case of a
Public Equity Offering by Chancellor, Chancellor contributes to the capital of
the Company net cash proceeds in an amount at least sufficient to redeem the
Exchange Notes and the 1996 Notes, if any, called for redemption in accordance
with the terms thereof.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Refinancing Indebtedness" means any refinancing by the Company of
Indebtedness of the Company or any of its Subsidiaries incurred in accordance
with the "Limitation on Incurrence of Additional Indebtedness" covenant (other
than pursuant to clause (iii) or (iv) of the definition of Permitted
Indebtedness) that does not (i) result in an increase in the aggregate principal
amount of Indebtedness (such principal amount to include, for purposes of this
definition, any premiums, penalties or accrued interest paid with the proceeds
of the Refinancing Indebtedness) of such Person or (ii) create Indebtedness with
(A) a Weighted Average Life to Maturity that is less than the Weighted Average
Life to Maturity of the Indebtedness being refinanced or (B) a final maturity
earlier than the final maturity of the Indebtedness being refinanced.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; provided that if, and
for so long as, any Designated Senior Debt lacks such a representative, then the
Representative for such Designated Senior Debt shall at all times constitute the
holders of a majority in outstanding principal amount of such Designated Senior
Debt.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Subsidiary of any property, whether owned by the
Company or any Subsidiary at the Issue Date or later acquired, which has been or
is to be sold
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or transferred by the Company or such Subsidiary to such Person or to any other
Person from whom funds have been or are to be advanced by such Person on the
security of such property.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Senior Debt" means any Indebtedness of the Company (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law), whether outstanding on the
Issue Date or thereafter created, incurred or assumed, unless, in the case of
any particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Exchange Notes.
Without limiting the generality of the foregoing, "Senior Debt" shall also
include the principal of, premium, if any, interest (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on, and all other amounts
owing in respect of, and all monetary obligations of every nature under, (x) the
Credit Agreement, including, without limitation, obligations to pay principal
and interest, reimbursement obligations under letters of credit, fees, expenses
and indemnities, and (y) all Interest Swap Obligations. Notwithstanding the
foregoing, Senior Debt shall not include any of the following amounts (whether
or not constituting Indebtedness as defined in the Indenture): (i) any
Indebtedness of the Company to a Subsidiary of the Company, (ii) Indebtedness
and other amounts owing to trade creditors incurred in connection with obtaining
goods, materials or services, (iii) Indebtedness represented by Disqualified
Capital Stock, (iv) any liability for federal, state, local or other taxes owed
or owing by the Company, (v) any Indebtedness which is, by its express terms,
subordinated in right of payment to any other Indebtedness of the Company,
including the 1996 Notes, the 12 1/4% Subordinated Exchange Debentures due 2008
and the 12% Subordinated Exchange Debentures due 2009 of the Company.
"Significant Subsidiary" means for any Person each Subsidiary of such
Person which (i) for the most recent fiscal year of such Person accounted for
more than 5% of the consolidated net income of such Person or (ii) as at the end
of such fiscal year, was the owner of more than 5% of the consolidated assets of
such Person.
"Subsidiary," with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
Notwithstanding anything in the Indenture to the contrary, all references to the
Company and its consolidated Subsidiaries or to financial information prepared
on a consolidated basis in accordance with GAAP shall be deemed to include the
Company and its Subsidiaries as to which financial statements are prepared on a
combined basis in accordance with GAAP and to financial information prepared on
such a combined basis. Notwithstanding anything in the Indenture to the
contrary, an Unrestricted Subsidiary shall not be deemed to be a Subsidiary for
purposes of the Indenture.
"Tax Sharing Agreement" means the Tax Sharing Agreement between CRBC and
Chancellor, as in effect on the 1996 Notes Issue Date.
"Unrestricted Subsidiary" means a Subsidiary of the Company created after
the 1996 Notes Issue Date and so designated by a resolution adopted by the Board
of Directors of the Company, provided that (a) neither the Company nor any of
its other Subsidiaries (other than Unrestricted Subsidiaries) (1) provides any
credit support for any Indebtedness of such Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness) or (2) is
directly or indirectly liable for any Indebtedness of such Subsidiary, (b) the
creditors with respect to Indebtedness for borrowed money of such Subsidiary,
having a principal amount in excess of $5,000,000, have agreed in writing that
they have no recourse, direct or indirect, to the Company or any other
Subsidiary of the Company (other than Unrestricted Subsidiaries), including,
without limitation, recourse with respect to the payment of principal of or
interest on any Indebtedness of such Subsidiary and (c) at the time of
designation of such Subsidiary such Subsidiary has no property or assets (other
than de minimis assets resulting from the initial capitalization of such
Subsidiary). Any such
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designation by the Board of Directors of the Company shall be evidenced to the
Trustee by the filing with the Trustee of a certified copy of the resolution of
the Company's Board of Directors giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the total of the
product obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
BOOK-ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the Exchange Notes initially
will be represented by a single permanent global certificate in definitive,
fully registered form (the "Global Certificate"). The Global Certificate will be
deposited with, or on behalf of, The Depository Trust Company, New York, New
York ("DTC") and registered in the name of a nominee of DTC.
The Global Certificate. The Company expects that pursuant to procedures
established by DTC (i) upon the issuance of the Global Certificate, DTC or its
custodian will credit, on its internal system, the aggregate principal amount of
Exchange Notes of the individual beneficial interests represented by such global
securities to the respective accounts of persons who have accounts with such
depositary and (ii) ownership of beneficial interests in the Global Certificate
will be shown on, and the transfer of such ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants). Ownership of beneficial interests in the
Global Certificate will be limited to persons who have accounts with DTC
("participants") or persons who hold interests through participants. QIBs may
hold their interests in the Global Certificate directly through DTC if they are
participants in such system, or indirectly through organizations that are
participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Exchange Notes, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Exchange Notes represented by such Global
Certificate for all purposes. No beneficial owner of an interest in the Global
Certificate will be able to transfer that interest except in accordance with
DTC's procedures, in addition to those procedures provided for in the Indenture.
Payments of the principal of, premium, if any, and interest on the Global
Certificate will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. None of the Company, the Trustee nor the Paying Agent
and Registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Global Certificate or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interest.
The Company expects that DTC, or its nominee, upon receipt of any payment
of principal, premium, if any, and interest in respect of the Global
Certificate, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the Global Certificate as shown on the records of DTC or its nominee. The
Company also expects that payments by participants to owners of beneficial
interests in the Global Certificate held through such participants will be
governed by standing instructions and customary practice, as is now the case
with securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in clearinghouse funds. If a
holder requires physical delivery of a Certificated Security for any reason,
including to sell Exchange Notes to persons in states that require physical
delivery of the
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Certificate, or to pledge such securities, such holder must transfer its
interest in the Global Certificate, in accordance with the normal procedures of
DTC and with the procedures set forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Exchange Notes (including the presentation of Exchange
Notes for exchange as described below) only at the direction of one or more
participants to whose account the DTC interests in the Global Certificate are
credited and only in respect of such Exchange Notes as to which such participant
or participants has or have given such direction.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Certificate among participants of DTC, it
is under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
obligations under the rules and procedures governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Certificate and a successor depositary
is not appointed by the Company within 90 days, Certificated Securities will be
issued in exchange for the Global Certificate.
DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR CREDIT FACILITY
On April 25, 1997, the Company closed its Second Amended and Restated Loan
Agreement (as amended from time to time, the "Senior Credit Facility") with TD
Securities (USA) Inc. as arranging agent, The Bank of New York and Bankers Trust
Company, as co-syndication agents, NationsBank of Texas, N.A. and Union Bank of
California, as co-documentation agents, Toronto Dominion (Texas), Inc., as
administrative agent (the "Administrative Agent"), and the financial
institutions party thereto (the "Lenders"). The Senior Credit Facility initially
provided for a maximum commitment of $1.75 billion, and upon consummation of the
Chancellor Merger, the aggregate commitment under the Senior Credit Facility was
increased to $2.50 billion. Loans under the Senior Credit Facility consist of
(i) a $900.0 million term loan facility (the "Term Loan Facility") and (ii) a
$1.60 billion revolving loan facility (the "Revolving Loan Facility" and,
collectively with the Term Loan Facility, the "Loans").
The following description of certain provisions of the Senior Credit
Facility does not purport to be complete and is qualified in its entirety by
reference to the full text of the Senior Credit Facility, a copy of which is
available from the Company on request.
Term Loan Facility
The Term Loan Facility matures on June 30, 2005. The Term Loan Facility
requires scheduled annual reductions of the principal balance of the Term Loan
Facility outstanding on June 30, 2000, payable quarterly in equal quarterly
amounts, commencing on September 30, 2000 in the following percentages: (i) from
9/30/00 through and including 6/30/01, 15.00%; (ii) from 9/30/01 through and
including 6/30/02, 20.00%; (iii) from 9/30/02 through and including 6/30/03,
20.00%; (iv) from 9/30/03 through and including 6/30/04, 20.00%; and (v) from
9/30/04 through and including 6/30/05, 25.00%. Mandatory or optional
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prepayments made by the Company against the Term Loan Facility will not affect
the reduction percentages set forth above.
Revolving Loan Facility
The Revolving Loan Facility matures on June 30, 2005. The Revolving Loan
Facility requires scheduled annual reductions of the Revolving Loan Commitment
(as defined in the Senior Credit Facility) as of June 30, 2000, payable
quarterly in equal quarterly amounts, commencing on September 30, 2000 in the
following percentages: (i) from 9/30/00 through and including 6/30/01, 15.00%;
(ii) from 9/30/01 through and including 6/30/02, 20.00%; (iii) from 9/30/02
through and including 6/30/03, 20.00%; (iv) from 9/30/03 through and including
6/30/04, 20.00%; and (v) from 9/30/04 through and including 6/30/05, 25.00%.
Voluntary reductions of the Revolving Loan Commitment made by the Company shall
not affect the reduction percentages set forth above.
Additional Facility Indebtedness
The Company has the ability to incur additional indebtedness ("Additional
Facility Indebtedness") in a principal amount not to exceed $250.0 million from
one or more of the Lenders or any other institution acceptable to the
Administrative Agent that agrees to extend such credit, provided that certain
conditions under the Senior Credit Facility are complied with. As of the date
hereof, the Company has not requested, and no Lender has issued, any commitment
to extend such Additional Facility Indebtedness to the Company.
Interest Rate
The Loans bear interest at a rate equal to, at the Company's option, (i)
the Prime Rate (as defined in the Senior Credit Facility) in effect from time to
time plus the Applicable Margin (as defined) (a "Prime Rate Loan") or (ii) the
Eurodollar Rate (as defined in the Senior Credit Facility) as determined by the
Administrative Agent for the respective interest period plus the Applicable
Margin (a "Eurodollar Loan"). The Applicable Margin is calculated based on the
Company's Total Leverage Ratio (as defined in the Senior Credit Facility)
according to the table set forth below:
<TABLE>
<CAPTION>
PRIME RATE EURODOLLAR RATE
TOTAL LEVERAGE RATIO APPLICABLE MARGIN APPLICABLE MARGIN
-------------------- ----------------- -----------------
<S> <C> <C>
Greater than 6.75..................................... 1.000% 2.000%
Greater than 6.50 but less than or equal to 6.75...... 0.750% 1.750%
Greater than 6.00 but less than or equal to 6.50...... 0.375% 1.375%
Greater than 5.50 but less than or equal to 6.00...... 0.125% 1.125%
Greater than 5.00 but less than or equal to 5.50...... 0.000% 0.875%
Greater than 4.50 but less than or equal to 5.00...... 0.000% 0.625%
Greater than 4.00 but less than or equal to 4.50...... 0.000% 0.500%
Less than or equal to 4.00............................ 0.000% 0.400%
</TABLE>
Fees
The Company is required to pay commitment fees on the aggregate unused
amount of the Available Revolving Loan Commitment (as defined in the Senior
Credit Facility) based on the Total Leverage Ratio for the most recent fiscal
quarter end. If the Total Leverage Ratio is greater than or equal to 5.50, the
corresponding commitment fee is 0.375%; if the Total Leverage Ratio is less than
5.50, the corresponding commitment fee is 0.250%. The Administrative Agent will
also receive such other customary fees as have been separately agreed upon with
the Company. The Company also is required to pay fees for outstanding letters of
credit drawn under the Senior Credit Facility at a rate per annum on the amount
of the Letter of Credit Obligations (as defined in the Senior Credit Facility)
equal to the Applicable Margin for Eurodollar Loans plus an issuing bank fee of
$2,000 for issuing, amending or renewing any letter of credit.
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Security and Guarantees
The Senior Credit Facility is secured by (i) a pledge of all capital stock
owned by CMCLA and its subsidiaries, (ii) a pledge of all capital stock of CMCLA
owned by CMHC, (iii) a non-recourse pledge of all capital stock of CMHC owned by
Chancellor Media, (iv) a pledge of all debt and equity securities of persons
engaged in any Non-Core Business (as defined in the Senior Credit Facility)
purchased by the Company, (v) a collateral assignment of all partnership
interests held by the subsidiaries of CMCLA, (vi) a collateral assignment of all
trust interests held by the subsidiaries of CMCLA, (vii) a collateral assignment
of all limited liability company interests held by CMCLA, (viii) a downstream
guarantee provided by CMHC and (ix) upstream guarantees provided by the
subsidiaries of CMCLA.
Covenants
The Senior Credit Facility contains customary restrictive covenants, which,
among other things and with certain exceptions, limit the ability of the Company
to incur additional indebtedness and liens in connection therewith, enter into
certain transactions with affiliates, pay dividends, consolidate, merge or
effect certain asset sales, issue additional stock, effect an asset swap, make
acquisitions and make capital expenditures and enter new lines of business.
Under the Senior Credit Facility, the Company is required to maintain
specified financial ratios, based on its Senior Leverage Ratio and Total
Leverage Ratio (in each case, as defined in the Senior Credit Facility), for
specified periods of time. Under the Senior Credit Facility, the Company must
not exceed the following ratios during the following periods of time:
<TABLE>
<CAPTION>
PERIOD ENDING SENIOR LEVERAGE RATIO TOTAL LEVERAGE RATIO
------------- --------------------- --------------------
<S> <C> <C>
4/25/97 through 12/31/97.......................... 6.50 to 1.00 7.00 to 1.00
1/1/98 through 12/31/98........................... 5.75 to 1.00 6.75 to 1.00
1/1/99 through 12/31/99........................... 5.00 to 1.00 6.00 to 1.00
1/1/00 through 12/31/00........................... 4.25 to 1.00 5.25 to 1.00
1/1/01 and thereafter............................. 4.00 to 1.00 5.00 to 1.00
</TABLE>
In the event that Chancellor Media, CMHC or CMCLA issues Subordinated
Indebtedness (as defined in the Senior Credit Facility), other than the
assumption or refinancing of the 9 3/8% Notes and the Original Notes, the Senior
Leverage Ratio will be permanently reduced by 0.50.
Under the Senior Credit Facility, the Company may not, as of the end of any
fiscal quarter, allow its ratio of the sum of Operating Cash Flow plus the
Available Revolving Commitment (in each case, as defined in the Senior Credit
Facility) during the last fiscal four-quarter period to Pro Forma Fixed Changes
(as defined in the Senior Credit Facility) for the four-quarter period beginning
on the day following that fiscal quarter end, to be less than 1.05 to 1.00.
Under the Senior Credit Facility, the Company also is required to comply
with certain other financial tests, such as a specified ratio of Operating Cash
Flow to Cash Interest Expense (as each such term is defined in the Senior Credit
Facility).
Use of Proceeds
The Senior Credit Facility requires that the Net Proceeds from any
Permitted Asset Sale (in each case, as defined in the Senior Credit Facility) be
applied, at the Company's election, to the Term Loan Facility or the Revolving
Loan Facility or any combination thereof. In the alternative, the Company may
elect to make an acquisition with the Net Proceeds, so long as the Company has
entered into a contract for such acquisition within 12 months from the date of
such Permitted Asset Sale and has concluded the purchase with 18 months from the
date of such Permitted Asset Sale. In addition, 50% of Net Proceeds from any
Subordinated Indebtedness issued by the Company, other than the assumption or
refinancing of the 9 3/8% Notes and the Original Notes, must be applied, at the
Company's election, to the Term Loan Facility or the Revolving Loan Facility or
any combination thereof. To the extent that the Company elects to apply any
amounts described in
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this paragraph to the Revolving Loan Facility, the commitments under such
facility will not be permanently reduced and will be available for subsequent
borrowing by the Company.
Events of Default
The Senior Credit Facility contains customary events of default, including
(i) the default in the payment of any interest, reimbursement amounts with
respect to letters of credit, or fees or other amounts payable to the Lenders
(other than principal) when due which is not cured within five days from the
date that such payment was due, (ii) the default in the payment of any principal
amount when due, (iii) the default in the performance or observance of certain
representations, warranties, covenants and agreements contained in the Senior
Credit Facility, (iv) a Senior Credit Facility Change of Control (as defined
below), (v) the entry of an order for relief, winding-up or liquidation under
Title 11 of the United States Code or similar federal or state laws against
Chancellor Media, CMHC or the Company, (vi) the voluntary commencement by the
Company of bankruptcy proceedings under Title 11 of the United States Code or
similar federal or state laws, or the commencement of involuntary bankruptcy
proceedings against the Company, which are not diligently contested or which
continue undismissed for a period of 45 consecutive days, (vii) the entry of a
judgment against the Company which, individually or when aggregated with other
such judgments, exceeds $10 million, (viii) the failure to satisfy certain
minimum employee benefit funding standards, (ix) the acceleration of the
maturity of (a) Subordinated Indebtedness of the Company or (b) any other
indebtedness of the Company in an aggregate principal amount exceeding $3
million, (x) any event which would permit the acceleration of such subordinated
indebtedness or such other indebtedness which has not been cured within any
applicable cure period or waived in writing, (xi) any event which does not
permit acceleration of such Subordinated Indebtedness or such other indebtedness
but requires the Company to purchase or acquire such Subordinated Indebtedness
or such other indebtedness, (xii) any material default under any Interest Hedge
Agreement (as defined in the Senior Credit Facility) with a notional principal
amount of $6 million or more, (xii) the issuance by the FCC of a revocation
order based on alleged alien ownership of the Company, (xiii) the final,
non-appealable termination or revocation of any material FCC license or failure
to renew any such license, (xiv) the failure of any security document or note
under the Senior Credit Facility to be in effect, or (xv) the breach by CMHC of
the guarantee or stock pledge made by it pursuant to the Senior Credit Facility.
A "Senior Credit Facility Change of Control" will be deemed to have
occurred under the Senior Credit Facility if (i) any Person (as defined in the
Senior Credit Facility), other than Scott K. Ginsburg, Matthew Devine, Kenneth
J. O'Keefe, James de Castro and Hicks Muse and its affiliates, shall
individually or collectively control more than 51% on a fully diluted basis of
the voting power of Chancellor Media or (ii) CMHC shall cease to own all of the
issued and outstanding common stock of CMCLA.
9 3/8% NOTES
The 9 3/8% Notes mature on October 1, 2004. Interest on the 9 3/8% Notes
accrue at the rate of 9 3/8% per annum and is payable semiannually. The 9 3/8%
Notes are unsecured obligations of the Company, ranking subordinate in right of
payment to all Senior Debt (as defined in the 9 3/8% Indenture) of the Company,
and will rank pari passu with the Exchange Notes.
The Company's subsidiaries fully and unconditionally guarantee the full and
prompt payment of principal of all interest on the 9 3/8% Notes, and of all
other obligations under the 9 3/8% Indenture. The indebtedness evidenced by each
such guarantee are subordinated to each guarantor's Senior Debt on the same
terms as the 9 3/8% Notes are subordinated to the Company's Senior Debt.
Prior to January 31, 1999 the Company may redeem the 9 3/8% Notes with the
net cash proceeds of one or more Public Equity Offerings (as defined in the
9 3/8% Indenture) at a redemption price of 108.203% or 107.031% of the principal
amount thereof, plus, in each case, accrued and unpaid interest to the
redemption date, during the respective 12-month periods commencing on February
1, 1997 and 1998; provided, however, that after any such redemption at least 75%
of the aggregate principal amount of the 9 3/8% Notes originally issued must be
outstanding. The Company's ability to optionally redeem the 9 3/8% Notes are
subject to restrictions contained in the Senior Credit Facility, which limits
the amount of debt subordinate to the indebtedness under the Senior Credit
Facility that may be redeemed by the Company.
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Under the 9 3/8% Indenture, in the event of a change of control (as defined
in the 9 3/8% Indenture) of the Company, each holder of 9 3/8% Notes will have
the right to require the Company to repurchase, in whole or in part, such
holder's 9 3/8% Notes at a purchase price equal to 101% of their principal
amount, plus accrued and unpaid interest, if any to the date of repurchase.
The 9 3/8% Indenture contains certain restrictive covenants which, among
other things, impose limitations (subject to certain exceptions) on the Company
with respect to (i) the payment of dividends or other distributions on capital
stock and the purchase, redemption or retirement for value of shares of capital
stock as any warrants, options or other rights for shares of capital stock; (ii)
the incurrence of additional indebtedness; (iii) the incurrence of subsidiary
indebtedness; (iv) the repayment of redemption of subordinated indebtedness
other than in accordance with its scheduled repayment; (v) sales of assets by
the Company; (vi) asset swaps; (vii) transactions with stockholders and
affiliates; (viii) the restriction of certain payments by subsidiaries to their
respective parents; (ix) the creation of liens on the assets of the Company or
its subsidiaries; (x) the incurrence of indebtedness senior to the 9 3/8% Notes
and subordinate to other indebtedness of the Company; (xi) investments by the
Company or its subsidiaries; (xii) the issuance of preferred stock by any of the
Company's subsidiaries; (xiii) sales and leasebacks by the Company or its
subsidiaries; (xiv) the guarantee of indebtedness; (xv) the conduct of business
other than the ownership and operation of radio broadcast stations; and (xvi)
the merger or sale of all or substantially all the assets of the Company. Upon
the happening of certain events of default specified in the 9 3/8% Indenture,
the trustee for the 9 3/8% Notes may, and the trustee upon the request of
holders of 25% in principal amount then outstanding of the 9 3/8% Notes shall,
or the holders of at least 25% in principal amount of outstanding 9 3/8% Notes
may, declare the principal amount then outstanding of and accrued but unpaid
interest, if any, on all of such 9 3/8% Notes to be due and payable. Upon the
happening of certain other events of default specified in the 9 3/8% Notes
Indenture, the unpaid principal of and accrued but unpaid interest on all
outstanding 9 3/8% Notes will automatically become due and payable without any
action by the trustee or the holders of the 9 3/8% Notes.
The Company may terminate its obligations under the 9 3/8% Indenture at any
time, and the obligations of the guarantors with respect thereto shall
terminate, by delivering all outstanding 9 3/8% Notes of the appropriate series
to the appropriate trustee for cancellation and paying all sums payable by it
thereunder. The Company, at its option, (i) will be discharged from any and all
obligations with respect to the 9 3/8% Notes delivered, and the guarantor will
be discharged from any and all obligations with respect to its guarantee of such
9 3/8% Notes, (except for certain obligations of the Company to register the
transfer or exchange of such 9 3/8% Notes, replace stolen, lost or mutilated
9 3/8% Notes, maintain paying agencies and hold moneys for payment in trust) or
(ii) need not comply with certain of the restrictive covenants with respect to
the 9 3/8% Indenture, in each case, if the Company, in addition to satisfying
certain other obligations, deposits with the appropriate trustee, in trust, U.S.
legal tender or U.S. Government Obligations (in each case, as defined in the
9 3/8% Indenture) or a combination thereof which, through the payment of
interest thereon and principal in respect thereof in accordance with their
terms, will be sufficient to pay all the principal of and interest on 9 3/8%
Notes to be defeased on the dates such payments are due in accordance with the
terms of 9 3/8% Notes as well as the trustee's fees and expenses.
12% EXCHANGE DEBENTURES
For a description of the 12% Subordinated Exchange Debentures due 2009
issuable by the Company from time to time upon exchange of the 12% Preferred
Stock, see "Description of Capital Stock -- CMCLA -- 12% Preferred
Stock -- Exchange."
12 1/4% EXCHANGE DEBENTURES
For a description of the 12 1/4% Subordinated Exchange Debentures due 2008
issuable by the Company from time to time upon exchange of the 12 1/4% Preferred
Stock, see "Description of Capital Stock -- CMCLA -- 12 1/4% Preferred
Stock -- Exchange."
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6% EXCHANGE DEBENTURES
For a description of the 6% Convertible Subordinated Exchange Debentures
due 2012 issuable by Chancellor Media from time to time upon exchange of the
$3.00 Convertible Preferred Stock, see "Description of the Capital
Stock -- Chancellor Media -- $3.00 Convertible Exchangeable Preferred
Stock -- Exchange."
DESCRIPTION OF CAPITAL STOCK
CHANCELLOR MEDIA
COMMON STOCK
Chancellor Media's authorized common stock consists of 250,000,000 shares
of Common Stock, par value $0.01 per share (the "Common Stock"), approximately
59,613,500 of which were issued and outstanding as of September 5, 1997 and
75,000,000 shares of Class A Common Stock, par value $0.01 per share (the "Class
A Common Stock"), none of which were issued and outstanding as of September 5,
1997.
The shares of Common Stock currently outstanding are validly issued, fully
paid and nonassessable.
It is not contemplated that any shares of Class A Common Stock will be
issued at any time. The Amended and Restated Certificate of Incorporation of
Chancellor Media provides that the issuance of any shares of Class A Common
Stock will require the unanimous affirmative vote of the Board of Directors of
Chancellor Media. Chancellor Media presently expects that the Board of Directors
of Chancellor Media will submit a proposal at the 1998 annual meeting of
stockholders in order to eliminate the authorized shares of Class A Common
Stock.
Dividends
Holders of shares of Common Stock and Class A Common Stock are entitled to
receive such dividends as may be declared by the Board of Directors of
Chancellor Media out of funds legally available for such purpose. The Senior
Credit Facility and the certificates of designation governing the $3.00
Convertible Preferred Stock and the 7% Convertible Preferred Stock each directly
restrict, and the 9 3/8% Indenture, the Indenture and the certificates of
designation governing the 12% Preferred Stock and the 12 1/4 Preferred Stock
will each indirectly restrict, Chancellor Media's ability to pay cash dividends
on the Common Stock and Class A Common Stock.
Neither Evergreen nor Chancellor has declared or paid any dividends with
respect to its respective formerly outstanding common stock in the past, and it
is not anticipated that Chancellor Media will pay any cash dividends on the
Common Stock and Class A Common Stock in the foreseeable future.
Voting Rights
Holders of shares of Common Stock and Class A Common Stock, each voting as
a separate class, shall be entitled to vote on all matters submitted to a vote
of the stockholders, except as otherwise provided by law. Each share of Common
Stock and Class A Common Stock is entitled to one vote per share. Holders of
Common Stock and Class A Common Stock are not entitled to cumulative votes in
the election of directors.
Under Delaware law, the affirmative vote of the holders of a majority of
the outstanding shares of any class of capital stock of Chancellor Media is
required to approve any amendment to the Amended and Restated Certificate of
Incorporation of Chancellor Media that would increase or decrease the aggregate
number of authorized shares of any class, increase or decrease the par value of
the shares of any class, or modify or change the powers, preferences or special
rights of the shares of any class so as to affect such class adversely.
Liquidation Rights
Upon liquidation, dissolution, or winding-up of Chancellor Media, the
holders of Common Stock and Class A Common Stock are entitled to share ratably
in all assets available for distribution after payment in full of creditors and
the holders of preferred stock of Chancellor Media.
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Transfer Agent
The Bank of New York serves as the Transfer Agent and Registrar for the
Common Stock.
Alien Ownership
Chancellor Media's Amended and Restated Certificate of Incorporation
restricts the ownership and voting of Chancellor Media's capital stock,
including its Common Stock, in accordance with the Communications Act and the
rules of the FCC, to prohibit ownership of more than 25% of Chancellor Media's
outstanding capital stock (or control of more than 25% of the voting power it
represents) by or for the account of aliens, foreign governments, or non-U.S.
corporations or corporations otherwise subject to control by such persons or
entities. The Certificate of Incorporation also prohibits any transfer of
Chancellor Media's capital stock that would cause Chancellor Media to violate
this prohibition. In addition, the Amended and Restated Certificate of
Incorporation of Chancellor Media authorizes the Board of Directors of
Chancellor Media to adopt such provisions as its deems necessary to enforce
these prohibitions.
Other Provisions
The holders of Common Stock and Class A Common Stock are not entitled to
preemptive or similar rights. The shares of Common Stock are not subject to
redemption or a sinking fund.
No single shareholder of Chancellor Media holds more than 50.0% of the
combined voting power of Chancellor Media. See "Risk Factors -- Control of the
Company." As a result, a holder of an "attributable" interest in Chancellor
Media may violate the FCC's multiple ownership rules or cross interest rules if
such holder also has an "attributable" interest (or, in some cases, a
"meaningful" nonattributable interest) in other television or radio stations, or
in daily newspapers, depending on the number and location of those radio or
television stations or daily newspapers. Such a stockholder may also be
restricted in the companies in which such stockholder may invest. See "Business
and Properties -- Federal Regulation of Radio Broadcasting Industry -- Ownership
Matters."
$3.00 CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
Dividends
Holders of $3.00 Convertible Preferred Stock are entitled to receive, when,
as and if declared by the Board of Directors out of legally available funds,
cash dividends at an annual rate of $3.00 per share, payable quarterly in
arrears on March 15, June 15, September 15 and December 15 of each year (each a
"Dividend Payment Date"), beginning September 15, 1997. Dividends will accrue
and be cumulative from the most recent date to which dividends have been paid
or, if none have been paid, from the date of first issuance of the $3.00
Convertible Preferred Stock and will be payable to holders of record on the
March 1, June 1, September 1 and December 1 immediately preceding the relevant
Dividend Payment Date. No interest, or sum of money in lieu of interest, will be
payable in respect of any accrued and unpaid dividends.
The $3.00 Convertible Preferred Stock has priority as to dividends over the
Common Stock and any other series or class of the Company's stock that ranks
junior to the $3.00 Convertible Preferred Stock as to dividends. Notwithstanding
the foregoing, the $3.00 Convertible Preferred Stock shall rank junior as to
dividends and rights upon a liquidation, dissolution or winding-up of the
Company to any and all classes or series of capital stock (other than Common
Stock) of the Company, whether currently issued or issued in the future, that
does not by its terms expressly provide that it ranks on a parity with or junior
to the $3.00 Convertible Preferred Stock as to dividends and rights upon a
liquidation, dissolution or winding-up of the Company.
Liquidation Rights
Upon liquidation, dissolution or winding-up of Chancellor Media, subject to
the payment in full, or until provision has been made for the payment in full,
of all claims of creditors of Chancellor Media, holders of $3.00 Convertible
Preferred Stock are entitled to receive the liquidation preference of $50.00 per
share, plus an amount equal to any accrued and unpaid dividends, whether or not
declared, to the payment date, before
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any payment or distribution is made to the holders of Common Stock or any other
series or class of stock hereafter issued that ranks junior as to liquidation
rights to the $3.00 Convertible Preferred Stock.
Voting Rights
The holders of $3.00 Convertible Preferred Stock will have no voting rights
except as described below or as required by law. In exercising any voting
rights, each outstanding share of $3.00 Convertible Preferred Stock will be
entitled to one vote, although shares held by Chancellor Media or any entity
controlled by Chancellor Media will have no voting rights.
Whenever dividends on the $3.00 Convertible Preferred Stock are in arrears
in an aggregate amount equal to at least six quarterly dividends (whether or not
consecutive), the size of Chancellor Media's board of directors will be
increased by two, and the holders of $3.00 Convertible Preferred Stock, will be
entitled to elect two additional directors to the Board of Directors at, subject
to certain limitations, any annual meeting of stockholders at which directors
are to be elected held during the period when the dividends remain in arrears
or, under certain circumstances, at a special meeting of stockholders. These
voting rights will terminate when all dividends in arrears and for the current
quarterly period have been paid in full or declared and set apart for payment.
The term of office of the additional directors so elected will terminate
immediately upon that payment or provision for payment.
Under Delaware law, holders of the $3.00 Convertible Preferred Stock will
be entitled to vote as a class upon a proposed amendment to Chancellor Media's
Certificate of Incorporation, whether or not entitled to vote thereon by the
Certificate of Incorporation, if the amendment would increase or decrease the
aggregate number of authorized shares of such class, increase or decrease the
par value of the shares of such class, or alter or change the powers,
preferences, or special rights of the shares of such class so as to affect them
adversely.
Optional Redemption
The $3.00 Convertible Preferred Stock may not be redeemed prior to June 16,
1999. Thereafter, the $3.00 Convertible Preferred Stock may be redeemed by
Chancellor Media, at its option, in whole or in part at any time, if redeemed
during the 12-month period beginning June 15 of any year specified below (June
16 in the case of 1999) at the following redemption prices (expressed as
percentages of the liquidation preference thereof):
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1999........................................................ 104.80%
2000........................................................ 104.20
2001........................................................ 103.60
2002........................................................ 103.00
2003........................................................ 102.40
2004........................................................ 101.80
2005........................................................ 101.20
2006........................................................ 100.60
2007 and thereafter......................................... 100.00
</TABLE>
plus in each case accrued and unpaid dividends, whether or not declared, to the
redemption date.
The foregoing is subject to the proviso that on or prior to June 15, 2000
the $3.00 Convertible Preferred Stock may not be redeemed at the option of
Chancellor Media unless the closing price of Chancellor Media's Common Stock has
equalled or exceeded 150% of the conversion price at such time for at least 20
out of any 30 consecutive trading days ending within 15 days before the notice
of redemption is first mailed.
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Conversion Rights
Each holder of $3.00 Convertible Preferred Stock will have the right at any
time at the holder's option to convert any and all shares of $3.00 Convertible
Preferred Stock into Common Stock at a conversion price (subject to adjustment
as described below) of $50.00 per share of underlying Common Stock (equivalent
to a conversion rate of 1.00 share of Common Stock per share of $3.00
Convertible Preferred Stock). If the $3.00 Convertible Preferred Stock is called
for redemption, the conversion right will terminate at the close of business on
the redemption date fixed by the Board of Directors.
Change of Control. If there occurs a Change of Control (as defined in the
Registration Rights Agreement) with respect to Chancellor Media, then shares of
the $3.00 Convertible Preferred Stock may be converted, at the option of the
holder thereof at any time from the date of such Change of Control until the
expiration of 45 days after the date of a note by the Company to all holders of
the $3.00 Convertible Preferred Stock of the occurrence of the Change of
Control, into the number of shares of Common Stock determined by dividing (i)
the redemption price for the $3.00 Convertible Preferred Stock (see "-- Optional
Redemption") in effect on the date of the Change of Control by (ii) the adjusted
conversion price.
Exchange
Shares of $3.00 Convertible Preferred Stock will be exchangeable at the
option of Chancellor Media, in whole but not in part, on any March 15, June 15,
September 15 or December 15, commencing September 15, 2000, through the issuance
of Chancellor Media's 6% Subordinated Exchange Debentures due 2012 (the "6%
Exchange Debentures") in redemption of and in exchange for shares of $3.00
Convertible Preferred Stock, provided certain conditions are met. Holders of the
$3.00 Convertible Preferred Stock will be entitled to receive 6% Exchange
Debentures at the rate of $50.00 principal amount of 6% Exchange Debentures for
each share of $3.00 Convertible Preferred Stock.
7% CONVERTIBLE PREFERRED STOCK
Dividends
Holders of 7% Convertible Preferred Stock are entitled to receive, when, as
and if declared by the Board of Directors of Chancellor Media out of legally
available funds, cash dividends at an annual rate equal to 7% of the liquidation
preference per share, payable quarterly.
The 7% Convertible Preferred Stock has priority as to dividends over the
Common Stock and Class A Common Stock of Chancellor Media and any other series
or class of Chancellor Media's stock that ranks junior to the 7% Convertible
Preferred Stock as to dividends (the "Junior Dividend Stock"). Notwithstanding
the foregoing, the 7% Convertible Preferred Stock shall rank junior as to
dividends, redemption payments and rights upon a liquidation, dissolution or
winding-up of Chancellor Media to any and all classes or series of capital stock
(other than common stock) of Chancellor Media, issued in the future, that does
not by its terms expressly provide that it ranks on a parity with or junior to
the 7% Convertible Preferred Stock as to dividends and rights upon a
liquidation, dissolution or winding-up of Chancellor Media.
No dividend (other than dividends payable solely in common stock, any
Junior Dividend Stock or warrants or other rights to acquire such common stock
or Junior Dividend Stock) may be paid or declared and set apart for payment on,
and no purchase, redemption or other acquisition shall be made by Chancellor
Media of, the Common Stock of Chancellor Media or Junior Dividend Stock unless
all accrued and unpaid dividends on the 7% Convertible Preferred Stock,
including the full dividend for the then-current quarterly dividend period,
shall have been paid or declared and set apart for payment without interest.
Except as provided below, Chancellor Media may not pay dividends on any
class or series of stock issued in the future having parity with the 7%
Convertible Preferred Stock as to dividends ("Parity Dividend Stock") unless it
has paid or declared and set apart for payment or contemporaneously pays or
declares and sets apart for payment all accrued and unpaid dividends for all
prior dividend payment periods on the 7% Convertible Preferred Stock. In
addition, except as provided below, Chancellor Media may not pay dividends on
the 7% Convertible Preferred Stock unless it has paid or declared and set apart
for payment or contemporaneously
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pays or declares and sets apart for payment all accrued and unpaid dividends for
all prior dividend payment periods on the Parity Dividend Stock. Whenever all
accrued dividends in respect of prior dividend payment periods are not paid in
full on 7% Convertible Preferred Stock and on any Parity Dividend Stock, all
dividends declared on the 7% Convertible Preferred Stock and the Parity Dividend
Stock will be declared and made pro rata so that the amount of dividends
declared on the 7% Convertible Preferred Stock and the Parity Dividend Stock
will bear the same ratio that accrued and unpaid dividends in respect of prior
dividend payment periods on the 7% Convertible Preferred Stock and the Parity
Dividend Stock bear to each other. The $3.00 Convertible Preferred Stock
constitutes "Parity Dividend Stock" for purposes of the 7% Convertible Preferred
Stock.
Chancellor Media may not purchase any shares of the 7% Convertible
Preferred Stock or any Parity Dividend Stock (except for consideration payable
in common stock or Junior Dividend Stock) or redeem fewer than all the shares of
the 7% Convertible Preferred Stock and Parity Dividend Stock then outstanding if
Chancellor Media has failed to pay any accrued dividend on the 7% Convertible
Preferred Stock or on any Parity Dividend Stock on a stated payment date.
Notwithstanding the foregoing, in such event, Chancellor Media may purchase or
redeem fewer than all the shares of the 7% Convertible Preferred Stock and
Parity Dividend Stock if such repurchase or redemption is made pro rata so that
the amounts purchased or redeemed bear to each other the same ratio that the
required redemption payments on the shares of the 7% Convertible Preferred Stock
and any Parity Dividend Stock then outstanding bear to each other.
If Chancellor Media issues any series or class of stock that ranks senior
as to dividends to the 7% Convertible Preferred Stock ("Senior Dividend Stock")
and fails to pay or declare and set apart for payment accrued and unpaid
dividends on any Senior Dividend Stock (except to the extent allowed by the
terms of the Senior Dividend Stock), Chancellor Media may not pay or declare and
set apart for payment any dividend on the 7% Convertible Preferred Stock unless
and until all accrued and unpaid dividends on the Senior Dividend Stock,
including the full dividends for the then current dividend period, have been
paid or declared and set apart for payment without interest.
Liquidation Rights
In the case of the voluntary or involuntary liquidation, dissolution or
winding up of Chancellor Media, subject to the payment in full, or until
provision has been made for the payment in full, of all claims of creditors of
Chancellor Media, holders of 7% Convertible Preferred Stock are entitled to
receive the liquidation preference of the 7% Convertible Preferred Stock, plus
an amount equal to any accrued and unpaid dividends, whether or not declared, to
the payment date, before any payment or distribution is made to the holders of
common stock or any other series or class of stock issued in the future that
ranks junior as to liquidation rights to the 7% Convertible Preferred Stock
("Junior Liquidation Stock"). Holders of 7% Convertible Preferred Stock will not
be entitled to receive the liquidation preference of their shares until the
liquidation preference of any other series or class of stock that ranks senior
as to liquidation rights to the 7% Convertible Preferred Stock ("Senior
Liquidation Stock"), if any, and any creditors of Chancellor Media have been
paid in full. The holders of 7% Convertible Preferred Stock and any series or
class of stock that ranks on a parity as to liquidation rights with the 7%
Convertible Preferred Stock ("Parity Liquidation Stock") are entitled to share
ratably, in accordance with the respective preferential amounts payable on their
stock, in any distribution (after payment of the liquidation preference on any
Senior Liquidation Stock) that is not sufficient to pay in full the aggregate
liquidation preference on both the 7% Convertible Preferred Stock and on any
Parity Liquidation Stock. The $3.00 Convertible Preferred Stock constitutes
"Parity Liquidation Stock" for purposes of the 7% Convertible Preferred Stock.
Voting Rights
The holders of 7% Convertible Preferred Stock will have no voting rights
except as described below or as required by law.
Whenever dividends on the 7% Convertible Preferred Stock are in arrears in
aggregate amount equal to at least six quarterly dividends (whether or not
consecutive), the size of Chancellor Media's Board of Directors will be
increased by two, and the holders of 7% Convertible Preferred Stock, voting
separately as a class
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together with holders of any Parity Dividend Stock of Chancellor Media then
having voting rights, will be entitled to elect two additional directors to the
Board of Directors of Chancellor Media at, subject to certain limitations, any
annual meeting of stockholders at which directors are to be elected held during
the period when the dividends remain in arrears or, under certain circumstances,
at a special meeting of stockholders. These voting rights will terminate when
all dividends in arrears and for the current quarterly period have been paid in
full or declared and set apart for payment. The term of office of the additional
directors so elected will terminate immediately upon that payment or provision
for payment.
In addition, so long as any 7% Convertible Preferred Stock is outstanding,
Chancellor Media may not, without the affirmative vote or consent of the holders
of at least 66 2/3% of all outstanding shares of 7% Convertible Preferred Stock
and outstanding Parity Dividend Stock, voting as a single class (i) amend, alter
or repeal (by merger or otherwise) any provision of the certificate of
designation for the 7% Convertible Preferred Stock, the Certificate of
Incorporation of Chancellor Media or the bylaws of Chancellor Media so as to
affect adversely the relative rights, preferences, qualifications, limitations
of restrictions of the 7% Convertible Preferred Stock or (ii) effect any
reclassification of the 7% Convertible Preferred Stock.
Change of Control
The certificate of designation for the 7% Convertible Preferred Stock
provides that, upon the occurrence of a change of control (as defined in such
certificate of designation), each holder will have the right to require that
Chancellor Media purchase all or a portion of such holder's 7% Convertible
Preferred Stock in cash at a purchase price equal to 101% of the liquidation
preference thereof, plus, without duplication, all accumulated and unpaid
dividends per share to the date of repurchase. If the repurchase of the 7%
Preferred Stock would violate or constitute a default under the Senior Credit
Facility or other indebtedness of Chancellor Media, then, pursuant to the
certificate of designation for the 7% Convertible Preferred Stock, Chancellor
Media will either (A) repay in full all such indebtedness or (B) obtain the
requisite consents, if any, under such indebtedness required to permit the
repurchase of the 7% Convertible Preferred Stock.
Redemption at Option of Chancellor Media
The 7% Convertible Preferred Stock may not be redeemed prior to January 19,
2000. Thereafter, the 7% Convertible Preferred Stock may be redeemed by
Chancellor Media, at its option (subject to contractual and other restrictions
with respect thereto, including limitations under the Senior Credit Facility,
the 9 3/8% Indenture and the Indenture and to the legal availability of funds
therefor), in whole or in part at any time, if redeemed during the 12-month
period beginning January 15 (January 19 in the case of 2000), of any year
specified below at the following redemption prices (expressed as percentages of
the liquidation preference thereof):
<TABLE>
<CAPTION>
YEAR DIVIDEND
---- --------
<S> <C>
2000........................................................ 104.90%
2001........................................................ 104.20
2002........................................................ 103.50
2003........................................................ 102.80
2004........................................................ 102.10
2005........................................................ 101.40
2006........................................................ 100.70
2007 and thereafter......................................... 100.00
</TABLE>
plus in each case accrued and unpaid dividends, whether or not declared, to the
redemption date.
Conversion Rights
Each holder of 7% Convertible Preferred Stock will have the right, at the
holder's option, to convert any or all shares of 7% Convertible Preferred Stock
into Common Stock at any time at a conversion price (subject to adjustment) of
$36.19 per share of underlying Common Stock. If the 7% Convertible Preferred
Stock is called for redemption, the conversion right, with respect to the called
shares of 7% Convertible Preferred
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<PAGE> 113
Stock, will terminate at the close of business on the redemption date fixed by
the Board of Directors of Chancellor Media.
CMCLA
The authorized capital stock of CMCLA as of September 15, 1997 consists of
1,000 shares of common stock, par value $.01 per share, all of which are owned
of record and beneficially by CMHC, and 10,000,000 shares of preferred stock,
par value $.01 per share, 1,000,000 of which are designated 12 1/4% Series A
Senior Cumulative Exchangeable Preferred Stock with an initial liquidation value
of $119.444944 per share (the "12 1/4% Preferred Stock"), of which 1,000,000
shares are issued and outstanding, and 3,600,000 of which are designated 12%
Exchangeable Preferred Stock with a stated liquidation value of $100.00 per
share (the "12% Preferred Stock"), of which 2,117,629 shares are issued and
outstanding.
12 1/4% PREFERRED STOCK
Dividends. Holders of the 12 1/4% Preferred Stock are entitled to receive,
when, as and if declared by the Board of Directors of the Company, out of funds
legally available therefor, dividends on each share of 12 1/4% Preferred Stock
at a rate per annum equal to 12 1/4% of the then effective liquidation
preference per share of the 12 1/4% Preferred Stock, payable quarterly. If any
dividend payable on any dividend payment date on or before February 15, 2001 is
not declared or paid in full in cash on such dividend payment date, the amount
not paid on such dividend payment date will be added to the liquidation
preference of the 12 1/4% Preferred Stock on such dividend payment date and will
be deemed paid in full and will not accumulate. After February 15, 2001,
dividends may be paid only in cash out of funds legally available therefor.
Ranking. The 12 1/4% Preferred Stock ranks, with respect to dividend
rights and distribution rights on liquidation, winding-up and dissolution (a)
senior to the common stock of the Company, to the 12% Preferred Stock and to
each other class of capital stock or series of preferred stock that may in the
future be established by the Board of Directors of the Company the terms of
which do not expressly provide that it ranks senior to or on a parity with the
12 1/4% Preferred Stock, (b) on a parity with each other class of capital stock
or series of preferred stock that may in the future be established by the Board
of Directors of the Company the terms of which expressly provide that such class
or series will rank on a parity with the 12 1/4% Preferred Stock and (c) junior
to each class of capital stock or series of preferred stock that may in the
future be established by the Board of Directors of the Company the terms of
which expressly provide that such class or series will rank senior to the
12 1/4% Preferred Stock.
Optional Redemption. The 12 1/4% Preferred Stock is redeemable (subject to
contractual and other restrictions with respect thereto, including limitations
under the Senior Credit Facility, the 9 3/8% Indenture and the Indenture, and to
the legal availability of funds therefor), in whole or in part at any time on
and after February 15, 2001 at the option of the Board of Directors of the
Company, at the redemption prices (expressed as percentages of the then
effective liquidation preference thereof) set forth below, if redeemed during
the twelve-month period commencing on February 15 of each of the years set forth
below, plus accumulated and unpaid dividends to the date of redemption:
<TABLE>
<CAPTION>
YEAR DIVIDEND
---- --------
<S> <C>
2001........................................................ 106.125%
2002........................................................ 104.900
2003........................................................ 103.675
2004........................................................ 102.450
2005........................................................ 101.225
2006 and thereafter......................................... 100.000
</TABLE>
In addition, on or prior to February 15, 1999, the Company may, at its
option, use the net cash proceeds of any Public Equity Offering (as defined in
the certificate of designation for the 12 1/4% Preferred Stock) to redeem the
12 1/4% Preferred Stock, in part, at a redemption price equal to 111.025% of the
then effective liquidation preference if redeemed during the twelve-month period
commencing on February 15, 1997 and
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<PAGE> 114
109.8% of the then effective liquidation preference if redeemed during the
twelve-month period commencing on February 15, 1998, plus, in each case,
accumulated and unpaid dividends to the date of redemption; provided, however,
that after any such redemption from the proceeds of a Public Equity Offering,
the shares of 12 1/4% Preferred Stock outstanding must equal at least 75% of the
aggregate number of shares of 12 1/4% Preferred Stock originally issued;
provided further, that any such redemption must occur on or prior to 60 days
after receipt by the Company of the proceeds of the Public Equity Offering.
Mandatory Redemption. The 12 1/4% Preferred Stock is subject to mandatory
redemption (subject to contractual and other restrictions with respect thereto
and to the legal availability of funds therefor) in whole on February 15, 2008,
at a price equal to the then effective liquidation preference thereof, plus all
accumulated and unpaid dividends to the date of redemption.
Voting Rights. Holders of the 12 1/4% Preferred Stock have no voting
rights except as otherwise required by law; provided that the Company may not
authorize any class of capital stock that ranks senior to or on a parity with
the 12 1/4% Preferred Stock and may not, subject to certain exceptions, effect a
merger or sale of substantially all of its assets, without the affirmative vote
of holders of at least a majority of the shares of 12 1/4% Preferred Stock then
outstanding voting or consenting, as the case may be, as one class and, provided
further, that the holders of 12 1/4% Preferred Stock, voting together as a
single class, shall have the right to elect the lesser of two directors and that
number of directors constituting 25% of the Board of Directors of the Company
upon the occurrence of certain events including, but not limited to, the failure
by the Company on or after February 15, 2001 to pay cash dividends in full on
the 12 1/4% Preferred Stock for six or more quarterly dividend periods, whether
or not consecutive, the failure by the Company to discharge any mandatory
redemption or repayment obligation with respect to the 12 1/4% Preferred Stock,
the failure by the Company to make a Change of Control Offer (as defined in the
certificate of designation for the 12 1/4% Preferred Stock), the breach or
violation of one or more of the covenants contained in the certificate of
designation for the 12 1/4% Preferred Stock or the failure the Company to repay
at final stated maturity, or the acceleration of the final stated maturity of
certain indebtedness of the Company (including indebtedness under the Senior
Credit Facility, the 9 3/8% Notes and the Original Notes (and, assuming
consummation of the Exchange Offer, the Exchange Notes).
Change of Control. The certificate of designation for the 12 1/4%
Preferred Stock provides that, upon the occurrence of a Change of Control (as
defined below), each holder will have the right to require that the Company
repurchase all or a portion of such holder's 12 1/4% Preferred Stock in cash at
a purchase price equal to 101% of the then current effective liquidation
preference thereof, plus an amount in cash equal to all accumulated and unpaid
dividends per share to the date of repurchase. If the repurchase of the 12 1/4%
Preferred Stock would violate or constitute a default under the Senior Credit
Facility, the 9 3/8% Indenture, or other indebtedness of the Company, then
pursuant to the certificate of designation for the 12 1/4% Preferred Stock, the
Company will either (A) repay in full all such indebtedness and terminate all
commitments outstanding under the Senior Credit Facility or (B) obtain the
requisite consents, if any, under the Senior Credit Facility, the 9 3/8%
Indenture, or such other indebtedness required to permit the repurchase of
12 1/4% Preferred Stock. In an offer by the Company to repurchase the 12 1/4%
Preferred Stock at the holder's option upon a Change of Control, the Company
will comply with Section 14(e) of the Exchange Act and the rules and regulations
promulgated thereunder, as then in effect.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or
series of related transactions) of all or substantially all of the assets of the
Company to any Person or group of related Persons for purposes of Section 13(d)
of the Exchange Act (a "Group"), other than to Hicks Muse or any of its
affiliates, officers and directors or to Steven Dinetz (the "Permitted
Holders"); or (ii) a majority of the Board of Directors of Chancellor Media,
CMHC or CMCLA shall consist of Persons who are not Continuing Directors (as
defined below); or (iii) the acquisition by any Person or Group (other than the
Permitted Holders) of the power, directly or indirectly, to vote or direct the
voting of securities having more than 50% of the ordinary voting power for the
election of directors of Chancellor Media, CMHC or CMCLA.
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<PAGE> 115
"Continuing Director" means, as of the date of determination, any Person
who (i) was a member of the Board of Directors of CRBC on February 26, 1996,
(ii) was nominated for election or elected to the Board of Directors of the
Company with the affirmative vote of a majority of the Continuing Directors who
were members of such Board of Directors at the time of such nomination or
election, or (iii) is a representative of a Permitted Holder.
With respect to the sale of "all or substantially all" of the assets of the
Company, which would constitute a Change of Control for purposes of the
certificate of designation for the 12 1/4% Preferred Stock, the meaning of the
phrase "all or substantially all" varies according to the facts and
circumstances of the subject transaction, has no clearly established meaning
under relevant law and is subject to judicial interpretation. Accordingly, in
certain circumstances there may be a degree of uncertainty in ascertaining
whether a particular transaction would involve a disposition of "all or
substantially all" of the assets of the Company and, therefore, it may be
unclear whether a Change of Control has occurred and whether the 12 1/4%
Preferred Stock is subject to a Change of Control Offer.
Certain Covenants. The certificate of designation for the 12 1/4%
Preferred Stock contains covenants customary for securities comparable to the
12 1/4% Preferred Stock, including covenants that restrict the ability of CMCLA
and its subsidiaries to incur additional indebtedness, pay dividends and make
certain other restricted payments, and merge or consolidate with any other
person or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially of the assets of the Company.
Exchange. The Company may, at its option, subject to certain conditions,
including its ability to incur additional indebtedness under the 9 3/8%
Indenture and the Senior Credit Facility, on any scheduled dividend payment
date, exchange the 12 1/4% Preferred Stock, in whole but not in part, for its
12 1/4% Subordinated Exchange Debentures due 2008 (the "12 1/4% Exchange
Debentures"). Holders of the 12 1/4% Preferred Stock will be entitled to receive
$1.00 principal amount of 12 1/4% Exchange Debentures for each $1.00 in
liquidation preference of 12 1/4% Preferred Stock including, to the extent
necessary, 12 1/4% Exchange Debentures in principal amounts of less than $1,000.
The 12 1/4% Exchange Debentures, if issued, will be issued under an
indenture (the "12 1/4% Exchange Indenture") between CRBC and U.S. Trust Company
of Texas, N.A., as Trustee (as supplemented, the "12 1/4% Exchange Debenture
Trustee"). The 12 1/4% Exchange Debentures will be unsecured obligations of the
Company, ranking subordinate in right of payment to all senior indebtedness of
the Company, including the 9 3/8% Notes, the Notes and the indebtedness under
the Senior Credit Facility. Interest on the 12 1/4% Exchange Debentures will
accrue at the same rate per annum as the stated dividend rate on the 12 1/4%
Preferred Stock. The 12 1/4% Exchange Debentures will be redeemable, at the
Company's option, in whole at any time or in part from time to time, after an
initial period, at redemption prices equivalent to those relating to the
optional redemption of the 12 1/4% Preferred Stock. The 12 1/4% Exchange
Indenture provides that upon the occurrence of a change of control of the
Company (as defined therein), each holder will have the right to require that
the Company repurchase all or a portion of such holder's 12 1/4% Exchange
Debentures at a purchase price equal to 101% of the principal amount thereof
plus accrued interest, if any, to the date of repurchase. The 12 1/4% Exchange
Indenture contains certain customary covenants for securities comparable to the
12 1/4% Exchange Debentures, including covenants restricting the incurrence of
additional indebtedness, the issuance of subsidiary preferred stock, the making
of certain restricted payments, the creation of dividend and other payment
restrictions affecting subsidiaries, certain transactions with affiliates, and
the lines of business in which the Company and its subsidiaries may be engaged.
12% PREFERRED STOCK
Dividends. Holders of the 12% Preferred Stock are entitled to receive,
when, as and if declared by the Board of Directors of the Company, out of funds
legally available therefor, dividends on each share of 12% Preferred Stock at a
rate per annum equal to 12%, subject to increase in certain circumstances of the
then effective liquidation preference per share of the 12% Preferred Stock,
payable semi-annually. All dividends on the 12% Preferred Stock are cumulative.
The Company, at its option, may pay dividends on any dividend
109
<PAGE> 116
payment date occurring on or before January 15, 2002 either in cash or in
additional shares of 12% Preferred Stock. After January 15, 2002, dividends may
be paid only in cash out of funds legally available therefor.
Ranking. The 12% Preferred Stock ranks with respect to dividend rights and
rights on liquidation, winding-up and dissolution, (a) senior to the common
stock of the Company and to each other class of capital stock or series of
preferred stock that may in the future be established by the Board of Directors
of the Company the terms of which expressly provide that it ranks junior to or
on a parity with the 12% Preferred Stock, (b) on a parity with each other class
of capital stock or series of preferred stock that may in the future be
established by the Board of Directors of the Company the terms of which
expressly provide that such class or series will rank on a parity with the 12%
Preferred Stock and (c) junior to the 12 1/4% Preferred Stock and to each class
of capital stock or series of preferred stock that may in the future be
established by the Board of Directors of the Company the terms of which do not
expressly provide that such class or series will rank junior to the 12 1/4%
Preferred Stock.
Optional Redemption. The 12% Preferred Stock is redeemable (subject to
contractual and other restrictions with respect thereto, including limitations
under the Senior Credit Facility, the 9 3/8% Indenture and the Indenture, and to
the legal availability of funds therefor), in whole or in part at any time on or
after January 15, 2002 at the option of the Company, at the redemption prices
(expressed as percentages of the then effective liquidation preference thereof)
set forth below, if redeemed during the twelve-month period commencing on
January 15 of each of the years set forth below, plus accumulated and unpaid
dividends to the date of redemption:
<TABLE>
<CAPTION>
YEAR DIVIDEND
---- --------
<S> <C>
2002........................................................ 106.00%
2003........................................................ 104.80%
2004........................................................ 103.60%
2005........................................................ 102.40%
2006........................................................ 101.20%
2007 and thereafter......................................... 100.00%
</TABLE>
In addition, on or prior to January 15, 2000, the Company may, at its option,
use the net cash proceeds of any Public Equity Offering (as defined in the
certificate of designation for the 12% Preferred Stock) to redeem the 12%
Preferred Stock, in part, at a redemption price equal to 112% of the then
effective liquidation preference, plus, in each case, accumulated and unpaid
dividends to the date of redemption; provided, however, that after any such
redemption from the proceeds of a Public Equity Offering, there must be at least
$150.0 million aggregate liquidation preference of 12% Preferred Stock
outstanding; provided further, that any such redemption must occur on or prior
to 60 days after receipt by the Company of the proceeds of the Public Equity
Offering.
Mandatory Redemption. The 12% Preferred Stock is also be subject to
mandatory redemption (subject to contractual and other restrictions with respect
thereto and to the legal availability of funds therefor) in whole on January 15,
2009 at a price equal to the then effective liquidation preference thereof, plus
all accumulated and unpaid dividends to the date of redemption.
Voting Rights. Holders of the 12% Preferred Stock will have no voting
rights except as otherwise required by law; provided that the Company may not
authorize any class of capital stock that is senior to or on a parity with the
12% Preferred Stock (subject to an exception for the authorization of up to $50
million initial liquidation preference of Parity Stock) and may not, subject to
certain exceptions, effect a merger or sale of substantially all of its assets,
without the affirmative vote of holders of at least a majority of the shares of
12% Preferred Stock then outstanding voting or consenting, as the case may be,
as one class and, provided further, that the holders of 12% Preferred Stock,
voting together as a single class, shall have the right to elect the lesser of
two directors or that number of directors constituting 25% of the members of the
Board of Directors of the Company upon the occurrence of certain events
including, but not limited to, the failure by the Company on or after January
15, 2002 to pay cash dividends in full on the 12% Preferred Stock for three or
more quarterly dividend periods, whether or not consecutive, the failure by the
Company to discharge any mandatory
110
<PAGE> 117
redemption or repayment obligation with respect to the 12% Preferred Stock, the
failure by the Company to make a Change of Control Offer (as defined in the
certificate of designation for the 12% Preferred Stock), the breach or violation
of one or more of the covenants contained in the certificate of designation for
the 12% Preferred Stock or the failure by the Company to repay at final stated
maturity, or the acceleration of the first stated maturity of certain
indebtedness of the Company, whether or not consecutive (including indebtedness
under the Senior Credit Facility, the 9 3/8% Notes and the Original Notes (and,
assuming consummation of the Exchange Offer, the Exchange Notes)).
Change of Control. The certificate of designation for the 12% Preferred
Stock provides that, upon the occurrence of a change of control (which is
defined identically to the definition of "change of control" applicable to the
12 1/4% Preferred Stock), each holder will have the right to require that the
Company repurchase all or a portion of such holder's 12% Preferred Stock in cash
at a purchase price equal to 101% of the then current effective liquidation
preference thereof, plus an amount in cash equal to all accumulated and unpaid
dividends per share to the date of repurchase. If the repurchase of the 12%
Preferred Stock would violate or constitute a default under the certificate of
designation for the 12 1/4% Preferred Stock, the Senior Credit Facility, the
9 3/8% Indenture, or other indebtedness of the Company, then pursuant to the
certificate of designation for the 12% Preferred Stock, the Company will either
(A) repay in full all such indebtedness and terminate all commitments
outstanding under the Senior Credit Facility or (B) obtain the requisite
consents, if any, under the Senior Credit Facility, the 9 3/8% Indenture, or
such other indebtedness required to permit the repurchase of the 12% Preferred
Stock. In an offer by the Company to repurchase the 12% Preferred Stock at the
holder's option upon a Change of Control, the Company will comply with Section
14(e) of the Exchange Act and the rules and regulations promulgated thereunder,
as then in effect.
Certain Covenants. The certificate of designation of the 12% Preferred
Stock contains covenants customary for securities comparable to the 12%
Preferred Stock, including covenants that restrict the ability of the Company
and its subsidiaries to incur additional indebtedness, pay dividends and make
certain other restricted payments, and merge or consolidate with any other
person or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially of the assets of the Company.
Exchange. The Company may, at its option, subject to certain conditions,
including its ability to incur additional indebtedness under the 9 3/8%
Indenture and the Senior Credit Facility, on any scheduled dividend payment
date, exchange the 12% Preferred Stock, in whole but not in part, for its 12%
Subordinated Exchange Debentures due 2009 (the "12% Exchange Debentures").
Holders of the 12% Preferred Stock will be entitled to receive $1.00 principal
amount of 12% Exchange Debentures for each $1.00 in liquidation preference of
12% Preferred Stock including, to the extent necessary, 12% Exchange Debentures
in principal amounts of less than $1,000.
The 12% Exchange Debentures, if issued, will be issued under an indenture
(the "12% Exchange Indenture") between CRBC and U.S. Trust Company of Texas,
N.A., as Trustee (as supplemented, the "12% Exchange Debenture Trustee"). The
12% Exchange Debentures will be unsecured obligations of the Company, ranking
subordinate in right of payment to all senior indebtedness of the Company,
including the 9 3/8% Notes, the Notes and the indebtedness under the Senior
Credit Facility. Interest on the 12% Exchange Debentures will accrue at the same
rate per annum as the stated dividend rate on the 12% Preferred Stock. The 12%
Exchange Debentures will be redeemable, at the Company's option, in whole at any
time or in part from time to time, after an initial period, at redemption prices
equivalent to those relating to the optional redemption of the 12% Preferred
Stock. The 12% Exchange Indenture provides that upon the occurrence of a change
of control (as defined therein) of the Company, each holder will have the right
to require that the Company repurchase all or a portion of such holder's 12%
Exchange Debentures at a purchase price equal to 101% of the principal amount
thereof plus accrued interest, if any, to the date of repurchase. The 12%
Exchange Indenture contains certain customary covenants for securities
comparable to the 12% Exchange Debentures, including covenants restricting the
incurrence of additional indebtedness, the issuance of subsidiary preferred
stock, the making of certain restricted payment, the creation of dividend and
other repayment restrictions affecting subsidiaries, certain transactions with
affiliates, and the lines of business in which the Company and its subsidiaries
may be engaged.
111
<PAGE> 118
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
Latham & Watkins, counsel to the Company, has advised the Company that the
following discussion expresses its opinion as to the material federal income tax
consequences expected to result to Holders whose Original Notes are exchanged
for the Exchange Notes in the Exchange Offer. The signed opinion of Latham &
Watkins is filed as an exhibit to the Registration Statement of which this
Prospectus forms a part. Such opinion is based upon current provisions of the
Internal Revenue Code of 1986, as amended, applicable Treasury regulations,
judicial authority and administrative rulings and practice. There can be no
assurance that the Internal Revenue Service (the "Service") will not take a
contrary view, and no ruling from the Service has been or will be sought.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the statements and conclusions set forth
herein. Any such changes or interpretations may or may not be retroactive and
could affect the tax consequences to holders. Certain Holders (including
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) may be subject to special rules not discussed
below. EACH HOLDER OF THE ORIGINAL NOTES SHOULD CONSULT HIS OR HER OWN TAX
ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF EXCHANGING THE ORIGINAL NOTES
FOR THE EXCHANGE NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE,
LOCAL OR FOREIGN TAX LAWS.
The exchange of the Original Notes for the Exchange Notes should be treated
as a "non-event" for federal income tax purposes because the Exchange Notes
should not be considered to differ materially in kind or extent from the
Original Notes. As a result, no material federal income tax consequences should
result to holders exchanging Original Notes for Exchange Notes.
112
<PAGE> 119
PLAN OF DISTRIBUTION
Each broker-dealer that participates in the Exchange Offer ("Participating
Broker-Dealer") and receives the Exchange Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with the resale of the Exchange Notes received in
exchange for the Original Notes where such Original Notes were acquired as a
result of market-making activities or other trading activities. The Company has
agreed that for a period of 180 days after the Expiration Date, it will make
this Prospectus, as amended or supplemented, available for any Participating
Broker-Dealer for use in connection with any such resale.
The Company will not receive any proceeds from any sale of the Exchange
Notes by Participating Broker-Dealers. The Exchange Notes received by
Participating Broker-Dealers for their own account pursuant to the Exchange
Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the Exchange Notes or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any Participating
Broker-Dealer and/or the purchasers of any such Exchange Notes. Any
Participating Broker-Dealer that resells Exchange Notes that were received by it
for its own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a Participating Broker-Dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that requests
such documents in the Letter of Transmittal.
The Company has agreed in the Registration Rights Agreement to indemnify
each Participating Broker-Dealer reselling the Exchange Notes pursuant to this
Prospectus, and their officers, directors and controlling persons, against
certain liabilities in connection with the offer and sale of the Exchange Notes,
including liabilities under the Securities Act, or to contribute to payments
that such Participating Broker-Dealers may be required to make in respect
thereof.
LEGAL MATTERS
Legal matters in connection with the issue and sale of the Exchange Notes
will be passed upon for the Company by Latham & Watkins, Washington, D.C. Eric
L. Bernthal, a former director of Evergreen, is a partner of Latham & Watkins
and owns options to purchase 2,500 shares of Common Stock.
113
<PAGE> 120
EXPERTS
The consolidated financial statements of Evergreen Media Corporation of Los
Angeles and subsidiaries, the combined financial statements of WMZQ Inc. and
Viacom Broadcasting East Inc., the financial statements of WDRQ Inc., the
combined financial statements of Riverside Broadcasting Co., Inc. and WAXQ Inc.,
the financial statements of WLIT Inc., the combined financial statements of KYSR
Inc. and KIBB Inc., the financial statements of WDAS-AM/FM (station owned and
operated by Beasley FM Acquisition Corp.), and the financial statements of
KKSF-FM/KDFC-FM and AM (A Division of The Brown Organization), included in the
Prospectus have been audited by KPMG Peat Marwick LLP, independent certified
public accountants, to the extent and for the periods indicated in their reports
thereon. Such financial statements have been included in reliance upon said firm
as experts in accounting and auditing.
The consolidated financial statements of Chancellor Radio Broadcasting
Company and Subsidiaries as of December 31, 1996 and 1995 and for each of the
three years in the period ended December 31, 1996 included in this Prospectus,
have been included herein in reliance on the report of Coopers & Lybrand,
L.L.P., independent accountants, given on the authority of that firm as experts
in accounting and auditing.
The consolidated statements of operations, changes in common stockholders'
equity and cash flows of Trefoil Communications, Inc. and Subsidiaries for the
period January 1, 1996 through February 13, 1996 included in this Prospectus,
have been included herein in reliance on the report of Coopers & Lybrand,
L.L.P., independent accountants, given on the authority of that firm as experts
in accounting and auditing.
The financial statements of Century Chicago Broadcasting, L.P. as of and
for the year ended December 31, 1996 included in this Prospectus have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The combined financial statements of WJLB/WMXD, Detroit, as of December 31,
1996 and for the year then ended included in this Prospectus have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
The financial statements of Trefoil Communications, Inc., as of and for the
years ended December 31, 1995 and 1994 included in this Prospectus have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
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<PAGE> 121
PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial statements are
presented using the purchase method of accounting for all acquisitions and
reflect (i) the combination of consolidated historical financial data of EMCLA,
CRBC, each of the stations acquired in the Completed Evergreen/Chancellor Media
Transactions and the Completed Chancellor Transactions and each of the stations
to be acquired by the Company in the Pending Transactions and (ii) the
elimination of the consolidated historical data of the stations sold by EMCLA
and CRBC in the Completed Evergreen Dispositions and the Completed Chancellor
Dispositions and stations to be sold or swapped by the Company in the Pending
Transactions. The unaudited pro forma condensed combined balance sheet data at
June 30, 1997 presents adjustments for those Completed Transactions consummated
since such date, the Pending Transactions and the Financing Transactions as if
each such transaction had occurred at June 30, 1997. The unaudited pro forma
condensed combined statements of operations data for the twelve months ended
December 31, 1996 and the six months ended June 30, 1997 present adjustments for
the following transactions as if each had occurred on January 1, 1996: (i) the
Completed Transactions, (ii) the 1996 Evergreen Offering, (iii) the 1996
Preferred Stock Conversion, (iv) the Chancellor Offerings, (v) the Pending
Transactions and (vi) the Financing Transactions. No adjustments are presented
in respect of the Katz Acquisition because Katz may not be combined with the
Company upon consummation of the Katz Acquisition, and because such transaction
has not yet been completed and does not constitute the acquisition of a
significant business for purposes of Rule 3-05 and Rule 11-01 of Regulation S-X
of the Commission's Rules.
The purchase method of accounting has been used in the preparation of the
unaudited pro forma condensed combined financial statements. Under this method
of accounting, the aggregate purchase price is allocated to assets acquired and
liabilities assumed based on their estimated fair values. For purposes of the
unaudited pro forma condensed combined financial statements, the purchase prices
of the stations acquired and to be acquired in the Completed Transactions and
the Pending Transactions have been allocated based primarily on information
furnished by management of the acquired stations. The final allocation of the
respective purchase prices of the stations acquired and to be acquired in the
Completed Transactions, the Chancellor Merger and the Pending Transactions are
determined a reasonable time after consummation of such transactions and are
based on a complete evaluation of the assets acquired and liabilities assumed.
Accordingly, the information presented herein may differ from the final purchase
price allocation.
In the opinion of the Company's management, all adjustments have been made
that are necessary to present fairly the pro forma data.
The unaudited pro forma condensed combined financial statements should be
read in conjunction with the respective financial statements and related notes
thereto of CRBC and EMCLA which are included elsewhere in this Prospectus. The
unaudited pro forma condensed combined financial statements are presented for
illustrative purposes only and are not necessarily indicative of the results of
operations or financial position that would have been achieved had the
transactions reflected therein been consummated as of the dates indicated, or of
the results of operations or financial positions for any future periods or
dates.
P-1
<PAGE> 122
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AT JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
EMCLA AS
ADJUSTED FOR 1997 CRBC AS PRO FORMA COMPANY AS PRO FORMA
COMPLETED ADJUSTED FOR ADJUSTMENTS ADJUSTED FOR ADJUSTMENTS
EVERGREEN AND 1997 COMPLETED FOR THE THE FOR THE
CHANCELLOR MEDIA CHANCELLOR CHANCELLOR COMPLETED PENDING
TRANSACTIONS(1) TRANSACTIONS(2) MERGER TRANSACTIONS TRANSACTIONS
----------------- --------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets..................... $ 125,837 $ 83,334 $ -- $ 209,171 $ --
Property and equipment, net........ 70,494 74,321 -- 144,815 8,202(5)
Intangible assets, net............. 1,652,649 1,421,770 434,068(3) 3,791,932 428,798(5)
283,445(4)
Other assets....................... 28,688 20,824 (1,183)(3) 48,329 --(5)
---------- ---------- -------- ---------- --------
Total assets..................... $1,877,668 $1,600,249 $716,330 $4,194,247 $437,000
========== ========== ======== ========== ========
LIABILITIES AND STOCKHOLDER'S
EQUITY:
Liabilities
Other current liabilities.......... $ 42,883 $ 36,142 $ -- $ 79,025 $ --
Long-term debt, excluding current
portion.......................... 903,209 824,344 162,000(3) 1,889,553 437,000(5)
Deferred tax liabilities
(assets)......................... 90,134 (443) 283,445(4) 373,136 --
Other liabilities.................. 902 997 -- 1,899 --
---------- ---------- -------- ---------- --------
Total liabilities................ 1,037,128 861,040 445,445 2,343,613 437,000
Redeemable preferred stock......... -- 317,162 11,282(3) 328,444 --
STOCKHOLDER'S EQUITY:
Common stock....................... 1 1 (1)(3) 1 --
Additional paid in capital......... 951,304 453,516 228,134(3) 1,632,954 --
Accumulated deficit................ (110,765) (31,470) 31,470(3) (110,765) --
---------- ---------- -------- ---------- --------
Total stockholder's equity....... 840,540 422,047 259,603 1,522,190 --
---------- ---------- -------- ---------- --------
Total liabilities and
stockholder's equity.......... $1,877,668 $1,600,249 $716,330 $4,194,247 $437,000
========== ========== ======== ========== ========
<CAPTION>
COMPANY
PRO FORMA
COMBINED
----------
<S> <C>
ASSETS:
Current assets..................... $ 209,171
Property and equipment, net........ 153,017
Intangible assets, net............. 4,220,730(6)
Other assets....................... 48,329
----------
Total assets..................... $4,631,247
==========
LIABILITIES AND STOCKHOLDER'S
EQUITY:
Liabilities
Other current liabilities.......... $ 79,025
Long-term debt, excluding current
portion.......................... 2,326,553
Deferred tax liabilities
(assets)......................... 373,136
Other liabilities.................. 1,899
----------
Total liabilities................ 2,780,613
Redeemable preferred stock......... 328,444
STOCKHOLDER'S EQUITY:
Common stock....................... 1
Additional paid in capital......... 1,632,954
Accumulated deficit................ (110,765)
----------
Total stockholder's equity....... 1,522,190
----------
Total liabilities and
stockholder's equity.......... $4,631,247
==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements
P-2
<PAGE> 123
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
EMCLA AS
ADJUSTED FOR
COMPLETED CRBC AS PRO FORMA COMPANY
EVERGREEN AND ADJUSTED FOR ADJUSTMENTS AS ADJUSTED
CHANCELLOR COMPLETED FOR THE FOR THE
MEDIA CHANCELLOR CHANCELLOR COMPLETED
YEAR ENDED DECEMBER 31, 1996 TRANSACTIONS(7) TRANSACTIONS(8) MERGER TRANSACTIONS
---------------------------- --------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Gross revenues.................................... $436,416 $328,522 $ -- $ 764,938
Less: agency commissions.......................... (58,057) (43,553) -- (101,610)
-------- -------- --------- ---------
Net revenues...................................... 378,359 284,969 -- 663,328
Station operating expenses excluding depreciation
and amortization................................ 213,228 172,729 -- 385,957
Depreciation and amortization..................... 155,511 46,909 104,803(9) 307,223
Corporate general and administrative expenses..... 8,065 5,657 (832)(10) 12,890
Stock option compensation......................... -- 3,800 -- 3,800
-------- -------- --------- ---------
Operating income (loss)........................... 1,555 55,874 (103,971) (46,542)
Interest expense.................................. 70,474 72,680 (2,051)(12) 141,103
Other (income) expense............................ (951) (148) -- (1,099)
-------- -------- --------- ---------
Income (loss) before income taxes................. (67,968) (16,658) (101,920) (186,546)
Income tax expense (benefit)...................... (16,716) (2,663) (30,843)(13) (50,222)
-------- -------- --------- ---------
Net income (loss)................................. (51,252) (13,995) (71,077) (136,324)
Preferred stock dividends......................... -- 38,400 -- 38,400
-------- -------- --------- ---------
Income (loss) attributable to common stock........ $(51,252) $(52,395) $ (71,077) $(174,724)
======== ======== ========= =========
Broadcast cash flow............................... $165,131 $112,240 $ -- $ 277,371
======== ======== ========= =========
<CAPTION>
PRO FORMA
ADJUSTMENTS
PENDING FOR THE COMPANY
TRANSACTIONS PENDING PRO FORMA
YEAR ENDED DECEMBER 31, 1996 HISTORICAL(14) TRANSACTIONS COMBINED
---------------------------- -------------- ------------ ---------
<S> <C> <C> <C>
Gross revenues.................................... $ 82,050 $ (1,963)(15) $ 845,025
Less: agency commissions.......................... (12,214) -- (113,824)
-------- -------- ---------
Net revenues...................................... 69,836 (1,963) 731,201
Station operating expenses excluding depreciation
and amortization................................ 38,749 (4,000)(15) 420,706
Depreciation and amortization..................... 3,578 25,401(16) 336,202
Corporate general and administrative expenses..... 1,024 -- 13,914
Stock option compensation......................... -- -- 3,800
-------- -------- ---------
Operating income (loss)........................... 26,485 (23,364) (43,421)
Interest expense.................................. (367) 30,590(17) 171,326
Other (income) expense............................ (48) -- (1,147)
-------- -------- ---------
Income (loss) before income taxes................. 26,900 (53,954) (213,600)
Income tax expense (benefit)...................... -- (9,469)(18) (59,691)
-------- -------- ---------
Net income (loss)................................. 26,900 (44,485) (153,909)
Preferred stock dividends......................... -- -- 38,400
-------- -------- ---------
Income (loss) attributable to common stock........ $ 26,900 $(44,485) $(192,309)
======== ======== =========
Broadcast cash flow............................... $ 31,087 $ 2,037 $ 310,495
======== ======== =========
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements
P-3
<PAGE> 124
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
EMCLA AS
ADJUSTED FOR
COMPLETED CRBC AS PRO FORMA COMPANY
EVERGREEN AND ADJUSTED FOR ADJUSTMENTS AS ADJUSTED
CHANCELLOR COMPLETED FOR THE FOR THE PENDING
MEDIA CHANCELLOR CHANCELLOR COMPLETED TRANSACTIONS
SIX MONTHS ENDED JUNE 30, 1997 TRANSACTIONS(7) TRANSACTIONS(8) MERGER TRANSACTIONS HISTORICAL(14)
------------------------------ --------------- --------------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Gross revenues.......................... $249,578 $176,189 $ -- $425,767 $31,881
Less: agency commissions................ (32,784) (22,252) -- (55,036) (4,643)
-------- -------- -------- -------- -------
Net revenues............................ 216,794 153,937 -- 370,731 27,238
Station operating expenses excluding
depreciation and amortization......... 120,992 91,833 -- 212,825 19,047
Depreciation and amortization........... 77,047 23,237 52,969(9) 153,253 (348)
Corporate general and administrative
expenses.............................. 5,781 4,058 (675)(10) 9,164 --
Merger expense.......................... -- 2,515 (2,515)(11) -- --
Stock option compensation............... -- 1,900 -- 1,900 --
-------- -------- -------- -------- -------
Operating income (loss)................. 12,974 30,394 (49,779) (6,411) 8,539
Interest expense........................ 34,069 35,626 857(12) 70,552 --
Other (income) expense.................. (12,456) (1,607) -- (14,063) (69)
-------- -------- -------- -------- -------
Income (loss) before income taxes....... (8,639) (3,625) (50,636) (62,900) 8,608
Income tax expense (benefit)............ 513 550 (15,543)(13) (14,480) --
-------- -------- -------- -------- -------
Net income (loss)....................... (9,152) (4,175) (35,093) (48,420) 8,608
Preferred stock dividends............... -- 19,626 -- 19,626 --
-------- -------- -------- -------- -------
Income (loss) attributable to common
stock................................. $ (9,152) $(23,801) $(35,093) $(68,046) $ 8,608
======== ======== ======== ======== =======
Broadcast cash flow..................... $ 95,802 $ 62,104 $ -- $157,906 $ 8,191
======== ======== ======== ======== =======
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR THE COMPANY
PENDING PRO FORMA
SIX MONTHS ENDED JUNE 30, 1997 TRANSACTIONS COMBINED
------------------------------ ------------ ---------
<S> <C> <C>
Gross revenues.......................... $ (2,000)(15) $455,648
Less: agency commissions................ -- (59,679)
-------- --------
Net revenues............................ (2,000) 395,969
Station operating expenses excluding
depreciation and amortization......... (2,476)(15) 229,396
Depreciation and amortization........... 12,879(16) 165,784
Corporate general and administrative
expenses.............................. -- 9,164
Merger expense.......................... -- --
Stock option compensation............... -- 1,900
-------- --------
Operating income (loss)................. (12,403) (10,275)
Interest expense........................ 15,295(17) 85,847
Other (income) expense.................. -- (14,132)
-------- --------
Income (loss) before income taxes....... (27,698) (81,990)
Income tax expense (benefit)............ (6,682)(18) (21,162)
-------- --------
Net income (loss)....................... (21,016) (60,828)
Preferred stock dividends............... -- 19,626
-------- --------
Income (loss) attributable to common
stock................................. $(21,016) $(80,454)
======== ========
Broadcast cash flow..................... $ 476 $166,573
======== ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements
P-4
<PAGE> 125
ADJUSTMENTS TO EMCLA'S HISTORICAL CONDENSED COMBINED BALANCE SHEET RELATED TO
THE 1997 COMPLETED EVERGREEN AND CHANCELLOR MEDIA TRANSACTIONS COMPLETED AFTER
JUNE 30, 1997
(1) The historical balance sheet of EMCLA at June 30, 1997 and the pro forma
adjustments related to the 1997 Completed Evergreen and Chancellor Media
Transactions that were completed after June 30, 1997 is summarized below:
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS EMCLA AS
FOR ADJUSTED FOR
1997 COMPLETED 1997 COMPLETED
EVERGREEN AND EVERGREEN AND
EMCLA CHANCELLOR CHANCELLOR
HISTORICAL MEDIA MEDIA
AT 6/30/97 TRANSACTIONS TRANSACTIONS
---------- -------------- --------------
<S> <C> <C> <C>
ASSETS:
Current assets............................... $ 112,339 $ 13,498(a) $ 125,837
Property and equipment, net.................. 64,817 5,677(a) 70,494
Intangible assets, net....................... 1,183,569 469,080(a) 1,652,649
Assets held for sale......................... 50,000 (50,000)(a) --
Other assets................................. 72,788 (44,100)(a) 28,688
---------- -------- ----------
Total assets.............................. $1,483,513 $394,155 $1,877,668
========== ======== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Liabilities:
Other current liabilities.................... $ 32,994 $ 9,889(a) $ 42,883
Long-term debt, excluding current portion.... 525,000 378,209(a) 903,209
Deferred tax liability....................... 88,014 2,120(a) 90,134
Other liabilities............................ 902 -- 902
---------- -------- ----------
Total liabilities......................... 646,910 390,218 1,037,128
Stockholder's equity:
Common stock................................. 1 -- 1
Additional paid-in capital................... 951,304 -- 951,304
Accumulated deficit.......................... (114,702) 3,937(a) (110,765)
---------- -------- ----------
Total stockholder's equity................ 836,603 3,937 840,540
---------- -------- ----------
Total liabilities and stockholder's
equity.................................. $1,483,513 $394,155 $1,877,668
========== ======== ==========
</TABLE>
P-5
<PAGE> 126
(a) Reflects the 1997 Completed Evergreen and Chancellor Media Transactions that
were completed after June 30, 1997 as follows:
<TABLE>
<CAPTION>
PURCHASE PRICE ALLOCATION
------------------------------------------------------------------
1997 COMPLETED PURCHASE PROPERTY AND ASSETS
EVERGREEN AND CHANCELLOR PRICE/(SALES CURRENT EQUIPMENT, HELD INTANGIBLE
MEDIA TRANSACTIONS PRICE) ASSETS NET(I) FOR SALE ASSETS, NET(I)
- ------------------------ ------------ ------- ------------ -------- ---------------
<S> <C> <C> <C> <C> <C>
Evergreen Viacom
Acquisition(ii)....... $612,388 $13,498 $3,607 $ 81,000 $518,093
WJZW-FM(iii)............ (68,000) -- -- (68,000) --
San Francisco
Frequency(iv)......... (44,000) -- (262) -- (41,012)
KDFC-FM(v).............. (50,000) -- -- (50,000) --
WBZS-AM, WZHF-AM,
KDFC-AM(vi)........... (18,000) -- (198) (13,000) (4,802)
WEJM-AM(vii)............ (7,500) -- (725) -- (3,444)
Chicago/Dallas
Exchange(viii)........ 3,500 -- 3,255 -- 245
-------- ------- ------ -------- --------
Total............ $428,388 $13,498 $5,677 $(50,000) $469,080
======== ======= ====== ======== ========
<CAPTION>
PURCHASE PRICE ALLOCATION FINANCING
--------------------------------------- ----------------------------------------
(INCREASE) INCREASE INCREASE
1997 COMPLETED DEFERRED DECREASE IN (DECREASE) IN
EVERGREEN AND CHANCELL CURRENT TAX ACCUMULATED IN OTHER CURRENT LONG-TERM
MEDIA TRANSACTIONS LIABILITIES LIABILITIES DEFICIT ASSETS LIABILITIES DEBT
- ---------------------- ----------- ----------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Evergreen Viacom
Acquisition(ii)..... $(3,810) $ -- $ -- $ 53,750 $ 6,079 $552,559
WJZW-FM(iii).......... -- -- -- -- -- (68,000)
San Francisco
Frequency(iv)....... -- (954) (1,772) -- -- (44,000)
KDFC-FM(v)............ -- -- -- -- -- (50,000)
WBZS-AM, WZHF-AM,
KDFC-AM(vi)......... -- -- -- (18,000) -- --
WEJM-AM(vii).......... -- (1,166) (2,165) -- -- (7,500)
Chicago/Dallas
Exchange(viii)...... -- -- -- 8,350 -- (4,850)
------- ------- ------- -------- ------- --------
Total.......... $(3,810) $(2,120) $(3,937) $ 44,100 $ 6,079 $378,209
======= ======= ======= ======== ======= ========
</TABLE>
P-6
<PAGE> 127
- ---------------
(i) EMCLA has assumed that historical balances of net property and
equipment acquired approximate fair value for the preliminary
allocation of the purchase price. Such amounts are based primarily
on information provided by the management of Viacom. EMCLA, on a
preliminary basis, has allocated the $518,093 of intangible assets
related to the Evergreen Viacom Acquisition to broadcast licenses.
This preliminary allocation is based on historical information
from prior acquisitions.
(ii) On July 2, 1997, EMCLA acquired, in the Evergreen Viacom
Acquisition, WLTW-FM and WAXQ-FM in New York and WMZQ-FM, WJZW-FM,
WZHF-AM, and WBZS-AM in Washington, D.C. for approximately
$612,388 in cash including various other direct acquisition costs.
The Evergreen Viacom Acquisition was financed with (i) bank
borrowings under the Senior Credit Facility of $552,559; (ii)
$53,750 in escrow funds paid by Evergreen on February 19, 1997 and
classified as other assets at June 30, 1997 and (iii) $6,079
financed through working capital. In June 1997, Evergreen issued
5,990,000 shares of $3.00 Convertible Exchangeable Preferred Stock
for net proceeds of approximately $287,808 which were used to
repay borrowings under the Senior Credit Facility and subsequently
were reborrowed on July 2, 1997 and contributed to EMCLA by
Evergreen as part of the financing of the Evergreen Viacom
Acquisition. The assets of WJZW-FM, WZHF-AM, and WBZS-AM in
Washington, D.C. are classified as assets held for sale in
connection with the purchase price allocation of the Evergreen
Viacom Acquisition (see (iii) and (vi) below).
(iii) On July 7, 1997, EMCLA sold, in the ABC/Washington Disposition,
WJZW-FM in Washington (acquired as part of the Evergreen Viacom
Acquisition) for $68,000 in cash. The assets of WJZW-FM are
classified as assets held for sale in connection with the purchase
price allocation of the Evergreen Viacom Acquisition and no gain
or loss was recognized by EMCLA upon consummation of the sale.
(iv) On July 7, 1997, EMCLA sold, in the San Francisco Frequency
Disposition, the San Francisco 107.7 MHz FM dial position and
transmission facility and the call letters from CRBC's KSAN-FM in
San Francisco for $44,000 in cash and recognized a gain of $1,772,
net of taxes of $954.
(v) On July 21, 1997, EMCLA sold, in the Bonneville/KDFC Disposition,
KDFC-FM in San Francisco for $50,000 in cash. The assets of
KDFC-FM are classified as assets held for sale at June 30, 1997 in
connection with the purchase price allocation of the acquisition
of KKSF-FM/KDFC-FM/AM on January 31, 1997 and no gain or loss was
recognized by EMCLA upon consummation of the KDFC-FM sale.
(vi) On August 13, 1997, EMCLA sold, in the Douglas AM Dispositions,
WBZS-AM and WZHF-AM in Washington (acquired as part of the
Evergreen Viacom Acquisition) and KDFC-AM in San Francisco for
$5,500, $7,500 and $5,000, respectively, payable in the form of a
promissory note in the aggregate amount of $18,000. The assets of
WBZS-AM and WZHF-AM are classified as assets held for sale in
connection with the purchase price allocation of the Evergreen
Viacom Acquisition and no gain or loss was recognized by EMCLA
upon consummation of the sale.
(vii) On August 26, 1997, EMCLA sold, in the Douglas Chicago
Disposition, WEJM-AM in Chicago for $7,500 in cash and recognized
a gain of $2,165, net of taxes of $1,166.
(viii) On October 7, 1997, CMCLA acquired, in the Bonneville
Acquisition, KZPS-FM and KDGE-FM in Dallas for $83,500 in cash. On
June 29, 1997, EMCLA paid $8,350 in escrow funds which are
classified as other assets at June 30, 1997. On July 14, 1997,
EMCLA completed the disposition of WLUP-FM in Chicago to
Bonneville and placed $80,000 in a trust pending the completion of
the deferred exchange of the WLUP-FM in Chicago and on October 7,
1997, paid an additional $3,500 in cash to Bonneville for KZPS-FM
and KDGE-FM in Dallas (the "Chicago/Dallas Exchange"). The
Chicago/Dallas Exchange was accounted for as a like-kind exchange
and no gain or loss was recognized upon the consummation of the
exchange. The decrease in long-term debt of $4,850 represents the
refund of $8,350 in escrow funds previously paid by EMCLA less
$3,500 in cash boot owed to Bonneville.
P-7
<PAGE> 128
ADJUSTMENTS TO CRBC'S HISTORICAL CONDENSED COMBINED BALANCE SHEET RELATED TO THE
1997 COMPLETED CHANCELLOR TRANSACTIONS COMPLETED AFTER JUNE 30, 1997
(2) The historical balance sheet of CRBC at June 30, 1997 and the pro forma
adjustments related to the 1997 Completed Chancellor Transactions that were
completed after June 30, 1997 are summarized below:
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS CRBC AS
FOR ADJUSTED FOR
CRBC 1997 COMPLETED 1997 COMPLETED
HISTORICAL CHANCELLOR CHANCELLOR
AT 6/30/97 TRANSACTIONS TRANSACTIONS
---------- -------------- --------------
<S> <C> <C> <C>
ASSETS:
Current assets............................... $ 72,352 $ 10,982(a) $ 83,334
Property and equipment, net.................. 69,581 4,740(a) 74,321
Intangible assets, net....................... 970,080 451,690(a) 1,421,770
Other assets................................. 71,760 (53,750)(a) 20,824
2,814(c)
---------- -------- ----------
Total assets............................... $1,183,773 $416,476 $1,600,249
========== ======== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Liabilities:
Current portion of long-term debt............ $ 1,928 $ (1,928)(b) $ --
Other current liabilities.................... 26,939 9,203(a) 36,142
---------- -------- ----------
Total current liabilities.................. 28,867 7,275 36,142
Long-term debt, excluding current portion.... 545,335 273,159(a) 824,344
3,922(c)
1,928(b)
Deferred tax liability....................... -- (443)(c) (443)
Other liabilities............................ 997 -- 997
---------- -------- ----------
Total liabilities.......................... 575,199 285,841 861,040
Redeemable preferred stock................... 317,162 -- 317,162
STOCKHOLDER'S EQUITY:
Common stock................................. 1 -- 1
Additional paid-in capital................... 322,216 131,300(a) 453,516
Accumulated deficit.......................... (30,805) (665)(c) (31,470)
---------- -------- ----------
Total stockholder's equity................. 291,412 130,635 422,047
---------- -------- ----------
Total liabilities and stockholder's
equity.................................. $1,183,773 $416,476 $1,600,249
========== ======== ==========
</TABLE>
(a) Reflects the 1997 Completed Chancellor Transactions that were completed
after June 30, 1997 as follows:
<TABLE>
<CAPTION>
FINANCING
PURCHASE PRICE ALLOCATION ----------------------
----------------------------------------------------------
PROPERTY INCREASE
PURCHASE/ AND ASSETS INTANGIBLE DECREASE IN
1997 COMPLETED (SALES) CURRENT EQUIPMENT, HELD ASSETS, CURRENT IN OTHER CURRENT
CHANCELLOR TRANSACTIONS PRICE ASSETS NET FOR SALE NET LIABILITIES ASSETS LIABILITIES
----------------------- --------- ------- ---------- -------- ---------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Chancellor Viacom
Acquisition(i)........... $500,789 $10,982 $4,740 $ 37,000 $451,690 $(3,623) $53,750 $5,580
WDRQ-FM(ii)................ (37,000) -- -- (37,000) -- -- -- --
-------- ------- ------ -------- -------- ------- ------- ------
Total.............. $463,789 $10,982 $4,740 $ -- $451,690 $(3,623) $53,750 $5,580
======== ======= ====== ======== ======== ======= ======= ======
<CAPTION>
FINANCING
---------------------------
INCREASE
INCREASE IN (DECREASE) IN
LONG- ADDITIONAL
1997 COMPLETED TERM PAID-IN
CHANCELLOR TRANSACTIONS DEBT CAPITAL
----------------------- ----------- -------------
<S> <C> <C>
Chancellor Viacom
Acquisition(i)........... $273,159 $168,300
WDRQ-FM(ii)................ -- (37,000)
-------- --------
Total.............. $273,159 $131,300
======== ========
</TABLE>
- ---------------
(i) On July 2, 1997, CRBC acquired, in the Chancellor Viacom
Acquisition, KIBB-FM and KYSR-FM in Los Angeles, WLIT-FM in
Chicago and WDRQ-FM in Detroit for approximately $500,789 in cash
including various other direct acquisition costs. The Chancellor
Viacom Acquisition was financed with (i) bank borrowings of
$273,159 under the CRBC Restated Credit Agreement; (ii) borrowings
under the Chancellor Interim Financing of $168,300 which was
contributed to CRBC by Chancellor; (iii) escrow funds of $53,750
paid by CRBC on February 19, 1997 and classified as other assets
at June 30, 1997 and
P-8
<PAGE> 129
(iv) $5,580 financed through working capital. The assets of
WDRQ-FM in Detroit are classified as assets held for sale in
connection with the purchase price allocation of the Chancellor
Viacom Acquisition (see (ii) below). CRBC has assumed that
historical balances of net property and equipment approximate fair
value for the preliminary allocation of the purchase price. Such
amounts are based primarily on information provided by the
management of Viacom. The intangible assets of $451,690 have been
allocated to broadcast licenses on a preliminary basis. This
preliminary allocation is based on historical information from
prior acquisitions.
(ii) On August 11, 1997, CRBC sold, in the ABC/Detroit Disposition,
WDRQ-FM in Detroit (acquired as part of the Chancellor Viacom
Acquisition) for $37,000 in cash. The net proceeds from the sale
of WDRQ-FM were distributed by CRBC to Chancellor to repay
borrowings under the Chancellor Interim Financing. The assets of
WDRQ-FM are classified as assets held for sale in connection with
the purchase price allocation of the Chancellor Viacom Acquisition
and no gain or loss was recognized by CRBC upon consummation of
the sale.
(b) On July 2, 1997, CRBC refinanced its senior credit agreement (the "CRBC
Restated Credit Agreement") in connection with the Chancellor Viacom
Acquisition. The CRBC Restated Credit Agreement consists of a $400,000 term
loan facility and a $350,000 revolving loan facility. Reflects the $1,928
adjustment to decrease current maturities of long-term debt under the CRBC
Restated Credit Agreement to $0.
(c) Reflects (i) the adjustment to write-off the unamortized balance of deferred
loan fees of $665 (net of a tax benefit of $443) at June 30, 1997 related to
CRBC's previous senior credit agreement as an extraordinary item and (ii)
the adjustment to record new loan fees of $3,922 incurred in connection with
the CRBC Restated Credit Agreement and financed through additional bank
borrowings under such agreement.
ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET RELATED TO
THE CHANCELLOR MERGER
(3) Merger Purchase Price Information. In connection with the Chancellor Merger,
each outstanding share of Chancellor Common Stock was converted into the
right to receive 0.9091 shares of Chancellor Media Common Stock. For
purposes of the unaudited pro forma condensed combined financial statements,
the fair market value of Chancellor Media Common Stock is calculated by
using $31.00 per share which is based on the market price of Evergreen Class
A Common Stock on or around the announcement date of the Chancellor Merger
on February 19, 1997. The aggregate purchase price is summarized below:
<TABLE>
<S> <C>
EXCHANGE OF CHANCELLOR COMMON STOCK:
Shares of Chancellor Common Stock outstanding............... 18,991,513
Exchange ratio.............................................. .9091
----------
Shares of Chancellor Media Common Stock issued in connection
with the Chancellor Merger................................ 17,265,184
==========
</TABLE>
P-9
<PAGE> 130
<TABLE>
<S> <C> <C>
AGGREGATE PURCHASE PRICE:
Chancellor debt and equity assumed at fair values:
Estimated fair value of Chancellor Media Common Stock issued in
connection with the Chancellor Merger (17,265,184 shares @ $31.00
per share)......................................................... $ 535,221
7% Convertible Preferred Stock....................................... 111,604
Stock options issued by Chancellor................................... 34,825
Chancellor Interim Financing......................................... 133,000
CRBC debt and equity assumed at fair values:
Long-term debt outstanding:
Term Loan.............................................. 424,344
9 3/8% Senior Subordinated Notes due 2004.............. 200,000
8 3/4% Senior Subordinated Notes due 2007.............. 200,000
-------
Total long-term debt outstanding................................... 824,344
12 1/4% Series A Senior Cumulative Exchangeable Preferred Stock.... 117,670
12% Junior Exchangeable Preferred Stock............................ 210,774
Financial advisors, legal, accounting and other professional
fees............................................................ 29,000
----------
Aggregate purchase price........................................... $1,996,438
==========
</TABLE>
To record the aggregate purchase price of the Chancellor Merger and
eliminate certain CRBC historical balances as follows:
<TABLE>
<CAPTION>
ELIMINATION
OF CRBC
PURCHASE HISTORICAL CHANCELLOR
PRICE BALANCES MERGER NET
ALLOCATION AS ADJUSTED FINANCING ADJUSTMENT
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Current assets....................... $ 83,334 $ (83,334) $ -- $ --
Property and equipment, net(a)....... 74,321 (74,321) -- --
Intangible assets(a)................. 1,855,838 (1,421,770) -- 434,068
Other assets(b)...................... 19,641 (20,824) -- (1,183)
Current liabilities.................. (36,142) 36,142 -- --
Long-term debt....................... -- 824,344 (986,344)(c) (162,000)
Deferred tax liability............... 443 (443) -- --
Other liabilities.................... (997) 997 -- --
Redeemable preferred stock........... -- 317,162 (328,444)(d) (11,282)
Common stock......................... -- 1 -- 1
Additional paid-in capital........... -- 453,516 (681,650)(e) (228,134)
Accumulated deficit.................. -- (31,470) -- (31,470)
---------- ----------- ----------- ---------
Aggregate Purchase Price............. $1,996,438 $ -- $(1,996,438) $ --
========== =========== =========== =========
</TABLE>
- ---------------
(a) EMCLA has assumed that historical balances of net property and equipment
acquired approximate fair value for the preliminary allocation of the
purchase price. EMCLA, on a preliminary basis, has allocated the $1,855,838
of intangible assets to broadcast licenses. This preliminary allocation is
based upon historical information from prior acquisitions and appraisals
provided by the management of CRBC.
(b) The difference in the estimated fair value of other assets and the
historical balance of other assets represents CRBC's historical deferred tax
asset balance of $1,183 at June 30, 1997. The deferred tax liability will be
revalued to reflect the difference between the financial statement carrying
amount and the tax basis of CRBC acquired assets (see (4)).
(c) Reflects the adjustment to record debt assumed or incurred by Chancellor
Media of $986,344 including (i) CRBC's long-term debt of $824,344; (ii) the
Chancellor Interim Financing of $133,000 retired by EMHC through bank
borrowings under the Senior Credit Facility distributed by EMCLA to EMHC and
P-10
<PAGE> 131
(iii) additional bank borrowings of $29,000 required to finance estimated
financial advisors, legal, accounting and other professional fees.
(d) Reflects the adjustment to record the estimated fair value of redeemable
preferred stock issued (a) by CMCLA in exchange for (i) CRBC's 12 1/4%
Series A Senior Cumulative Exchangeable Preferred Stock of $117,670
(including accrued and unpaid dividends of $17,670) and (ii) CRBC's 12%
Junior Exchangeable Preferred Stock of $210,774 (including accrued and
unpaid dividends of $10,774).
(e) Reflects the portion of the Aggregate Purchase Price contributed by
Evergreen on behalf of EMCLA to consummate the Merger, including (i)
additional paid-in capital of $535,221 related to 17,265,184 shares of the
Chancellor Media Common Stock issued in connection with the Chancellor
Merger, (ii) Chancellor's 7% Convertible Preferred Stock of $111,604
(including accrued and unpaid dividends of $1,604) and (iii) the fair value
of stock options assumed by Chancellor Media of $34,825. The $34,825 fair
value of the Chancellor Stock Options was estimated using the Black-Scholes
option pricing model and the Chancellor Merger exchange ratio of .9091
applied to Chancellor's outstanding options and exercise prices. At June 30,
1997, Chancellor had 1,990,259 options outstanding with exercise prices
ranging from $7.50 to $36.75.
(4) To record a $283,445 deferred tax liability related to the difference
between the financial statement carrying amount and the tax basis of CRBC
acquired assets.
ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET RELATED TO
THE PENDING TRANSACTIONS
(5) Reflects the Pending Transactions as follows:
<TABLE>
<CAPTION>
DECREASE
PROPERTY AND IN INCREASE IN
PURCHASE EQUIPMENT, INTANGIBLE OTHER LONG-TERM
PENDING TRANSACTIONS PRICE NET(A) ASSETS, NET(A) ASSETS DEBT
-------------------- -------- ------------ --------------- -------- -----------
<S> <C> <C> <C> <C> <C>
WBAB-FM, WBLI-FM, WBGG-AM,
WHFM-FM(b)......................................... $11,000 $1,494 $ 9,506 $ -- $ 11,000
Gannett(c)........................................... 340,000 5,376 334,624 -- 340,000
KXPK-FM(d)........................................... 26,000 477 25,523 -- 26,000
Bonneville Option(e)................................. 60,000 855 59,145 -- 60,000
-------- ------ -------- ---- --------
Total........................................ $437,000 $8,202 $428,798 $ -- $437,000
======== ====== ======== ==== ========
</TABLE>
- ---------------
(a) CMCLA has assumed that historical balances of net property and equipment
acquired approximate fair value for the preliminary allocation of the
purchase price. Such amounts are based primarily on information provided by
management of the respective stations to be acquired in the Pending
Transactions. CMCLA, on a preliminary basis, has allocated the $429,043 of
intangible assets related to the Pending Transactions to broadcast licenses.
This preliminary allocation is based on historical information from prior
acquisitions.
(b) On July 1, 1996, CRBC entered into an agreement to exchange, in the SFX
Exchange, WAPE-FM and WFYV-FM in Jacksonville, Florida (which were acquired
as part of the Omni Acquisition on February 13, 1997, see 8 (e) below), and
$11,000 in cash for WBAB-FM, WBLI-FM, WGBB-AM, and WHFM-FM in Long Island.
The amounts allocated to net property and equipment and net intangible
assets (consisting of broadcast licenses) are based upon preliminary
appraisals of the assets to be acquired.
(c) On April 4, 1997, EMCLA entered into an agreement to acquire, in the Gannett
Acquisition, 5 radio stations in 3 major markets from P&S, including
WGCI-FM/AM in Chicago, KHKS-FM in Dallas, and KKBQ-FM/AM in Houston for
$340,000 in cash. The pro forma combined financial statements assume that
the transaction will close by December 26, 1997 and that no upward
adjustment in the purchase price will occur.
(d) On July 30, 1997, CRBC entered into an agreement to acquire, in the Denver
Acquisition, KXPK-FM in Denver from Evergreen Wireless LLC (which is
unrelated to Evergreen) for $26,000 in cash and paid $1,650 in escrow funds
which were classified as other assets.
(e) On August 6, 1997, Evergreen and Chancellor announced that they had paid
$3,000 to Bonneville for an option to exchange EMCLA's station WTOP-AM in
Washington and CRBC's stations KZLA-FM in Los Angeles
P-11
<PAGE> 132
and WGMS-FM in Washington plus an additional $57,000 in cash for
Bonneville's stations WNSR-FM in New York, KLDE-FM in Houston and KBIG-FM in
Los Angeles (the "Bonneville Option"). The Bonneville Option was exercised
on October 1, 1997.
(6) The Company Pro Forma Combined intangible assets of $4,220,730 consists of
the following at June 30, 1997:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
-----------
<S> <C> <C>
Broadcast licenses.......................................... 15-40 $3,663,914
Goodwill.................................................... 15-40 413,612
Other intangibles........................................... 1-40 382,179
----------
$4,459,705
Less: accumulated amortization.............................. (238,975)
----------
Net intangible assets....................................... $4,220,730
==========
</TABLE>
CMCLA discloses broadcast license value separately from goodwill and
amortizes such intangible assets over an estimated average life of 15 years,
whereas, CRBC groups all broadcast license value with goodwill and amortizes
such intangibles assets over an estimated average life of 40 years. In
connection with the application of purchase accounting for the Chancellor
Merger, broadcast license value and goodwill have been separately identified and
disclosed and amortized over an estimated average life of 15 years in accordance
with CMCLA's policies and procedures. The intangible assets have been treated in
a consistent manner for CMCLA in the Unaudited Combined Condensed Pro Forma
Financial Statements and, following the consummation of the Chancellor Merger,
will be accounted for similarly in CMCLA's financial statements.
CMCLA amortizes such intangible assets using the straight-line method over
estimated useful lives ranging from 1 to 40 years. CMCLA continually evaluates
the propriety of the carrying amount of goodwill and other intangible assets as
well as the amortization period to determine whether current events or
circumstances warrant adjustments to the carrying value and/or revised estimates
of useful lives. This evaluation consists of the projection of undiscounted
operating income before depreciation, amortization, nonrecurring charges and
interest for each of CMCLA's radio stations over the remaining amortization
periods of the related intangible assets. The projections are based on a
historical trend line of actual results since the acquisitions of the respective
stations adjusted for expected changes in operating results. To the extent such
projections indicate that undiscounted operating income is not expected to be
adequate to recover the carrying amounts of the related intangible assets, such
carrying amounts are written down by charges to expense.
P-12
<PAGE> 133
EMCLA'S HISTORICAL CONDENSED COMBINED STATEMENTS OF OPERATIONS AND ADJUSTMENTS
RELATED TO THE COMPLETED EVERGREEN AND CHANCELLOR MEDIA TRANSACTIONS
(7) EMCLA's historical condensed combined statement of operations for the year
ended December 31, 1996 and the six months ended June 30, 1997 and pro forma
adjustments related to the Completed Evergreen and Chancellor Media
Transactions are summarized below:
<TABLE>
<CAPTION>
ACQUISITIONS
--------------------------------------------------------------------
WWRC-AM WWWW-FM/
PYRAMID KYLD-FM WGAY-FM WEDR-FM WDFN-AM
EMCLA HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL
HISTORICAL 1/1-1/17(A) 1/1-4/30(B) 1/1-6/17(C) 1/1-10/18(D) 1/1-2/14(E)
---------- ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Gross revenues.......................... $337,405 $2,144 $ 2,308 $ 3,264 $ 7,933 $ 839
Less: agency commissions................ (43,555) (216) (363) (409) (1,066) (102)
-------- ------ ------- ------- ------- -----
Net revenues............................ 293,850 1,928 1,945 2,855 6,867 737
Station operating expenses excluding
depreciation and amortization......... 174,344 1,489 1,885 3,493 2,933 815
Depreciation and amortization........... 93,749 502 749 314 29 45
Corporate general and administrative
expenses.............................. 7,797 123 256 477 1,401 --
-------- ------ ------- ------- ------- -----
Operating income (loss)................. 17,960 (186) (945) (1,429) 2,504 (123)
Interest expense........................ 37,527 343 1,094 -- -- --
Other (income) expense.................. (477) (5) (97) 5 (15) --
-------- ------ ------- ------- ------- -----
Income (loss) before income taxes....... (19,090) (524) (1,942) (1,434) 2,519 (123)
Income tax expense (benefit)............ (2,896) -- -- (453) -- --
-------- ------ ------- ------- ------- -----
Income (loss) attributable to common
stock................................. $(16,194) $ (524) $(1,942) $ (981) $ 2,519 $(123)
======== ====== ======= ======= ======= =====
Broadcast Cash Flow..................... $119,506 $ 439 $ 60 $ (638) $ 3,934 $ (78)
======== ====== ======= ======= ======= =====
<CAPTION>
ACQUISITIONS
--------------------------------------------------------------------------------------
EVERGREEN
KKSF-FM/ WJLB-FM/ WUSL-FM VIACOM KZPS-FM/
KDFC-FM/AM WMXD-FM WDAS-FM/AM WIOQ-FM ACQUISITION KDGE-FM
HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL
1/1-10/31(F) 1/1-8/31(G) 1/1-12/31(H) 1/1-12/31(I) 1/1-12/31(J) 1/1-12/31(K)
------------ ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Gross revenues.......................... $13,646 $15,408 $16,809 $20,152 $66,726 $12,174
Less: agency commissions................ (1,746) (1,881) (2,142) (2,369) (10,493) (1,758)
------- ------- ------- ------- ------- -------
Net revenues............................ 11,900 13,527 14,667 17,783 56,233 10,416
Station operating expenses excluding
depreciation and amortization......... 6,358 5,721 7,759 9,519 26,598 8,585
Depreciation and amortization........... 2,351 2,415 2,763 -- 6,267 475
Corporate general and administrative
expenses.............................. -- 1,005 620 533 1,617 --
------- ------- ------- ------- ------- -------
Operating income (loss)................. 3,191 4,386 3,525 7,731 21,751 1,356
Interest expense........................ 429 1,406 79 3,001 -- --
Other (income) expense.................. (48) -- (39) 58 (741) 408
------- ------- ------- ------- ------- -------
Income (loss) before income taxes....... 2,810 2,980 3,485 4,672 22,492 948
Income tax expense (benefit)............ -- 180 -- -- 10,612 --
------- ------- ------- ------- ------- -------
Income (loss) attributable to common
stock................................. $ 2,810 $2,800 $ 3,485 $ 4,672 $11,880 $ 948
======= ======= ======= ======= ======= =======
Broadcast Cash Flow..................... $ 5,542 $7,806 $ 6,908 $ 8,264 $29,635 $ 1,831
======= ======= ======= ======= ======= =======
</TABLE>
P-13
<PAGE> 134
<TABLE>
<CAPTION>
DISPOSITIONS
----------------------------------------------------------------------------------------
WPEG-FM
WBAV-FM/AM
WRFX-FM SAN FRANCISCO
WFNZ-FM WNKS-FM WEJM-FM/AM WJZW-FM FREQUENCY KDFC-FM
HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL
1/1-12/31(I) 1/1-12/31(L) 1/1-12/31(M) 1/1-12/31(N) 1/1-12/31(O) 1/1-12/31(P)
------------ ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Gross revenues................ $(20,818) $ (3,303) $(2,690) $(8,443) $(2,736) $(5,138)
Less: agency commissions...... 2,733 337 293 1,311 358 643
-------- -------- ------- ------- ------- -------
Net revenues.................. (18,085) (2,966) (2,397) (7,132) (2,378) (4,495)
Station operating expenses
excluding depreciation and
amortization................ (9,509) (2,461) (2,217) (3,998) (3,159) (2,300)
Depreciation and
amortization................ -- (548) (1,719) (589) (3,826) (853)
Corporate general and
administrative expenses..... -- -- -- (206) -- --
-------- -------- ------- ------- ------- -------
Operating income (loss)....... (8,576) 43 1,539 (2,339) 4,607 (1,342)
Interest expense.............. -- -- -- -- -- --
Other (income) expense........ -- -- -- -- -- --
-------- -------- ------- ------- ------- -------
Income (loss) before income
taxes....................... (8,576) 43 1,539 (2,339) 4,607 (1,342)
Income tax expense
(benefit)................... -- -- -- (913) -- --
-------- -------- ------- ------- ------- -------
Income (loss) attributable to
common stock................ $ (8,576) $ 43 $ 1,539 $(1,426) $ 4,607 $(1,342)
======== ======== ======= ======= ======= =======
Broadcast Cash Flow........... $ (8,576) $ (505) $ (180) $(3,134) $ 781 $(2,195)
======== ======== ======= ======= ======= =======
<CAPTION>
DISPOSITIONS
---------------------------
EMCLA AS
WBZS-AM ADJUSTED FOR
WZHF-AM COMPLETED
KDFC-AM WLUP-FM EVERGREEN AND
HISTORICAL HISTORICAL PRO FORMA CHANCELLOR MEDIA
1/1-12/31(Q) 1/1-12/31(K) ADJUSTMENTS TRANSACTIONS
------------ ------------ ----------- ----------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Gross revenues................ $(2,240) $(17,024) $ -- $436,416
Less: agency commissions...... 36 2,332 -- (58,057)
------- -------- -------- --------
Net revenues.................. (2,204) (14,692) -- 378,359
Station operating expenses
excluding depreciation and
amortization................ (930) (11,697) -- 213,228
Depreciation and
amortization................ (30) (1,585) 55,002(s) 155,511
Corporate general and
administrative expenses..... (43) -- (5,515)(t) 8,065
------- -------- -------- --------
Operating income (loss)....... (1,201) (1,410) (49,487) 1,555
Interest expense.............. -- -- 26,595(u) 70,474
Other (income) expense........ -- -- -- (951)
------- -------- -------- --------
Income (loss) before income
taxes....................... (1,201) (1,410) (76,082) (67,968)
Income tax expense
(benefit)................... (271) -- (22,975)(v) (16,716)
------- -------- -------- --------
Income (loss) attributable to
common stock................ $ (930) $ (1,410) $(53,107) $(51,252)
======= ======== ======== ========
Broadcast Cash Flow........... $(1,274) $ (2,995) $ -- $165,131
======= ======== ======== ========
</TABLE>
P-14
<PAGE> 135
<TABLE>
<CAPTION>
ACQUISITIONS DISPOSITION
------------------------------------------------------------------ -----------
WPEG-FM
EVERGREEN WBAV-FM/AM
WUSL-FM VIACOM KZPS-FM/ WRFX-FM
WDAS-FM/AM WIOQ-FM ACQUISITION KDGE-FM WFNZ-FM
EMCLA HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL
SIX MONTHS ENDED JUNE 30, 1997 HISTORICAL 1/1-4/30(H) 1/1-5/15(I) 1/1-6/30(J) 1/1-6/30(K) 1/1-5/15(I)
------------------------------ ---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues.......................... $216,177 $5,028 $7,088 $38,972 $ 6,613 $(7,788)
Less: agency commissions................ (27,916) (680) (829) (5,470) (952) 1,029
-------- ------ ------ ------- ------- -------
Net revenues............................ 188,261 4,348 6,259 33,502 5,661 (6,759)
Station operating expenses excluding
depreciation and amortization.......... 111,162 2,533 3,649 14,936 4,474 (3,569)
Depreciation and amortization........... 53,912 875 -- 2,279 236 --
Corporate general and administrative
expenses............................... 5,651 172 141 682 -- --
-------- ------ ------ ------- ------- -------
Operating income (loss)................. 17,536 768 2,469 15,605 951 (3,190)
Interest expense........................ 22,741 19 990 -- -- --
Other (income) expense.................. (13,323) 863 -- -- 4 --
-------- ------ ------ ------- ------- -------
Income (loss) before income
taxes.................................. 8,118 (114) 1,479 15,605 947 (3,190)
Income tax expense
(benefit).............................. 4,259 -- -- 5,892 -- --
-------- ------ ------ ------- ------- -------
Income (loss) attributable to common
stock.................................. $ 3,859 $ (114) $1,479 $ 9,713 $ 947 $(3,190)
======== ====== ====== ======= ======= =======
Broadcast cash flow..................... $ 77,099 $1,815 $2,610 $18,566 $ 1,187 $(3,190)
======== ====== ====== ======= ======= =======
<CAPTION>
DISPOSITIONS
----------------------------------------------------------------------------------
WEJM- SAN
FM/AM FRANCISCO
WNKS-FM WPNT-FM HISTORICAL WJZW-FM FREQUENCY KDFC-FM
HISTORICAL HISTORICAL 1/1- HISTORICAL HISTORICAL HISTORICAL
SIX MONTHS ENDED JUNE 30, 1997 1/1-5/15(L) 5/30-6/19(R) 6/30(M) 1/1-6/30(N) 1/1-6/30(O) 1/1-1/31(P)
------------------------------ ----------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues.......................... $(1,332) $(567) $(1,153) $(4,137) $(1,341) $(278)
Less: agency commissions................ 142 93 119 567 174 26
------- ----- ------- ------- ------- -----
Net revenues............................ (1,190) (474) (1,034) (3,570) (1,167) (252)
Station operating expenses excluding
depreciation and amortization.......... (994) (285) (1,001) (2,161) (1,614) (224)
Depreciation and amortization........... (212) (279) (289) (315) (214) --
Corporate general and administrative
expenses............................... -- -- -- (70) -- --
------- ----- ------- ------- ------- -----
Operating income (loss)................. 16 90 256 (1,024) 661 (28)
Interest expense........................ -- -- -- -- -- --
Other (income) expense.................. -- -- -- -- -- --
------- ----- ------- ------- ------- -----
Income (loss) before income
taxes.................................. 16 90 256 (1,024) 661 (28)
Income tax expense
(benefit).............................. -- -- -- (260) -- --
------- ----- ------- ------- ------- -----
Income (loss) attributable to common
stock.................................. $ 16 $ 90 $ 256 $ (764) $ 661 $ (28)
======= ===== ======= ======= ======= =====
Broadcast cash flow..................... $ (196) $(189) $ (33) $(1,409) $ 447 $ (28)
======= ===== ======= ======= ======= =====
<CAPTION>
DISPOSITIONS EMCLA AS
------------------------- ADJUSTED FOR
COMPLETED
WBZS-AM EVERGREEN
WZHF-AM AND
KDFC-AM WLUP-FM CHANCELLOR
HISTORICAL HISTORICAL PRO FORMA MEDIA
SIX MONTHS ENDED JUNE 30, 1997 1/1-6/30(Q) 1/1-6/30(K) ADJUSTMENTS TRANSACTIONS
------------------------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Gross revenues.......................... $(1,091) $(6,613) $ -- $249,578
Less: agency commissions................ 23 890 -- (32,784)
------- ------- -------- --------
Net revenues............................ (1,068) (5,723) -- 216,794
Station operating expenses excluding
depreciation and amortization.......... (665) (5,249) -- 120,992
Depreciation and amortization........... (54) (258) 21,366(s) 77,047
Corporate general and administrative
expenses............................... (18) -- (777)(t) 5,781
------- ------- -------- --------
Operating income (loss)................. (331) (216) (20,589) 12,974
Interest expense........................ -- -- 10,319(u) 34,069
Other (income) expense.................. -- -- -- (12,456)
------- ------- -------- --------
Income (loss) before income
taxes.................................. (331) (216) (30,908) (8,639)
Income tax expense
(benefit).............................. (98) -- (9,280)(v) 513
------- ------- -------- --------
Income (loss) attributable to common
stock.................................. $ (233) $ (216) $(21,628) $ (9,152)
======= ======= ======== ========
Broadcast cash flow..................... $ (403) $ (474) $ -- $ 95,802
======= ======= ======== ========
</TABLE>
P-15
<PAGE> 136
(a) On January 17, 1996, EMCLA acquired Pyramid Communications, Inc.
("Pyramid"), a radio broadcasting company with 12 radio stations (9 FM and 3
AM) in five markets (Chicago, Philadelphia, Boston, Charlotte, and Buffalo)
(the "Pyramid Acquisition"). The total purchase price, including acquisition
costs, allocated to net assets acquired was approximately $316,343 of which
$315,500 was financed through additional borrowings under EMCLA's prior
senior credit facility. The historical financial data of Pyramid for the
period of January 1, 1996 to January 17, 1996 excludes the combined net
losses of approximately $60 for WHTT-FM, WHTT-AM and WSJZ-FM in Buffalo (the
"Buffalo Transactions") which were sold in 1996 for $32,000 in cash.
(b) On August 14, 1996, EMCLA acquired KYLD-FM in San Francisco for $44,000 in
cash. EMCLA had previously been operating KYLD-FM under a time brokerage
agreement since May 1, 1996.
(c) On November 26, 1996, EMCLA exchanged WKLB-FM in Boston (which EMCLA
acquired on May 3, 1996 for $34,000 in cash) for WGAY-FM in Washington, D.C.
On April 3, 1997, EMCLA exchanged, in the Greater Media Exchange, WQRS-FM in
Detroit (which EMCLA acquired on April 3, 1997 for $32,000 in cash) for
WWRC-AM in Washington, D.C. and $9,500 in cash. The net purchase price to
EMCLA of WWRC-AM was therefore $22,500. EMCLA had previously been operating
WGAY-FM and WWRC-AM under time brokerage agreements since June 17, 1996.
(d) On October 18, 1996, EMCLA acquired WEDR-FM in Miami for $65,000 in cash.
(e) On January 31, 1997, EMCLA acquired, in the WWWW/WDFN Acquisition, WWWW-FM
and WDFN-AM in Detroit from CRBC for $30,000 in cash (of which $1,500 was
paid as escrow funds in January 1996). EMCLA had previously provided certain
sales and promotional functions to WWWW-FM and WDFN-AM under a joint sales
agreement since February 14, 1996 and subsequently operated the stations
under a time brokerage agreement since April 1, 1996.
(f) On January 31, 1997, EMCLA acquired, in the KKSF/KDFC Acquisition, KKSF-FM
and KDFC-FM/AM in San Francisco for $115,000 in cash (of which $10,000 was
paid as escrow funds in November 1996). EMCLA had previously been operating
the stations under a time brokerage agreement since November 1, 1996.
(g) On April 1, 1997, EMCLA acquired, in the Secret/Detroit Acquisition, WJLB-FM
and WMXD-FM in Detroit for $168,000 in cash. EMCLA had previously been
operating the stations under a time brokerage agreement since September 1,
1996.
(h) On May 1, 1997, EMCLA acquired, in the Beasley Acquisition, WDAS-FM/AM in
Philadelphia for $103,000 in cash.
(i) On May 15, 1997, EMCLA exchanged, in the EZ Exchange, 5 of its 6 stations in
the Charlotte market (WPEG-FM, WBAV-FM/AM, WRFX-FM and WFNZ-AM) for WUSL-FM
and WIOQ-FM in Philadelphia.
(j) On July 2, 1997, EMCLA acquired, in the Evergreen Viacom Acquisition,
WLTW-FM and WAXQ-FM in New York and WMZQ-FM, WJZW-FM, WZHF-AM, and WBZS-AM
in Washington, D.C. for approximately $612,388 in cash including various
other direct acquisition costs. The Evergreen Viacom Acquisition was
financed with (i) bank borrowings under the EMCLA Senior Credit Facility of
$552,559; (ii) $53,750 in escrow funds paid by Evergreen on February 19,
1997 and classified as other assets at June 30, 1997 and (iii) $6,079
financed through working capital. In June 1997, Evergreen issued 5,990,000
shares of $3.00 Convertible Exchangeable Preferred Stock for net proceeds of
approximately $287,808 which were used to repay borrowings under the EMCLA
Senior Credit Facility and subsequently were reborrowed on July 2, 1997 and
contributed to EMCLA by Evergreen as part of the financing of the Evergreen
Viacom Acquisition. The assets of WJZW-FM, WZHF-AM, and WBZS-AM in
Washington, D.C. are classified as assets held for sale in connection with
the purchase price allocation of the Evergreen Viacom Acquisition. The
Viacom results of operations for the year ended December 31, 1996 reflect
the financial performance of WAXQ-FM for six months of the year that the
station was
P-16
<PAGE> 137
operated by Viacom (July 1, 1996 to December 31, 1996) combined with net
income of $851 for the first half of the year when the station was under
prior ownership.
(k) On October 7, 1997, CMCLA acquired, in the Bonneville Acquisition, KZPS-FM
and KDGE-FM in Dallas for $83,500 in cash. On June 29, 1997, EMCLA paid
$8,350 in escrow funds which are classified as other assets at June 30,
1997. On July 14, 1997, EMCLA completed the disposition of WLUP-FM in
Chicago to Bonneville and placed $80,000 in a trust pending the completion
of the deferred exchange of the WLUP-FM in Chicago and on October 7, 1997,
paid $3,500 in cash to Bonneville for KZPS-FM and KDGE-FM in Dallas (the
"Chicago/Dallas Exchange"). The Chicago/Dallas Exchange was accounted for
as a like-kind exchange and no gain or loss was recognized upon the
consummation of the exchange. EMCLA began operating KZPS-FM and KDGE-FM
under a time brokerage agreement on August 1, 1997.
(l) On May 15, 1997, EMCLA sold, in the EZ Sale, WNKS-FM in Charlotte for
$10,000 in cash.
(m) On June 3, 1997, EMCLA sold, in the Crawford Disposition, WEJM-FM in
Chicago for $14,750 in cash. On August 26, 1997, EMCLA sold, in the Douglas
Chicago Disposition, WEJM-AM in Chicago for $7,500 in cash.
(n) On July 7, 1997, EMCLA sold, in the ABC/Washington Disposition, WJZW-FM in
Washington (acquired as part of the Evergreen Viacom Acquisition) for
$68,000 in cash.
(o) On July 7, 1997, EMCLA sold, in the San Francisco Frequency Disposition,
the San Francisco 107.7 MHz FM dial position and transmission facility and
the call letters from CRBC's KSAN-FM in San Francisco for $44,000 in cash.
(p) On January 31, 1997, EMCLA acquired, in the KKSF/KDFC Acquisition, KKSF-FM
and KDFC-FM/AM in San Francisco for $115,000 in cash. EMCLA had previously
been operating KKSF-FM and KDFC-FM/AM under a time brokerage agreement
since November 1, 1996. On July 21, 1997, EMCLA sold, in the
Bonneville/KDFC Disposition, KDFC-FM in San Francisco for $50,000 in cash.
The assets of KDFC-FM are classified as assets held for sale in connection
with the purchase price allocation of the acquisition of
KKSF-FM/KDFC-FM/AM. Accordingly, KDFC-FM net income of approximately $791
for the period February 1, 1997 through June 30, 1997 has been excluded
from EMCLA's historical condensed statement of operations. Therefore, the
KDFC-FM condensed statement of operations includes the results of
operations for January 1, 1997 through January 31, 1997 (the time brokerage
agreement holding period in 1997) for the six months ended June 30, 1997.
(q) On August 13, 1997, EMCLA sold, in the Douglas AM Dispositions, WBZS-AM and
WZHF-AM in Washington (acquired as part of the Evergreen Viacom
Acquisition) and KDFC-AM in San Francisco for $5,500, $7,500 and $5,000,
respectively, payable in the form of a promissory note.
(r) On May 30, 1997, EMCLA acquired, in the Century Acquisition, WPNT-FM in
Chicago for $75,750 in cash (including $2,000 for the purchase of the
station's accounts receivable) of which $5,500 was paid as escrow funds in
July 1996. On June 19, 1997, EMCLA sold, in the Bonneville/WPNT
Disposition, WPNT-FM in Chicago for $75,000 in cash and recognized a gain
of $500.
P-17
<PAGE> 138
(s) Reflects incremental amortization related to the Completed Evergreen
Transactions and is based on the following allocation to intangible assets:
<TABLE>
<CAPTION>
INCREMENTAL INTANGIBLE HISTORICAL ADJUSTMENT
COMPLETED EVERGREEN TRANSACTIONS AMORTIZATION ASSETS, AMORTIZATION AMORTIZATION FOR NET
YEAR ENDED DECEMBER 31, 1996 PERIOD(I) NET EXPENSE(I) EXPENSE INCREASE
-------------------------------- ------------ ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Pyramid Acquisition (ii)........ 1/1-1/17 $ 325,871 $ 1,026 $ 409 $ 617
KYLD-FM......................... 1/1-8/14 43,659 1,811 640 1,171
WEDR-FM......................... 1/1-10/18 63,757 3,400 -- 3,400
WGAY-FM......................... 1/1-11/26 32,538 1,964 -- 1,964
WWWW-FM/WDFN-AM................. 1/1-12/31 26,590 1,773 7 1,766
KKSF-FM (iii)................... 1/1-12/31 58,698 3,913 868 3,045
WJLB-FM/WMXD-FM................. 1/1-12/31 165,559 11,037 2,145 8,892
WWRC-AM......................... 1/1-12/31 16,808 1,121 -- 1,121
WDAS-FM/AM...................... 1/1-12/31 98,185 6,546 2,470 4,076
Evergreen Viacom Acquisition.... 1/1-12/31 518,093 34,540 5,606 28,934
Chicago/Dallas Exchange......... 1/1-12/31 245 16 -- 16
---------- ------- ------- -------
Total........................... $1,350,003 $67,147 $12,145 $55,002
========== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
INCREMENTAL INTANGIBLE HISTORICAL ADJUSTMENT
COMPLETED EVERGREEN TRANSACTIONS AMORTIZATION ASSETS, AMORTIZATION AMORTIZATION FOR NET
SIX MONTHS ENDED JUNE 30, 1997 PERIOD(I) NET EXPENSE(I) EXPENSE INCREASE
-------------------------------- ------------ ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
WWWW-FM/WDFN-AM................... 1/1-1/31 $ 26,590 $ 148 $ -- $ 148
KKSF-FM (iii)..................... 1/1-1/31 58,698 326 -- 326
WJLB-FM/WMXD-FM................... 1/1-3/31 165,559 2,759 -- 2,759
WWRC-AM........................... 1/1-4/2 16,808 286 -- 286
WDAS-FM/AM........................ 1/1-4/30 98,185 2,182 820 1,362
Evergreen Viacom Acquisition...... 1/1-6/30 518,093 17,270 793 16,477
Chicago/Dallas Exchange........... 1/1-6/30 245 8 -- 8
-------- ------- ------ -------
Total............................. $884,178 $22,979 $1,613 $21,366
======== ======= ====== =======
</TABLE>
- ---------------
(i) Intangible assets are amortized on a straight-line basis over an
estimated average 15 year life. The incremental amortization period
represents the period of the year that the station was not owned by
Evergreen.
(ii) Intangible assets for the Pyramid Acquisition of $325,871 includes
$61,218 resulting from the recognition of deferred tax liabilities and
excludes approximately $29,915 of the purchase price allocated to the
Buffalo Stations which were sold during the year ended December 31,
1996.
(iii) Intangible assets for KKSF-FM excludes (1) $50,000 of the purchase
price allocated to KDFC-FM which has been classified as assets held
for sale, (2) $1,500 to be reimbursed by the buyers of KDFC-FM for
costs incurred in connection with relocating KKSF and (3) $4,802 of
the purchase price allocated to KDFC-AM which was sold, in the
Douglas AM Dispositions, on August 13, 1997.
Historical depreciation expense of the Completed Evergreen Transactions is
assumed to approximate depreciation expense on a pro forma basis. Actual
depreciation and amortization may differ based upon final purchase price
allocations.
(t) Reflects the elimination of duplicate corporate expenses of $5,515 for the
year ended December 31, 1996 and $777 for the six months ended June 30, 1997
related to the Completed Evergreen Transactions.
P-18
<PAGE> 139
(u) Reflects the adjustment to interest expense in connection with the
consummation of the Completed Evergreen Transactions, the 1996 Evergreen
Offering and the amendment and restatement of EMCLA's senior credit
agreement:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------
<S> <C> <C>
Additional bank borrowings related to:
Completed Acquisitions.......................... $1,661,059 $1,187,059
Completed Dispositions.......................... (381,250) (349,250)
New Loan Fees................................... 10,473 10,473
---------- ----------
Total additional bank borrowings.................. $1,290,282 $ 848,282
========== ==========
Interest expense at 7.0%.......................... $ 67,341 $ 20,283
Less: historical interest expense................. (5,596) (674)
---------- ----------
Net increase in interest expense.................. 61,745 19,609
Reduction in interest expense on bank debt related
to the application of net proceeds of the
following at 7.0%:
1996 Evergreen Offering contributed to EMCLA of
$264,236 for the period January 1, 1996 to
October 22, 1996............................. (15,003) --
Convertible Preferred Stock Offering contributed
to EMCLA of $287,808 for the year ended
December 31, 1996 and for the period January
1, 1997 to June 16, 1997..................... (20,147) (9,290)
---------- ----------
Total adjustment for net increase in interest
expense......................................... $ 26,595 $ 10,319
========== ==========
</TABLE>
(v) Reflects the income tax benefit related to pro forma adjustments. The
adjustment to income taxes reflects the application of the estimated
effective tax rate on a pro forma basis to income (loss) before income
taxes for historical and pro forma adjustment amounts.
P-19
<PAGE> 140
ADJUSTMENTS TO CRBC'S HISTORICAL CONDENSED COMBINED STATEMENT OF OPERATIONS
RELATED TO THE COMPLETED CHANCELLOR TRANSACTIONS
(8) CRBC's historical condensed combined statement of operations for the year
ended December 31, 1996 and the six months ended June 30, 1997 and pro forma
adjustments related to the Completed Chancellor Transactions is summarized
below:
<TABLE>
<CAPTION>
ACQUISITIONS
-----------------------------------------------------------------------------------------------
KIMN-FM/
SHAMROCK KALC-FM COLFAX KOOL-FM SUNDANCE OMNI
CRBC HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL
YEAR ENDED DECEMBER 31, 1996(A) HISTORICAL 1/1-2/14(B) 1/1-3/31(C) 1/1-12/31(D) 1/1-3/31(D) 1/1-9/12(D) 1/1-6/30(E)
- ------------------------------- ---------- ----------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross revenues................. $203,188 $ 9,698 $2,010 $51,745 $1,665 $13,844 $ 8,710
Less: agency commissions....... (24,787) (1,234) (259) (6,626) (234) (1,740) (1,211)
-------- ------- ------ ------- ------ ------- -------
Net revenues................... 178,401 8,464 1,751 45,119 1,431 12,104 7,499
Station operating expenses
excluding depreciation and
amortization.................. 111,210 7,762 1,523 28,584 852 7,678 4,985
Depreciation and
amortization.................. 20,877 595 511 4,494 229 1,242 1,458
Corporate general and
administrative expenses....... 4,845 2,215 -- -- -- -- --
Stock option compensation...... 3,800 -- -- -- -- -- --
-------- ------- ------ ------- ------ ------- -------
Operating income (loss)........ 37,669 (2,108) (283) 12,041 350 3,184 1,056
Interest expense............... 35,704 1,380 -- 4,369 299 -- --
Other (income) expense......... 68 49 312 (179) -- 25 (404)
-------- ------- ------ ------- ------ ------- -------
Income (loss) before income
taxes......................... 1,897 (3,537) (595) 7,851 51 3,159 1,460
Income tax expense (benefit)... 4,612 -- -- -- -- -- --
-------- ------- ------ ------- ------ ------- -------
Net income (loss).............. (2,715) (3,537) (595) 7,851 51 3,159 1,460
Preferred stock dividends...... 11,557 -- -- -- -- -- --
-------- ------- ------ ------- ------ ------- -------
Income (loss) attributable to
common stock.................. $(14,272) $(3,537) $ (595) $ 7,851 $ 51 $ 3,159 $ 1,460
======== ======= ====== ======= ====== ======= =======
Broadcast Cash Flow............ $ 67,191 $ 702 $ 228 $16,535 $ 579 $ 4,426 $ 2,514
======== ======= ====== ======= ====== ======= =======
<CAPTION>
ACQUISITIONS DISPOSITIONS
--------------------------- -------------------------------------------------------
CHANCELLOR
VIACOM WWWW-FM/ WMIL-FM/
KSTE-FM ACQUISITION WDFN-AM KTBZ-FM WOKY-AM WDRQ-FM
HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL
YEAR ENDED DECEMBER 31, 1996(A 1/1-7/31(F) 1/1-12/31(G) 1/1-2/14(H) 1/1-2/14(C) 1/1-12/31(I) 1/1-12/31(J)
- ------------------------------ ------------ ------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues................ $1,411 $58,806 $(839) $(399) $(9,552) $(6,743)
Less: agency commissions...... (149) (9,588) 102 48 1,070 1,055
------ ------- ----- ----- ------- -------
Net revenues.................. 1,262 49,218 (737) (351) (8,482) (5,688)
Station operating expenses
excluding depreciation and
amortization................. 1,244 25,416 (815) (521) (4,896) (4,530)
Depreciation and
amortization................. 375 4,640 (45) (42) (539) (354)
Corporate general and
administrative expenses...... -- 1,501 -- -- -- (178)
Stock option compensation..... -- -- -- -- -- --
------ ------- ----- ----- ------- -------
Operating income (loss)....... (357) 17,661 123 212 (3,047) (626)
Interest expense.............. -- 6,374 -- -- -- --
Other (income) expense........ -- -- -- -- (19) --
------ ------- ----- ----- ------- -------
Income (loss) before income
taxes........................ (357) 11,287 123 212 (3,028) (626)
Income tax expense (benefit).. -- 4,748 -- -- -- (326)
------ ------- ----- ----- ------- -------
Net income (loss)............. (357) 6,539 123 212 (3,028) (300)
Preferred stock dividends..... -- -- -- -- -- --
------ ------- ----- ----- ------- -------
Income (loss) attributable to
common stock................. $ (357) $ 6,539 $ 123 $ 212 $(3,028) $ (300)
====== ======= ===== ===== ======= =======
Broadcast Cash Flow........... $ 18 $23,802 $ 78 $ 170 $(3,586) $(1,158)
====== ======= ===== ===== ======= =======
<CAPTION>
PRO FORMA
ADJUSTMENTS CRBC AS
FOR THE ADJUSTED FOR
COMPLETED COMPLETED
CHANCELLOR CHANCELLOR
YEAR ENDED DECEMBER 31, 1996(A TRANSACTIONS TRANSACTIONS
- ------------------------------ ------------ ------------
<S> <C> <C>
Gross revenues................ $ (5,022)(k) $328,522
Less: agency commissions...... -- (43,553)
-------- --------
Net revenues.................. (5,022) 284,969
Station operating expenses
excluding depreciation and
amortization................. (5,763)(k) 172,729
Depreciation and
amortization................. 15,022(l) 46,909
(1,554)(m)
Corporate general and
administrative expenses...... (2,726)(n) 5,657
Stock option compensation..... -- 3,800
-------- --------
Operating income (loss)....... (10,001) 55,874
Interest expense.............. 24,554(o) 72,680
Other (income) expense........ -- (148)
-------- --------
Income (loss) before income
taxes........................ (34,555) (16,658)
Income tax expense (benefit).. (11,697)(p) (2,663)
-------- --------
Net income (loss)............. (22,858) (13,995)
Preferred stock dividends..... 26,843(q) 38,400
-------- --------
Income (loss) attributable to
common stock................. $(49,701) $(52,395)
======== ========
Broadcast Cash Flow........... $ 741 $112,240
======== ========
</TABLE>
P-20
<PAGE> 141
<TABLE>
<CAPTION>
ACQUISITIONS DISPOSITIONS
------------------------- ------------ PRO FORMA
CHANCELLOR ADJUSTMENTS CRBC AS
VIACOM FOR THE ADJUSTED FOR
COLFAX ACQUISITION WDRQ-FM COMPLETED COMPLETED
CRBC HISTORICAL HISTORICAL HISTORICAL CHANCELLOR CHANCELLOR
SIX MONTHS ENDED JUNE 30, 1997(A) HISTORICAL 1/1-1/23(D) 1/1-6/30(G) 1/1-6/30(J) TRANSACTIONS TRANSACTIONS
- ------------------------------------------ ---------- ----------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues............................ $147,015 $3,183 $29,214 $(2,395) $ (828)(k) $176,189
Less: agency commissions.................. (18,073) (384) (4,046) 251 -- (22,252)
-------- ------ ------- ------- -------- --------
Net revenues.............................. 128,942 2,799 25,168 (2,144) (828) 153,937
Station operating expenses excluding
depreciation and amortization........... 79,852 1,872 13,326 (1,986) (1,231)(k) 91,833
Depreciation and amortization............. 16,714 -- 2,370 (186) 4,421(l) 23,237
(82)(m)
Corporate general and administrative
expenses................................ 3,934 -- 520 (42) (354)(n) 4,058
Merger expense............................ 2,515 -- -- -- -- 2,515
Stock option compensation................. 1,900 -- -- -- -- 1,900
-------- ------ ------- ------- -------- --------
Operating income (loss)................... 24,027 927 8,952 70 (3,582) 30,394
Interest expense.......................... 23,908 -- 3,178 -- 8,540(o) 35,626
Other (income) expense.................... (1,607) -- -- -- -- (1,607)
-------- ------ ------- ------- -------- --------
Income (loss) before income taxes......... 1,726 927 5,774 70 (12,122) (3,625)
Income tax expense (benefit).............. 3,327 -- 1,558 18 (4,353) 550
-------- ------ ------- ------- -------- --------
Net income (loss)......................... (1,601) 927 4,216 52 (7,769) (4,175)
Preferred stock dividends................. 18,122 -- -- -- 1,504(q) 19,626
-------- ------ ------- ------- -------- --------
Income (loss) attributable to common
stock................................... $(19,723) $ 927 $ 4,216 $ 52 $ (9,273) $(23,801)
======== ====== ======= ======= ======== ========
Broadcast Cash Flow....................... $ 49,090 $ 927 $11,842 $ (158) $ 403 $ 62,104
======== ====== ======= ======= ======== ========
</TABLE>
P-21
<PAGE> 142
(a) On November 22, 1996, CRBC acquired WKYN-AM in Cincinnati for $1,400 in
cash. CRBC had been previously operating WKYN-AM under a time brokerage
agreement since January 1, 1996. Therefore, CRBC's historical results of
operations for the year ended December 31, 1996 and the six months ended
June 30, 1997 include the results of operations of WKYN-AM.
(b) On February 14, 1996, CRBC acquired Shamrock Broadcasting, Inc., a radio
broadcasting company with 19 radio stations (11 FM and 8 AM) located in 10
markets (Los Angeles, New York, San Francisco, Houston, Atlanta, Detroit,
Denver, Minneapolis-St. Paul, Phoenix and Pittsburgh). The total purchase
price, including acquisition costs, allocated to net assets acquired was
approximately $408,000.
(c) On July 31, 1996, CRBC exchanged KTBZ-FM in Houston (which was acquired on
February 14, 1996 as part of the Shamrock Acquisition) and $5,600 in cash
for KIMN-FM and KALC-FM in Denver. CRBC had previously entered into a time
brokerage agreement to sell substantially all of the broadcast time of
KTBZ-FM effective February 14, 1996. In addition, CRBC had been previously
operating KIMN-FM and KALC-FM under a time brokerage agreement since April
1, 1996.
(d) On January 23, 1997, CRBC acquired Colfax Communications, a radio
broadcasting company, with 12 radio stations (8 FM and 4 AM) located in 4
markets (Minneapolis-St. Paul, Phoenix, Washington, D.C. and Milwaukee
markets). The total purchase price, including acquisition costs, allocated
to net assets acquired was approximately $383,700. The Colfax Acquisition
was financed through (i) a private placement by CRBC of the CRBC 12% Junior
Exchangeable Preferred Stock for net proceeds of $191,817; (ii) a private
placement by Chancellor of $110,000 of 7% Convertible Preferred Stock for
net proceeds of $105,546; (iii) additional bank borrowings under CRBC's
previous senior credit agreement of $65,937 and (iv) $20,400 in escrow
funds. The historical financial data of Colfax for the year ended December
31, 1996 excludes the combined net income of approximately $224 for KLTB-FM,
KARO-FM and KIDO-AM in Boise, Idaho which CRBC did not acquire as part of
the Colfax Acquisition. The Colfax historical condensed statement of
operations for the year ended December 31, 1996, does not include the
results of operations of the following: (i) KOOL-FM for the period January
1, 1996 to March 31, 1996 and (ii) WMIL-FM and WOKY-AM in Milwaukee and
KZON-FM, KISO-AM, KYOT-FM and KOY-AM in Phoenix which were owned and
operated by Sundance Broadcasting, Inc. ("Sundance") for the period January
1, 1996 to September 12, 1996. On March 31, 1997, CRBC sold WMIL-FM and
WOKY-AM in Milwaukee for $41,253 in cash. The assets of WMIL-FM and WOKY-AM
are classified as assets held for sale in connection with the purchase price
allocation of the Colfax Acquisition. Accordingly, WMIL-FM and WOKY-AM net
income of approximately $41 for the period January 23, 1997 through March
31, 1997 has been excluded from the Colfax historical condensed statement of
operations for the six months ended June 30, 1997.
(e) On February 13, 1997, CRBC acquired substantially all of the assets and
assumed certain liabilities of the OmniAmerica Group including 8 radio
stations (7 FM and 1 AM) located in 3 markets (Orlando, West Palm Beach and
Jacksonville). The total purchase price, including acquisition costs,
allocated to net assets acquired was approximately $181,046. The Omni
Acquisition was financed through (i) additional bank borrowings under CRBC's
previous senior credit agreement of $166,046 and (ii) the issuance of
555,556 shares of the Chancellor Class A Common Stock valued at $15,000 or
$27.00 per share which was contributed by CRBC by Chancellor. Prior to the
consummation of the Omni Acquisition, CRBC had entered into an agreement to
operate the stations under a time brokerage agreement effective July 1,
1996. Additionally, prior to consummation of the West Palm Beach Exchange
(see (f) below) on March 28, 1997 and the SFX Exchange (see note 14(a)),
CRBC entered into time brokerage agreements to sell substantially all of the
broadcast time of WEAT-FM/AM and WOLL-FM in West Palm Beach and WAPE-FM and
WFYV-FM in Jacksonville effective July 1, 1996. The historical financial
data of Omni for the period January 1, 1996 to June 30, 1996 represents the
results of operations for the Orlando stations (WOMX-FM, WXXL-FM and
WJHM-FM). The results of operations for WEAT-FM/AM and WOLL-FM in West Palm
Beach and WAPE-FM and WFYV-FM in Jacksonville are not included as the
acquisition and disposition of these stations is deemed to have occurred on
January 1, 1996.
P-22
<PAGE> 143
(f) On March 28, 1997, CRBC exchanged, in the West Palm Beach Exchange,
WEAT-FM/AM and WOLL-FM in West Palm Beach, Florida, which were acquired as
part of the Omni Acquisition, for KSTE-FM in Sacramento and $33,000 in cash.
CRBC had previously been operating KSTE-FM under a time brokerage agreement
since August 1, 1996.
(g) On July 2, 1997, CRBC acquired, in the Chancellor Viacom Acquisition,
KIBB-FM and KYSR-FM in Los Angeles, WLIT-FM in Chicago and WDRQ-FM in
Detroit for approximately $500,789 in cash including various other direct
acquisition costs. The Chancellor Viacom Acquisition was financed with (i)
bank borrowings of $273,159 under the CRBC Restated Credit Agreement; (ii)
borrowings under the Chancellor Interim Financing of $168,300 which was
contributed to CRBC by Chancellor; (iii) escrow funds of $53,750 paid by
CRBC on February 19, 1997 and classified as other assets at June 30, 1997
and (iv) $5,580 financed through working capital. The assets of WDRQ-FM in
Detroit are classified as assets held for sale in connection with the
purchase price allocation of the Chancellor Viacom Acquisition.
(h) On January 31, 1997, CRBC sold, in the WWWW/WDFN Disposition, WWWW-FM and
WDFN-AM in Detroit, which were acquired on February 14, 1996 as part of the
Shamrock Acquisition, to EMCLA for $30,000 in cash. Prior to the completion
of the sale, CRBC had entered into a joint sales agreement effective
February 14, 1996 and a time brokerage agreement effective April 1, 1996 to
sell substantially all of the broadcast time of WWWW-FM and WDFN-AM to EMCLA
pending the completion of the sale.
(i) On March 31, 1997, CRBC sold, in the Milwaukee Disposition, WMIL-FM and
WOKY-AM in Milwaukee, which were acquired as part of the Colfax Acquisition
on January 23, 1997, for $41,253 in cash.
(j) On August 11, 1997, CRBC sold, in the ABC/Detroit Disposition, WDRQ-FM in
Detroit (acquired as part of the Chancellor Viacom Acquisition) for $37,000
in cash.
(k) Reflects the elimination of time brokerage agreement fees received and paid
by CRBC as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 MARKET PERIOD REVENUE EXPENSE
- --------------------------------------------------- --------------- ------------ ------- -------
<S> <C> <C> <C> <C>
WWWW-FM/WDFN-AM.................................... Detroit 2/14 -- 12/31 $(2,937) $ (598)
KTBZ-FM............................................ Houston 2/14 -- 7/31 (1,113) (265)
WOMX-FM, WXXL-FM, WJHM-FM.......................... Orlando 7/1 -- 12/31 -- (3,900)
WEAT-FM/AM, WOLL-FM................................ West Palm Beach 7/1 -- 12/31 (972) (1,000)
------- -------
Total adjustment for decrease in gross
revenues and expenses $(5,022) $(5,763)
======= =======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997 MARKET PERIOD REVENUE EXPENSE
- --------------------------------------------------- --------------- ------------ ------- -------
<S> <C> <C> <C> <C>
WWWW-FM/WDFN-AM.................................... Detroit 1/1 -- 1/31 $ (235) $ (16)
WOMX-FM, WXXL-FM, WJHM-FM.......................... Orlando 1/1 -- 2/13 -- (911)
WEAT-FM/AM, WOLL-FM................................ West Palm Beach 1/1 -- 3/28 (593) (304)
------- -------
Total adjustment for decrease in gross
revenues and expenses $ (828) $(1,231)
======= =======
</TABLE>
Gross revenues of the Completed Chancellor Transactions exclude any time
brokerage agreement payments received from CRBC.
P-23
<PAGE> 144
(l) Reflects incremental amortization related to the Completed Chancellor
Transactions and is based on the following allocation to intangible assets:
<TABLE>
<CAPTION>
INCREMENTAL HISTORICAL ADJUSTMENT
COMPLETED CHANCELLOR TRANSACTIONS AMORTIZATION INTANGIBLE AMORTIZATION AMORTIZATION FOR NET
YEAR ENDED DECEMBER 31, 1996 PERIOD ASSETS, NET EXPENSE (1) EXPENSE INCREASE
--------------------------------- ------------ ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Shamrock......................... 1/1 - 2/14 $ 361,425 $ 1,104 $ 393 $ 711
KIMN-FM/KALC-FM.................. 1/1 - 3/31 8,285 52 341 (289)
Omni............................. 1/1 - 12/31 171,837 4,296 161 4,135
Colfax........................... 1/1 - 12/31 317,894 7,947 3,861 4,086
KSTE-FM.......................... 1/1 - 12/31 (32,475) (812) -- (812)
Chancellor Viacom Acquisition.... 1/1 - 12/31 451,690 11,292 4,101 7,191
---------- ------- ------ -------
Total.................. $1,278,656 $23,879 $8,857 $15,022
---------- ------- ------ -------
</TABLE>
<TABLE>
<CAPTION>
INCREMENTAL HISTORICAL ADJUSTMENT
COMPLETED CHANCELLOR TRANSACTIONS AMORTIZATION INTANGIBLE AMORTIZATION AMORTIZATION FOR NET
SIX MONTHS ENDED JUNE 30, 1997 PERIOD ASSETS, NET EXPENSE (1) EXPENSE INCREASE
--------------------------------- ------------ ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Omni............................. 1/1 - 2/13 $ 171,837 $ 525 $ -- $ 525
Colfax........................... 1/1 - 1/23 317,894 508 -- 508
KSTE-FM.......................... 1/1 - 3/28 (32,475) (198) -- (198)
Chancellor Viacom Acquisition.... 1/1 - 6/30 451,690 5,646 2,060 3,586
---------- ------- ------ -------
Total.................. $ 908,946 $ 6,481 $2,060 $ 4,421
---------- ------- ------ -------
</TABLE>
- ---------------
(1) Intangible assets are amortized on a straight-line basis over an
estimated average 40 year life by CRBC. In connection with purchase
accounting for the Chancellor Merger, intangible assets will be
amortized over an estimated average life of 15 years in accordance with
EMCLA's accounting policies and procedures.
Historical depreciation expense of the Completed Chancellor Transactions is
assumed to approximate depreciation expense on a pro forma basis. Actual
depreciation and amortization may differ based upon final purchase price
allocations.
(m) Reflects the elimination of disposed stations' historical depreciation and
amortization expense of $1,554 for the year ended December 31, 1996 (KTBZ-FM
of $642 and WWWW-FM/WDFN-AM of $912 for the period of February 14, 1996 to
December 31, 1996) and $82 for the six months ended June 30, 1997
(WWWW-FM/WDFN-AM for the period of January 1, 1997 to January 31, 1997)
recognized by CRBC during the time brokerage agreement holding period.
(n) Reflects the elimination of duplicate corporate expenses of $2,726 for the
year ended December 31, 1996 and $354 for the six months ended June 30, 1997
related to the Completed Chancellor Transactions.
P-24
<PAGE> 145
(o) Reflects the adjustment to interest expense in connection with the
consummation of the Completed Chancellor Transactions, the February 1996 and
August 1996 equity offerings of Chancellor (the "Chancellor Offerings"), the
issuance of the CRBC 12 1/4% Series A Senior Cumulative Exchangeable
Preferred Stock, the refinancing of CRBC's previous senior credit agreement
on January 23, 1997 and the offering by CRBC of the 8 3/4% Senior
Subordinated Notes due 2007:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
<S> <C> <C>
Additional bank borrowings related to:
Completed Acquisitions.................................... $ 994,292 $ 558,892
Completed Dispositions.................................... (104,253) (104,253)
New Loan Fees............................................. 6,873 6,873
--------- ---------
Total additional bank borrowings............................ $ 896,912 $ 461,512
========= =========
Interest expense on additional bank borrowings at 7.5%...... $ 39,651 $ 11,260
Less: historical interest expense of the stations acquired
in the Completed Chancellor Transactions.................. (12,422) (3,178)
--------- ---------
Net increase in interest expense............................ 27,229 8,082
Reduction in interest expense on bank debt related to the
application of net proceeds of the following at 7.5%:
February 1996 Offering proceeds contributed to CRBC by
Chancellor of $155,475 for the period January 1, 1996 to
February 14, 1996......................................... (1,425) --
August 1996 Offering proceeds contributed to CRBC by
Chancellor of $23,050 for the period January 1, 1996 to
August 9, 1996............................................ (1,052) --
CRBC 12 1/4% Series A Senior Cumulative Exchangeable
Preferred Stock proceeds of $96,171 for the period
January 1, 1996 to February 14, 1996................... (902) --
CRBC 8 3/4% Senior Subordinated Notes Offering proceeds of
$194,083 for the year ended December 31, 1996 and for
the period January 1, 1997 to June 24, 1997............ (14,556) (7,036)
Reduction in interest expense resulting from the redemption
of CRBC's 12.5% Senior Subordinated Notes of $60,000...... (7,500) (3,229)
Interest expense on $70,133 additional bank borrowings at
7.5% related to the redemption of CRBC's 12.5% Senior
Subordinated Notes on June 5, 1997........................ 5,260 2,265
Interest expense on $200,000 8 3/4% Senior Subordinated
Notes issued June 24, 1997................................ 17,500 8,458
--------- ---------
Total adjustment for net increase in interest expense....... $ 24,554 $ 8,540
========= =========
</TABLE>
(p) Reflects the income tax benefit related to pro forma adjustments. The
adjustment to income taxes reflects the application of the estimated
effective tax rate on a pro forma basis to income (loss) before income taxes
for historical and pro forma adjustment amounts.
(q) Reflects incremental dividends and accretion on preferred stock as follows:
<TABLE>
<CAPTION>
SIX MONTHS
DATE OF YEAR ENDED ENDED
ISSUANCE DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------- -------------
<S> <C> <C> <C>
12 1/4% Series A Senior Cumulative
Exchangeable Preferred Stock.............. February 26, 1996 $ 1,441 $ --
12% Junior Exchangeable Preferred Stock..... January 23, 1997 25,402 1,504
------- ------
Total dividends and accretion............... $26,843 $1,504
======= ======
</TABLE>
P-25
<PAGE> 146
ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
RELATED TO THE CHANCELLOR MERGER
(9) Reflects incremental amortization related to the Chancellor Merger and is
based on the allocation of the total consideration as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
<S> <C> <C>
Amortization expense on $2,139,283 additional
intangible assets, which includes $1,855,838 of
intangible assets and $283,445 resulting from the
recognition of deferred tax liabilities, amortized on
a straight-line basis over a period of 15 years...... $142,619 $ 71,309
Less: Historical amortization expense.................. (37,816) (18,340)
-------- --------
Adjustment for net increase in amortization expense.... $104,803 $ 52,969
======== ========
</TABLE>
Historical depreciation expense, of CRBC, is assumed to approximate
depreciation expense on a pro forma basis. Actual depreciation and
amortization may differ based upon final purchase price allocations.
(10) Reflects the elimination of duplicate corporate expenses of $832 for the
year ended December 31, 1996 and $675 for the six months ended June 30,
1997 related to the Chancellor Merger.
(11) Reflects the elimination of merger expenses of $2,515 for the six months
ended June 30, 1997 incurred by CRBC in connection with the Chancellor
Merger.
(12) Reflects the adjustment to interest expense in connection with the
consummation of the Merger:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
<S> <C> <C>
Interest expense on $162,000 additional bank borrowings
related
to (i) the retirement of Chancellor Interim Financing
of $133,000 and (ii) estimated financial advisors,
legal, accounting and other professional fees of
$29,000 at 7.0%...................................... $ 11,340 $ 5,670
Reduction in interest expense related to the
application of the
7.0% interest rate to EMCLA's bank debt prior to the
refinancing of the Senior Credit Facility and to
CRBC's bank
debt prior to consummation of the Chancellor
Merger............................................... (13,391) (4,813)
-------- --------
Net increase in interest expense....................... $ (2,051) $ 857
======== ========
</TABLE>
(13) Reflects the income tax benefit related to pro forma adjustments. The
adjustment to income taxes reflects the application of the estimated
effective tax rate on a pro forma basis to income (loss) before income
taxes for historical and pro forma adjustment amounts.
P-26
<PAGE> 147
ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
RELATED TO THE PENDING
TRANSACTIONS
(14) The detail of the historical financial data of the stations to be acquired
or disposed of in the Pending Transactions for the year ended December 31,
1996 and the six months ended June 30, 1997 has been obtained from the
historical financial statements of the respective stations and is
summarized below:
<TABLE>
<CAPTION>
ACQUISITIONS DISPOSITIONS
------------------------------------------------------------ ------------
WBAB-FM
WBLI-FM
WBGG-AM BONNEVILLE
WHFM-FM GANNETT KXPK-FM OPTION WFLN-FM
HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL
YEAR ENDED DECEMBER 31, 1996 1/1-6/30(A) 1/1-12/31(B) 1/1-12/31(C) 1/1-12/31(D) 9/1-12/31(E)
- ---------------------------------------- ------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Gross revenues.......................... $ 5,726 $ 52,028 $5,624 $55,482 $(1,455)
Less: agency commissions................ (619) (6,819) (780) (8,683) 159
------- -------- ------ ------- -------
Net revenues............................ 5,107 45,209 4,844 46,799 (1,296)
Station operating expenses excluding
depreciation and amortization.......... 3,676 25,031 3,947 25,678 (725)
Depreciation and amortization........... 2,141 1,760 477 -- (800)
Corporate general and administrative.... 1,024 -- -- -- --
------- -------- ------ ------- -------
Operating income (loss)................. (1,734) 18,418 420 21,121 229
Interest expense........................ -- -- 195 -- --
Other (income) expense.................. -- -- (49) (8) --
------- -------- ------ ------- -------
Income (loss) before income taxes....... (1,734) 18,418 274 21,129 229
Income tax expense (benefit)............ -- -- -- -- --
------- -------- ------ ------- -------
Net income (loss)....................... $(1,734) $ 18,418 $ 274 $21,129 $ 229
======= ======== ====== ======= =======
Broadcast Cash Flow..................... $ 1,431 $ 20,178 $ 897 $21,121 $ (571)
======= ======== ====== ======= =======
<CAPTION>
DISPOSITIONS
----------------------------
BONNEVILLE
OPTION PENDING
HISTORICAL TRANSACTIONS
YEAR ENDED DECEMBER 31, 1996 1/1-12/31(D) HISTORICAL
- ---------------------------------------- ------------ ------------
<S> <C> <C>
Gross revenues.......................... $(35,355) $ 82,050
Less: agency commissions................ 4,528 (12,214)
-------- --------
Net revenues............................ (30,827) 69,836
Station operating expenses excluding
depreciation and amortization.......... (18,858) 38,749
Depreciation and amortization........... -- 3,578
Corporate general and administrative.... -- 1,024
-------- --------
Operating income (loss)................. (11,969) 26,485
Interest expense........................ (562) (367)
Other (income) expense.................. 9 (48)
-------- --------
Income (loss) before income taxes....... (11,416) 26,900
Income tax expense (benefit)............ -- --
-------- --------
Net income (loss)....................... $(11,416) $ 26,900
======== ========
Broadcast Cash Flow..................... $(11,969) $ 31,087
======== ========
</TABLE>
<TABLE>
<CAPTION>
ACQUISITIONS DISPOSITIONS
------------------------------------------ ------------------------------------------
BONNEVILLE BONNEVILLE
GANNETT KXPK-FM OPTION WFLN-FM OPTION PENDING
HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL TRANSACTIONS
SIX MONTHS ENDED JUNE 30, 1997 1/1-3/30(B) 1/1-6/30(C) 1/1-6/30(D) 1/1-4/30(E) 1/1-6/30(D) HISTORICAL
- ------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues....................... $28,594 $2,454 $22,226 $(1,298) $(20,095) $31,881
Less: agency commissions............. (3,683) (336) (3,377) 134 2,619 (4,643)
------- ------ ------- ------- -------- -------
Net revenues......................... 24,911 2,118 18,849 (1,164) (17,476) 27,238
Station operating expenses excluding
depreciation and amortization....... 13,904 2,041 13,570 (728) (9,740) 19,047
Depreciation and amortization........ 254 198 -- (800) -- (348)
Corporate general and
administrative...................... -- -- -- -- -- --
------- ------ ------- ------- -------- -------
Operating income (loss).............. 10,753 (121) 5,279 364 (7,736) 8,539
Interest expense..................... -- -- -- -- -- --
Other (income) expense............... -- 4 (81) -- 8 (69)
------- ------ ------- ------- -------- -------
Income (loss) before income taxes.... 10,753 (40) 5,275 364 (7,744) 8,608
Income tax expense (benefit)......... -- -- -- -- -- --
------- ------ ------- ------- -------- -------
Net income (loss).................... $10,753 $ (40) $ 5,275 $ 364 $ (7,744) $ 8,608
======= ====== ======= ======= ======== =======
Broadcast Cash Flow.................. $11,007 $ 77 $ 5,279 $ (436) $ (7,736) $ 8,191
======= ====== ======= ======= ======== =======
</TABLE>
(a) On July 1, 1996, CRBC entered into an agreement to exchange, in the SFX
Exchange, WAPE-FM and WFYV-FM in Jacksonville, Florida (which were acquired
as part of the Omni Acquisition) (see 8(e)), and $11,000 in cash for
WBAB-FM, WBLI-FM, WGBB-AM, and WHFM-FM in Long Island.
(b) On April 4, 1997, EMCLA entered into an agreement to acquire, in the
Gannett Acquisition, 5 radio stations in 3 major markets from P&S including
WGCI-FM/AM in Chicago, KHKS-FM in Dallas, and KKBQ-FM/AM in Houston
("Gannett") for $340,000 in cash.
(c) On July 30, 1997, CRBC entered into an agreement to acquire, in the Denver
Acquisition, KXPK-FM in Denver from Evergreen Wireless LLC (which is
unrelated to Evergreen) for $26,000 in cash
P-27
<PAGE> 148
(including $1,650 paid by Chancellor in escrow). CRBC began operating
KXPK-FM under a time brokerage agreement on September 1, 1997.
(d) On August 6, 1997, EMCLA and CRBC announced that they had paid $3,000 to
Bonneville for an option to exchange EMCLA's station WTOP-AM in Washington
and CRBC's stations KZLA-FM in Los Angeles and WGMS-FM in Washington plus
an additional $57,000 in cash for Bonneville's stations WNSR-FM in New
York, KLDE-FM in Houston and KBIG-FM in Los Angeles (the "Bonneville
Option"). On October 1, 1997, the Bonneville Option was exercised.
(e) On August 12, 1996, EMCLA entered into an agreement to acquire WFLN-FM in
Philadelphia from Secret for $37,750 in cash. EMCLA also entered into an
agreement to operate WFLN-FM under a time brokerage agreement effective
September 1, 1996. EMCLA subsequently entered into an agreement to sell
WFLN-FM to Greater Media for $41,800 in cash. On May 1, 1997, EMCLA
assigned its time brokerage agreement to operate WFLN-FM to Greater Media.
On July 16, 1997, Secret purported to terminate the sale of WFLN-FM to
EMCLA. Evergreen subsequently brought suit against Secret to enforce its
right to acquire WFLN-FM. In August 1997, pursuant to a court settlement,
EMCLA, Secret and Greater Media agreed that (i) Secret would sell WFLN-FM
directly to Greater Media for $37,750, (ii) Greater Media would deposit
$4,050 (the difference between EMCLA's proposed acquisition price for
WFLN-FM from Secret and EMCLA's proposed sale price for WFLN-FM to Greater
Media) with the court and (iii) EMCLA and Secret would litigate each
party's entitlement to the amount deposited with the court. As of the date
hereof, no further resolution to this dispute has occurred.
(15) Reflects the elimination of time brokerage agreement fees received and paid
by CRBC as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 MARKET PERIOD REVENUE EXPENSE
---------------------------- ----------- --------- ------- -------
<S> <C> <C> <C> <C>
WAPE-FM, WFYV-FM................................ Jacksonville 7/1-12/31 $(1,963) $(2,000)
WBAB-FM, WBLI-FM, WGBB-AM, WHFM-FM.............. Long Island 7/1-12/31 -- (2,000)
------- -------
Total adjustment for decrease in gross revenues and expenses............ $(1,963) $(4,000)
======= =======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997 MARKET PERIOD REVENUE EXPENSE
------------------------------ ----------- --------- ------- -------
<S> <C> <C> <C> <C>
WAPE-FM, WFYV-FM................................ Jacksonville 1/1-3/31 $(2,000) $ (476)
WBAB-FM, WBLI-FM, WGBB-AM, WHFM-FM.............. Long Island 1/1-3/31 -- (2,000)
------- -------
Total adjustment for decrease in gross revenues and expenses............ $(2,000) $(2,476)
======= =======
</TABLE>
(16) Reflects incremental amortization related to the Pending Transactions and
is based on the allocation of the total consideration as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------
<S> <C> <C>
Amortization expense on $428,798 additional intangible
assets amortized on a straight-line basis over a 15
year period.......................................... $28,587 $14,293
Less: historical amortization expense.................. (3,186) (1,414)
------- -------
Adjustment for net increase in amortization expense.... $25,401 $12,879
======= =======
</TABLE>
Historical depreciation expense, of the Pending Transactions, is assumed to
approximate depreciation expense on a pro forma basis. Actual depreciation
and amortization may differ based upon final purchase price allocations.
P-28
<PAGE> 149
(17) Reflects the adjustment to interest expense in connection with the
consummation of the Pending Transactions:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------
<S> <C> <C>
Additional bank borrowings related to:
Pending Acquisitions................................. $437,000 $437,000
======== ========
Interest expense on additional bank borrowings at
7.0%................................................. $ 30,590 $ 15,295
======== ========
</TABLE>
(18) Reflects the income tax benefit related to pro forma adjustments. The
adjustment to income taxes reflects the application of the estimated
effective tax rate on a pro forma basis to income (loss) before income
taxes for historical and pro forma adjustment amounts.
P-29
<PAGE> 150
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EVERGREEN MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
Independent Auditors' Report.............................. F-4
Consolidated Balance Sheets as of December 31, 1995 and
1996 and June 30, 1997
(unaudited)............................................ F-5
Consolidated Statements of Operations for the years ended
December 31, 1994, 1995 and
1996 and for the six months ended June 30, 1996 and
1997 (unaudited)....................................... F-6
Consolidated Statements of Stockholder's Equity for the
years ended December 31, 1994, 1995 and 1996 and for
the six months ended June 30, 1997 (unaudited)......... F-7
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and
1996 and for the six months ended June 30, 1996 and
1997 (unaudited)....................................... F-8
Notes to Consolidated Financial Statements................ F-9
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
Report of Independent Accountants......................... F-23
Consolidated Balance Sheets as of December 31, 1995 and
1996................................................... F-24
Consolidated Statements of Operations for the years ended
December 31, 1994, 1995 and
1996................................................... F-25
Consolidated Statements of Changes in Common Stockholder's
Equity for the years ended December 31, 1994, 1995 and
1996................................................... F-26
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and
1996................................................... F-27
Notes to Consolidated Financial Statements................ F-28
Unaudited Consolidated Balance Sheets as of December 31,
1996 and June 30, 1997................................. F-44
Unaudited Consolidated Statements of Operations for the
six months ended June 30, 1996 and 1997................ F-45
Unaudited Consolidated Statements of Changes in
Stockholder's Equity for the six months ended June 30,
1997................................................... F-46
Unaudited Consolidated Statements of Cash Flows for the
six months ended June 30, 1996 and 1997................ F-47
Notes to Unaudited Consolidated Financial Statements...... F-48
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
Independent Auditors' Report.............................. F-54
Combined Balance Sheets as of December 31, 1995 and 1996
and June 30, 1997
(unaudited)............................................ F-55
Combined Statements of Earnings for the years ended
December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1996 and 1997 (unaudited)............... F-56
Combined Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1996 and 1997 (unaudited)............... F-57
Notes to Combined Financial Statements.................... F-58
</TABLE>
F-1
<PAGE> 151
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WMZQ INC. AND VIACOM BROADCASTING EAST INC.:
Independent Auditors' Report.............................. F-63
Combined Balance Sheets as of December 31, 1995 and 1996
and June 30, 1997
(unaudited)............................................ F-64
Combined Statements of Earnings for the years ended
December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1996 and 1997 (unaudited)............... F-65
Combined Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1996 and 1997 (unaudited)............... F-66
Notes to Combined Financial Statements.................... F-67
KKSF-FM/KDFC-FM AND AM (A DIVISION OF THE BROWN
ORGANIZATION):
Independent Auditors' Report.............................. F-72
Balance Sheets as of December 31, 1995 and 1996........... F-73
Statements of Earnings and Division Equity for the years
ended December 31, 1995 and 1996....................... F-74
Statements of Cash Flows for the years ended December 31,
1995 and 1996.......................................... F-75
Notes to Financial Statements............................. F-76
WDAS-AM/FM (STATION OWNED AND OPERATED BY BEASLEY FM
ACQUISITION CORP.):
Independent Auditors' Report.............................. F-81
Balance Sheets as of December 31, 1996 and March 31, 1997
(unaudited)............................................ F-82
Statements of Earnings and Station Equity for the year
ended December 31, 1996 and the three months ended
March 31, 1996 and 1997 (unaudited).................... F-83
Statements of Cash Flows for the year ended December 31,
1996 and the three months ended March 31, 1996 and 1997
(unaudited)............................................ F-84
Notes to Financial Statements............................. F-85
CENTURY CHICAGO BROADCASTING, L.P.:
Report of Independent Accountants......................... F-89
Balance Sheets as of December 31, 1996 and March 31, 1997
(unaudited)............................................ F-90
Statements of Operations and Partners' Deficit for the
year ended December 31, 1996 and the three months ended
March 31, 1996 and 1997 (unaudited).................... F-91
Statements of Cash Flows for the year ended December 31,
1996 and the three months ended March 31, 1996 and 1997
(unaudited)............................................ F-92
Notes to Financial Statements............................. F-93
WJLB/WMXD, DETROIT:
Report of Independent Public Accountants.................. F-98
Combined Balance Sheets as of December 31, 1996 and March
31, 1997 (unaudited)................................... F-99
Combined Statements of Operations for the year ended
December 31, 1996 and for the three months ended March
31, 1996 and 1997 (unaudited).......................... F-100
Combined Statements of Cash Flows for the year ended
December 31, 1996 and for the three months ended March
31, 1996 and 1997 (unaudited).......................... F-101
Notes to Combined Financial Statements.................... F-102
KYSR INC. AND KIBB INC.:
Independent Auditors' Report.............................. F-107
Combined Balance Sheets as of December 31, 1995 and 1996
and June 30, 1997
(unaudited)............................................ F-108
Combined Statements of Operations for the years ended
December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1996 and 1997 (unaudited)............... F-109
Combined Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1996 and 1997 (unaudited)............... F-110
Notes to Combined Financial Statements.................... F-111
</TABLE>
F-2
<PAGE> 152
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WLIT INC.:
Independent Auditors' Report.............................. F-116
Balance Sheets as of December 31, 1995 and 1996 and June
30, 1997 (unaudited)................................... F-117
Statements of Earnings for the years ended December 31,
1994, 1995 and 1996 and the six months ended June 30,
1996 and 1997 (unaudited).............................. F-118
Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996 and the six months ended June 30,
1996 and 1997 (unaudited).............................. F-119
Notes to Financial Statements............................. F-120
WDRQ INC.:
Independent Auditors' Report.............................. F-125
Balance Sheets as of December 31, 1995 and 1996 and June
30, 1997 (unaudited)................................... F-126
Statements of Earnings for the years ended December 31,
1994, 1995 and 1996 and the six months ended June 30,
1996 and 1997 (unaudited).............................. F-127
Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996 and the six months ended June 30,
1996 and 1997 (unaudited).............................. F-128
Notes to Financial Statements............................. F-129
TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES
Report of Independent Accountants......................... F-134
Report of Independent Accountants......................... F-135
Consolidated Balance Sheets as of December 31, 1994 and
1995................................................... F-136
Consolidated Statements of Operations for the years ended
December 31, 1994 and 1995 and the period ended
February 13, 1996...................................... F-137
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1994 and 1995 and for the
period ended February 13, 1996......................... F-138
Consolidated Statements of Cash Flows for the years ended
December 31, 1994 and 1995 and for the period ended
February 13, 1996...................................... F-139
Notes to Consolidated Financial Statements................ F-140
COLFAX COMMUNICATIONS, INC. RADIO GROUP
Report of Independent Public Accountants.................. F-149
Combined Balance Sheets as of December 31, 1996, 1995, and
1994................................................... F-150
Combined Statements of Income for the years ended December
31, 1996, 1995, and 1994............................... F-151
Combined Statements of Changes in Partners' Equity for the
years ended December 31, 1996, 1995, and 1994.......... F-152
Combined Statements of Cash Flows for the years ended
December 31, 1996, 1995, and 1994...................... F-153
Notes to Consolidated Financial Statements................ F-154
</TABLE>
F-3
<PAGE> 153
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Evergreen Media Corporation of Los Angeles:
We have audited the accompanying consolidated balance sheets of Evergreen
Media Corporation of Los Angeles and subsidiaries as of December 31, 1995 and
1996, and the related consolidated statements of operations, stockholder's
equity and cash flows for each of the years in the three-year period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Evergreen
Media Corporation of Los Angeles and subsidiaries as of December 31, 1995 and
1996, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
January 31, 1997, except for note 2(c),
which is as of February 19, 1997
F-4
<PAGE> 154
EVERGREEN MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1995 1996 1997
-------- ---------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR
SHARE DATA)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 3,430 $ 3,060 $ 4,886
Accounts receivable, less allowance for doubtful
accounts of $2,000 in 1995, $2,292 in 1996 and $4,386
in 1997.............................................. 45,413 85,159 99,654
Prepaid expenses and other.............................. 2,146 6,352 7,799
-------- ---------- ----------
Total current assets............................ 50,989 94,571 112,339
Property and equipment, net (note 3)...................... 37,839 48,193 64,817
Intangible assets, net (note 4)........................... 458,787 853,643 1,183,569
Assets held for sale...................................... -- -- 50,000
Other assets, net......................................... 4,732 24,552 72,788
-------- ---------- ----------
$552,347 $1,020,959 $1,483,513
======== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses (note 5).......... $ 15,892 $ 26,366 $ 32,895
Current portion of long-term debt (note 6).............. 4,000 26,500 --
Other current liabilities............................... 541 284 99
-------- ---------- ----------
Total current liabilities....................... 20,433 53,150 32,994
Long-term debt, excluding current portion (note 6)........ 197,000 331,500 525,000
Deferred tax liabilities (note 8)......................... 29,233 86,098 88,014
Other liabilities......................................... 1,104 800 902
-------- ---------- ----------
Total liabilities............................... 247,770 471,548 646,910
-------- ---------- ----------
Stockholder's equity (notes 2 and 7):
Common stock, $.01 par value. Authorized shares 1,000;
issued and outstanding 1,000 shares.................. 1 1 1
Paid-in capital......................................... 398,074 662,922 951,304
Accumulated deficit..................................... (93,498) (113,512) (114,702)
-------- ---------- ----------
Total stockholder's equity...................... 304,577 549,411 836,603
Commitments and contingencies (notes 2, 6 and 10).........
-------- ---------- ----------
$552,347 $1,020,959 $1,483,513
======== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 155
EVERGREEN MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Gross revenues.......................... $125,478 $186,365 $337,405 $144,614 $216,177
Less agency commissions............... 15,962 23,434 43,555 18,252 27,916
-------- -------- -------- -------- --------
Net revenues.................. 109,516 162,931 293,850 126,362 188,261
-------- -------- -------- -------- --------
Operating expenses:
Station operating expenses excluding
depreciation and amortization...... 68,852 97,674 174,344 80,313 111,162
Depreciation and amortization......... 30,596 47,005 93,749 44,012 53,912
Corporate general and
administrative..................... 2,672 4,475 7,797 3,198 5,651
-------- -------- -------- -------- --------
Operating expenses............ 102,120 149,154 275,890 127,523 170,725
-------- -------- -------- -------- --------
Operating income (loss)....... 7,396 13,777 17,960 (1,161) 17,536
-------- -------- -------- -------- --------
Nonoperating income (expenses):
Interest expense...................... (13,809) (19,199) (37,527) 19,039 22,741
Gain on disposition of assets (note
2)................................. 6,991 -- -- -- (13,323)
Other income (expense), net........... (539) (236) 477 -- --
-------- -------- -------- -------- --------
Nonoperating expenses, net.... (7,357) (19,435) (37,050) 19,039 9,418
-------- -------- -------- -------- --------
Income (loss) before income
taxes and extraordinary
item........................ 39 (5,658) (19,090) (20,200) 8,118
Income tax expense (benefit) (note 8)... -- 192 (2,896) (3,705) 4,259
-------- -------- -------- -------- --------
Income (loss) before
extraordinary item.......... 39 (5,850) (16,194) (16,495) 3,859
Extraordinary item -- loss on
extinguishment of debt (note 6)....... (3,585) -- -- -- (4,350)
-------- -------- -------- -------- --------
Net loss...................... $ (3,546) $ (5,850) $(16,194) $(16,495) $ (491)
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 156
EVERGREEN MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------- PAID-IN ACCUMULATED STOCKHOLDER'S
AMOUNT SHARES CAPITAL DEFICIT EQUITY
------ ------ ------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1993............. $1 1,000 195,409 (74,442) 120,968
Distribution to Parent.................. -- -- (239) -- (239)
Dividend to Parent...................... -- -- -- (4,830) (4,830)
Net loss........................ -- -- -- (3,546) (3,546)
-- ------ ------- -------- -------
Balances at December 31, 1994............. 1 1,000 195,170 (82,818) 112,353
Net capital contributed by Parent....... -- -- 202,904 -- 202,904
Dividend to Parent...................... -- -- -- (4,830) (4,830)
Net loss........................ -- -- -- (5,850) (5,850)
-- ------ ------- -------- -------
Balances at December 31, 1995............. 1 1,000 398,074 (93,498) 304,577
Net capital contributed by Parent....... -- -- 264,848 -- 264,848
Dividend to Parent...................... -- -- -- (3,820) (3,820)
Net loss........................ -- -- -- (16,194) (16,194)
-- ------ ------- -------- -------
Balances at December 31, 1996............. 1 1,000 662,922 (113,512) 549,411
Net capital contributed by Parent....... -- -- 288,382 -- 288,382
Dividend to Parent...................... -- -- -- (699) (699)
Net loss........................ -- -- -- (491) (491)
-- ------ ------- -------- -------
Balances at June 30, 1997 (unaudited)..... $1 1,000 951,304 (114,702) 836,603
== ====== ======= ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 157
EVERGREEN MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------- ---------------------
1994 1995 1996 1996 1997
-------- --------- --------- --------- ---------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................. $ (3,546) $ (5,850) $ (16,194) $ (16,495) $ (491)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation....................... 4,528 5,508 7,707 3,479 5,074
Amortization of goodwill,
intangible assets and other
assets........................... 26,068 41,497 86,042 40,533 48,838
Provision for doubtful accounts.... 754 904 2,179 723 2,388
Deferred income tax (benefit)
expense.......................... - (479) (4,353) (3,705) 4,259
Gain on disposition of assets...... (6,991) - - - (13,323)
Loss on extinguishment of debt..... 3,585 - - - 4,350
Changes in certain assets and
liabilities, net of effects of
acquisitions:
Accounts receivable.............. (5,051) (6,628) (28,146) (9,448) (14,893)
Prepaid expenses and other
current assets................ 84 724 (2,804) (2,798) (5,102)
Accounts payable and accrued
expenses...................... 1,194 4,405 4,560 5,669 4,992
Other assets..................... (724) (184) (354) (604) (29)
Other liabilities................ (21) 490 (587) 11 102
-------- --------- --------- --------- ---------
Net cash provided by operating
activities.................. 19,880 40,387 48,050 17,365 36,165
-------- --------- --------- --------- ---------
Cash flows from investing activities:
Acquisitions, net of cash acquired.... (44,921) (188,004) (457,764) (348,826) (447,240)
Assets held for sale.................. 19,101 -- 32,000 -- (50,000)
Escrow deposits on pending
acquisitions....................... -- -- (17,000) (13,000) (62,100)
Proceeds from sale of assets.......... -- -- -- -- 99,750
Capital expenditures.................. (5,227) (2,642) (6,543) (1,761) (3,547)
Other................................. (1,881) (1,466) (12,631) (2,382) (15,270)
-------- --------- --------- --------- ---------
Net cash used by investing
activities.................. (32,928) (192,112) (461,938) (365,969) (478,407)
-------- --------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term
debt............................... 36,000 186,000 447,750 365,750 584,250
Principal payments on long-term
debt............................... (14,000) (159,000) (290,750) (12,750) (417,250)
Payments on other liabilities......... (646) (694) (569) (227) (185)
Cash contributed by Parent............ -- 132,766 264,848 528 288,382
Cash distributed to Parent............ (239) -- -- -- --
Dividend to Parent.................... (4,830) (4,830) (3,820) (2,415) (699)
Payments for debt issuance costs...... (4,602) (303) (3,941) (3,835) (10,430)
-------- --------- --------- --------- ---------
Net cash provided by financing
activities.................. 11,683 153,939 413,518 347,051 444,068
-------- --------- --------- --------- ---------
Increase (decrease) in cash and cash
equivalents........................... (1,365) 2,214 (370) (1,553) 1,826
Cash and cash equivalents at beginning
of period............................. 2,581 1,216 3,430 3,430 3,060
-------- --------- --------- --------- ---------
Cash and cash equivalents at end of
period................................ $ 1,216 $ 3,430 $ 3,060 $ 1,877 $ 4,886
======== ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 158
EVERGREEN MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLES IN THOUSANDS OF DOLLARS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Evergreen Media Corporation of Los Angeles and subsidiaries, (a
wholly-owned subsidiary of Evergreen Media Corporation ("Evergreen" or
"Parent")), own and operate commercial radio stations in various geographical
regions across the United States, primarily in the top ten radio revenue
markets.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of Evergreen
Media Corporation of Los Angeles and its subsidiaries (collectively, the
"Company") all of which are wholly owned. Significant intercompany balances and
transactions have been eliminated in consolidation.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Repair and maintenance costs are charged to expense when
incurred.
(d) Intangible Assets
Intangible assets consist primarily of broadcast licenses, goodwill and
other identifiable intangible assets. The Company amortizes such intangible
assets using the straight-line method over estimated useful lives ranging from 1
to 40 years. The Company continually evaluates the propriety of the carrying
amount of goodwill and other intangible assets as well as the amortization
period to determine whether current events or circumstances warrant adjustments
to the carrying value and/or revised estimates of useful lives. This evaluation
consists of the projection of undiscounted operating income before depreciation,
amortization, nonrecurring charges and interest for each of the Company's radio
stations over the remaining amortization periods of the related intangible
assets. The projections are based on a historical trend line of actual results
since the acquisitions of the respective stations adjusted for expected changes
in operating results. To the extent such projections indicate that undiscounted
operating income is not expected to be adequate to recover the carrying amounts
of the related intangible assets, such carrying amounts are written down by
charges to expense. At this time, the Company believes that no significant
impairment of goodwill and other intangible assets has occurred and that no
reduction of the estimated useful lives is warranted.
(e) Debt Issuance Costs
The costs related to the issuance of debt are capitalized and amortized to
expense over the lives of the related debt. During the years ended December 31,
1994, 1995 and 1996, the Company recognized amortization of debt issuance costs
of $712,000, $631,000 and $1,113,000, respectively, which amounts are included
in amortization expense in the accompanying consolidated statements of
operations.
(f) Barter Transactions
The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. An asset and
liability is recorded at the fair market value of the goods or services
received. Barter revenue is recorded and the liability relieved when commercials
are broadcast and barter expense is recorded and the asset relieved when goods
or services are received or used. Barter amounts are not significant to the
Company's consolidated financial statements.
F-9
<PAGE> 159
EVERGREEN MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(g) Income Taxes
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable earnings. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount more likely than not to be
realized. Income tax expense is the total of tax payable for the period and the
change during the period in deferred tax assets and liabilities.
The Company is included in the consolidated federal income tax returns
filed by Evergreen. Federal taxes are calculated on a separate return basis in
the accompanying consolidated financial statements.
(h) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
Fees received or paid pursuant to various time brokerage agreements are
recognized as gross revenues or amortized to expense, respectively, over the
term of the agreement using the straight-line method.
(i) Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers
temporary cash investments purchased with original maturities of Six months or
less to be cash equivalents.
The Company paid approximately $12,852,000, $19,134,000 and $37,042,000 for
interest in 1994, 1995 and 1996, respectively. The Company paid approximately
$733,000 for income taxes in 1996.
(j) Derivative Financial Instruments
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well-defined interest rate risks related to interest on the Company's
outstanding debt.
As interest rates change under interest rate swap and cap agreements, the
differential to be paid or received is recognized as an adjustment to interest
expense. The Company is not exposed to credit loss as its interest rate swap
agreements are with the participating banks under the Company's senior credit
facility.
(k) Omission of Per Share Information
Net loss per share is not presented as such information is not meaningful.
All 1,000 issued and outstanding shares of the Company's common stock are owned
by Evergreen during the three-year period ended December 31, 1996.
(l) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of management, credit risk with respect to trade receivables
is limited due to the large number of diversified customers and the geographic
diversification of the Company's customer base. The Company performs ongoing
credit evaluations of its customers and believes that adequate allowances for
any
F-10
<PAGE> 160
EVERGREEN MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
uncollectible trade receivables are maintained. At December 31, 1995 and 1996,
no receivable from any customer exceeded 5% of stockholder's equity and no
customer accounted for more than 10% of net revenues in 1994, 1995 or 1996.
(m) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
(n) Stock-Based Compensation
The Company does not have any stock compensation plans under which it
grants stock awards to employees. Evergreen grants stock options to the
Company's officers and other key employees on behalf of the Company.
Prior to January 1, 1996, Evergreen accounted for its' stock option plans
in accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, Evergreen adopted SFAS No. 123, Accounting for Stock-Based
Compensation, which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. Evergreen has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosures of SFAS No. 123.
(o) Unaudited Interim Financial Information
In the opinion of management, the unaudited interim consolidated financial
statements as of and for the six months ended June 30, 1996 and 1997, reflect
all adjustments, consisting of only normal and recurring items, which are
necessary for a fair presentation of the results for the interim periods
presented. The results for the interim periods ended June 30, 1996 and 1997 are
not necessarily indicative of results to be expected for any other interim
period or for the full year.
(2) ACQUISITIONS AND DISPOSITIONS
(a) Completed Transactions
In April 1994, the Company acquired radio station KIOI-FM in San Francisco,
California for cash consideration of approximately $44,921,000. This acquisition
was funded with proceeds received from the sale of stations WAPE-FM and WFYV-FM
in Jacksonville (which sale closed in April 1994) and additional borrowings
under the Company's senior credit facility. The Company received proceeds of
$19,500,000 less closing costs from the sale of WAPE-FM and WFYV-FM and
recognized a gain of $7,328,000 on such sale.
F-11
<PAGE> 161
EVERGREEN MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In May 1995, the Company and Evergreen acquired Broadcasting Partners, Inc.
("BPI"), a publicly traded radio broadcasting company with seven FM and four AM
radio stations, eight of which are in the nation's ten largest radio markets
(the "BPI Acquisition"). The BPI Acquisition was effected through the merger of
a wholly-owned subsidiary of the Company with and into BPI, with BPI surviving
the merger as a wholly-owned subsidiary of the Company. The BPI Acquisition
included the conversion of each outstanding share of BPI common stock into the
right to receive $12.00 in cash and .69 shares of Evergreen's Class A Common
Stock, resulting in total cash payments of $94,813,000 and the issuance of
5,611,009 shares of Evergreen's Class A Common Stock valued at $12.50 per share.
In addition, the Company retired existing BPI debt of $81,926,000 and incurred
various other direct acquisition costs. The total purchase price, including
closing costs, allocated to net assets acquired was approximately $258,634,000.
On January 17, 1996, the Company and Evergreen acquired Pyramid
Communications, Inc. ("Pyramid"), a radio broadcasting company with nine FM and
three AM radio stations in five radio markets (Chicago, Philadelphia, Boston,
Charlotte and Buffalo) (the "Pyramid Acquisition"). The Pyramid Acquisition was
effected through the merger of a wholly-owned subsidiary of the Company with and
into Pyramid with Pyramid surviving the merger as a wholly-owned subsidiary of
the Company. The total purchase price, including closing costs, allocated to net
assets acquired was approximately $316,343,000 in cash.
On May 3, 1996, the Company acquired WKLB-FM in Boston for $34,000,000 in
cash plus various other direct acquisition costs. On November 26, 1996, the
Company exchanged WKLB-FM in Boston (now known as WROR-FM) for WGAY-FM in
Washington, D.C. The Company had previously been operating WGAY-FM under a time
brokerage agreement and selling substantially all of the broadcast time of
WKLB-FM under a time brokerage agreement, in each case since June 17, 1996,
pending completion of the exchange.
On July 19, 1996, the Company sold WHTT-FM and WHTT-AM in Buffalo for
$19,500,000 in cash and on August 1, 1996, the Company sold WSJZ-FM in Buffalo
for $12,500,000 in cash (collectively, the "Buffalo Stations"). The assets of
the Buffalo Stations were classified as assets held for sale in the Pyramid
Acquisition and no gain or loss was recognized by the Company upon consummation
of the sales. The combined net income of the Buffalo stations of approximately
$733,000 has been excluded from the consolidated statement of operations for the
year ended December 31, 1996. The excess of the proceeds over the carrying
amounts at the dates of sale approximated $2,561,000 (including interest costs
during the holding period of approximately $1,169,000) and has been accounted
for as an adjustment to the original purchase price of the Pyramid Acquisition.
The Company had previously entered into time brokerage agreements (effective
April 15, 1996 for WSJZ-FM and April 25, 1996 for WHTT-FM and WHTT-AM) to sell
substantially all of the broadcast time of these stations pending completion of
the sales.
On August 14, 1996, the Company acquired KYLD-FM in San Francisco for
$44,000,000 in cash plus various other direct acquisition costs. The Company had
previously been operating KYLD-FM under a time brokerage agreement since May 1,
1996.
On October 18, 1996, the Company acquired WEDR-FM in Miami for $65,000,000
in cash plus various other direct acquisition costs.
On January 31, 1997, the Company acquired WWWW-FM and WDFN-AM in Detroit
for $30,000,000 in cash plus various other direct acquisition costs. The Company
had previously provided certain sales and promotional functions to WWWW-FM and
WDFN-AM under a joint sales agreement since February 14, 1996 and subsequently
operated the stations under a time brokerage agreement since April 1, 1996.
On January 31, 1997, the Company acquired KKSF-FM, KDFC-FM and KDFC-AM in
San Francisco for $115,000,000 in cash plus various other direct acquisitions
costs. The Company had previously been operating KKSF-FM and KDFC-FM under a
time brokerage agreement since November 1, 1996.
F-12
<PAGE> 162
EVERGREEN MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisitions discussed above were accounted for as purchases.
Accordingly, the accompanying consolidated financial statements include the
results of operations of the acquired entities from the dates of acquisition.
A summary of the net assets acquired follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Working capital, including cash of $492 in 1995 and
$1,011 in 1996...................................... $ (79) $ 12,012 $ 11,218
Property and equipment................................ 1,762 11,684 11,519
Assets held for sale.................................. -- -- 32,000
Intangible assets..................................... 43,238 264,650 465,824
Deferred tax liability................................ -- (29,712) (61,218)
------- -------- --------
$44,921 $258,634 $459,343
======= ======== ========
</TABLE>
The consolidated condensed pro forma results of operations data for 1995
and 1996, as if the 1995 and 1996 acquisitions and dispositions occurred at
January 1, 1995, follow:
<TABLE>
<CAPTION>
1995 1996
-------- --------
(UNAUDITED)
<S> <C> <C>
Net revenues................................................ $263,569 $306,388
Operating income (loss)..................................... (1,540) 15,531
Net loss.................................................... (21,471) (8,030)
</TABLE>
(b) Pending Transactions
On June 13, 1996, the Company entered into an agreement to acquire WWRC-AM
in Washington, D.C. for $22,500,000 in cash. The Company has subsequently agreed
with the owner of WWRC-AM to exchange WQRS-FM in Detroit (which, as discussed
below, the Company has agreed to acquire in a separate purchase for $32,000,000
in cash) in return for WWRC-AM and $9,500,000 in cash. The Company has been
operating WWRC-AM under a time brokerage agreement since June 17, 1996.
On July 15, 1996, the Company entered into an agreement to acquire WPNT-FM
in Chicago for $73,750,000 in cash.
On August 12, 1996, the Company entered into an agreement to acquire
WMXD-FM and WJLB-FM in Detroit for $168,000,000 in cash and WFLN-FM in
Philadelphia for $37,750,000 in cash. The Company also entered into an agreement
to operate WMXD-FM, WJLB-FM and WFLN-FM under time brokerage agreements
effective September 1, 1996. The Company and Evergreen also entered into a
separate agreement on August 12, 1996 to acquire WQRS-FM in Detroit for
$32,000,000 in cash. As discussed above, the Company will immediately swap
WQRS-FM at closing in return for WWRC-AM in Washington and $9,500,000 in cash.
On September 4, 1996, the Company entered into a binding letter of intent
to swap five of its six stations in the Charlotte, N.C. market (WPEG-FM,
WBAV-FM, WBAV-AM, WRFX-FM and WFNZ-AM), which were acquired as part of the BPI
Acquisition and the Pyramid Acquisition, for WIOQ-FM and WUSL-FM in
Philadelphia. As part of this transaction, the Company has also agreed to sell
its sixth radio station in Charlotte, WNKS-FM, for $10,000,000 in cash. On
December 5, 1996, the Company entered into definitive agreements regarding these
stations.
On September 19, 1996, the Company entered into an agreement to acquire
WDAS-FM and WDAS-AM in Philadelphia for $103,000,000 in cash.
F-13
<PAGE> 163
EVERGREEN MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Consummation of each Pending Transaction is subject to various conditions,
including approval from the FCC and the expiration or early termination under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). The Company believes that such conditions will be satisfied in the
ordinary course, but there can be no assurance that this will be the case.
Completion of the above pending transactions would result in the Company's
ownership of six FM stations in the Chicago and Philadelphia markets, or one
station in each market in excess of the maximum number of FM stations under
common ownership permitted by the Telecommunications Act of 1996 (the "1996
Act"). Therefore, the Company will be required to divest one FM station in each
market in order to comply with the 1996 Act.
Escrow funds of $17,000,000 paid by the Company in connection with the
completed transactions subsequent to year end and the pending transactions have
been classified as other assets at December 31, 1996 in the accompanying
consolidated balance sheet.
(c) Chancellor Broadcasting Merger and Viacom Acquisition
On February 16, 1997, the Company entered into a stock purchase agreement
with Viacom International, Inc. ("Viacom") whereby the Company agreed to acquire
all of the issued and outstanding capital stock of certain subsidiaries of
Viacom ("Viacom Subsidiaries") for an aggregate purchase price of $1,075,000,000
in cash. The Viacom Subsidiaries own and operate ten radio stations in five
major markets.
On February 19, 1997, the Company and Evergreen entered into an agreement
to merge with Chancellor Broadcasting Company ("Chancellor") and Chancellor
Radio Broadcasting Company, in a stock-for-stock transaction with the Company
remaining as the surviving corporation.
On February 19, 1997, the Company and Evergreen and Chancellor entered into
a joint purchase agreement whereby in the event that consummation of the
Company's stock purchase agreement with Viacom occurs prior to consummation of
the transaction with Chancellor, Chancellor will be required to purchase the
Viacom Subsidiaries that own and operate four of the ten stations for
$480,000,000 and the Company will purchase the Viacom Subsidiaries that own and
operate the remaining six stations for $595,000,000. In the event consummation
of the stock purchase agreement with Viacom occurs after the consummation of the
transaction with Chancellor, the surviving corporation will acquire the stock of
the Viacom Subsidiaries.
Completion of the Chancellor Merger and the Viacom Acquisition would result
in the Company's ownership of a number of stations in the Chicago, San
Francisco, Washington, D.C., Detroit and Sacramento markets in excess of the
maximum number of stations under common ownership permitted by the 1996 Act.
Therefore, the Company will be required to divest the following stations in
order to comply with the 1996 Act: (i) one FM station in the Chicago market;
(ii) two FM stations in the San Francisco market; (iii) one FM station and two
AM stations in the Washington, D.C. market; (iv) one FM station in the Detroit
market; and (v) one AM station in the Sacramento market.
F-14
<PAGE> 164
EVERGREEN MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1995 and
1996:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1995 1996
----------- ------- -------
<S> <C> <C> <C>
Broadcast and other equipment........................ 3-15 years $36,428 $47,937
Buildings and improvements........................... 3-20 years 8,570 11,735
Furniture and fixtures............................... 5- 7 years 6,429 8,392
Land................................................. -- 6,524 7,379
------- -------
57,951 75,443
Less accumulated depreciation........................ 20,112 27,250
------- -------
$37,839 $48,193
======= =======
</TABLE>
(4) INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1995 and 1996:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1995 1996
----------- -------- ----------
<S> <C> <C> <C>
Broadcast licenses.............................. 15-40 years $187,024 $ 498,766
Goodwill........................................ 15-40 years 70,317 131,775
Other intangibles............................... 1-40 years 291,203 397,062
-------- ----------
548,544 1,027,603
Less accumulated amortization................... 89,757 173,960
-------- ----------
$458,787 $ 853,643
======== ==========
</TABLE>
In addition to broadcast licenses and goodwill, categories of other
intangible assets include: (i) premium advertising revenue base (the value of
the higher radio advertising revenues in certain of the Company's markets as
compared to other markets of similar population); (ii) advertising client base
(the value of the well-established advertising base in place at the time of
acquisition of certain stations); (iii) talent contracts (the value of
employment contracts between certain stations and their key employees); (iv)
fixed asset delivery premium (the benefit expected from the Company's ability to
operate fully constructed and operational stations from the date of
acquisition), and (v) premium audience growth pattern (the value of expected
above-average population growth in a given market).
(5) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at December
31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Accounts payable............................................ $11,081 $20,311
Accrued payroll............................................. 1,816 4,413
Accrued interest............................................ 1,304 1,642
Accrued dividends........................................... 1,020 --
Accrued income taxes........................................ 671 --
------- -------
$15,892 $26,366
======= =======
</TABLE>
F-15
<PAGE> 165
EVERGREEN MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Senior Credit Facility (a).................................. $187,000 $348,000
Senior Notes (b)............................................ 14,000 10,000
-------- --------
Total long-term debt........................................ 201,000 358,000
Less current portion........................................ 4,000 26,500
-------- --------
$197,000 $331,500
======== ========
</TABLE>
(a) Senior Credit Facility
On November 6, 1992, the Company entered into a variable rate loan
agreement with a group of banks providing for a $115,000,000 term loan and a
revolving loan of up to $55,000,000. On November 28, 1994, amounts outstanding
under this agreement were retired with borrowings under a new senior credit
facility (the "Senior Credit Facility") which provided for a $150,000,000 term
loan ("Term Loan") and a revolving loan of up to $200,000,000 ("Revolving
Loan"). In connection with this debt restructuring, the Company wrote off the
unamortized balance of deferred debt issuance costs of $3,585,000 as an
extraordinary charge.
In connection with the Pyramid Acquisition, the Company amended and
restated the Senior Credit Facility. Under the amended agreement, dated January
17, 1996, the $150,000,000 Term Loan and $200,000,000 Revolving Loan remained in
place, and the Company also established an additional revolving facility of up
to $275,000,000 (the "New Revolving Loan").
Borrowings under the Senior Credit Facility bear interest at a rate based,
at the option of the Company, on the participating banks' prime rate or
Eurodollar rate, plus an incremental rate. Without giving effect to the interest
rate swap and cap agreements described in the following paragraph, the interest
rate on the $150,000,000 outstanding under the Term Loan at December 31, 1996
was 7.03% on a blended basis, based on Eurodollar rates, and the interest rates
on $185,000,000 and $5,000,000 of advances outstanding under the Revolving Loan
were 7.17% and 8.625% at December 31, 1996, based on the Eurodollar and prime
rates, respectively. The interest rate on the $8,000,000 outstanding under the
New Revolving Loan at December 31, 1996 was 7.13% on a blended basis, based on
Eurodollar rates. The Company pays fees of 1/2% per annum on the aggregate
unused portion of the loan commitment, in addition to an annual agent's fee.
As required by the terms of the Senior Credit Facility, the Company has
entered into interest rate swap agreements with certain of the participating
banks under the Senior Credit Facility. These swap agreements have the effect of
reducing the impact of changes in interest rates on the Company's floating rate
debt under the Senior Credit Facility. At December 31, 1996, interest rate swap
agreements covering a notional balance of $425,000,000 were outstanding. These
outstanding swap agreements mature from 1997 through 1999 and require the
Company to pay fixed rates of 4.96%-6.38% plus an incremental rate while the
counterparty pays a floating rate based on the six-month London Interbank
Borrowing Offered Rate ("LIBOR"). In addition to these swap agreements, in
connection with the BPI Acquisition the Company assumed interest rate cap
agreements. The outstanding interest rate cap agreement at December 31, 1996
covers a notional balance of $10,000,000 and provides for a fixed rate of 8.0%
and matures during 1997. During the years ended December 31, 1995 and 1996, the
Company recognized charges (income) under its interest rate swap and cap
agreements of $(275,000) and $110,584, respectively. Because the interest rate
swap and cap agreements are with banks that are lenders under the Senior Credit
Facility, the Company is not exposed to credit loss.
The Term Loan is payable in quarterly installments beginning June 30, 1997
and ending June 30, 2002, while availability under the Revolving Loan reduces
quarterly commencing June 30, 1997 and ending June 30,
F-16
<PAGE> 166
EVERGREEN MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2002. Availability under the New Revolving Loan reduces quarterly beginning June
30, 1998 and ending December 31, 2002.
(b) Senior Notes
The Company issued $20,000,000 of senior notes (the "Senior Notes") in
1989. The Senior Notes bear interest at 11.59% per annum payable quarterly and
principal is payable in equal quarterly installments of $1,000,000 through May
1999.
(c) Other
The Senior Credit Facility and the Senior Notes each contain certain
financial and operational covenants and other restrictions with which the
Company must comply, including, among others, limitations on capital
expenditures, corporate overhead and the incurrence of additional indebtedness,
restrictions on the use of borrowings, paying cash dividends and redeeming or
repurchasing Evergreen's capital stock, and requirements to maintain certain
financial ratios, including cash flow and debt service coverage (as defined).
The Senior Credit Facility also separately restricts the Company from making
certain acquisitions without the prior consent of the lenders. If the Company
increases its leverage beyond certain specified levels in order to effect an
acquisition, the Senior Notes require that the Company prepay all principal and
accrued interest thereunder, together with a "make whole" premium equal to the
amount of unearned interest, based on current market rates, through the original
maturity date.
Substantially all of the Company's assets are pledged as security for the
Senior Credit Facility and Senior Notes under the loan agreements. The
obligations of the Company under the Senior Credit Facility and Senior Notes
rank pari passu.
A summary of the future maturities of long-term debt follows:
<TABLE>
<S> <C>
1997........................................................ $26,500
1998........................................................ 76,500
1999........................................................ 63,250
2000........................................................ 70,000
2001........................................................ 72,500
Thereafter.................................................. 49,250
</TABLE>
(7) STOCK COMPENSATION
Evergreen has established the 1992, 1993 and 1995 Key Employee Stock Option
Plans (the "Employee Option Plans") which provide for the issuance of stock
options to officers and other key employees of the Company and its subsidiaries.
The Employee Option Plans make available for issuance an aggregate of 1,957,500
shares of Evergreen's Class A Common Stock. Options issued under the Employee
Option Plans have varying vesting periods as provided in separate stock option
agreements and generally carry an expiration date of ten years subsequent to the
date of issuance. Options issued under the 1993 and 1995 Employee Option Plans
are required to have exercise prices equal to or in excess of the fair market
value of Evergreen's Class A Common Stock on the date of issuance.
In May 1995, Evergreen also established the Stock Option Plan for
Non-Employee Directors (the "Director Plan") which provides for the issuance of
stock options to non-employee directors of the Company. The Director Plan makes
available for issuance an aggregate of 225,000 shares of Class A Common Stock.
Options issued under the Director Plan have exercise prices equal to the fair
market value of the Evergreen Class A Common Stock on the date of issuance, vest
over a three year period and have an expiration date of ten years subsequent to
the date of issuance.
F-17
<PAGE> 167
EVERGREEN MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the BPI Acquisition, Evergreen assumed outstanding
options to purchase 94,000 shares of BPI common stock held by BPI employees.
Options to purchase approximately 87,000 shares of the Evergreen's Class A
Common Stock vested and became exercisable on May 12, 1996.
Evergreen applies APB Opinion No. 25 in accounting for its Employee Option
Plans and, accordingly, no compensation cost has been recognized for its stock
options in the consolidated financial statements. Had Evergreen determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net loss would have been increased to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996
------- --------
<S> <C> <C>
Net loss:
As reported............................................... $(5,850) $(16,194)
Pro forma................................................. (8,787) (20,969)
</TABLE>
Pro forma net loss reflects only options granted in 1995 and 1996.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net loss amounts presented
above because compensation cost is reflected over the options' vesting period of
one year and compensation cost for options granted during 1994 is not
considered.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1995 and 1996: dividend yield of 0% for all
years; expected volatility of 44.5%; risk-free interest rate of 6.0% and
expected lives ranging from three to seven years.
Following is a summary of activity in the employee option plans and
agreements discussed above for the years ended December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year.......................... 877,500 $ 0.01 978,000 $ 3.10 1,289,874 $ 6.91
Granted....................... 280,500 10.67 413,138 16.17 587,250 23.12
Exercised..................... (180,000) 0.01 (25,500) 1.29 (83,403) 8.54
Canceled...................... - - (75,764) 8.59 (13,729) 9.91
-------- ------ --------- ------ --------- ------
Outstanding at end of year...... 978,000 $ 3.10 1,289,874 $ 6.91 1,779,992 $11.93
======== ====== ========= ====== ========= ======
Options exercisable at year
end........................... 697,500 945,000 967,742
======== ========= =========
Weighted average fair value of
options granted during the
year.......................... $ 8.54 $ 9.76
====== ======
</TABLE>
F-18
<PAGE> 168
EVERGREEN MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
1996 LIFE PRICE 1996 PRICE
-------------- ----------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
$0.01......................... 660,000 6.3 years $ 0.01 660,000 $ 0.01
$9.69 to 12.33................ 307,742 7.9 years 10.49 307,742 10.49
$21.33 to 26.75............... 812,250 8.8 years 22.49 - -
--------- ------ ------- ------
1,779,992 $11.93 967,742 $ 3.29
========= ====== ======= ======
</TABLE>
(8) INCOME TAXES
Income tax expense attributed to loss from continuing operations consists
of:
<TABLE>
<CAPTION>
1995 1996
----- -------
<S> <C> <C>
Current tax expense:
Federal................................................... $ 246 $ 485
State..................................................... 425 972
----- -------
Total current tax expense......................... 671 1,457
Deferred federal benefit.................................... (479) (4,353)
----- -------
Total income tax expense (benefit)................ $ 192 $(2,896)
===== =======
</TABLE>
The Company did not incur significant tax expense during the years ended
December 31, 1994 as its operations did not generate taxable income.
Total income tax expense (benefit) differed from the amount computed by
applying the U.S. federal statutory income tax rate of 35% to loss from
continuing operations for the years ended December 31, 1994, 1995 and 1996 as a
result of the following:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Computed "expected" tax benefit........................... $(1,172) $(1,980) $(6,682)
Amortization of goodwill.................................. 355 788 2,477
Net operating loss carryforwards for which no tax benefit
was recognized.......................................... 760 923 --
State income taxes, net of federal benefit................ -- 276 632
Other, net................................................ 57 185 677
------- ------- -------
$ -- $ 192 $(2,896)
======= ======= =======
</TABLE>
F-19
<PAGE> 169
EVERGREEN MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1995 and
1996 are presented below:
<TABLE>
<CAPTION>
1995 1996
-------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 18,748 $ 13,519
Accrued compensation primarily relating to stock
options................................................ 1,787 1,687
Other..................................................... 649 1,215
-------- ---------
Total deferred tax assets......................... 21,184 16,421
-------- ---------
Deferred tax liabilities:
Property and equipment and intangibles, primarily
resulting from difference in bases from BPI and Pyramid
Acquisitions........................................... (49,884) (101,761)
Other....................................................... (533) (758)
-------- ---------
Total deferred tax liabilities.................... (50,417) (102,519)
-------- ---------
Net deferred tax liability........................ $(29,233) $ (86,098)
======== =========
</TABLE>
Deferred tax assets and liabilities are computed by applying the U.S.
federal income tax rate in effect to the gross amounts of temporary differences
and other tax attributes, such as net operating loss carryforwards. As a result
of the application of purchase accounting to the BPI Acquisition in May 1995,
the Company recognized deferred tax assets of $15,380,000, which had not been
recognized by the Company in previous periods. Recognition of these assets
effectively reduced goodwill resulting from the acquisitions by a corresponding
amount.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. The Company expects the
deferred tax assets at December 31, 1996 to be realized as a result of the
reversal during the carryforward period of existing taxable temporary
differences giving rise to deferred tax liabilities, the generation of taxable
income in the carryforward period and the disposition of one or more of its
stations.
At December 31, 1996, the Company has net operating loss carryforwards
available to offset future taxable income of approximately $38,600,000 which
begin to expire in 2004. Approximately $29,700,000 of such net operating loss
carryforwards are subject to annual use limitations of up to $2,800,000 per
year.
(9) OPERATING LEASES
The Company has noncancelable operating leases, primarily for office space.
These leases generally contain renewal options for periods ranging from one to
ten years and require the Company to pay all executory costs such as maintenance
and insurance. Rental expense for operating leases (excluding those with lease
terms of one month or less that were not renewed) was approximately $2,193,000,
$3,073,000 and $5,462,000 during 1994, 1995 and 1996, respectively.
F-20
<PAGE> 170
EVERGREEN MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1996
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- ------------------------
<S> <C>
1997.................................. $4,658
1998.................................. 4,001
1999.................................. 4,015
2000.................................. 3,625
2001.................................. 3,559
</TABLE>
(10) COMMITMENTS AND CONTINGENCIES
In August 1993, Evergreen terminated an agreement with Sagittarius
Broadcasting Company (an affiliate of Infinity Broadcasting Corporation) and One
Twelve, Inc. (collectively, the "Claimants" or the "Plaintiffs") pursuant to
which programming featuring radio personality Howard Stern was broadcast on
radio station WLUP-AM (now WMVP-AM) in Chicago. The Claimants allege that
termination of the agreement was wrongful and have sued Evergreen in the Supreme
Court of the State of New York, County of New York (the "Court"). The agreement
required payments to the Claimants in the amount of $2,600,000 plus five percent
of advertising revenues generated by the programming over the three-year term of
the agreement. A total of approximately $680,000 was paid to the Claimants
pursuant to the agreement prior to termination. Claimants' original complaint
alleged claims for breach of contract, indemnification, breach of fiduciary duty
and fraud. Plaintiffs' aggregate prayer for relief in the original complaint
totaled $45,000,000. On July 12, 1994, the Court granted the Evergreen's motion
to dismiss Plaintiffs' claims for fraud and breach of fiduciary duty. On June 6,
1995, the Court denied the Plaintiff's motion for summary judgment on their
contract and indemnification claims and this order has been affirmed on appeal.
On May 17, 1996, after the close of discovery, Evergreen filed a motion for
summary judgment, seeking the dismissal of the remaining claims in the original
complaint. On July 1, 1996, Plaintiffs moved for leave to amend their complaint
in order to add claims for breach of the covenant of good faith and fair
dealing, tortious interference with business advantage and prima facia punitive
damages in excess of $25,000,000. On March 13, 1997, the Court denied the
Evergreen's motion for summary judgment, allowed Plaintiffs' request to amend
the complaint to add a claim for breach of the covenant of good faith and fair
dealing, and denied Plaintiffs' request to amend the complaint to add claims for
tortious interference with business advantage and prima facia tort. Evergreen
believes that it acted within its rights in terminating the agreement.
The Company and Evergreen are also involved in various other claims and
lawsuits which are generally incidental to its business. The Company is
vigorously contesting all such matters and believes that their ultimate
resolution will not have a material adverse effect on its consolidated financial
position, results of operations or cash flows.
Evergreen offers substantially all of its employees voluntary participation
in a 401(k) Plan. The Company may make discretionary contributions to the plan;
however, no such contributions were made by the Company during 1994, 1995 or
1996.
F-21
<PAGE> 171
EVERGREEN MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments for which the estimated fair value of the
instrument differs significantly from its carrying amounts at December 31, 1995
and 1996. The fair value of a financial instrument is defined as the amount at
which the instrument could be exchanged in a current transaction between willing
parties.
<TABLE>
<CAPTION>
1995 1996
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest rate swaps..................... $ -- $ 272 $ -- $ (199)
Long-term debt -- Senior Notes.......... (14,000) (15,443) (10,000) (10,572)
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
Cash and cash equivalents, accounts receivable and accounts
payable: The carrying amount of these assets and liabilities approximates
fair value because of the short maturity of these instruments.
Interest rate swaps: The fair value of the interest rate swap and cap
contracts is estimated by obtaining quotations from brokers. The fair value
is an estimate of the amounts that the Company would receive (pay) at the
reporting date if the contracts were transferred to other parties or
canceled by the broker. The carrying amounts of receivables (payables)
under interest rate swaps and caps are included in accrued expenses in the
accompanying consolidated balance sheets.
Long-term debt: The fair values of the Company's Senior Notes are
based on discounted cash flows under the Senior Notes using interest rates
currently available to the Company for similar debt issues. As amounts
outstanding under the Company's Senior Credit Facility agreements bear
interest at current market rates, their carrying amounts approximate fair
market value.
(12) SUBSEQUENT EVENTS (UNAUDITED)
On April 1, 1997, the Company swapped WQRS-FM in Detroit (which the Company
acquired on the same date for $32.0 million in cash), in exchange for WWRC-AM in
Washington, D.C. and $9.5 million in cash.
On May 1, 1997, the Company acquired WDAS-FM/AM in Philadelphia for $103.0
million in cash plus various other direct acquisition costs.
On April 25, 1997, the Company and a syndicate of commercial banks entered
into a second Amended and Restated Loan Agreement (as amended, the "Senior
Credit Facility") with a total current commitment of $1.75 billion. The Senior
Credit Facility consists of a $1.25 billion revolving credit facility and a $500
million term loan facility. The loans bear interest at a rate based, at the
option of the Company, on the participating banks' prime rate or Eurodollar rate
plus an incremental rate.
F-22
<PAGE> 172
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Chancellor Radio Broadcasting Company:
We have audited the accompanying consolidated balance sheets of Chancellor
Radio Broadcasting Company and Subsidiaries (collectively the "Company") as of
December 31, 1995 and 1996 and the related consolidated statements of
operations, changes in common stockholder's equity, and cash flows for each of
the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 1995 and 1996 and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
February 13, 1997,
except for Note 15 as
to which the date is
February 19, 1997
F-23
<PAGE> 173
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash...................................................... $ 1,314,214 $ 3,788,546
Accounts receivable, net of allowance for doubtful
accounts of $263,528 and $1,023,660, respectively...... 13,243,292 46,584,705
Prepaid expenses and other................................ 546,405 2,753,731
------------ ------------
Total current assets.............................. 15,103,911 53,126,982
Restricted cash........................................... -- 20,363,329
Property and equipment, net............................... 17,925,845 49,122,932
Intangibles and other, net................................ 203,808,395 551,406,094
Deferred financing costs, net............................. 4,284,413 16,723,346
------------ ------------
Total assets...................................... $241,122,564 $690,742,683
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,873,888 $ 4,409,389
Accrued liabilities....................................... 4,692,948 12,529,831
Accrued interest.......................................... 2,710,891 6,868,839
Current portion of long-term debt......................... 4,062,500 400,000
------------ ------------
Total current liabilities......................... 13,340,227 24,208,059
Long-term debt............................................ 168,107,242 354,913,499
Deferred income taxes..................................... 4,952,361 2,606,314
Other..................................................... -- 801,572
------------ ------------
Total liabilities................................. 186,399,830 382,529,444
------------ ------------
Commitments (Note 11)
Redeemable senior cumulative exchangeable preferred stock,
par value $.01 per share; 1,000,000 shares authorized,
none and 1,000,000 shares issued and outstanding,
respectively; preference in liquidation of $109,110,301... -- 107,222,416
Common stockholder's equity:
Common stock, par value $.01 per share; 2,000 shares
authorized, 1,000 shares issued and outstanding,
respectively........................................... 10 10
Additional paid-in capital................................ 66,359,990 219,520,102
Accumulated deficit....................................... (11,637,266) (18,529,289)
------------ ------------
Total common stockholder's equity................. 54,722,734 200,990,823
------------ ------------
Total liabilities and stockholder's equity........ $241,122,564 $690,742,683
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-24
<PAGE> 174
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1994 1995 1996
----------- ------------ ------------
<S> <C> <C> <C>
Gross broadcasting revenues............. $30,080,829 $ 73,278,860 $203,188,125
Less agency commissions................. 3,763,734 8,956,717 24,786,594
----------- ------------ ------------
Net revenues.................. 26,317,095 64,322,143 178,401,531
----------- ------------ ------------
Operating expenses:
Programming, technical and news....... 5,678,829 11,734,285 40,987,411
Sales and promotion................... 7,137,039 17,556,256 47,026,490
General and administrative............ 2,844,284 8,174,189 23,195,565
Depreciation and amortization......... 2,954,159 8,256,268 20,877,374
Corporate expenses.................... 599,657 1,815,535 4,844,985
Stock option compensation............. -- 6,360,000 3,800,000
----------- ------------ ------------
19,213,968 53,896,533 140,731,825
----------- ------------ ------------
Income from operations........ 7,103,127 10,425,610 37,669,706
Other (income) expense:
Interest expense...................... 5,246,827 18,114,549 35,703,862
Other, net............................ (19,265) 42,402 68,419
----------- ------------ ------------
Income (loss) before provision
for income taxes and
extraordinary loss.......... 1,875,565 (7,731,341) 1,897,425
Provision for income taxes.............. 1,163,716 3,799,955 4,612,551
----------- ------------ ------------
Net income (loss) before
extraordinary loss.......... 711,849 (11,531,296) (2,715,126)
Extraordinary loss on early
extinguishment of debt, net of income
tax benefit........................... 817,819 -- 4,176,897
----------- ------------ ------------
Net loss...................... (105,970) (11,531,296) (6,892,023)
Dividends and accretion on preferred
stock................................. -- -- 11,556,943
Loss on repurchase of preferred stock... -- -- 16,570,065
----------- ------------ ------------
Net loss attributable to
common stock................ $ (105,970) $(11,531,296) $(35,019,031)
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE> 175
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------- ADDITIONAL ACCUMULATED
SHARES AMOUNT PAID-IN CAPITAL DEFICIT TOTAL
------ ------ --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993.............. -- -- -- -- --
Issuance of common stock on January
10, 1994........................... 1,000 $ 10 $ 25,499,990 -- $ 25,500,000
Issuance of common stock on October
12, 1994........................... 1,000 10 34,499,990 -- 34,500,000
Net loss.............................. -- -- -- $ (105,970) (105,970)
------ ---- ------------ ------------ ------------
Balance, December 31, 1994.............. 2,000 20 59,999,980 (105,970) 59,894,030
Stock option compensation............. -- -- 6,360,000 -- 6,360,000
Contribution of stock held by
affiliate of Hicks, Muse, Tate &
Furst.............................. (1,000) (10) 10 -- --
Net loss.............................. -- -- -- (11,531,296) (11,531,296)
------ ---- ------------ ------------ ------------
Balance, December 31, 1995.............. 1,000 10 66,359,990 (11,637,266) 54,722,734
Loss on repurchase of preferred
stock.............................. -- -- (16,570,065) -- (16,570,065)
Dividends and accretion on preferred
stock.............................. -- -- (11,556,943) -- (11,556,943)
Capital contributions................. -- -- 181,287,120 -- 181,287,120
Net loss.............................. -- -- -- (6,892,023) (6,892,023)
------ ---- ------------ ------------ ------------
Balance, December 31, 1996.............. 1,000 $ 10 $219,520,102 $(18,529,289) $200,990,823
====== ==== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-26
<PAGE> 176
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1994 1995 1996
------------- ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $ (105,970) $(11,531,296) $ (6,892,023)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................. 2,954,159 8,256,268 20,877,374
Amortization of deferred financing costs...... 226,000 791,000 2,633,583
Stock option compensation..................... -- 6,360,000 3,800,000
Deferred income taxes......................... 1,490,716 3,788,877 4,548,481
Extraordinary loss............................ 490,819 -- 4,176,897
Changes in assets and liabilities, net of the
effects of acquired businesses:
Accounts receivable, net.................... (9,675,567) (2,343,520) (13,408,364)
Prepaids and other.......................... 216,036 (214,868) (982,637)
Accounts payable............................ 1,509,064 (541,914) 1,429,070
Accrued liabilities......................... 1,334,397 447,196 3,706,725
Accrued interest............................ 2,251,654 459,237 4,157,948
------------- ------------ -------------
Net cash provided by operating
activities............................. 691,308 5,470,980 24,047,054
------------- ------------ -------------
Cash flows from investing activities:
Purchases of broadcasting properties............. (204,509,849) (24,351,529) (439,533,609)
Purchases of other property and equipment........ (238,648) (1,709,897) (3,208,553)
------------- ------------ -------------
Net cash used in investing activities.... (204,748,497) (26,061,426) (442,742,162)
------------- ------------ -------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt......... 168,910,299 -- 277,627,630
Proceeds from borrowings under revolving debt
facility...................................... 5,639,237 54,458,819 101,966,762
Repayment of long-term debt...................... (25,000,000) (2,437,500) (109,816,233)
Repayments of borrowings under revolving debt
facility...................................... (3,975,539) (31,633,467) (105,540,183)
Issuance of preferred stock...................... -- -- 175,412,322
Repurchase of preferred stock.................... -- -- (95,462,423)
Additional capital contributions................. 60,000,000 -- 178,525,254
Distribution of additional paid in capital....... -- -- (1,038,134)
Payment of preferred stock dividends............. -- -- (505,555)
------------- ------------ -------------
Net cash provided by financing
activities............................. 205,573,997 20,387,852 421,169,440
------------- ------------ -------------
Net increase (decrease) in cash.......... 1,516,808 (202,594) 2,474,332
Cash, at beginning of year......................... -- 1,516,808 1,314,214
------------- ------------ -------------
Cash, at end of year............................... $ 1,516,808 $ 1,314,214 $ 3,788,546
============= ============ =============
Supplemental Disclosure of Cash Flow Information
(Note 5):
Cash paid during the period for:
Interest......................................... $ 2,769,173 $ 16,864,312 $ 28,912,331
Income taxes..................................... $ -- $ -- $ 62,407
Non-cash financing:
Dividends and accretion on preferred stock....... $ -- $ -- $ 11,556,943
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-27
<PAGE> 177
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Chancellor Radio Broadcasting Company, formerly Chancellor Broadcasting
Company ("Chancellor Radio Broadcasting") and its wholly owned subsidiaries
(collectively, the "Company") operate in a single industry segment, which
segment encompasses the ownership and management of radio broadcast stations
located in markets throughout the United States. Chancellor Radio Broadcasting,
a wholly owned subsidiary of Chancellor Broadcasting Company, formerly
Chancellor Corporation ("Chancellor"), was formed in June 1994 to acquire and
operate radio stations owned by American Media, Inc. and two corporations and
one partnership affiliated with American Media, Inc. (collectively, the
"American Media Station Group") and by Chancellor Communications Corporation
("Chancellor Communications"). That transaction was consummated on October 12,
1994. Chancellor Communications was formed in 1993 to acquire and operate radio
stations KGBY-FM and KFBK-AM. That transaction closed on January 10, 1994 and
the consolidated financial statements include the activity of all the stations
since their respective dates of acquisition.
In June 1995, the 1,000 shares of common stock of Chancellor Communications
held by an affiliate of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse")
were exchanged for additional shares of common stock of Chancellor, which
subsequently contributed these shares to Chancellor Radio Broadcasting as an
additional capital contribution. As a result, Chancellor Communications became a
wholly owned subsidiary of Chancellor Radio Broadcasting. Chancellor
Communications was then merged with the Company. The transactions had no effect
on the financial position or results of operations of the Company.
Chancellor Broadcasting Licensee Company is a wholly-owned non-operating
legal entity formed to hold title to the Company's broadcast licenses. Such
entity has no significant other assets and no material liabilities,
contingencies or commitments. Consistent with industry practice for financial
reporting purposes, no material value has been specifically allocated to the
licenses. Accordingly, no financial statement information has been provided
herein due to its immateriality to investors.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Chancellor
and its subsidiaries Chancellor Broadcasting and Chancellor Broadcasting
Licensee Company for all periods presented, and its subsidiaries Trefoil
Communications, Inc., Shamrock Broadcasting Inc., Shamrock Radio Licenses, Inc.,
Shamrock Broadcasting Licenses of Denver, Inc. and Shamrock Broadcasting of
Texas, Inc. from their date of acquisition. All significant intercompany
accounts and transactions have been eliminated.
Cash
The Company maintains cash in demand deposits with financial institutions.
The Company had no cash equivalents during the periods presented. All highly
liquid investments with an original maturity of less than Six months are
considered cash equivalents.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation and
amortization. Depreciation is determined using the straight-line method over the
estimated useful lives of the various classes of assets, which range from three
to twenty-five years. Leasehold improvements are amortized over the shorter of
their useful lives or the terms of the related leases. Costs of repairs and
maintenance are charged to operations as incurred.
F-28
<PAGE> 178
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Intangibles
Goodwill represents the excess of cost over the fair values of the
identifiable tangible and other intangible net assets acquired and is being
amortized over the straight-line method over forty years. Other intangible
assets comprise amounts paid for pending acquisitions, agreements not to
compete, a tower lease advantage and organization costs incurred in the
incorporation of the Company. Other intangibles, excluding pending acquisition
costs, are being amortized by the straight-line method over their estimated
useful lives ranging from three to ten years. Pending acquisition costs are
deferred and capitalized as part of completed acquisitions or expensed in the
period in which the pending acquisition is terminated.
The Company evaluates intangible assets for potential impairment by
analyzing the operating results, future cash flows on an undiscounted basis,
trends and prospects of the Company's stations, as well as by comparing them to
their competitors. The Company also takes into consideration recent acquisition
patterns within the broadcast industry, the impact of recently enacted or
potential FCC rules and regulations and any other events or circumstances which
might indicate potential impairment.
Deferred Financing Costs
Costs associated with obtaining debt financing are capitalized and
amortized using the interest method over the term of the related debt. As a
result of refinancing the Company's original credit facility, during the year
ended December 31, 1994 unamortized deferred financing costs of approximately
$818,000 were expensed as an extraordinary item in the consolidated statements
of operations. As a result of refinancing the Company's second credit facility,
the early redemption of $20.0 million of its existing notes (defined) and the
prepayment of $18.7 million of it's a Term Loan Facility (defined) from its
third credit facility, during the year ended December 31, 1996 unamortized
deferred financing costs of $3.4 million, less $543,500 of tax benefit, were
expensed as an extraordinary item in the consolidated statements of operations.
Approximately $5.1 million, $118,000 and $18.6 million of new financing costs
were incurred for the years ended December 31, 1994, 1995 and 1996,
respectively. Accumulated amortization at December 31, 1995 and 1996, amounted
to approximately $959,000 and $2.8 million, respectively.
Revenue Recognition
Broadcasting operations derive revenue primarily from the sale of program
time and commercial announcements to local, regional and national advertisers.
Revenue is recognized when the programs and commercial announcements are
broadcast.
Barter Transactions
Barter transactions represent advertising time exchanged for promotional
items, advertising, supplies, equipment, and services. Barter revenue is
recorded at the fair value of the goods or services received and is recognized
in income when the advertisements are broadcast. Goods or services are charged
to expense when received or used. Advertising time owed and goods or services
due the Company are included in accounts payable and accounts receivable,
respectively.
Advertising Costs
The Company incurs various marketing and promotional costs to add and
maintain listenership. These costs are expensed as incurred and totaled
approximately $1.4 million, $4.2 million and $16.2 million for the years ended
December 31, 1994, 1995 and 1996, respectively.
F-29
<PAGE> 179
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock Option Compensation
Stock option compensation expense is recognized in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees".
Income Taxes
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable earnings. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount more likely than not to be
realized. Income tax expense is the tax payable for the period and the change
during the period in deferred tax assets and liabilities.
Chancellor, Chancellor Radio Broadcasting and Chancellor Broadcasting
Licensee Company have elected to file consolidated federal income tax returns
(the "Chancellor Group") and Trefoil Communications, Inc., Shamrock Broadcasting
Inc., Shamrock Radio Licenses, Inc., Shamrock Broadcasting Licenses of Denver,
Inc. and Shamrock Broadcasting of Texas, Inc. have elected to file consolidated
federal income tax returns (the "Shamrock Group"). Each of these groups have
entered into a tax sharing agreement governing the allocation of any
consolidated federal income tax liability among its members. In general, each
subsidiary allocates and pays income taxes computed as if each subsidiary filed
a separate federal income tax return. Similar principles apply to any
consolidated state and local income tax liabilities.
Concentration of Credit Risk
The Company's revenue and accounts receivable primarily relate to
advertising of products and services within the radio stations' broadcast areas.
The Company performs ongoing credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers. Credit
losses have been within management's expectations and adequate allowances for
any uncollectible trade receivables are maintained.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Land....................................................... $ 1,572,229 $ 3,036,663
Building and building improvements......................... 3,159,848 9,202,378
Towers and antenna systems................................. 3,689,972 14,476,104
Studio, technical and transmitting equipment............... 7,830,375 23,026,564
Office equipment, furniture and fixtures................... 2,484,261 5,521,010
Record library............................................. 1,800,510 2,193,236
Vehicles................................................... 362,787 1,117,908
Construction in progress................................... 503,504 78,877
----------- -----------
21,403,486 58,652,740
Less accumulated depreciation.............................. (3,477,641) (9,529,808)
----------- -----------
$17,925,845 $49,122,932
=========== ===========
</TABLE>
F-30
<PAGE> 180
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation expense for the years ended December 31, 1994, 1995 and 1996
was $0.9 million, $2.6 million and $6.5 million, respectively.
4. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
Goodwill................................................. $205,971,820 $567,377,120
Noncompete agreements.................................... 1,950,000 2,025,000
Tower lease advantage.................................... 305,000 305,000
Pending acquisition costs................................ 3,246,265 2,620,474
Other.................................................... 45,718 626,220
------------ ------------
211,518,803 572,953,814
Less accumulated amortization............................ (7,710,408) (21,547,720)
------------ ------------
$203,808,395 $551,406,094
============ ============
</TABLE>
Amortization expense for intangible assets for the years ended December 31,
1994, 1995 and 1996 was $2.0 million, $5.7 million and $14.3 million,
respectively.
5. ACQUISITIONS AND DISPOSITIONS OF BROADCASTING PROPERTIES
On January 9, 1994, Chancellor Communications purchased substantially all
the assets and assumed certain liabilities of KGBY-FM and KFBK-AM for
approximately $49.5 million, including acquisition costs. Liabilities assumed
were limited to certain ongoing contractual rights and obligations. The
acquisition has been accounted for as a purchase and, accordingly, the results
of operations associated with the acquired assets have been included in the
accompanying statements from the date of acquisition.
The acquisition is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired and liabilities assumed:
Property and equipment.................................... $ 4,921
Goodwill and other intangibles............................ 44,401
Prepaid expenses and other assets......................... 413
Accrued liabilities....................................... (205)
-------
Total acquisition................................. $49,530
=======
</TABLE>
On October 12, 1994, Chancellor Radio Broadcasting purchased substantially
all the assets and assumed certain liabilities consisting solely of accrued
expenses and future payments under ongoing contracts of the American Media
Station Group (other than KHYL-FM in Sacramento, California) for approximately
$139.5 million in cash, including acquisition costs and payments in respect of
agreements not to compete. On the same date, Chancellor Communications purchased
all the assets and certain liabilities consisting solely of accrued expenses and
future payments under ongoing contracts of KHYL-FM for approximately $15.5
million in cash, including acquisition costs and payments in respect of an
agreement not to compete. These acquisitions have been accounted for as
purchases and, accordingly, the results of operations associated with the
acquired assets have been included in the accompanying statements from the date
of acquisition.
F-31
<PAGE> 181
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisition is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired and liabilities assumed:
Property and equipment.................................... $ 12,671
Goodwill and other intangibles............................ 142,618
Prepaid expenses and other assets......................... 353
Accrued liabilities....................................... (662)
--------
Total acquisition................................. $154,980
========
</TABLE>
Simultaneously with the closing of these transactions, Chancellor acquired
all of Chancellor Communications' outstanding nonvoting stock in exchange for
newly issued shares of Chancellor's nonvoting stock. Chancellor contributed all
the acquired shares of Chancellor Communication's nonvoting stock to Chancellor
Radio Broadcasting, as a result of which Chancellor Communications became a
subsidiary of Chancellor Radio Broadcasting. Because these entities are under
common management and control, this exchange has been accounted for at
historical cost in a manner similar to a pooling of interests.
On July 31, 1995, the Company purchased substantially all the assets and
assumed certain liabilities of KDWB-FM for approximately $22.6 million,
including acquisition costs. Liabilities assumed were limited to certain ongoing
contractual rights and obligations. The acquisition has been accounted for as a
purchase and, accordingly, the results of operations associated with the
acquired assets have been included in the accompanying statements from the date
of acquisition.
The acquisition is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired and liabilities assumed:
Property and equipment................ $ 1,866
Goodwill and other intangibles........ 21,032
Prepaid expenses and other assets..... 82
Other liabilities..................... (383)
-------
Total acquisition............. $22,597
=======
</TABLE>
On February 14, 1996, the Company acquired all of the outstanding capital
stock of Trefoil Communications, Inc. ("Trefoil") for approximately $408.0
million, including acquisition costs. Trefoil is a holding company, the sole
asset of which is the capital stock of Shamrock Broadcasting, Inc. ("Shamrock
Broadcasting"). The acquisition of Trefoil was financed through a new credit
agreement, new senior subordinated notes, Chancellor's initial public stock
offering, senior exchangeable preferred stock and the issuance of unregistered
common stock of Chancellor. The acquisition of Trefoil was accounted for as a
purchase for financial accounting purposes and a non-taxable business
combination for tax purposes and, accordingly, the results of operations
associated with the acquired assets have been included in the accompanying
statements from the date of acquisition.
F-32
<PAGE> 182
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisition is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired and liabilities assumed:
Cash.................................. $ 38
Accounts receivable, net.............. 18,636
Prepaid expenses and other assets..... 1,274
Property and equipment................ 36,429
Goodwill and other intangibles........ 361,425
Deferred tax asset.................... 5,464
Accrued liabilities................... (14,564)
Other noncurrent liabilities.......... (702)
--------
Total acquisition............. $408,000
========
</TABLE>
Simultaneously with the acquisition of Trefoil, the Company entered into a
time brokerage agreement with Evergreen Media Corporation for the outsourcing of
certain limited functions of WWWW-FM and WDFN-AM, both Detroit stations acquired
with Trefoil, and an option to purchase such stations for $30.0 million of cash.
These stations were operated pursuant to this agreement until January 30, 1997,
the date on which the disposition of these stations occurred. Subsequent to the
acquisition of Trefoil, KTBZ-FM, a Houston station acquired with Trefoil, was
operated by Secret Communications, L.P. ("Secret") under a Local Marketing
Agreement ("LMA")/Exchange Agreement with the Company. In March 1996, the
Company entered into an agreement to exchange KTBZ-FM and $5.6 million of cash
to Secret for KALC-FM and KIMN-FM, Denver, Colorado. The Company began managing
certain limited functions of these stations, pursuant to an LMA, effective April
1, 1996 and closed on the exchange of the stations effective July 31, 1996. The
exchange has been accounted for using the fair values of the assets exchanged
plus the $5.6 million of additional cash and $0.8 million of additional
acquisition costs, and was allocated to the net assets acquired based upon their
estimated fair market values. The excess of the purchase price over the
estimated fair value of net assets acquired amounted to approximately $28.7
million, which has been accounted for as goodwill and is being amortized over 40
years using the straight line method.
The exchange is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired and liabilities assumed:
Prepaid expenses and other assets......................... $ 163
Property and equipment.................................... 2,363
Goodwill and other intangibles............................ 28,657
Accrued liabilities....................................... (138)
-------
Total acquisition................................. $31,045
=======
</TABLE>
On May 15, 1996, the Company entered into an agreement to acquire
substantially all the assets and certain liabilities of OmniAmerica Group
("Omni") for an aggregate price of $178.0 million, including $163.0 million of
cash and $15.0 million of Chancellor's Class A Common Stock. On June 24, 1996,
the Company entered into an agreement with American Radio Systems Corporation
("American Radio") whereby it will exchange the West Palm Beach, Florida
stations acquired from Omni for American Radio's KSTE-AM and $33.0 million of
cash. KSTE-AM is located in Rancho Cordova, California and is part of the
Sacramento market. On July 1, 1996, Chancellor entered into an agreement with
SFX Broadcasting, Inc. ("SFX") whereby it will exchange the Jacksonville,
Florida stations being acquired pursuant to the Omni acquisition agreement and
$11.0 million of cash for SFX's WBAB-FM, WBLI-FM, WGBB-AM and WHFM-FM,
Nassau-Suffolk, New York. Pursuant to various agreements, the Company began
managing certain limited functions of the remaining Omni stations and the SFX
stations beginning July 1, 1996, and station KSTE-AM beginning August 1, 1996.
F-33
<PAGE> 183
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On November 22, 1996, the Company acquired substantially all the assets of
WKYN-AM, Florence, Kentucky, for approximately $1.4 million, including
transaction costs. WKYN-AM serves the Cincinnati, Ohio market.
On January 23, 1997, the Company acquired substantially all the assets and
certain liabilities of Colfax Communications ("Colfax") for an aggregate price
of $373.0 million. Liabilities assumed were limited to certain ongoing
contractual rights and obligations. The acquisition will be accounted for as a
purchase. Pursuant to the acquisition agreement, at December 31, 1996 the
Company had $20.4 million of cash in a restricted escrow account which was
remitted to Colfax at closing. On January 29, 1997, the Company entered into an
agreement to sell WMIL-FM and WOKY-AM, Milwaukee, Wisconsin stations acquired
from Colfax, to Clear Channel Radio, Inc. for $40.0 million in cash.
On February 13, 1997, the Company acquired substantially all the assets and
certain liabilities of Omni. Liabilities assumed were limited to certain ongoing
contractual rights and obligations. The acquisition will be accounted for as a
purchase.
The following summarizes the unaudited consolidated pro forma data as
though the acquisitions of KDWB-FM, Shamrock Broadcasting Company and KIMN-FM
and KALC-FM had occurred as of the beginning of 1995 (in thousands):
<TABLE>
<CAPTION>
1995 1996
------------------------ ------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- ----------- ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue............................... $ 64,322 $162,360 $178,402 $187,198
Net income (loss) before extraordinary
loss.................................... (11,531) (8,319) (2,715) (310)
Net loss.................................. (11,531) (8,319) (6,892) (310)
</TABLE>
The following summarizes the unaudited consolidated pro forma balance sheet
as of December 31, 1996 as though the acquisition of Colfax, the issuance of the
Exchangeable Preferred Stock, the issuance of Chancellor's Convertible Preferred
Stock (including the over-allotment), and the New Credit Agreement had occurred
on that date (in thousands):
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------- -----------
(UNAUDITED)
<S> <C> <C>
Total assets................................................ $690,743 $1,053,833
======== ==========
Current liabilities......................................... $ 24,208 $ 40,598
Long-term liabilities....................................... 358,322 410,359
Preferred stock............................................. 107,222 404,585
Common stockholder's equity................................. 200,991 198,291
-------- ----------
Total liabilities and stockholders' equity.................. $690,743 $1,053,833
======== ==========
</TABLE>
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
---------- -----------
<S> <C> <C>
Salaries................................................... $ 534,297 $ 3,697,072
Sales commissions.......................................... 889,010 2,149,167
Rep commissions............................................ 561,189 1,549,048
Other...................................................... 2,708,452 5,134,544
---------- -----------
$4,692,948 $12,529,831
========== ===========
</TABLE>
F-34
<PAGE> 184
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
Term loan............................................... $ 67,562,500 $ 74,968,527
Revolving credit loan................................... 24,607,242 20,344,972
Subordinated notes due 2004............................. 80,000,000 260,000,000
------------ ------------
172,169,742 355,313,499
Less current portion.................................... 4,062,500 400,000
------------ ------------
$168,107,242 $354,913,499
============ ============
</TABLE>
The Company's term and revolving credit facilities were refinanced on
January 23, 1997, in conjunction with the acquisition of Colfax Communications
under a new bank credit agreement (the "New Credit Agreement") with Bankers
Trust Company, as administrative agent, and other institutions party thereto.
The New Credit Agreement includes a $225.0 million term loan facility (the "Term
Loan Facility") and a revolving loan facility (the "Revolving Loan Facility"
and, together with the Term Loan, the "New Bank Financing"). The Revolving Loan
Facility originally provides for borrowings up to $120.0 million, which is
subsequently reduced as and when the Company receives the net cash proceeds of
the pending station swaps and dispositions. In connection with the refinancing
of the term and revolving loan facilities, the Company incurred an extraordinary
charge to write-off deferred finance costs of approximately $4.5 million.
The New Bank Financing is collateralized by (i) a first priority perfected
pledge of all capital stock and notes owned by the Company and (ii) a first
priority perfected security interest in all other assets (including receivables,
contracts, contract rights, securities, patents, trademarks, other intellectual
property, inventory, equipment and real estate) owned by the Company, excluding
FCC licenses, leasehold interests in studio or office space and leasehold and
partnership interests in tower or transmitter sites in which necessary consents
to the granting of a security interest cannot be obtained without payments to
any other party or on a timely basis. The New Bank Financing also is guaranteed
by the subsidiaries of Chancellor and Chancellor Radio Broadcasting, whose
guarantees are collateralized by a first priority perfected pledge of the
capital stock Chancellor Radio Broadcasting.
The Term Loan Facility is due in increasing quarterly installments
beginning in 1997 and matures in January 2003. All outstanding borrowings under
the Revolving Facility mature in January 2003. The facilities bear interest at a
rate equal to, at the Company's option, the prime rate of Bankers Trust Company,
as announced from time to time, or the London Inter-Bank Offered Rate ("LIBOR")
in effect from time to time, plus an applicable margin rate. The Company pays
quarterly commitment fees in arrears equal to either .375% or .250% per annum on
the unused portion of the Revolving Facility, depending upon whether the
Company's leverage ratio is equal to or greater than 4.5:1 or less than 4.5:1,
respectively. The bank financing facilities which existed on December 31, 1996
accrued interest at the prime rate plus 1.25% (9.5%) on $3.3 million and the
LIBOR rate plus 2.50% (8.125%) on $92.0 million of borrowings.
In connection with the IPO (defined), the Company redeemed 25% of its
Existing Notes (defined) for approximately $22.2 million. The redemption was
completed in March 1996 and resulted in an extraordinary charge of $2.8 million.
The remaining $60.0 million 12 1/2% Senior Subordinated Notes due 2004 (the
"Existing Notes") mature October 1, 2004, and bear interest at 12.5% per annum.
On February 14, 1996, in conjunction with the acquisition of Trefoil
Communications, Inc., the Company issued $200.0 million aggregate principal
amount of 9 3/8% Senior Subordinated Notes due 2004 (the "New Notes" and,
together with the Existing Notes, the "Notes"), which mature on October 1, 2004,
and bear interest at 9.375% per annum. Interest on the Notes is paid
semi-annually. The Existing and New Notes are redeemable, in whole or in part,
at the option of the Company on or after October 1, 1999 and February 1, 2000,
respectively, at redemption prices expressed as a percentage of the principal
amount, ranging from 100.000% to 105.556%,
F-35
<PAGE> 185
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
plus accrued interest thereon to the date of acquisition. In addition, prior to
January 31, 1999, the Company may redeem up to 25% of the original aggregate
principal amount of the New Notes with the net proceeds of one or more public
equity offerings. The Notes are unsecured obligations of the Company, ranking
subordinate in right of payment to all senior debt of the Company. The New Notes
rank pari passu in right of payment to the Existing Notes. The Notes are
guaranteed on a senior subordinated basis by Chancellor Radio Broadcasting
Company's subsidiaries.
Scheduled debt maturities for the Company's outstanding long-term debt at
December 31, 1996 for each of the next five years and thereafter are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 400,000
1998........................................................ 400,000
1999........................................................ 9,874,886
2000........................................................ 11,296,119
2001........................................................ 17,469,864
Thereafter.................................................. 315,872,630
------------
$355,313,499
============
</TABLE>
See Note 5 for pro forma effects of the New Bank Financing subsequent to
year end. Both the New Bank Financing and Notes indentures contain certain
covenants, including, among others, limitations on the incurrence of additional
debt, in the case of the New Bank Financing; requirements to maintain certain
financial ratios; and restrictions on the payment of dividends to stockholders
and from the subsidiaries to Chancellor.
8. CAPITAL STRUCTURE
In February 1996, Chancellor sold 7.7 million shares of its Class A Common
Stock, par value $.01 per share (the "Class A Common Stock"), in an initial
public offering, (the "IPO"), which generated net proceeds of $142.4 million,
and in a private placement, issued $100.0 million of exchangeable redeemable
preferred stock (the "Acquisition Preferred Stock") of Chancellor Radio
Broadcasting and 742,192 shares of Class A common stock of Chancellor to an
affiliated entity and other investors.
Immediately prior to the IPO, Chancellor effected a recapitalization of its
current capital stock. Pursuant to the recapitalization, each six shares of
Chancellor's Nonvoting Stock were reclassified into one share of Class A Common
Stock. Each six shares of Chancellor's Voting Stock were reclassified into one
share of Class B Common Stock and each six shares of Convertible Nonvoting Stock
were reclassified into one share of Class C Common Stock. In connection with the
recapitalization, 63,334 shares of Class A Common Stock were exchanged for an
equal number of shares of Class B Common Stock, and an additional 8,484,410
shares of Class A Common Stock were exchanged for an equal number of shares of
Class C Common Stock. The recapitalization has been given retroactive effect in
the financial statements.
In February 1996, subsequent to the IPO, the Company completed a private
placement of $100.0 million of newly authorized Senior Cumulative Exchangeable
Preferred Stock (the "Old Preferred Stock"). Upon completion, the proceeds of
the Old Preferred Stock were used to redeem the Acquisition Preferred Stock and
55,664 shares of Class A Common Stock. The redemption resulted in a charge to
net loss attributable to common stock of approximately $16.6 million and an
additional reduction of paid-in capital of approximately $1.0 million.
In June 1996, the holders of Chancellor's Class C Common Stock filed an
application with the FCC to convert the stock into Chancellor's Class B Common
Stock. The holders of Class C Common Stock received approval of their
applications and subsequently converted their stock on October 22, 1996.
F-36
<PAGE> 186
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In August 1996 pursuant to an agreement entered into at the time of the
IPO, Chancellor sold 1.2 million shares of Class A Common Stock in a private
placement to an affiliated entity, which generated proceeds of $23.0 million
which were contributed to Chancellor Radio Broadcasting.
In September 1996, the Company completed an exchange offering whereby it
exchanged the Old Preferred Stock for 1,000,000 shares of 12 1/4% Series A
Senior Cumulative Exchangeable Preferred Stock (the "Senior Exchangeable
Preferred Stock") in a transaction registered under the Securities Act of 1933,
as amended. The terms of the Senior Exchangeable Preferred Stock are
substantially identical to those of the Old Preferred Stock. Dividends on the
Senior Exchangeable Preferred Stock accrue from its date of issuance and are
payable quarterly commencing November 15, 1996, at a rate per annum of 12 1/4%
of the then effective liquidation preference per share. Dividends may be paid,
at the Company's option, on any dividend payment date occurring on or prior to
February 15, 2001 either in cash or by adding such dividends to the then
effective liquidation preference of the Senior Exchangeable Preferred Stock. The
Senior Exchangeable Preferred Stock is redeemable at the Company's option, in
whole or in part at any time on or after February 15, 2001, at various
redemption prices, plus, accumulated and unpaid dividends to the date of
redemption. In addition, prior to February 15, 1999, the Company may, at its
option, redeem the Senior Exchangeable Preferred Stock with the net cash
proceeds from one or more Public Equity Offerings (as defined), at various
redemption prices, plus, accumulated and unpaid dividends to the redemption
date; provided, however, that after any such redemption there is outstanding at
least 75% of the number of shares of Senior Exchangeable Preferred Stock
originally issued.
The Company is required, subject to certain conditions, to redeem all of
the Senior Exchangeable Preferred Stock outstanding on February 15, 2008, at a
redemption price equal to 100% of the then effective liquidation preference
thereof, plus, accumulated and unpaid dividends to the date of redemption. Upon
the occurrence of a change of control (as defined), the Company must offer to
purchase all of the then outstanding shares of Senior Exchangeable Preferred
Stock at a price equal to 101% of the then effective liquidation preference
thereof, plus, accumulated and unpaid dividends to the date of purchase. Subject
to certain conditions, the Senior Exchangeable Preferred Stock is exchangeable
in whole, but not in part, at the option of the Company, on any dividend payment
date for the Company's 12 1/4% subordinated exchange debentures due 2008.
On January 23, 1997, Chancellor completed a private placement of $100.0
million of newly authorized 7% Convertible Preferred Stock (the "Convertible
Preferred Stock") and Chancellor Radio Broadcasting completed a private
placement of $200.0 million of newly authorized 12% Exchangeable Preferred Stock
(the "Exchangeable Preferred Stock").
Dividends on the Convertible Preferred Stock accrue from its date of
issuance and are payable quarterly commencing April 15, 1997, at a rate per
annum of 7% of the liquidation preference per share. The liquidation preference
of the Convertible Preferred Stock is $50.00 per share, and requires cash
dividends of $7.7 million per year. Because Chancellor is a holding company with
no assets other than the common stock of the Company, Chancellor will rely
solely on the dividends from the Company to satisfy its dividend payment
obligation on the 7% Convertible Preferred Stock. The Convertible Preferred
Stock is convertible at the option of the holder at any time after March 23,
1997, unless previously redeemed, into Class A Common Stock of Chancellor at a
conversion price of $32.90 per share of Class A Common Stock, subject to
adjustment in certain events. In addition, after January 19, 2000, the Company
may, at its option, redeem the Convertible Preferred Stock, in whole or in part,
at specified redemption prices plus accrued and unpaid dividends through the
redemption date. Upon the occurrence of a change of control (as defined),
Chancellor must, subject to certain conditions, offer to purchase all of the
then outstanding shares of Convertible Preferred Stock at a price equal to 101%
of the liquidation preference thereof, plus accrued and unpaid dividends to the
date of purchase.
F-37
<PAGE> 187
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Dividends on the Exchangeable Preferred Stock will accrue from the date of
its issuance and will be payable semi-annually commencing July 15, 1997, at a
rate per annum of 12% of the liquidation preference per share. Dividends may be
paid, at the Company's option, on any dividend payment date occurring on or
prior to January 15, 2002 either in cash or in additional shares of Exchangeable
Preferred Stock. The liquidation preference of the Exchangeable Preferred Stock
will be $100.00 per share. The Exchangeable Preferred Stock is redeemable at the
Company's option, in whole or in part at any time on or after January 15, 2002,
at the redemption prices set forth herein, plus accrued and unpaid dividends to
the date of redemption. In addition, prior to January 15, 2000, the Company may,
at its option, redeem the Exchangeable Preferred Stock with the net cash
proceeds from one or more Public Equity Offerings (as defined), at various
redemption prices plus accrued and unpaid dividends to the redemption date;
provided, however, that after any such redemption there is outstanding at least
$150.0 million aggregate liquidation preference of Exchangeable Preferred Stock.
The Company is required, subject to certain conditions, to redeem all of the
Exchangeable Preferred Stock outstanding on January 15, 2009, at a redemption
price equal to 100% of the liquidation preference thereof, plus accrued and
unpaid dividends to the date of redemption. Upon the occurrence of a Change of
Control (as defined), the Company will, subject to certain conditions, offer to
purchase all of the then outstanding shares of Exchangeable Preferred Stock at a
price equal to 101% of the liquidation preference thereof, plus accrued and
unpaid dividends to the repurchase date. In addition, prior to January 15, 1999,
upon the occurrence of a Change of Control, the Company will have the option to
redeem the Exchangeable Preferred Stock in whole but not in part at a redemption
price equal to 112% of the liquidation preference thereof, plus accrued and
unpaid dividends to the date of redemption. The Exchangeable Preferred Stock
will, with respect to dividend rights and rights on liquidation, rank junior to
the Senior Exchangeable Preferred Stock. Subject to certain conditions, the
Exchangeable Preferred Stock is exchangeable in whole, but not in part, at the
option of the Company, on any dividend payment date for the Company's 12%
subordinated exchange debentures due 2009, including any such securities paid in
lieu of cash interest.
In addition to the accrued dividends discussed above, the recorded value of
the Senior Exchangeable Preferred Stock, the Convertible Preferred Stock and the
Exchangeable Preferred Stock includes or will include an amount for the
accretion of the difference between the stock's fair value at date of issuance
and its mandatory redemption amount, calculated using the effective interest
method.
9. INCOME TAXES
All of the Company's revenues were generated in the United States. The
provision for income taxes for continuing operations consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current:
State.................................................... $ -- $ 11,098 $ 64,070
Deferred:
Federal.................................................. 1,267,109 3,220,528 3,866,209
State.................................................... 223,607 568,329 682,272
---------- ---------- ----------
Total provision.................................. $1,490,716 $3,799,955 $4,612,551
========== ========== ==========
</TABLE>
F-38
<PAGE> 188
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense differs from the amount computed by applying the federal
statutory income tax rate of 34% to income before income taxes for the following
reasons:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996
---------- ----------- ----------
<S> <C> <C> <C>
U.S. federal income tax at statutory
rate.................................. $ 637,692 $(2,628,656) $ 645,125
State income taxes, net of federal
benefit............................... 112,533 (463,880) 113,846
Valuation allowance provided for loss
carryforward generated during the
current period........................ 720,490 6,589,750 307,000
Reconciliation of return to estimate.... -- 71,510 --
Permanent difference.................... 20,001 231,231 3,546,580
---------- ----------- ----------
$1,490,716 $ 3,799,955 $4,612,551
========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
----------- ------------
<S> <C> <C>
The deferred tax assets (liabilities)
consist of the following:
Loss carryforwards expiring 2009 and
2010............................... $ 4,766,240 $ 11,806,985
Deferred stock option compensation
deduction.......................... 2,544,000 4,064,000
Tax credits........................... -- 2,951,555
Other................................. 105,411 680,819
----------- ------------
Gross deferred tax assets.......... 7,415,651 19,503,359
----------- ------------
Depreciation and amortization......... (5,057,772) (21,488,463)
----------- ------------
Deferred tax assets valuation
allowance.......................... (7,310,240) (621,210)
----------- ------------
Net deferred tax liabilities....... $(4,952,361) $ (2,606,314)
=========== ============
</TABLE>
The deferred tax valuation allowance was originally established due to the
uncertainty surrounding the realizability of the Company's deferred tax assets
using the "more likely than not" criteria. During the fourth quarter of 1996,
the Company revised its estimate of the likelihood that it will realize the
majority of its deferred tax assets and adjusted its valuation allowance
accordingly. This revised estimate was the direct result of the acquisition of
Trefoil. Reversal of the valuation allowance related to deferred tax assets
which existed on the date of acquisition or which were acquired as a result of
the Trefoil acquisition were credited against the original purchase accounting
allocation to goodwill. The reversal of the valuation allowance related to
deferred tax assets generated subsequent to the acquisition were credited as a
reduction of income tax expense and extraordinary losses as appropriate.
The Company's tax credits and net operating loss carryforwards at December
31, 1996 begin expiring in 1997 and 2001, respectively. The Company has provided
a valuation allowance for those tax credits which do not meet a "more likely
than not" realizability test.
10. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) Savings Plan, whereby eligible employees can
contribute up to either 15% of their salary, per year, subject to certain
maximum contribution amounts. Prior to 1996, the Company had not made any
contributions to the plan, nor is it required to in future periods. However, the
Company did elect to make a discretionary match for 1996 of approximately
$250,000. Employees become eligible to participate in the plan after the
completion of one year of service and the attainment of age twenty-one.
F-39
<PAGE> 189
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMITMENTS
The Company leases real property, office space, broadcasting equipment and
office equipment under various noncancellable operating leases. Certain of the
Company's leases contain escalation clauses, renewal options and/or purchase
options. In addition, the Company assumed lease obligations in connection with
the acquisition of Trefoil on February 14, 1996. The Company also has employment
and rating survey agreements in excess of one year, and has entered into a
twelve-year financial monitoring and oversight agreement with Hicks Muse & Co.
Partners, L.P., which is an affiliate of Hicks, Muse, Tate & Furst Incorporated.
Future minimum payments under the noncancellable operating lease agreements
at December 31, 1996 are approximately as follows:
<TABLE>
<S> <C>
1997........................................................ $ 6,023,586
1998........................................................ 4,865,095
1999........................................................ 4,277,779
2000........................................................ 3,564,247
2001........................................................ 2,805,282
Thereafter.................................................. 13,080,261
-----------
$34,616,250
===========
</TABLE>
Rent expense was approximately $227,000, $1.3 million and $4.8 million for
the years ended December 31, 1994, 1995 and 1996, respectively.
12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
For cash, short-term debt, and other current amounts receivable and
payable, and the variable-rate term debt, the carrying amount approximates fair
value.
For the fixed-rate long-term debt, the fair value is estimated based on
quoted market prices. The carrying values at December 31, 1995 and 1996 was
$80.0 million and $260.0 million, respectively, and the estimated fair values at
each date were $85.4 million and $267.8 million, respectively.
For Chancellor Radio Broadcasting's Senior Exchangeable Preferred Stock,
the fair value of $113.75 per share at December 31, 1996 is estimated based on
quoted market prices.
13. STOCK-BASED COMPENSATION
During 1994, Chancellor's Board of Directors granted options to purchase
996,068 shares of its common stock to the senior management of the Company at
exercise prices of $6.00 and $7.50. The option agreements vest over a five year
period and originally contained certain performance criteria and indexed
exercise prices. On September 30, 1995, Chancellor entered into an agreement
with its senior management to substantially revise and amend these option
agreements to eliminate certain of the performance criteria provisions and to
adjust and fix the exercise prices at $7.50 and $8.40, respectively. Management
developed an estimate of the fair value of the stock options in the amount of
$19.0 million. Based upon this estimate and the applicable vesting periods, the
Company recognized stock option compensation expense and a corresponding credit
to equity of $6.4 million in 1995, with the remaining amount to be amortized
over an approximate four year period.
During 1994, Chancellor's Board of Directors adopted a stock option plan
for its non-employee directors providing for the grant of options and stock
awards for up to 480,000 shares of its common stock. Upon
F-40
<PAGE> 190
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
election to the Board of Directors, each person shall be granted a stock option
to purchase a number of shares of common stock equal to the number of shares of
common stock acquired by purchase by such person upon their initial election to
the Board of Directors. Each option shall be immediately vested, will have a
maximum term of ten years and an exercise price, as determined by the plan
committee, equal to or greater than the fair market value of the common stock on
the respective dates of grant.
In February 1996, Chancellor's Board of Directors adopted a stock award
plan for the Company's management, employees and non-employee directors, elected
after the date of adoption of the plan, providing for the grant of options and
stock awards for up to 916,456 shares of Chancellor's Class A Common Stock. The
Company's compensation committee has the sole authority to grant stock options
and to establish option exercise prices and vesting schedules. However,
per-share exercise prices shall not be less than the fair market value of the
stock on the respective date of grant and if the compensation committee does not
determine a vesting schedule, such option shall vest 20% on the first
anniversary of the respective date of grant and the remaining 80% shall vest pro
rata on a monthly basis over the four-year period following the first
anniversary of the date of grant. Non-employee directors elected after the
effective date of this plan automatically are granted a fully-vested option to
purchase 5,000 shares of Chancellor's Class A Common Stock on the date he or she
first becomes a member of the Board of Directors. Terms of all options are
limited to ten years.
A summary of the Company's option activity follows. The Company has elected
to continue expense recognition under Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and accordingly, has included
certain required pro forma information. Estimates of weighted-average grant-date
fair values of options granted and pro forma option compensation amounts were
determined using the Black-Scholes Single Option approach assuming an expected
option term of 6 years, interest rates ranging from 5.5% to 7.2%, a dividend
yield of zero and a volatility factor of .4 (zero for options issued prior to
the Company's initial public offering in February 1996).
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------
1996 1994 1995
-------------------------- ---------------------------- ----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------- ---------------- --------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year.... -- $ -- 996,068 $7.27 1,022,734 $ 7.89
Granted:
Exercise price:
equals FMV...... 996,068 7.27 26,666 7.50 713,916 26.03
less than FMV... -- -- 996,068 7.90 -- --
Exercised.......... -- -- -- -- -- --
Canceled........... -- -- (996,068) 7.27 (9,000) 24.51
------- ------ --------- ------ --------- -------
End of year.......... 996,068 $7.27 1,022,734 $7.89 1,727,650 $15.30
======= ====== ========= ====== ========= =======
Exercisable as of end
of year............ -- $ -- 225,879 $7.85 431,758 $ 8.06
======= ====== ========= ====== ========= =======
Weighted-average
grant-date fair
value of options
granted:
Exercise price:
equals FMV...... -- 3.59 12.69
less than FMV... -- 21.56 --
</TABLE>
F-41
<PAGE> 191
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- ---------------------------
WEIGHTED AVERAGE
---------------------------
RANGE OF REMAINING EXERCISE WEIGHTED AVERAGE
EXERCISE PRICES SHARES CONTRACTUAL LIFE PRICE SHARES EXERCISE PRICE
- --------------- --------- ---------------- -------- ------- -----------------
<S> <C> <C> <C> <C> <C>
$ 7.50 -- $ 7.50 577,971 7.06 $ 7.50 247,188 $7.50
8.40 -- 8.40 444,763 7.83 8.40 177,904 8.40
20.00 -- 25.25 431,916 9.14 20.51 6,666 20.00
31.00 -- 36.75 273,000 9.75 34.81 -- --
--------- ----- ------ ------- ------
$ 7.50 -- $36.75 1,727,650 8.20 $15.30 431,758 $8.06
========= ===== ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Historical net loss................................. $(11,531,296) $(6,892,023)
Pro forma adjustment for stock option
compensation...................................... (781,465) (1,524,302)
Pro forma tax benefit............................... 312,586 609,721
------------ -----------
Pro forma net loss.................................. $(12,000,175) $(7,806,604)
============ ===========
</TABLE>
14. RELATED PARTY TRANSACTIONS
The Company has entered into a twelve-year agreement (the "Financial
Monitoring and Oversight Agreement") with Hicks Muse & Co. Partners, L.P.
("Hicks Muse Partners") and HM2/Management Partners, L.P. ("HM2"), each of which
is an affiliate of Hicks Muse. Chancellor and the Company paid Hicks Muse
Partners an annual fee of $82,000, $200,000 and $408,000 for financial oversight
and monitoring services for the years ended December 31, 1994, 1995 and 1996,
respectively. The annual fee is adjustable each December 31, according to a
formula based on changes in the consumer price index. HM2 received fees of
approximately $0.3 million, $2.4 million and $6.2 million upon consummation of
the acquisitions of KDWB-FM, the American Media Station Group and Trefoil
Communications, Inc., respectively, and is entitled to receive a fee equal to
1.5% of the transaction value (as defined) upon the consummation of each add-on
transaction (as defined) involving Chancellor or any of its subsidiaries.
Effective April 1, 1996, the Company entered into a revised financial
monitoring and oversight agreement with Hicks & Muse & Co. Partners, L.P. and
HM2/Management Partners, L.P., each of which is an affiliate of Hicks, Muse,
Tate & Furst Incorporated. The annual fee for financial oversight and monitoring
services to the Company has been adjusted to $500,000. The annual fee is
adjustable each January 1, to an amount equal to the budgeted consolidated
annual net sales of the Company for the then-current fiscal year, multiplied by
0.25%, provided, however, that in no event shall the annual fee be less than
$500,000.
The Financial Monitoring and Oversight Agreement makes available the
resources of HM2 and Hicks Muse Partners concerning a variety of financial
matters. The services that have been and will continue to be provided by HM2 and
Hicks Muse Partners could not otherwise be obtained by Chancellor and the
Company without the addition of personnel or the engagement of outside
professional advisors.
In February of 1996, the Company lent $200,000 to an affiliate of the
Company. The loan is unsecured, does not bear interest and will be forgiven
during the next three years.
15. SUBSEQUENT EVENTS
On February 14, 1997, Chancellor Radio Broadcasting completed a private
placement of an additional $10.0 million of Convertible Preferred Stock pursuant
to its over-allotment option. The net proceeds of this offering were used to
repay borrowings under the Revolving Credit Facility.
F-42
<PAGE> 192
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On February 19, 1997, Chancellor and Chancellor Radio Broadcasting entered
into an agreement to merge with Evergreen Media Corporation ("Evergreen") in a
stock-for-stock transaction (the "Merger"), with Evergreen remaining as the
surviving corporation (the "Surviving Company"). Pursuant to the agreement,
shareholders of the Company's common stock will receive 0.9091 shares of
Evergreen's common stock. Consummation of the merger is subject to shareholder
approval and certain other closing conditions including regulatory approval.
On February 19, 1997, the Company and Evergreen entered into a joint
purchase agreement whereby in the event that consummation of the stock purchase
agreement between Evergreen and Viacom International, Inc. ("Viacom") occurs
prior to the consummation of the Merger, the Company will be required to
purchase the Viacom subsidiaries which own four of the ten Viacom stations for
$480.0 million and Evergreen will be required to purchase the Viacom
subsidiaries which own six of the ten Viacom stations for $595.0 million. In the
event that consummation of the stock purchase agreement between Evergreen and
Viacom occurs after the consummation of the Merger, the Surviving Company will
acquire the stock of certain Viacom subsidiaries which own and operate ten radio
stations in five major markets. Consummation of the transaction is dependent
upon certain closing conditions, including regulatory approval.
16. UNCERTAINTIES AND THE USE OF ESTIMATES AND ASSUMPTIONS
On February 8, 1996, the President signed into law the Telecommunications
Act of 1996. Among other things, this legislation requires the Federal
Communications Commission (the "FCC"), to relax its numerical restrictions on
local ownership and affords renewal applicants significant new protections from
competing applications for their broadcast licenses. The new legislation will
enable the Company to retain all of its radio stations and to acquire more
properties; at the same time, this legislation will also allow other broadcast
entities to increase their ownership in markets where the Company currently
operates stations. The Company's management is unable to determine the ultimate
effect of this legislation on its competitive environment.
The pending acquisition, exchange and merger agreements are subject to
various governmental approvals, including the Department of Justice under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
Federal Communications Commission.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual amounts could differ from those estimates.
17. RECENT ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per
Share" in March 1997, which establishes standards for computing and presenting
earnings per share. The disclosure requirements of SFAS No. 128 will be
effective for the Company's financial statements beginning in 1997. Management
has not yet determined the impact that the adoption of SFAS No. 128 will have on
the financial statements of the Company.
F-43
<PAGE> 193
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 3,789 $ 5,889
Accounts receivable, net of allowance for doubtful
accounts of $1,024 and $1,182, respectively............ 46,585 63,576
Prepaid expenses and other................................ 2,754 2,887
-------- ----------
Total current assets.............................. 53,128 72,352
Restricted cash............................................. 20,363 53,750
Property and equipment, net................................. 49,123 69,581
Intangibles and other, net.................................. 551,406 970,080
Deferred financing costs, net............................... 16,723 16,827
Deferred income tax benefit................................. -- 1,183
-------- ----------
Total assets...................................... $690,743 $1,183,773
======== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 4,409 $ 4,989
Accrued liabilities....................................... 12,530 16,248
Accrued interest.......................................... 6,869 5,702
Current portion of long-term debt......................... 400 1,928
-------- ----------
Total current liabilities......................... 24,208 28,867
Long-term debt.............................................. 354,914 545,335
Deferred income taxes....................................... 2,606 --
Other....................................................... 802 997
-------- ----------
Total liabilities................................. 382,530 575,199
-------- ----------
Redeemable senior cumulative exchangeable preferred stock,
par value $.01 per share; 1,000,000 shares authorized,
issued and outstanding; preference in liquidation of
$117,670.................................................. 107,222 114,271
Redeemable cumulative exchangeable preferred stock, par
value $.01 per share; none and 3,600,000 shares
authorized, respectively, none and 2,000,000 shares issued
and outstanding, respectively; preference in liquidation
of $210,774............................................... -- 202,891
Common stockholder's equity:
Common stock, par value $.01 per share; 2,000 shares
authorized, 1,000 shares issued and outstanding........ 1 1
Additional paid-in capital................................ 219,519 322,216
Accumulated deficit....................................... (18,529) (30,805)
-------- ----------
Total stockholder's equity........................ 200,991 291,412
-------- ----------
Total liabilities and stockholder's equity........ $690,743 $1,183,773
======== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-44
<PAGE> 194
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- -------------------------
1996 1997 1996 1997
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Gross broadcasting revenues................. $ 50,759 $ 83,538 $ 79,848 $ 147,015
Less agency commissions..................... 6,333 10,450 9,780 18,073
---------- ---------- ---------- ----------
Net revenues........................... 44,426 73,088 70,068 128,942
---------- ---------- ---------- ----------
Operating expenses:
Programming, technical and news........... 7,865 12,829 13,010 26,700
Sales and promotion....................... 12,367 20,785 19,310 36,748
General and administrative................ 6,002 8,051 10,405 16,404
Depreciation and amortization............. 5,148 8,605 9,675 16,714
Corporate expenses........................ 832 2,222 1,839 3,934
Merger expense............................ -- 459 -- 2,515
Stock option compensation................. 950 950 1,900 1,900
---------- ---------- ---------- ----------
33,164 53,901 56,139 104,915
---------- ---------- ---------- ----------
Income from operations................. 11,262 19,187 13,929 24,027
Other (income) expense:
Interest expense.......................... 9,680 12,488 17,327 23,908
Other, net................................ 92 25 98 (1,607)
---------- ---------- ---------- ----------
Income (loss) before provision for
income taxes and extraordinary
loss................................. 1,490 6,674 (3,496) 1,726
Provision for income taxes.................. 662 3,727 1,601 3,327
---------- ---------- ---------- ----------
Income (loss) before extraordinary
loss................................. 828 2,947 (5,097) (1,601)
Extraordinary loss on early extinguishment
of debt, net of income tax benefit........ -- 7,926 4,646 10,675
---------- ---------- ---------- ----------
Net Income (loss)...................... 828 (4,979) (9,743) (12,276)
Loss on repurchase of preferred stock....... -- -- 16,570 --
Dividends and accretion on preferred
stock..................................... 3,183 9,987 4,843 18,122
---------- ---------- ---------- ----------
Net loss attributable to common
stock................................ $ (2,355) $ (14,966) $ (31,156) $ (30,398)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-45
<PAGE> 195
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997.................... 1,000 $1 $219,519 $(18,529) $200,991
Dividends and accretion on preferred
stock.................................. -- -- (18,122) -- (18,122)
Capital contributions, net................ -- -- 120,819 -- 120,819
Net loss.................................. -- -- -- (12,276) (12,276)
----- -- -------- -------- --------
Balance, June 30, 1997...................... 1,000 $1 $322,216 $(30,805) $291,412
===== == ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-46
<PAGE> 196
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (9,743) $ (12,276)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 9,675 16,714
Amortization of deferred financing costs............... 1,393 1,236
Stock option compensation.............................. 1,900 1,900
Deferred income taxes.................................. 1,539 3,327
Gain on disposition of stations........................ -- (1,409)
Extraordinary loss..................................... 4,646 10,675
Changes in assets and liabilities, net of the effects
of acquired businesses:
Accounts receivable.................................. (2,734) (3,741)
Prepaids and other................................... (1,380) 365
Accounts payable..................................... (87) (806)
Accrued liabilities.................................. (66) 1,564
Accrued interest..................................... 4,243 (1,167)
--------- ---------
Net cash provided by operating activities......... 9,488 16,382
--------- ---------
Cash flows from investing activities:
Purchases of broadcasting properties...................... (406,140) (582,383)
Dispositions of broadcasting properties................... -- 103,259
Purchases of other property and equipment................. (1,374) (3,690)
--------- ---------
Net cash used in investing activities............. (407,514) (482,814)
Cash flows from financing activities:
Proceeds from issuance of long-term debt.................. 277,628 417,632
Proceeds from borrowings under revolving debt facility.... 46,764 255,441
Repayments of long-term debt.............................. (90,885) (342,856)
Repayments of borrowings under revolving debt facility.... (68,432) (157,399)
Issuances of preferred stock.............................. 175,119 191,817
Repurchase of preferred stock............................. (95,462) --
Additional capital contributions.......................... 155,475 105,672
Distribution of additional paid in capital................ (1,038) (1,775)
Payment of preferred stock dividends...................... (506)
--------- ---------
Net cash provided by financing activities......... 398,663 468,532
--------- ---------
Net increase in cash.............................. 637 2,100
Cash, at beginning of period................................ 1,314 3,789
--------- ---------
Cash, at end of period...................................... $ 1,951 $ 5,889
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-47
<PAGE> 197
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Chancellor
Radio Broadcasting Company ("Chancellor Radio Broadcasting") and its
subsidiaries (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and six month periods ended June 30, 1997 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1997.
Chancellor Radio Broadcasting is a direct subsidiary of Chancellor Broadcasting
Company ("Chancellor"). Certain prior year amounts have been reclassified to
conform with the current year's presentation, which had no effect on net income
or stockholder's equity.
2. ACQUISITIONS AND DISPOSITIONS
On January 23, 1997, the Company acquired substantially all the assets and
certain liabilities of Colfax Communications, Inc. and its affiliates ("Colfax")
for an aggregate price of $383.7 million. Liabilities assumed were limited to
certain ongoing contractual rights and obligations. The acquisition was
accounted for as a purchase. Pursuant to the acquisition agreement, at December
31, 1996 the Company had $20.4 million of cash in a restricted escrow account
which was remitted to Colfax at closing. On January 29, 1997, the Company
entered into an agreement to sell WMIL-FM and WOKY-AM, Milwaukee stations
acquired in this transaction, to Clear Channel Radio, Inc. for $41.3 million in
cash. Accordingly, theses stations were recorded as assets held for sale with no
results of operations or gain or loss recognized. Interest capitalized on this
investment amounted to $580,000. The disposition of these stations was completed
on March 31, 1997.
The acquisition is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired and liabilities assumed:
Accounts receivable, net.................................. $ 13,234
Prepaid and other assets.................................. 470
Property and equipment.................................... 14,624
Goodwill and other intangibles............................ 317,894
Other noncurrent assets................................... 46
Assets held for sale...................................... 41,253
Accrued liabilities....................................... (3,821)
--------
$383,700
</TABLE>
On January 31, 1997, the Company completed the sale of WWWW-FM and WDFN-AM
in Detroit to Evergreen Media Corporation ("Evergreen") for $30.0 million in
cash. The pre-tax gain of $1.4 million is included in other income.
On February 13, 1997, the Company acquired substantially all the assets and
certain liabilities of OmniAmerica Group ("Omni") for $166.0 million of cash and
$15.0 million of Chancellor Class A Common Stock. Liabilities assumed were
limited to certain ongoing contractual rights and obligations. The acquisition
was accounted for as a purchase.
F-48
<PAGE> 198
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisition is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired and liabilities assumed:
Property and equipment.................................... $ 9,209
Goodwill and other intangibles............................ 171,837
--------
$181,046
</TABLE>
On February 19, 1997, Chancellor and Chancellor Radio Broadcasting entered
into an agreement to merge with Evergreen in a stock-for-stock transaction (the
"Merger"), with Evergreen remaining as the surviving corporation. Pursuant to
the agreement, shareholders of the Company's common stock will receive 0.9091
shares of Evergreen's common stock. Consummation of the merger is subject to
shareholder approval and certain other closing conditions including regulatory
approval. The Company has incurred certain costs related to the Merger which
have been expensed in the period incurred.
On February 19, 1997, the Company and Evergreen entered into a joint
purchase agreement whereby in the event that consummation of the stock purchase
agreement between Evergreen and Viacom International, Inc. ("Viacom") occurred
prior to the consummation of the Merger, the Company would be required to
purchase the Viacom subsidiaries which own four of the ten Viacom stations for
$480.0 million, plus net working capital, and Evergreen would be required to
purchase the Viacom subsidiaries which own six of the ten Viacom stations for
$595.0 million, plus net working capital. On July 2, 1997, the Company acquired
KIBB-FM and KYSR-FM in Los Angeles, WLIT-FM in Chicago and WDRQ-FM in Detroit
from Viacom for approximately $489.8 million, plus various other direct
acquisition costs (the "Chancellor Viacom Acquisition").
On March 24, 1997, the Company exchanged the West Palm Beach stations
acquired from Omni for one AM station in Sacramento and approximately $33.0
million in cash from American Radio Systems Corporation (the "American Radio
Exchange").
On July 7, 1997, the Company entered into a time brokerage agreement with
Evergreen whereby Evergreen began managing certain limited functions of the
Company's station in San Francisco which broadcasts on frequency 94.9 (formerly
KSAN-FM).
On July 14, 1997, the Company and Evergreen entered into an agreement
pursuant to which a jointly-owned affiliate of Evergreen and the Company will
acquire Katz Media Group, Inc. ("Katz"), a full-service media representation
firm, in a tender offer transaction valued at approximately $373.0 million. Debt
of Katz of approximately $218.0 million will also be assumed in the transaction.
On July 21, 1997, the Company entered into a time brokerage agreement with
Evergreen whereby Evergreen began managing certain limited functions of the
Company's stations KBGG-FM, KNEW-AM and KABL-AM in San Francisco.
On July 30, 1997, the Company entered into an agreement to acquire KXPK-FM
in Denver from Evergreen Wireless LLC (which is unrelated to Evergreen) for
$26.0 million in cash (including $1.7 million paid by the Company in escrow).
The Company also entered into an agreement to operate KXPK-FM under a time
brokerage agreement to be effective upon receipt of HSR Act approval. Although
there can be no assurance, the Company expects that the acquisition will be
completed in the first quarter of 1998, after completion of the Merger.
On August 7, 1997, the Company and Evergreen announced that they had
acquired, for $3.0 million, an option from Bonneville International Corporation
("Bonneville") to exchange Evergreen's station WTOP-AM in Washington, the
Company's stations KZLA-FM in Los Angeles and WGMS-FM in Washington and $57.0
million of cash for Bonneville's stations WDBZ-FM in New York, KLDE-FM in
Houston and KBIG-FM in Los Angeles. The option expires on December 31, 1997.
F-49
<PAGE> 199
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On August 11, 1997, the Company completed the sale of WDRQ-FM in Detroit to
Capital Cities/ABC for $37.0 million. The proceeds were used to repay borrowings
under Chancellor's Interim Loan (as defined).
The following summarizes the unaudited consolidated pro forma data as
though the acquisitions of Shamrock Broadcasting Company, KIMN-FM and KALC-FM,
Colfax, Omni and KSTE-AM, the dispositions of KTBZ-FM, WWWW-FM and WDFN-AM and
the related financing transactions had occurred as of the beginning of 1996 (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1997
---------------------- ----------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net revenue.................................. $ 70,068 $109,422 $128,942 $131,149
Loss before extraordinary loss............... (5,097) (9,428) (1,601) (1,687)
Net loss attributable to common stock........ (31,156) (28,148) (30,398) (22,687)
</TABLE>
3. LONG-TERM DEBT
The Company's term and revolving credit facilities were refinanced on
January 23, 1997, in conjunction with the acquisition of Colfax under a new bank
credit agreement. In connection with the refinancing of the term and revolving
loan facilities in January 1997, the Company incurred an extraordinary charge to
write-off deferred finance costs of $4.6 million.
On June 5, 1997, the Company closed on the tender offer for all $60.0
million of its outstanding 12 1/2% Senior Subordinated Notes for approximately
$70.1 million, which included a premium. The redemption was funded through
additional borrowings under the bank credit agreement and resulted in an
extraordinary charge of $11.8 million.
On June 24, 1997, the Company completed its private offering of $200.0
million of Chancellor Radio Broadcasting Company's 8 3/4% Senior Notes, which
mature on June 15, 2007 and bear interest at 8.75% per annum. The proceeds were
used to pay down borrowings under the bank credit agreement, which resulted in
an extraordinary charge to write-off deferred finance costs of $1.4 million.
On July 2, 1997, the Company entered into a restated credit agreement (the
"Restated Credit Agreement") in order to finance the Chancellor Viacom
Acquisition. The Restated Credit Agreement consists of a $400.0 million term
loan facility and a $350.0 million revolving loan facility. Also, Chancellor
received an interim loan of $170.0 million (the "Interim Loan"), the proceeds
from which were contributed to Chancellor Radio Broadcasting in connection with
the Viacom acquisition.
The Restated Credit Agreement is collateralized by (i) a first priority
perfected pledge of all capital stock and notes owned by the Company and (ii) a
first priority perfected security interest in all other assets (including
receivables, contracts, contract rights, securities, patents, trademarks, other
intellectual property, inventory, equipment and real estate) owned by the
Company, excluding FCC licenses, leasehold interests in studio or office space
and leasehold and partnership interests in tower or transmitter sites in which
necessary consents to the granting of a security interest cannot be obtained
without payments to any other party or on a timely basis. The Restated Credit
Agreement is also guaranteed by the subsidiaries of Chancellor and Chancellor
Radio Broadcasting, whose guarantees are collateralized by a first priority
perfected pledge of the capital stock of Chancellor Radio Broadcasting. The term
loan facility is due in increasing quarterly installments beginning in 1997 and
matures in June 2004. All outstanding borrowings under the revolving facility
mature in June 2004. The facilities bear interest at a rate equal to, at the
Company's option, the prime rate of Bankers Trust Company, as announced from
time to time, or the London Inter-Bank Offered Rate ("LIBOR") in effect from
time to time, plus an applicable margin rate. The Company pays quarterly
commitment fees in arrears equal to either .375% or .250% per annum on the
unused portion of the Revolving Facility, depending upon whether the Company's
leverage ratio is equal to or greater than 4.5:1 or less than
F-50
<PAGE> 200
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4.5:1, respectively. The bank financing facilities which existed on June 30,
1997 accrued interest at the prime rate plus 1.00% (9.50%) on $11.9 million and
the LIBOR rate plus 2.00% (7.6875%) on $135.4 million of borrowings.
The Interim Loan is an unsecured obligation of Chancellor and is due on the
earlier of the consummation of the Merger or July 2, 1999. Outstanding
borrowings under the Interim Loan bear interest at a rate equal to the
three-month LIBOR plus an applicable margin rate beginning at 3.25% and
increasing to 9.00% at various intervals during the loan period.
Scheduled debt maturities for the Company's outstanding long-term debt
under the Restated Credit Agreement as of July 2, 1997, after completion of the
Chancellor Viacom Acquisition, for each of the next five calendar years and
thereafter were as follows, in thousands:
<TABLE>
<S> <C>
1997........................................................ $ --
1998........................................................ 20,000
1999........................................................ 50,000
2000........................................................ 60,000
2001........................................................ 60,000
2002........................................................ 70,000
Thereafter.................................................. 153,000
--------
$413,000
========
</TABLE>
4. CAPITAL STRUCTURE
During the first quarter of 1997, Chancellor completed a private placement
of $110.0 million of newly authorized 7% Convertible Preferred Stock (the
"Convertible Preferred Stock") and Chancellor Radio Broadcasting completed a
private placement of $200.0 million of newly authorized 12% Exchangeable
Preferred Stock (the "Exchangeable Preferred Stock").
Dividends on the Convertible Preferred Stock accrue from its date of
issuance and are payable quarterly commencing April 15, 1997, at a rate per
annum of 7% of the liquidation preference per share. The Convertible Preferred
Stock is convertible at the option of the holder at any time after March 23,
1997, unless previously redeemed, into Class A Common Stock of Chancellor at a
conversion price of $32.90 per share of Class A Common Stock, subject to
adjustment in certain events. In addition, after January 19, 2000, the Company
may, at its option, redeem the Convertible Preferred Stock, in whole or in part,
at specified redemption prices plus accrued and unpaid dividends through the
redemption date. Upon the occurrence of a change of control (as defined),
Chancellor must, subject to certain conditions, offer to purchase all of the
then outstanding shares of Convertible Preferred Stock at a price equal to 101%
of the liquidation preference thereof, plus accrued and unpaid dividends to the
date of purchase.
Dividends on the Exchangeable Preferred Stock will accrue from the date of
its issuance and will be payable semi-annually commencing July 15, 1997, at a
rate per annum of 12% of the liquidation preference per share. Dividends may be
paid, at the Company's option, on any dividend payment date occurring on or
prior to January 15, 2002 either in cash or in additional shares of Exchangeable
Preferred Stock. The Exchangeable Preferred Stock is redeemable at the Company's
option, in whole or in part at any time on or after January 15, 2002, at the
redemption prices set forth herein, plus accrued and unpaid dividends to the
date of redemption. In addition, prior to January 15, 2000, the Company may, at
its option, redeem the Exchangeable Preferred Stock with the net cash proceeds
from one or more Public Equity Offerings (as defined), at various redemption
prices plus accrued and unpaid dividends to the redemption date; provided,
however, that after any such redemption there is outstanding at least $150.0
million aggregate liquidation preference of Exchangeable Preferred Stock. The
Company is required, subject to certain conditions, to
F-51
<PAGE> 201
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
redeem all of the Exchangeable Preferred Stock outstanding on January 15, 2009,
at a redemption price equal to 100% of the liquidation preference thereof, plus
accrued and unpaid dividends to the date of redemption. Upon the occurrence of a
Change of Control (as defined), the Company will, subject to certain conditions,
offer to purchase all of the then outstanding shares of Exchangeable Preferred
Stock at a price equal to 101% of the liquidation preference thereof, plus
accrued and unpaid dividends to the repurchase date. In addition, prior to
January 15, 1999, upon the occurrence of a Change of Control, the Company will
have the option to redeem the Exchangeable Preferred Stock in whole but not in
part at a redemption price equal to 112% of the liquidation preference thereof,
plus accrued and unpaid dividends to the date of redemption. The Exchangeable
Preferred Stock will, with respect to dividend rights and rights on liquidation,
rank junior to the Company's 12 1/4% Senior Cumulative Exchangeable Preferred
Stock (the "Senior Exchangeable Preferred Stock"). Subject to certain
conditions, the Exchangeable Preferred Stock is exchangeable in whole, but not
in part, at the option of the Company, on any dividend payment date for the
Company's 12% subordinated exchange debentures due 2009, including any such
securities paid in lieu of cash interest.
In addition to the accrued dividends discussed above, the recorded value of
the Senior Exchangeable Preferred Stock and the Exchangeable Preferred Stock
includes an amount for the accretion of the difference between the stock's fair
value at date of issuance and its mandatory redemption amount, calculated using
the effective interest method.
5. INCOME TAXES
Income tax expense (benefit) differs from the amount computed by applying
the federal statutory income tax rate of 34% to income (loss) before income
taxes and extraordinary loss for the following reasons, dollars in thousands:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS ENDED
ENDED JUNE 30, JUNE 30,
-------------- -----------------
1996 1997 1996 1997
---- ------ ------- ------
<S> <C> <C> <C> <C>
U.S. federal income tax at statutory rate....... $507 $2,269 $(1,189) $ 587
State income taxes, net of federal benefit...... 89 401 (210) 104
Valuation allowance provided for loss
carryforward generated during the current
period........................................ (59) -- 2,750 --
Permanent difference............................ -- 1,072 -- 2,636
Other........................................... 125 (15) 250 --
---- ------ ------- ------
$662 $3,727 $ 1,601 $3,327
==== ====== ======= ======
</TABLE>
6. SUBSEQUENT EVENT
In July 1997, the Company incurred non-cash stock option and severance
compensation of approximately $685,000 and $1.4 million, respectively, for
terminations associated with the Merger. In addition, the Company paid $945,000
for a two year consulting and non-compete agreement which will be deferred and
amortized over the related period.
7. NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standard No. 128, "Earnings per Share"
was issued in February 1997, which establishes standards for computing and
presenting earnings per share (EPS) and applies to entities with publicly held
common stock or potential common stock. The disclosure requirements of SFAS No.
128 will be effective for the Company's financial statements beginning with the
annual report for 1997. Management does not believe that the implementation of
SFAS 128 will have a material effect on its financial statements.
F-52
<PAGE> 202
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Statement of Financial Accounting Standard No. 130, "Reporting
Comprehensive Income" was issued in June 1997, which establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose financial
statements. The reporting and display requirements of SFAS No. 130 will be
effective for the Company's financial statements beginning with the first
quarterly report for 1998. Management does not believe that the implementation
of SFAS 130 will have a material effect on its financial statements.
F-53
<PAGE> 203
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Evergreen Media Corporation:
We have audited the accompanying combined balance sheets of Riverside
Broadcasting Co., Inc. and WAXQ Inc. as of December 31, 1995 and 1996, and the
related combined statements of earnings and cash flows for each of the years in
the three-year period ended December 31, 1996. These combined financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Riverside
Broadcasting Inc. and WAXQ Inc. as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
March 14, 1997
F-54
<PAGE> 204
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Accounts receivable, less allowance
for doubtful accounts of $99 in
1995, $208 in 1996 and $170 in
1997............................... $ 5,507 $ 9,713 $10,489
Prepaid expenses and other current
assets............................. 178 381 162
Deferred income taxes................. 45 829 829
------- ------- -------
Total current assets.......... 5,730 10,923 11,480
Property and equipment, net (note 4).... 1,075 4,177 2,668
Intangible assets, net (note 5)......... 47,422 66,626 74,038
------- ------- -------
$54,227 $81,726 $88,186
======= ======= =======
LIABILITIES AND EQUITY
Current liabilities -- accounts payable
and accrued expenses.................. $ 1,167 $ 3,669 $2,894
Deferred income taxes................... 222 4,373 4,373
Equity (note 9)......................... 52,838 73,684 80,919
Commitments and contingencies (note
10)...................................
------- ------- -------
$54,227 $81,726 $88,186
======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-55
<PAGE> 205
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
COMBINED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross revenues.......................... $28,254 $25,862 $36,121 $14,274 $25,135
Less agency commissions and national
rep fees........................... 4,700 4,342 5,892 2,107 3,652
------- ------- ------- ------- -------
Net revenues.................. 23,554 21,520 30,229 12,167 21,483
------- ------- ------- ------- -------
Operating expenses:
Station operating expenses excluding
depreciation and amortization...... 9,212 9,069 12,447 5,192 8,893
Depreciation and amortization......... 1,662 1,676 4,528 838 1,290
Corporate general and
administrative..................... 945 980 943 510 442
------- ------- ------- ------- -------
Operating expenses................. 11,819 11,725 17,918 6,540 10,625
------- ------- ------- ------- -------
Operating income................... 11,735 9,795 12,311 5,627 10,858
Other (income) expense (note 3)......... -- -- (741) -- --
------- ------- ------- ------- -------
Earnings before income taxes....... 11,735 9,795 13,052 5,627 10,858
Income tax expense (note 6)............. 6,053 5,154 6,683 2,881 4,336
------- ------- ------- ------- -------
Net earnings.................. $ 5,682 $ 4,641 $ 6,369 $ 2,746 $ 6,522
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-56
<PAGE> 206
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows provided by operating activities:
Net earnings................................... $ 5,682 $ 4,641 $ 6,369 $ 2,746 $ 6,522
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation................................ 153 168 286 84 266
Amortization of goodwill.................... 1,509 1,508 1,811 754 1,024
Changes in certain assets and liabilities:
Deferred income taxes..................... 32 110 (603) -- --
Accounts receivable, net.................. (676) 659 (4,172) (984) (776)
Prepaid expenses and other current
assets................................. 12 103 (203) 128 219
Accounts payable and accrued expenses..... (192) (483) 2,502 765 (775)
------- ------- ------- ------- -------
Net cash provided by operating
activities........................... 6,520 6,706 5,990 3,493 6,480
------- ------- ------- ------- -------
Cash flows used by investing activities --capital
expenditures................................... (150) (129) (695) (250) (417)
------- ------- ------- ------- -------
Net cash used by financing
activities -- distribution to parent........... (6,370) (6,577) (5,295) (3,243) (6,063)
------- ------- ------- ------- -------
Increase (decrease) in cash...................... -- -- -- -- --
Cash at beginning of period...................... -- -- -- -- --
------- ------- ------- ------- -------
Cash at end of period............................ $ -- $ -- $ -- $ -- $ --
======= ======= ======= ======= =======
Noncash financing activities -- contribution of
radio station net assets by parent (note 3).... $ -- $ -- $19,772 $ -- $ --
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-57
<PAGE> 207
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of
Riverside Broadcasting Co., Inc. and WAXQ Inc. (collectively, the "Company").
The Company owns and operates two commercial radio stations in the New York City
market -- WLTW-FM and WAXQ-FM and is wholly owned by Viacom International Inc.
("Viacom" or "Parent"), a wholly owned subsidiary of Viacom, Inc. Significant
intercompany accounts and transactions have been eliminated in combination.
On February 16, 1997, Viacom entered into a stock purchase agreement to
sell all the issued and outstanding shares of capital stock of WAXQ Inc. and
Riverside Broadcasting Co., Inc. in the New York City market, KYSR Inc. and KIBB
Inc. in the Los Angeles market, Viacom Broadcasting East Inc. and WMZQ Inc. in
the Washington, DC market, WLIT Inc. in the Chicago market and WDRQ Inc. in the
Detroit market (collectively, the "Viacom Radio Properties") to Evergreen Media
Corporation of Los Angeles ("Evergreen"), for $1.075 billion in cash ("Proposed
Transaction"). The Proposed Transaction is expected to close after the
expiration or termination of the applicable waiting periods under the HSR Act
and approval by the Federal Communications Commission ("FCC"). Contemporaneous
with this transaction, Evergreen entered into a joint purchase agreement with
Chancellor Broadcasting Company ("Chancellor") under which Chancellor agreed to
acquire the Chicago, Detroit and Los Angeles Viacom radio properties referred to
above for $480 million from Evergreen or from Viacom directly.
The accompanying combined financial statements reflect the carve-out
historical results of operations and financial position of Riverside
Broadcasting Co., Inc. and WAXQ Inc. These financial statements are not
necessarily indicative of the results that would have occurred if the Company
had been a separate stand-alone entity during the periods presented.
The financial statements do not include Viacom's corporate assets or
liabilities not specifically identifiable to the Company. Corporate overhead
allocations have been included in the accompanying statements of earnings in
corporate general and administrative expense and station operating expenses.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Repair and maintenance costs are charged to expense when
incurred.
(b) Intangible Assets
Intangible assets consist primarily of broadcast licenses. The Company
amortizes such intangible assets using the straight-line method over 40 years.
The Company continually evaluates the propriety of the carrying amount of
intangible assets as well as the amortization period to determine whether
current events or circumstances warrant adjustments to the carrying value and/or
revised estimates of useful lives. This evaluation consists of the projection of
undiscounted operating income before depreciation, amortization, nonrecurring
charges and interest over the remaining amortization periods of the related
intangible assets. At this time, the Company believes that no significant
impairment of intangible assets has occurred and that no reduction of the
estimated useful lives is warranted.
(c) Barter Transactions
The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. An asset and
liability are recorded at the fair market value of the goods or
F-58
<PAGE> 208
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
services to be received. Barter revenue is recorded and the liability relieved
when commercials are broadcast and barter expense is recorded and the asset
relieved when goods or services are received or used.
(d) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable earnings. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount more likely than not to be realized. Income
tax expense is the total of tax payable for the period and the change during the
period in deferred tax assets and liabilities.
(f) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
(g) Fair Value
The carrying amount of accounts receivable and accounts payable
approximates fair value because of the short maturity of these instruments.
(h) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of management, credit risk with respect to trade receivables
is limited due to the large number of diversified customers in the Company's
customer base. The Company performs ongoing credit evaluations of its customers
and believes that adequate allowances for any uncollectible trade receivables
are maintained. No one customer accounted for more than 10% of net revenues in
1994, 1995, or 1996.
(i) Unaudited Interim Financial Information
In the opinion of management, the unaudited interim combined financial
statements as of and for the six months ended June 30, 1996 and 1997, reflect
all adjustments, consisting of only normal and recurring items,
F-59
<PAGE> 209
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
which are necessary for a fair presentation of the results for the interim
periods presented. The results for the interim periods ended June 30, 1996 and
1997 are not necessarily indicative of results to be expected for any other
interim period or for the full year.
(3) ACQUISITIONS AND DISPOSITIONS
On August 1, 1996, Viacom exchanged the assets of KBSG-AM/FM and KNDD-FM in
Seattle for the assets of WAXQ-FM in New York. The transaction was accounted for
as a nonmonetary exchange and was based on the recorded amounts of the
nonmonetary assets relinquished. For the period from July 1, 1996 to July 31,
1996, Viacom operated WAXQ-FM under a time brokerage agreement.
Station start-up costs, including fees paid pursuant to the time brokerage
agreement, amounting to $2,431,000, were capitalized and amortized during 1996.
Acquisition-related costs are reflected in the accompanying financial statements
as other expense.
A summary of net assets relinquished by Viacom in connection with the
exchange is as follows:
<TABLE>
<S> <C>
Working capital............................................. $ 34
Property and equipment...................................... 2,693
Intangible assets........................................... 21,015
Deferred taxes.............................................. (3,970)
-------
$19,772
=======
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1995 and
1996:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1995 1996
----------- ------ ------
<S> <C> <C> <C>
Broadcast facilities.................................. 8-20 years $1,971 $4,783
Office equipment and other............................ 5-8 years 557 754
Construction in progress.............................. 10 389
------ ------
2,538 5,926
Accumulated depreciation.............................. 1,463 1,749
------ ------
$1,075 $4,177
====== ======
</TABLE>
(5) INTANGIBLE ASSETS
Intangible assets at December 31, 1995 and 1996 consist of broadcast
licenses which are being amortized over forty years and are presented net of
accumulated amortization of $13,177 and $14,988, respectively.
(6) INCOME TAXES
The Company's results of operations are included in the combined U.S.
federal and certain combined and separate state income tax returns of Viacom
International Inc.
The tax provisions and deferred tax liabilities presented have been
determined as if the Company were a stand-alone business filing separate tax
returns. Current tax liabilities are recorded through the equity account with
Viacom.
F-60
<PAGE> 210
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Current:
Federal.................................................. $3,889 $3,258 $4,672
State and local.......................................... 2,132 1,786 2,614
Deferred:
Federal.................................................. 21 71 (356)
State.................................................... 11 39 (247)
------ ------ ------
$6,053 $5,154 $6,683
====== ====== ======
</TABLE>
A reconciliation of the U.S. Federal statutory tax rate to the Company's
effective tax rate on earnings before income taxes is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. tax rate..................................... 35.0% 35.0% 35.0%
Amortization of intangibles................................. 4.6 5.4 4.3
State and local taxes, net of federal tax benefit........... 11.9 12.1 11.8
Other, net.................................................. 0.1 0.1 0.1
---- ---- ----
Effective tax rate........................................ 51.6% 52.6% 51.2%
==== ==== ====
</TABLE>
Deferred tax assets and liabilities are computed by applying the U.S.
federal income tax rate in effect to the gross amounts of temporary differences
and other tax attributes. These temporary differences are primarily the result
of fixed asset basis differences and bad debt expense.
(7) DEBT AND INTEREST COST
Viacom has not allocated any portion of its debt or related interest cost
to the Company, and no portion of Viacom's debt is specifically related to the
operations of the Company. Accordingly, the Company's financial statements
include no charges for interest.
(8) RELATED PARTY TRANSACTIONS
Intercompany balances between the Company and Viacom resulting from normal
trade activity are reflected in Equity in the accompanying combined financial
statements (see note 9).
Viacom provides services for the Company in management, accounting and
financial reporting, human resources and information systems. The allocation of
these expenses, which is generally based on revenue dollars, is reflected in the
accompanying combined financial statements as corporate general and
administrative expense. Management believes that the method of allocation of
corporate overhead is reasonable.
Viacom has a noncontributory pension plan covering substantially all of its
employees, including the employees of the Company. Costs related to these plans
are allocated to the Company based on payroll dollars. The Company recognized
expense related to these costs in the amounts of $63, $41 and $97 for 1994, 1995
and 1996, respectively. The assets and the related benefit obligation of the
plans will not be transferred to the Company upon consummation of the Proposed
Transaction, therefore, such assets and obligations are not included in the
notes to the Company's combined financial statements.
Viacom utilizes a centralized cash management system. As a result, the
Company carries minimal cash. Disbursements are funded by the Parent upon demand
and cash receipts are transferred to the Parent daily.
F-61
<PAGE> 211
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company, from time to time, enters into transactions with companies
owned by or affiliated with Viacom. Generally, services received from such
related parties are charged to the Company at amounts which would be incurred in
transactions between unrelated entities.
(9) EQUITY
Equity represents Viacom's ownership interest in the recorded net assets of
the Company. All cash transactions and intercompany transactions flow through
the equity account. A summary of the activity is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of period.......... $ 55,462 $ 54,774 $ 52,838
Net earnings............................ 5,682 4,641 6,369
Net intercompany activity............... (6,370) (6,577) 14,477
-------- -------- --------
Balance at end of period................ $ 54,774 $ 52,838 $ 73,684
======== ======== ========
</TABLE>
(10) COMMITMENTS AND CONTINGENCIES
The Company has noncancelable operating leases, primarily for office space.
These leases generally contain renewal options for periods ranging from one to
ten years and require the Company to pay all executory costs such as maintenance
and insurance. Rental expense for operating leases (excluding those with lease
terms of one month or less that were not renewed) was approximately $192, $155
and $442 during 1994, 1995 and 1996, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1996
are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1997.................................... $ 709
1998.................................... 722
1999.................................... 759
2000.................................... 795
2001.................................... 818
Thereafter.............................. 2,411
------
$6,214
======
</TABLE>
F-62
<PAGE> 212
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Evergreen Media Corporation:
We have audited the accompanying combined balance sheets of WMZQ Inc. and
Viacom Broadcasting East Inc. as of December 31, 1995 and 1996, and the related
combined statements of earnings and cash flows for each of the years in the
three-year period ended December 31, 1996. These combined financial statements
are the responsibility of the Companies' management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of WMZQ Inc.
and Viacom Broadcasting East Inc. as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
March 14, 1997, except for note 10,
which is as of April 14, 1997
F-63
<PAGE> 213
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------ JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Accounts receivable, less allowance
for doubtful accounts of $150 in
1995, $235 in 1996 and $136 in
1997............................... $ 4,893 $ 5,401 $ 5,407
Prepaid expenses and other current
assets............................. 467 629 55
Deferred income taxes (note 5)........ 60 94 94
------- ------- -------
Total current assets.......... 5,420 6,124 5,556
Property and equipment, net (note 3).... 2,407 2,316 2,408
Intangible assets, net (note 4)......... 50,204 48,695 50,399
------- ------- -------
$58,031 $57,135 $58,363
======= ======= =======
LIABILITIES AND EQUITY
Current liabilities -- accounts payable
and accrued expenses.................. $ 2,411 $ 2,458 $ 1,814
Deferred income taxes (note 5).......... 1,899 2,121 2,123
Equity (note 8)......................... 53,721 52,556 54,426
Commitments and contingencies (note
9)....................................
------- ------- -------
$58,031 $57,135 $58,363
======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-64
<PAGE> 214
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
COMBINED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross revenues................................... $21,389 $25,656 $26,584 $13,422 $13,837
Less agency commissions and national rep
fees........................................ 3,321 4,131 4,075 1,624 1,818
------- ------- ------- ------- -------
Net revenues........................... 18,068 21,525 22,509 11,798 12,019
------- ------- ------- ------- -------
Operating expenses:
Station operating expenses excluding
depreciation and amortization............... 10,398 11,445 11,362 6,394 6,043
Depreciation and amortization.................. 1,798 1,814 1,884 906 989
Corporate general and administrative........... 694 940 674 436 240
------- ------- ------- ------- -------
Operating expenses.......................... 12,890 14,199 13,920 7,736 7,272
------- ------- ------- ------- -------
Earnings before income taxes................ 5,178 7,326 8,589 4,062 4,747
Income tax expense (note 5)...................... 2,607 3,437 3,929 1,858 1,556
------- ------- ------- ------- -------
Net earnings........................... $ 2,571 $ 3,889 $ 4,660 $ 2,204 $ 3,191
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-65
<PAGE> 215
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows provided by operating
activities:
Net earnings.......................... $ 2,571 $ 3,889 $ 4,660 $ 2,204 $ 3,191
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation....................... 289 305 375 150 237
Amortization of goodwill........... 1,509 1,509 1,509 756 752
Deferred income tax expense........ 323 302 188 -- --
Changes in certain assets and
liabilities, net of effects of
acquisitions:
Accounts receivable, net......... 179 (1,485) (508) (445) (6)
Prepaid expenses and other
current assets................ 14 (121) (162) (730) 574
Accounts payable and accrued
expenses...................... (559) 20 47 2,446 (644)
------- ------- ------- ------- -------
Net cash provided by operating
activities.................. 4,326 4,419 6,109 4,381 4,104
------- ------- ------- ------- -------
Cash flows used by investing
activities -- capital expenditures.... (194) (491) (284) (142) (232)
------- ------- ------- ------- -------
Cash flows used by financing
activities -- distribution to
Parent................................ (4,132) (3,928) (5,825) (4,239) (3,872)
------- ------- ------- ------- -------
Increase (decrease) in cash............. -- -- -- -- --
Cash at beginning of period............. -- -- -- -- --
------- ------- ------- ------- -------
Cash at end of period................... $ -- $ -- $ -- $ -- $ --
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-66
<PAGE> 216
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of WMZQ
Inc. and Viacom Broadcasting East Inc. (collectively, the "Company"). The
Company owns and operates four commercial radio stations in the Washington, DC
market, WMZQ-FM, WJZW-FM, WBZS-AM and WZHF-AM, and is wholly owned by Viacom
International Inc. ("Viacom" or "Parent"), a wholly owned subsidiary of Viacom,
Inc. Significant intercompany accounts and transactions have been eliminated in
combination.
On February 16, 1997, Viacom International Inc. entered into a stock
purchase agreement to sell all the issued and outstanding shares of capital
stock of WAXQ Inc. and Riverside Broadcasting Co., Inc. in the New York City
market, KYSR Inc. and KIBB Inc. in the Los Angeles market, Viacom Broadcasting
East Inc. and WMZQ Inc. in the Washington, DC market, WLIT Inc. in the Chicago
market and WDRQ Inc. in the Detroit market (collectively the "Viacom Radio
Properties") to Evergreen Media Corporation for $1.075 billion in cash
("Proposed Transaction"). The Proposed Transaction is expected to close after
the expiration or termination of the applicable waiting periods under the HSR
Act and approval by the Federal Communications Commission ("FCC").
Contemporaneous with this transaction, Evergreen entered into a joint purchase
agreement with Chancellor Broadcasting Company ("Chancellor"), under which
Chancellor agreed to acquire the Chicago, Detroit and Los Angeles Viacom Radio
Properties referred to above for $480 million from Evergreen or from Viacom
directly.
The accompanying combined financial statements reflect the carve-out
historical results of operations and financial position of WMZQ Inc. and Viacom
Broadcasting East, Inc. These financial statements are not necessarily
indicative of the results that would have occurred if the Company had been a
separate stand-alone entity during the periods presented.
The financial statements do not include Viacom's corporate assets or
liabilities not specifically identifiable to the Company. Corporate overhead
allocations have been included in the accompanying statements of earnings in
corporate general and administrative expense and station operating expenses.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Repair and maintenance costs are charged to expense when
incurred.
(b) Intangible Assets
Intangible assets consist primarily of broadcast licenses. The Company
amortizes such intangible assets using the straight-line method over 40 years.
The Company continually evaluates the propriety of the carrying amount of
intangible assets as well as the amortization period to determine whether
current events or circumstances warrant adjustments to the carrying value and/or
revised estimates of useful lives. This evaluation consists of the projection of
undiscounted operating income before depreciation, amortization, nonrecurring
charges and interest over the remaining amortization periods of the related
intangible assets. At this time, the Company believes that no significant
impairment of intangible assets has occurred and that no reduction of the
estimated useful lives is warranted.
(c) Barter Transactions
The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. An asset and
liability are recorded at the fair market value of the goods or
F-67
<PAGE> 217
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
services to be received. Barter revenue is recorded and the liability relieved
when commercials are broadcast and barter expense is recorded and the asset
relieved when goods or services are received or used.
(d) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable earnings. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount more likely than not to be realized. Income
tax expense is the total of tax payable for the period and the change during the
period in deferred tax assets and liabilities.
(f) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
(g) Fair Value
The carrying amount of accounts receivable and accounts payable
approximates fair value because of the short maturity of these instruments.
(h) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of management, credit risk with respect to trade receivables
is limited due to the large number of diversified customers in the Company's
customer base. The Company performs ongoing credit evaluations of its customers
and believes that adequate allowances for any uncollectible trade receivables
are maintained. No one customer accounted for more than 10% of net revenues in
1994, 1995, or 1996.
(i) Unaudited Interim Financial Information
In the opinion of management, the unaudited interim combined financial
statements as of and for the six months ended June 30, 1996 and 1997, reflect
all adjustments, consisting of only normal and recurring items,
F-68
<PAGE> 218
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
which are necessary for a fair presentation of the results for the interim
periods presented. The results for the interim periods ended June 30, 1996 and
1997 are not necessarily indicative of results to be expected for any other
interim period or for the full year.
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1995 and
1996:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1995 1996
--------------- ------ ------
<S> <C> <C> <C>
Broadcast facilities................................... 8 - 20 years $2,268 $2,366
Land................................................... 440 440
Building............................................... 30 - 40 years 146 146
Office equipment and other............................. 5 - 8 years 1,866 1,808
Construction in progress............................... -- 5
------ ------
4,720 4,765
------ ------
Accumulated depreciation............................... 2,313 2,449
------ ------
$2,407 $2,316
====== ======
</TABLE>
(4) INTANGIBLE ASSETS
Intangible assets at December 31, 1995 and 1996 consist of broadcast
licenses which are being amortized over forty years and are presented net of
accumulated amortization of $10,714 and $12,223, respectively.
(5) INCOME TAXES
The Company's results of operations are included in the U.S. federal and
certain combined and separate state income tax returns of Viacom International
Inc.
The tax provisions and deferred tax liabilities presented have been
determined as if the Company were a stand-alone business filing separate tax
returns. Current tax liabilities are recorded through the equity account with
Viacom.
Income tax expense consists of:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Current:
Federal................................................... $1,704 $2,434 $2,943
State and local........................................... 580 701 798
Deferred federal and state.................................. 323 302 188
------ ------ ------
$2,607 $3,437 $3,929
====== ====== ======
</TABLE>
F-69
<PAGE> 219
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the U.S. Federal statutory tax rate to the Company's
effective tax rate on earnings before income taxes is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. tax rate................. 35.0% 35.0% 35.0%
Amortization of intangibles............. 7.4 5.2 4.5
State and local taxes, net of federal
tax benefit........................... 7.9 6.7 6.2
Other, net.............................. 0.0 0.0 0.0
---- ---- ----
Effective tax rate.................... 50.3% 46.9% 45.7%
==== ==== ====
</TABLE>
Deferred tax assets and liabilities are computed by applying the U.S.
federal income tax rate in effect to the gross amounts of temporary differences
and other tax attributes. These temporary differences are primarily the result
of fixed asset basis differences and bad debt expense. Deferred tax assets and
liabilities relating to state income taxes are not material.
(6) DEBT AND INTEREST COST
Viacom has not allocated any portion of its debt or related interest cost
to the Company, and no portion of Viacom's debt is specifically related to the
operations of the Company. Accordingly, the Company's financial statements
include no charges for interest.
(7) RELATED PARTY TRANSACTIONS
Intercompany balances between the Company and Viacom resulting from normal
trade activity are reflected in Equity in the accompanying combined financial
statements (see note 8).
Viacom provides services for the Company in management, accounting and
financial reporting, human resources, information systems, legal, taxes and
other corporate services. The allocation of these expenses, which is generally
based on revenue dollars, is reflected in the accompanying financial statements
as corporate general and administrative expense. Management believes that the
method of allocation of corporate overhead is reasonable.
Viacom has a noncontributory pension plan covering substantially all of its
employees, including the employees of the Company. Costs related to these plans
are allocated to the Company based on payroll dollars and are included in
station operating expenses. The Company recognized expense related to these
costs in the amounts of $77, $74 and $242 for 1994, 1995 and 1996, respectively.
The assets and the related benefit obligation of the plans will not be
transferred to the Company upon consummation of the Proposed Transaction,
therefore, such assets and obligations are not included in the notes to the
Company's financial statements.
Viacom utilizes a centralized cash management system. As a result, the
Company carries minimal cash. Disbursements are funded centrally upon demand and
cash receipts are transferred to the Parent daily.
The Company, from time to time, enters into transactions with companies
owned by or affiliated with Viacom. Generally, services received from such
related parties are charged to the Company at amounts which would be incurred in
transactions between unrelated entities.
F-70
<PAGE> 220
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(8) EQUITY
Equity represents Viacom's ownership interest in the recorded net assets of
the Company. All cash transactions and intercompany transactions flow through
the equity account. A summary of the activity is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of period............................ $55,321 $53,760 $53,721
Net earnings.............................................. 2,571 3,889 4,660
Net intercompany activity................................. (4,132) (3,928) (5,825)
------- ------- -------
Balance at end of period.................................. $53,760 $53,721 $52,556
======= ======= =======
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES
The Company has noncancelable operating leases, primarily for office space.
These leases generally contain renewal options for periods ranging from 1 to 10
years and require the Company to pay all executory costs such as maintenance and
insurance. Rental expense for operating leases (excluding those with lease terms
of one month or less that were not renewed) was approximately $332, $356 and
$373 during 1994, 1995 and 1996, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1996
are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1997........................................................ $ 506
1998........................................................ 523
1999........................................................ 310
2000........................................................ 222
2001........................................................ 200
Thereafter.................................................. 814
------
$2,575
======
</TABLE>
(10) SUBSEQUENT EVENT
On April 14, 1997, Evergreen Media Corporation and Chancellor Broadcasting
Company entered into an agreement with ABC Radio ("ABC"), a division of The Walt
Disney Company, whereby ABC will purchase from Evergreen and Chancellor two
radio stations, WDRQ-FM and WJZW-FM for a total of $105 million.
F-71
<PAGE> 221
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The Brown Organization:
We have audited the accompanying balance sheets of KKSF-FM/KDFC-FM and AM
(A Division of The Brown Organization) as of December 31, 1996 and 1995, and the
related statements of earnings and division equity and cash flows for the years
then ended. These financial statements are the responsibility of the Division's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of KKSF-FM/KDFC-FM and AM (A
Division of The Brown Organization) as of December 31, 1996 and 1995, and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information included in
Schedule 1 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly presented in all material respects in
relation to the basic financial statements taken as a whole.
KPMG Peat Marwick LLP
Dallas, Texas
April 25, 1997
F-72
<PAGE> 222
KKSF-FM/KDFC-FM AND AM
(A DIVISION OF THE BROWN ORGANIZATION)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Current assets:
Cash...................................................... $ 53 $ 131
Accounts receivable, less allowance for doubtful accounts
of $62 in 1996 and $92 in 1995......................... 1,345 3,110
Due from Evergreen Media Corporation (note 5)............. 1,323 --
Prepaid expenses and other................................ 50 77
------- -------
Total current assets.............................. 2,771 3,318
------- -------
Property and equipment, net (note 2)........................ 1,992 2,434
Intangible assets, net (note 3)............................. 12,622 14,448
Other assets................................................ 115 106
------- -------
Total assets...................................... $17,500 $20,306
======= =======
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable.......................................... $ 69 $ 57
Accrued expenses.......................................... 625 963
------- -------
Total current liabilities......................... 694 1,020
Intercompany payable to Parent (note 4)..................... 5,000 7,700
Deferred compensation (note 5).............................. 365 198
Division equity:
Advances from Parent...................................... 10,647 11,746
Accumulated equity (deficit).............................. 794 (358)
------- -------
Total division equity............................. 11,441 11,388
Commitments and contingencies (note 5)
------- -------
Total liabilities and division equity............. $17,500 $20,306
======= =======
</TABLE>
See accompanying notes to financial statements.
F-73
<PAGE> 223
KKSF-FM/KDFC-FM AND AM
(A DIVISION OF THE BROWN ORGANIZATION)
STATEMENTS OF EARNINGS AND DIVISION EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Revenues:
Gross revenues (note 5)................................... $14,896 $13,739
Less agency commissions................................... 1,746 1,773
------- -------
Net revenues...................................... 13,150 11,966
------- -------
Operating expenses:
Station operating expenses, excluding depreciation and
amortization........................................... 6,780 7,088
Participation agreement expense (note 5).................. 2,486 1,405
Depreciation and amortization............................. 2,351 2,283
------- -------
Total operating expenses.......................... 11,617 10,776
------- -------
Operating income.................................. 1,533 1,190
Non-operating income (expenses):
Intercompany interest expense (note 4).................... (429) (796)
Other, net................................................ 48 54
------- -------
Non-operating expense, net........................ (381) (742)
------- -------
Net earnings...................................... $ 1,152 $ 448
======= =======
Pro forma information (unaudited) (note 1(h)):
Income tax expense........................................ (461) (179)
------- -------
Pro forma net earnings............................ $ 691 $ 269
======= =======
Division equity, beginning of year.......................... 11,388 8,025
Net earnings................................................ 1,152 448
Net investment by (distribution to) parent.................. (1,099) 2,915
------- -------
Division equity, end of year................................ $11,441 $11,388
======= =======
</TABLE>
See accompanying notes to financial statements.
F-74
<PAGE> 224
KKSF-FM/KDFC-FM AND AM
(A DIVISION OF THE BROWN ORGANIZATION)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net earnings.............................................. $1,152 $ 448
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 2,351 2,283
Gain on sale of assets................................. (4) (38)
Deferred compensation.................................. 167 60
Accrued intercompany interest.......................... 429 796
Participation agreement expense........................ 2,486 1,405
Changes in operating assets and liabilities:
Accounts receivable, net............................. 442 (684)
Prepaid expenses and other........................... 18 16
Accounts payable and accrued expenses................ (326) 51
------ ------
Net cash provided by operating activities......... 6,715 4,337
------ ------
Cash flows used in investing activities:
Acquisition of property and equipment..................... (83) (1,239)
Proceeds from sale of equipment........................... 4 5
------ ------
Net cash used in investing activities............. (79) (1,234)
------ ------
Cash flows used in financing activities -- distributions to
parent.................................................... (6,714) (3,300)
------ ------
Decrease in cash............................................ (78) (197)
Cash at beginning of year................................... 131 328
------ ------
Cash at end of year......................................... $ 53 $ 131
====== ======
Noncash financing activities -- intercompany note payable
principal and interest payments made by the Company....... $3,129 $5,543
====== ======
</TABLE>
See accompanying notes to financial statements.
F-75
<PAGE> 225
KKSF-FM/KDFC-FM AND AM
(A DIVISION OF THE BROWN ORGANIZATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
KKSF-FM/KDFC-FM and AM (the "Division") is a division of The Brown
Organization (the "Company"). The Division is the operator of radio stations
KKSF-FM and KDFC-FM and AM. The accompanying financial statements reflect the
assets and liabilities related to the Division's operations and do not include
corporate management and administrative expenses.
(b) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Repairs and maintenance are charged to expense when
incurred.
(c) Goodwill and Intangible Assets
The excess of the purchase price of the acquired radio stations over the
fair value of the net tangible assets acquired is reflected in the accompanying
financial statements as intangible assets. Intangible assets are amortized over
the estimated useful lives ranging from 3 to 40 years.
The Division continually evaluates the propriety of the carrying amount of
goodwill as well as the amortization period to determine whether current events
or circumstances warrant adjustments to the carrying value and/or revised
estimates of useful lives. This evaluation of goodwill consists of the
projection of undiscounted operating income before depreciation, amortization,
nonrecurring charges and interest over the remaining amortization periods of the
related intangible assets. The projections are based on a historical trend line
of actual results since the acquisitions of the respective stations adjusted for
expected changes in operating results. To the extent such projections indicate
that undiscounted operating income is not expected to be adequate to recover the
carrying amounts of the related goodwill, such carrying amounts are written down
by charges to expense. At this time, the Division believes that no significant
impairment of goodwill has occurred and that no reduction of the estimated
useful lives is warranted.
(d) Barter Transactions
The Division trades commercial air time for goods and services used
principally for promotional sales and other business activities. Barter revenue
is recognized when the commercials are broadcast. Barter expense is recognized
when goods or services are received or used. Barter revenues and expenses were
approximately $123,000 and $166,000 during the years ended December 31, 1996 and
1995, respectively.
(e) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
(f) Impairment of Long-Lived Tangible and Intangible Assets
The Division adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
F-76
<PAGE> 226
KKSF-FM/KDFC-FM AND AM
(A DIVISION OF THE BROWN ORGANIZATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell. The adoption of this Statement did not have a material impact on
the Division's financial position, results of operations or liquidity.
(g) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that reflect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Because of the use of estimates inherent
in the financial reporting process, actual results could differ from those
estimates.
In the opinion of management, credit risk with respect to trade receivables
is limited due to the large number of diversified customers and the geographic
diversification of the Division's national revenue customer base. The Division
performs ongoing credit evaluations of its customers and believes that adequate
allowances for any uncollectible trade receivables are maintained. At December
31, 1996, no receivable from any customer exceeded 5% of Division equity and no
customer accounted for more than 10% of net revenues in 1996.
(h) Income Taxes
As the Company is an "S" Corporation, income taxes are the responsibility
of its individual stockholders. Accordingly, no income tax expense or deferred
income tax assets or liabilities are recognized in the accompanying financial
statements of the Division.
The pro forma information assumes the Division is subject to state and
federal income taxes computed on a separate return basis.
(i) Financial Instruments
The carrying amount of cash, accounts receivable, accounts payable and
accrued liabilities approximates fair value because of the short maturity of
these instruments. The floating interest rate on the Company's longterm bank
debt reflects current market rates and, accordingly, its carrying value
approximates fair value.
(2) PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following at December 31, 1996
and 1995 (thousands of dollars):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C> <C>
Leasehold improvements................................. 10 years $ 718 $ 709
Broadcast equipment.................................... 5-10 years 2,315 2,299
Furniture, fixtures and office equipment............... 3-10 years 797 746
Record library......................................... 7 years 148 148
Automobiles............................................ 3 years 42 42
------ ------
4,020 3,944
Less accumulated depreciation and amortization......... 2,028 1,510
------ ------
$1,992 $2,434
====== ======
</TABLE>
F-77
<PAGE> 227
KKSF-FM/KDFC-FM AND AM
(A DIVISION OF THE BROWN ORGANIZATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) INTANGIBLE ASSETS
Intangible assets is comprised of the following at December 31, 1996 and
1995 (thousands of dollars):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1996 1995
----------- ------- -------
<S> <C> <C> <C>
KKSF-FM Acquisition
FCC license......................................... 40 years $ 4,500 $ 4,500
Residual value...................................... 40 years 533 533
Lease costs......................................... 13 years 900 900
Format and music research........................... 9 years 6,320 6,320
------- -------
12,253 12,253
Less accumulated amortization............... 7,938 7,160
------- -------
4,315 5,093
------- -------
KDFC Acquisition
Covenant not to compete............................. 5 years 3,000 3,000
Goodwill and going concern value.................... 40 years 2,245 2,245
Customer list....................................... 5 years 1,226 1,226
FCC license......................................... 40 years 5,000 5,000
Contracts........................................... 3 years 72 72
------- -------
11,543 11,543
Less accumulated amortization............... 3,236 2,188
------- -------
8,307 9,355
------- -------
Net intangibles....................................... $12,622 $14,448
======= =======
</TABLE>
(4) RELATED PARTY TRANSACTIONS
The Division is provided management and administrative services by
personnel at the Company's headquarter's office located in Los Angeles,
California and by the president of the Company's radio station operations. The
cost of these services has not been charged to the Division's operations.
The Division maintains an intercompany note payable with the Company that
bears interest at a rate equivalent to the Company's rate on its bank borrowings
(7.3% and 7.6% at December 31, 1996 and 1995, respectively) (see note 5).
(5) COMMITMENTS AND CONTINGENCIES
On September 19, 1996, the Company, on behalf of the Division, entered into
an agreement to sell its radio broadcasting assets to Evergreen Media
Corporation ("Evergreen"). On November 1, 1996, the Company and Evergreen
commenced a time brokerage agreement ("the TBA") whereby substantially all of
the Company's broadcast time was sold to Evergreen. The monthly fees for
November and December 1996 amounted to $1,250,000. In addition, the TBA required
that Evergreen reimburse the Company for certain expenses that the Company
incurred during the term of the TBA. The Division incurred approximately
$422,000 in nonreimbursable station operating expenses during November and
December 1996. The TBA continued until the sale to Evergreen was consummated on
January 31, 1997. Proceeds of $115,000,000 were paid by Evergreen to the Company
which included the liquidation of the intercompany note payable (see note 4).
F-78
<PAGE> 228
KKSF-FM/KDFC-FM AND AM
(A DIVISION OF THE BROWN ORGANIZATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1996, the amounts due from the Evergreen Media Corporation
approximating $1,323,000 primarily relates to funds collected by Evergreen for
advertising revenue generated before the effective date of the brokerage
agreement.
The Company, on behalf of the Division, entered into a time brokerage
agreement whereby substantially all of the broadcast time of radio station
KDFC-FM was sold to another broadcaster ("the broadcaster") for a monthly fee of
$41,667. The agreement is for a period of three years commencing October 5,
1995. The broadcaster may extend the agreement an additional two years. The
agreement may be terminated under certain conditions.
The Company has entered into an agreement with a key Division employee
whereby said employee participates in the Division's appreciation of net assets
through participation percentages. The key employee's percentage of
participation is greater if he is employed by the Company at the time that the
station is sold than if his employment is terminated prior to sale for reasons
other than the employee's death or disability. The balance due to this employee
is payable only upon the earlier of the termination of employment or sale of the
radio station. The Company recognized approximately $2,486,000 and $1,405,000 in
compensation expense related to this agreement during 1996 and 1995,
respectively.
During 1989 the Company adopted a deferred compensation plan for the
benefit of the radio stations' general managers. Compensation expense of
$167,000 and $60,000 was recognized in the accompanying Division financial
statements in 1996 and 1995, respectively.
The Company, on behalf of the Division, was lessee under noncancelable
operating leases for studio space and transmitter sites. Rental expense
recognized in the Division financial statements was approximately $340,000 and
$298,000 during 1996 and 1995, respectively.
Future minimum lease payments under noncancelable operating leases as of
December 31, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
1997........................................................ $ 353
1998........................................................ 312
1999........................................................ 370
2000........................................................ 231
2001........................................................ 331
------
Total............................................. $1,597
======
</TABLE>
F-79
<PAGE> 229
SCHEDULE 1
KKSF-FM/KDFC-FM AND AM
(A DIVISION OF THE BROWN ORGANIZATION)
SUPPLEMENTARY SCHEDULE -- OPERATIONS INFORMATION
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
KKSF-FM/
KDFC-AM KDFC-FM TOTAL
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Gross revenues.............................................. $9,759 $5,137 $14,896
Less agency commissions................................... 1,103 643 1,746
------ ------ -------
Net revenues...................................... $8,656 $4,494 $13,150
====== ====== =======
Operating expenses:
Station operating expenses excluding depreciation......... $4,480 $2,300 $ 6,780
====== ====== =======
</TABLE>
- ---------------
Note: Certain expenses included in station operating expenses excluding
depreciation -- other corporate general and administrative were allocated
between KKSF-FM/KDFC-AM and KDFC-FM based on various factors. General and
administrative expenses were allocated 66% and 34% to KKSF-FM/KDFC-AM and
KDFC-FM, respectively. Sales commission and salaries were allocated 73%
and 23% and technical and engineering expenses were allocated 60% and 40%
to KKSF-FM/KDFC-AM and KDFC-FM, respectively, based on estimated time
spent per day by Division personnel.
See accompanying independent auditors' report.
F-80
<PAGE> 230
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Beasley FM Acquisition Corp.:
We have audited the accompanying balance sheet of WDAS-AM/FM (station owned
and operated by Beasley FM Acquisition Corp.) as of December 31, 1996, and the
related statements of earnings and station equity and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of WDAS-AM/FM as of December
31, 1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
St. Petersburg, Florida
March 28, 1997
F-81
<PAGE> 231
WDAS-AM/FM
(STATION OWNED AND OPERATED BY
BEASLEY FM ACQUISITION CORP.)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash...................................................... $ 2,111 $ 2,805
Accounts receivable, less allowance for doubtful accounts
of $166 and $138 in 1996 and 1997...................... 3,693 2,938
Trade sales receivable.................................... 359 29
Prepaid expense and other................................. 150 130
------- -------
Total current assets.............................. 6,313 5,902
Property and equipment, net (note 2)........................ 3,297 3,523
Notes receivable from related parties (note 5).............. 2,766 3,625
Intangibles, less accumulated amortization.................. 17,738 17,122
------- -------
$30,114 $30,172
======= =======
LIABILITIES AND STATION EQUITY
Current liabilities:
Current installments of long-term debt (note 3)........... $ 49 $ 49
Notes payable to related parties (note 5)................. 352 494
Accounts payable.......................................... 269 191
Accrued expenses.......................................... 515 313
Trade sales payable....................................... 39 12
------- -------
Total current liabilities......................... 1,224 1,059
Long-term debt, less current installments (note 3).......... 627 627
------- -------
Total liabilities................................. 1,851 1,686
Station equity.............................................. 28,263 28,486
Commitments and related party transactions (notes 4 and
5)........................................................
------- -------
$30,114 $30,172
======= =======
</TABLE>
See accompanying notes to financial statements.
F-82
<PAGE> 232
WDAS-AM/FM
(STATION OWNED AND OPERATED BY
BEASLEY FM ACQUISITION CORP.)
STATEMENTS OF EARNINGS AND STATION EQUITY
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED MARCH 31,
DECEMBER 31, ------------------
1996 1996 1997
------------ ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues............................................... $14,667 $ 2,623 $ 3,000
------- ------- -------
Costs and expenses:
Program and production................................... 2,028 445 620
Technical................................................ 212 59 50
Sales and advertising.................................... 3,514 660 802
General and administrative............................... 2,005 497 459
------- ------- -------
7,759 1,661 1,931
------- ------- -------
Operating income, excluding items shown
separately
below.......................................... 6,908 962 1,069
Management fees (note 5)................................... (620) (156) (128)
Depreciation and amortization.............................. (2,763) (651) (657)
Interest income (expense), net............................. (40) (13) 7
Other...................................................... -- -- (78)
------- ------- -------
Net income....................................... 3,485 142 213
Station equity, beginning of period........................ 25,367 25,367 28,273
Forgiveness of related party note receivable (note 5)...... (589) -- --
------- ------- -------
Station equity, end of period.............................. $28,263 $25,509 $28,486
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-83
<PAGE> 233
WDAS-AM/FM
(STATION OWNED AND OPERATED BY BEASLEY FM ACQUISITION CORP.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED MARCH 31,
DECEMBER 31, -------------------------------
1996 1996 1997
------------ --------------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 3,485 $ 142 $ 213
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 2,763 651 657
Allowance for doubtful accounts................... 8 (56) (28)
Decrease (increase) in receivables................ (398) 792 1,113
(Increase) decrease) in prepaid expense and other
assets.......................................... (96) (104) 20
Decrease in payables and accrued expenses......... (507) (331) (297)
------- ----- ------
Net cash provided by operating activities.... 5,255 1,094 1,678
------- ----- ------
Cash flows from investing activities -- capital
expenditures for property and equipment.............. (775) (572) (267)
------- ----- ------
Cash flows from financing activities:
Proceeds from issuance of indebtedness............... 676 - -
Principal payments on indebtedness................... (820) - -
Payment of loan fees................................. (6) - -
Net change in borrowings to/from affiliates.......... (2,647) (305) (717)
------- ----- ------
Net cash used in financing activities........ (2,797) (305) (717)
------- ----- ------
Net increase in cash................................... 1,683 217 694
Cash at beginning of period............................ 428 428 2,111
------- ----- ------
Cash at end of period.................................. $ 2,111 $ 645 $2,805
======= ===== ======
Noncash transactions:
Forgiveness of related note receivable
Release of WDAS-AM/FM's obligations under a note
payable which related to obtaining an easement.
WDAS-AM/FM is now directly responsible for the costs
necessary to obtain this easement and has included
these costs in accrued expenses in the accompanying
balance sheet........................................ $ 350
=======
</TABLE>
See accompanying notes to financial statements.
F-84
<PAGE> 234
WDAS-AM/FM
(STATION OWNED AND OPERATED BY BEASLEY FM ACQUISITION CORP.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(IN THOUSANDS)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
WDAS-AM/FM (the Station) is a radio station operating in Philadelphia,
Pennsylvania. The assets, liabilities and operations of WDAS-AM/FM are part of
Beasley FM Acquisition Corp. (BFMA). These financial statements reflect only the
assets, liabilities and operations relating to radio station WDAS-AM/FM and are
not representative of the financial statements of BFMA.
(b) Revenue Recognition
Revenue is recognized as advertising air time is broadcast and is net of
advertising agency commissions.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method over the estimated lives of the assets, which range
from 5 to 31 years.
(d) Intangibles
Intangibles consist primarily of FCC licenses, which are amortized
straight-line over ten years. Other intangibles are amortized straight-line over
5 to 10 years.
(e) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
BFMA adopted the provisions of Statement of Financial Accounting Standards
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, on January 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Adoption of this Statement did not have
a material impact on the Station's financial position, results of operations, or
liquidity.
(f) Barter Transactions
Trade sales are recorded at the fair value of the products or services
received and totaled approximately $676 for the year ended December 31, 1996.
Products and services received and expensed totaled approximately $449 for the
year ended December 31, 1996.
(g) Income Taxes
BFMA has elected to be treated as an "S" Corporation under provisions of
the Internal Revenue Code. Under this corporate status, the stockholders of BFMA
are individually responsible for reporting their share of taxable income or
loss. Accordingly, no provision for federal or state income taxes has been
reflected in the accompanying financial statements.
F-85
<PAGE> 235
WDAS-AM/FM
(STATION OWNED AND OPERATED BY BEASLEY FM ACQUISITION CORP.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(h) Defined Contribution Plan
BFMA has a defined contribution plan which conforms with Section 401(k) of
the Internal Revenue Code. Under this plan, employees may contribute a minimum
of 1% of their compensation (no maximum) to the Plan. The Internal Revenue Code,
however, limited contributions to $9,500 in 1996. There are no employer matching
contributions.
(i) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from these estimates. To the
extent management's estimates prove to be incorrect, financial results for
future periods may be adversely affected.
(j) Interim Financial Statements
In the opinion of management, the accompanying unaudited interim financial
statements contain all adjustments, consisting of normal recurring accruals,
necessary to present fairly the financial position, results of operations, and
cash flows of the Station for the three-month periods ended March 31, 1997 and
1996 and as of June 30, 1997.
(2) PROPERTY AND EQUIPMENT
Property and equipment, at cost, is comprised of the following at December
31, 1996:
<TABLE>
<S> <C>
Land, buildings, and improvements........................... $2,204
Broadcast equipment......................................... 1,200
Office equipment and other.................................. 477
Transportation equipment.................................... 79
------
3,960
Less accumulated depreciation..................... (663)
------
$3,297
======
</TABLE>
(3) LONG-TERM DEBT
BFMA and six affiliates (the Group) refinanced their $100,000 revolving
credit loan on June 24, 1996. Under terms of the new agreement, the Group was
provided a revolving credit loan with an initial maximum commitment of $115,000.
The credit agreement was subsequently amended and the maximum commitment was
increased to $120,000. The Group's borrowings under the revolving credit loan
totaled $115,784 at December 31, 1996, of which $676 was allocated to
WDAS-AM/FM. The loan bears interest at either the base rate or LIBOR plus a
margin which is determined by the Group's debt to cash flow ratio. The base rate
is equal to the higher of the prime rate or the overnight federal funds
effective rate plus 0.5%. At December 31, 1996, the revolving credit loan
carried interest at an average rate of 8.61%. Interest is generally payable
monthly. The Group has entered into interest rate hedge agreements as discussed
in note 6.
The amount available under the Group's revolving credit loan will be
reduced quarterly beginning September 30, 1997 through its maturity on December
31, 2003. The loan agreement includes restrictive covenants and requires the
Group to maintain certain financial ratios. The loans are secured by the common
stock and substantially all assets of the Group.
F-86
<PAGE> 236
WDAS-AM/FM
(STATION OWNED AND OPERATED BY BEASLEY FM ACQUISITION CORP.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Annual maturities on the Group's revolving credit loan for the next five
years are as follows:
<TABLE>
<CAPTION>
DEBT
MATURITIES
----------
<S> <C>
1997........................................................ $ 8,434
1998........................................................ 12,650
1999........................................................ 13,800
2000........................................................ 14,950
2001........................................................ 15,525
Thereafter.................................................. 50,425
--------
Total............................................. $115,784
========
</TABLE>
S-AM/FM paid interest of approximately $79 in 1996.
(4) COMMITMENTS
On September 19, 1996, BFMA entered into an asset purchase agreement (APA)
with Evergreen Media Corporation of Los Angeles (Evergreen) for the sale of
WDAS-AM/FM. Under the terms of the APA, BFMA will convey substantially all of
the assets used in the operation of the station to Evergreen in exchange for a
purchase price of $103,000, subject to adjustment, to be paid in cash. BFMA
expects to close on this sale before July 1, 1997.
WDAS-AM/FM leases facilities and a tower under 10-year operating leases
which expire in July 2004 and January 2007, respectively. WDAS-AM/FM also leases
certain other office equipment on a month-to-month basis. Lease expense was
approximately $215 in 1996. Future minimum lease payments by year are summarized
as follows:
<TABLE>
<S> <C>
1997........................................................ $ 236
1998........................................................ 247
1999........................................................ 258
2000........................................................ 270
2001........................................................ 283
Thereafter.................................................. 1,275
------
$2,569
======
</TABLE>
In the normal course of business, the Station is party to various legal
matters. The ultimate disposition of these matters will not, in management's
judgment, have a material adverse effect on the Station's financial position.
(5) RELATED PARTY TRANSACTIONS
The Company has a management agreement with Beasley Management Company, an
affiliate of the Company's principal stockholder. Management fee expense under
the agreement was $620 in 1996.
The notes receivable from/payable to related parties are non-interest
bearing and are due on demand. A note receivable due from a related party of
$589 was forgiven in 1996.
F-87
<PAGE> 237
WDAS-AM/FM
(STATION OWNED AND OPERATED BY BEASLEY FM ACQUISITION CORP.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) FINANCIAL INSTRUMENTS
WDAS-AM/FM's significant financial instruments and the methods used to
estimate their fair value are as follows:
Revolving credit loan -- The fair value approximates carrying value
due to the loan being refinanced on June 24, 1996 and the interest rate
being based on current market rates.
Notes receivable from/payable to related parties -- It is not
practicable to estimate the fair value of these notes payable due to their
related party nature.
Interest rate swap, cap and collar agreements -- The Group entered
into an interest rate swap agreement with a notional amount of $15,000, an
interest rate cap agreement with a notional amount of $3,100, and an
interest rate collar agreement with a notional amount of $15,000 to act as
a hedge by reducing the potential impact of increases in interest rates on
the revolving credit loan. These agreements expire on various dates in
1999. The Group is exposed to credit loss in the event of nonperformance by
the other parties to the agreements. The Group, however, does not
anticipate nonperformance by the counterparties. The fair value of the
interest rate swap agreement is estimated using the difference between the
present value of discounted cash flows using the base rate stated in the
swap agreement (5.37%) and the present value of discounted cash flows using
the LIBOR rate at December 31, 1996. The fair values of the interest rate
cap agreement, which establishes a maximum base rate of 7.50%, and the
interest rate collar agreement, which establishes a minimum base rate of
4.93% and a maximum base rate of 6%, are estimated based on the amounts the
Group would expect to receive or pay to terminate the agreement. The
estimated fair value of each of these agreements is negligible.
F-88
<PAGE> 238
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Century Chicago Broadcasting, L.P.
In our opinion, the accompanying balance sheet and the related statements
of operations and partners' deficit and of cash flows present fairly, in all
material respects, the financial position of Century Chicago Broadcasting, L.P.
at December 31, 1996, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Chicago, Illinois
May 2, 1997
F-89
<PAGE> 239
CENTURY CHICAGO BROADCASTING, L.P.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, 1997 1996
-------------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 1,707,114 $ 1,832,410
Accounts receivable, net of allowance for doubtful
accounts of $286,000 and $283,000, respectively........ 2,030,226 2,504,875
Prepaid expenses and other assets......................... 227,876 217,353
------------ ------------
Total current assets.............................. 3,965,216 4,554,638
------------ ------------
Property and equipment:
Technical equipment....................................... 1,188,953 1,188,953
Office furniture and fixtures............................. 370,442 370,075
Leasehold improvements.................................... 212,814 212,814
------------ ------------
1,772,209 1,771,842
Less -- Accumulated depreciation.......................... (1,145,799) (1,101,549)
------------ ------------
Total property and equipment...................... 626,410 670,293
------------ ------------
Intangible assets, net (Note 4)............................. 1,934,838 1,946,778
------------ ------------
Deferred financing costs, net............................... 424,860 465,360
------------ ------------
Total assets...................................... $ 6,951,324 $ 7,637,069
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities:
Promissory note (Note 6).................................. $ 6,210,342 $ 6,036,785
Accounts payable and accrued expenses (Note 5)............ 898,072 968,424
Due to Century Broadcasting Corporation (Note 3).......... 10,298,226 11,203,224
Deferred option payment (Note 2).......................... 5,000,000 5,000,000
------------ ------------
Total current liabilities......................... 22,406,640 23,208,433
------------ ------------
Commitments and contingencies (Note 7)
------------ ------------
Partners' deficit, per accompanying statement............... (15,455,316) (15,571,364)
------------ ------------
Total liabilities and partners' deficit........... $ 6,951,324 $ 7,637,069
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-90
<PAGE> 240
CENTURY CHICAGO BROADCASTING, L.P.
STATEMENTS OF OPERATIONS AND PARTNERS' DEFICIT
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------------- DECEMBER 31,
1997 1996 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Gross revenues................................. $ 1,973,026 $ 1,454,573 $ 8,638,346
Less -- Agency commissions..................... (262,854) (198,089) (1,163,350)
------------ ------------ ------------
Net revenues........................... 1,710,172 1,256,484 7,474,996
------------ ------------ ------------
Operating expenses:
Programming.................................... 331,673 333,289 1,386,231
Selling........................................ 572,530 549,536 2,525,100
Promotion -- Television advertising............ -- 344,000 770,473
Promotion -- Other............................. 23,561 28,802 324,305
Technical...................................... 54,241 8,802 58,135
General and administrative..................... 303,947 278,093 1,148,298
Corporate overhead allocation.................. 45,000 45,000 181,000
Depreciation and amortization.................. 56,190 56,190 222,378
------------ ------------ ------------
Total operating expenses............... 1,387,142 1,643,712 6,615,920
------------ ------------ ------------
Income (loss) from operations.................... 323,030 (387,228) 859,076
Interest income.................................. 14,848 -- 63,572
Interest expense................................. (221,830) (316,010) (1,065,825)
------------ ------------ ------------
Net income (loss)................................ 116,048 (703,238) (143,177)
------------ ------------ ------------
Partners' deficit:
Beginning of period............................ (15,571,364) (15,428,187) (15,428,187)
------------ ------------ ------------
End of period.................................. $(15,455,316) $(16,131,425) $(15,571,364)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-91
<PAGE> 241
CENTURY CHICAGO BROADCASTING, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------- DECEMBER 31,
1997 1996 1996
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $ 116,048 $ (703,238) $ (143,177)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization expense................ 56,190 56,190 222,378
Corporate overhead allocation........................ 45,000 45,000 181,000
Amortization of deferred financing costs............. 40,500 39,000 161,581
Changes in assets and liabilities:
Accounts receivable, prepaid expenses and other
current assets.................................. 464,126 590,997 (400,707)
Accounts payable and accrued expenses.............. (70,352) (688,764) (1,231,606)
---------- ---------- -----------
Net cash provided by (used in) operating
activities.................................... 651,512 (660,815) (1,210,531)
---------- ---------- -----------
Cash flows from investing activities:
Additions to property and equipment..................... (367) (17,684) (36,758)
Deferred option payment................................. -- -- 5,000,000
---------- ---------- -----------
Net cash provided by (used in) investing
activities.................................... (367) (17,684) 4,963,242
---------- ---------- -----------
Cash flows from financing activities:
Repayment of promissory note............................ -- -- (4,500,000)
Deferred financing costs................................ -- (76,707) (87,421)
Increase (decrease) in due to Century Broadcasting
Corporation.......................................... (949,998) (385,001) 987,635
Proceeds from issuance of promissory note............... 173,557 1,109,219 1,646,004
---------- ---------- -----------
Net cash provided by (used in) financing
activities.................................... (776,441) 647,511 (1,953,782)
---------- ---------- -----------
Net change in cash and cash equivalents................... (125,296) (30,988) 1,798,929
Cash and cash equivalents:
Beginning of period..................................... 1,832,410 33,481 33,481
---------- ---------- -----------
End of period........................................... $1,707,114 $ 2,493 $ 1,832,410
---------- ---------- -----------
Cash paid for interest.................................... -- -- $ 100,000
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-92
<PAGE> 242
CENTURY CHICAGO BROADCASTING, L.P.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION:
Century Chicago Broadcasting, L.P. (CCBLP) is a limited partnership and the
licensee of Chicago radio station WPNT-FM (the Station). The general partner of
CCBLP is Century Broadcasting Corporation (Century) and the two limited partners
of CCBLP are directors and controlling stockholders of Century.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim financial data (unaudited)
The interim financial data as of March 31, 1997 and for each of the three
months ended March 31, 1997 and 1996 is unaudited. The accompanying unaudited
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments necessary
for a fair presentation of results of the interim periods have been made and
such adjustments were of a normal and recurring nature. The results of
operations and cash flows for the three months ended March 31, 1997 are not
necessarily indicative of the results that can be expected for the entire fiscal
year ending December 31, 1997.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
CCBLP considers all highly liquid investments with an original maturity of
90 days or less to be cash equivalents.
Revenue recognition
Revenues for radio time sales, which are generated primarily from clients
in the greater Chicago metropolitan area, are recognized when commercials are
broadcast. Accounts receivable are unsecured.
Property and equipment
Property and equipment are stated at cost. Maintenance and repairs are
charged against operations as incurred. Improvements and renewals are
capitalized. Depreciation is computed on a straight-line basis over the
estimated useful lives of the assets, generally ten years.
Intangible assets
Intangible assets represent goodwill and a broadcasting license. Intangible
assets related to acquisitions since 1971 are being amortized on a straight-line
basis over 40 years. Intangible assets of $347,137 related to the pre-1971
license acquisition are not being amortized as CCBLP believes there has been no
diminution of value. CCBLP periodically evaluates the carrying value of
intangible assets in relation to the future undiscounted cash flows of the
Station.
F-93
<PAGE> 243
CENTURY CHICAGO BROADCASTING, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Impairment of long-lived assets
Effective January 1, 1996, CCBLP adopted the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" (SFAS No. 121).
This Statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. SFAS No. 121 requires an impairment loss to be
recognized if the sum of expected future cash flows (undiscounted and without
interest charges) is less than the carrying amount of the asset. Otherwise, an
impairment loss is not recognized. This Statement requires that long-lived
assets and certain identifiable intangibles to be disposed of be reported at the
lower of carrying amount or fair value less cost to sell. The adoption of SFAS
No. 121 did not have any impact on CCBLP's financial statements.
Deferred option payment
On June 27, 1996, CCBLP granted Evergreen Media Corporation of Los Angeles
(Evergreen) an option to purchase the Station. Under the terms of the option
agreement, Evergreen paid $5,000,000 to CCBLP in exchange for CCBLP's agreement
to sell the Station to Evergreen under the terms of a July 1, 1996 letter of
intent. The option price, which is non-refundable, has been recorded as a
deferred credit in the December 31, 1996 and March 31, 1997 balance sheets. See
Note 8.
Deferred financing costs
Deferred financing costs are amortized over the term of the related
indebtedness by the interest method. Such amortization totaled $161,581 in 1996
and is included in interest expense in the accompanying statement of operations.
The original cost of deferred financing costs being amortized was $753,658 at
December 31, 1996.
Income taxes
No provision for income taxes has been provided in the accompanying
financial statements because the tax effects of CCBLP's operations accrue
directly to its partners.
Fair value of financial instruments
CCBLP's financial instruments include cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses and a promissory note.
Management believes that the fair values of these financial instruments
approximate their respective carrying values.
NOTE 3 -- RELATED PARTY TRANSACTIONS:
Cash provided by or required for CCBLP's operations is transferred between
CCBLP and Century on a periodic basis. The amount recorded as Due to Century
Broadcasting Corporation is non-interest bearing and is not subject to stated
repayment terms. Accordingly, the financial statements do not reflect any
interest costs on the Due to Century Broadcasting Corporation balance. The
average Due to Century Broadcasting balance was $11,052,000 during the year
ended December 31, 1996.
Century provides certain managerial, treasury, accounting, tax and legal
services to CCBLP. An allocation of the estimated cost of these services has
been reflected in the accompanying statements of operations based on the
estimated time spent by Century personnel providing such services. In the
opinion of management, the costs allocated to CCBLP for services provided by
Century are reasonable.
F-94
<PAGE> 244
CENTURY CHICAGO BROADCASTING, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- INTANGIBLE ASSETS:
Intangible assets as of December 31 consist of the following:
<TABLE>
<CAPTION>
1996
----------
<S> <C>
Broadcasting license........................................ $2,035,081
Goodwill.................................................... 222,137
----------
2,257,218
Less -- Accumulated amortization............................ (310,440)
----------
$1,946,778
==========
</TABLE>
Amortization expense related to these intangibles was $47,760 for the year
ended December 31, 1996.
NOTE 5 -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses at December 31 consist of the
following:
<TABLE>
<CAPTION>
1996
--------
<S> <C>
Accounts payable............................................ $ 31,098
Accrued interest and loan fees.............................. 473,558
Accrued employee compensation............................... 188,520
Other accrued expenses...................................... 275,248
--------
$968,424
========
</TABLE>
NOTE 6 -- PROMISSORY NOTE:
On March 15, 1991, CCBLP entered into a Loan Agreement with a financial
institution. This Loan Agreement was amended and supplemented at various times
since its inception.
As of January 31, 1996, an amendment was executed to provide CCBLP the
ability to borrow an additional $1,000,000 ($845,000 for working capital
purposes and $155,000 for the payment of interest). Additionally, the amendment
provided that upon the consummation of Century's sale of its Denver radio
stations CCBLP would prepay $4,500,000 of the promissory note. The sale and
prepayment were completed in June 1996. Following the prepayment, the lender
made an additional $1,000,000 available to CCBLP to fund future debt service and
interest payments to the lender. During 1996, interest payments of $901,100 were
made by CCBLP of which $100,000 was paid in cash and the remaining balance was
paid through additional borrowings under the amended agreement. At December 31,
1996 and March 31, 1997, CCBLP had additional available line of credit totaling
$463,000 and $289,000, respectively, subject to the terms and conditions of the
agreement.
Interest, payable quarterly, accrues at a Formula Rate which varies based
upon certain financial measures. Such Formula Rate generally ranges from the
prime lending rate (8.25% at December 31, 1996) plus 2% to the prime lending
rate plus 3%. As of December 31, 1996, the Formula Rate in effect for CCBLP was
11.25%.
Principal payments on the promissory note are due in twelve consecutive,
quarterly installments beginning on April 1, 1997 with aggregate annual
principal payments of $450,000 in 1997, $750,000 in 1998, $950,000 in 1999 and
any remaining amounts (including principal, interest and the remaining $300,000
of Loan Fees) due on January 1, 2000.
The Loan Agreement contains various restrictive covenants that, among other
things, require CCBLP, an affiliated limited partnership and Century to
individually (and on a consolidated basis with respect to
F-95
<PAGE> 245
CENTURY CHICAGO BROADCASTING, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Century) maintain minimum levels of operating cash flow, limit distributions
from CCBLP and/or an affiliated limited partnership to their respective partners
and place restrictions on the assumption and payment of Century expenses by
CCBLP or the affiliated limited partnership.
Upon notification from the lender, a prepayment equal to 50% of the
adjusted cash flow, as defined in the Loan Agreement, may be required provided
that such payment does not reduce cash on hand to a level below $1,000,000. The
promissory note evidencing CCBLP's obligation to the lender is secured by
substantially all of the assets of CCBLP and Century (including, but not limited
to, its partnership interests in CCBLP and an affiliated limited partnership)
and is guaranteed by Century and one of CCBLP's limited partners. Additionally,
both of CCBLP's limited partners have pledged their respective interests in
CCBLP as well as an affiliated limited partnership.
As more fully discussed in Note 8, CCBLP has entered into an agreement to
sell the Station and intends to use a portion of the proceeds to prepay the
promissory note in full. Additionally, certain technical covenant violations
have not been waived and there is uncertainty as to whether CCBLP and Century
will be able to meet such covenants prospectively. As such, the amounts
outstanding under the promissory note have been classified as current
liabilities in the accompanying balance sheets.
In the event that the promissory note is not prepaid in conjunction with
the aforementioned sale of the Station, management believes that operating cash
flows together with funds obtained from the additional borrowings as well as
from the option payment discussed above will provide sufficient working capital
to fund CCBLP's current operations. Additionally, management believes that the
lender will continue to forbear and not require CCBLP to repay the obligations
under the promissory note in advance of the stated maturities. Furthermore,
management believes in the event that operating cash flows were not sufficient
to support the Station's current operations and the sale of the Station were not
to be completed that additional financing would be available either from its
current lender or from other sources.
NOTE 7 -- COMMITMENTS:
CCBLP leases certain office space and equipment under various operating
leases. Rent expense included in the accompanying statement of operations for
the year ended December 31, 1996 in connection with these various operating
leases totaled $388,000. Future minimum rentals under noncancelable operating
leases in existence at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ---------
<S> <C>
1997........................................................ $ 375,000
1998........................................................ 370,000
1999........................................................ 339,000
2000........................................................ 248,000
2001........................................................ 288,000
Thereafter.................................................. 1,151,000
</TABLE>
CCBLP has entered into certain noncancelable agreements for ratings and
news services that require aggregate payments of approximately $358,000 in 1997,
$355,000 in 1998 and $172,000 in 1999.
F-96
<PAGE> 246
CENTURY CHICAGO BROADCASTING, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- STATION SALE:
On July 15, 1996, CCBLP entered into an Asset Purchase Agreement with
Evergreen Media Corporation of Chicago (Evergreen of Chicago) to sell
substantially all of the assets of the Station to Evergreen of Chicago for
approximately $68,750,000 in cash plus 96% of the accounts receivable balance at
the time of closing, as detailed in the Purchase Agreement, subject to certain
closing adjustments. In April 1997, the Federal Communications Commission
approved the transfer of the Station's broadcasting license to Evergreen of
Chicago. The sale of the Station is expected to close in the second quarter of
1997. On April 10, 1997, Evergreen of Chicago announced that it had entered into
an agreement with Bonneville International Corp. (Bonneville) to sell the assets
of the Station to Bonneville.
F-97
<PAGE> 247
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Secret Communications Limited Partnership:
We have audited the accompanying combined balance sheet of WJLB/WMXD,
DETROIT, as further described in Note 1, as of December 31, 1996, and the
related combined statements of operations and cash flows for the year then
ended. These financial statements are the responsibility of the Station's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the accompanying combined financial statements referred to
above present fairly, in all material respects, the financial position of
WJLB/WMXD, DETROIT as of December 31, 1996, and the results of their operations
and their cash flows for the year then ended, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
May 8, 1997
F-98
<PAGE> 248
WJLB/WMXD, DETROIT
COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1996, AND MARCH 31, 1997 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............. $ 1,194 $ 1,212
Accounts receivable (net of allowance
for doubtful accounts of $96,119).. 589,346 419,688
Trade receivables..................... 18,394 18,394
Prepaid expenses and other assets..... 3,939 3,539
----------- -----------
Total current assets.......... 612,873 442,833
----------- -----------
PROPERTY AND EQUIPMENT, net (note 3).... 1,020,324 950,086
INTANGIBLE ASSETS, net (note 4)......... 40,812,180 40,276,029
----------- -----------
TOTAL ASSETS.................. $42,445,377 $41,668,948
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable and accrued
expenses........................... $ 892,756 $ 1,320,212
Trade payables........................ 1,875 1,875
Interest payable...................... 72,732 19,652
Current maturities of long-term
debt............................... 1,252,950 1,494,617
----------- -----------
Total current liabilities..... 2,220,313 2,836,356
----------- -----------
LONG-TERM DEBT, less current maturities
(note 6).............................. 18,527,663 18,285,996
COMMITMENTS AND CONTINGENCIES (note 7)
PARTNERS' CAPITAL AND STATION EQUITY
Balance, beginning of period.......... 26,766,919 21,697,401
Net amounts transferred to central
office............................. (13,398,406) (3,296,193)
Contributed capital................... 1,526,531 2,453,168
Net income for the period............. 6,802,357 (307,780)
----------- -----------
Balance, end of period................ 21,697,401 20,546,596
----------- -----------
TOTAL LIABILITIES AND
PARTNERS' CAPITAL.......... $42,445,377 $41,668,948
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-99
<PAGE> 249
WJLB/WMXD, DETROIT
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
DECEMBER 31, ----------------------------
1996 1996 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES
Advertising revenues.................. $15,408,285 $4,500,863 $ --
LMA and other income.................. 4,000,000 -- 2,421,000
----------- ---------- ----------
Gross income.......................... 19,408,285 4,500,863 2,421,000
Less: agency commissions.............. 1,880,637 523,792 --
----------- ---------- ----------
Net revenues.................. 17,527,648 3,977,071 2,421,000
----------- ---------- ----------
OPERATING EXPENSES:
Station operating expenses excluding
depreciation and amortization...... 5,720,605 2,026,514 254,278
Depreciation and amortization......... 2,414,614 600,888 606,388
Central office general and
administrative (note 8)............ 1,004,379 145,558 535,522
----------- ---------- ----------
Operating expenses............ 9,139,598 2,772,960 1,396,188
----------- ---------- ----------
OPERATING INCOME........................ 8,388,050 1,204,111 1,024,812
NONOPERATING EXPENSES:
Interest expense (note 6)............. 1,405,693 1,401,785 1,312,592
----------- ---------- ----------
Non operating expenses........ 1,405,693 1,401,785 1,312,592
----------- ---------- ----------
Income before taxes..................... 6,982,357 (197,674) (287,780)
Provision for state income taxes (note
2).................................... 180,000 41,400 20,000
----------- ---------- ----------
Net income.................... $ 6,802,357 $ (239,074) $ (307,780)
=========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-100
<PAGE> 250
WJLB/WMXD, DETROIT
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
DECEMBER 31, -----------------------
1996 1996 1997
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................... $ 6,802,357 ($ 239,074) ($ 307,780)
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization...... 2,414,614 600,888 606,388
Loss on sale of equipment.......... 1,800 -- --
Changes in assets and liabilities:
Decrease in receivables, net..... 3,883,442 1,164,150 169,659
Decrease (increase) in prepaid
expenses...................... 25,952 (50,134) 400
(Decrease) increase in payables
and accrued expenses.......... (902,306) (431,298) 427,456
Increase (decrease) in interest
payable....................... 21,984 37,092 (53,080)
----------- ---------- ----------
Net cash provided by operating
activities.................. 12,247,843 1,081,624 843,043
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................. (116,092) (12,715) --
----------- ---------- ----------
Net cash (used in) investing
activities.................. (116,092) (12,715) --
----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in amounts transferred to
central office..................... (13,398,406) (2,429,287) (3,296,193)
Net (payments) of long-term debt...... (261,417) (261,417) --
Capital contributions................. 1,526,531 1,813,070 2,453,168
----------- ---------- ----------
Net cash (used in) financing
activities.................. (12,133,292) (877,634) (843,025)
----------- ---------- ----------
NET (DECREASE)/INCREASE IN CASH AND CASH
EQUIVALENTS........................... (1,541) 191,275 18
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD............................. 2,735 2,737 1,194
----------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................ $ 1,194 $ 194,012 $ 1,212
=========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-101
<PAGE> 251
WJLB/WMXD, DETROIT
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) BUSINESS AND BASIS OF PRESENTATION:
Secret Communications Limited Partnership ("Secret") owns WJLB-FM and
WMXD-FM (the "Stations"). The Stations are licensed to and serve Detroit,
Michigan. The accompanying combined financial statements include the accounts of
the Stations after eliminating all significant intercompany accounts and
transactions.
Secret was formed in 1994 and on August 1, 1994, the general partners of
Secret contributed substantially all of the assets and debt of several radio
stations to Secret. The Stations were among those included in this initial
contribution.
As further described in Note 5, Secret entered into an agreement to sell
substantially all of the assets of the Stations to Evergreen Media Corporation
of Los Angeles ("Evergreen").
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Cash Equivalents
Cash equivalents include overnight repurchase agreements backed by United
States securities.
(b) Trade Agreements
The Stations have entered into trade agreements which provide for the
exchange of advertising time for merchandise or services and are recorded at the
estimated fair market value of the goods or services to be received. Trade
receivables and trade payables represent the outstanding obligations of the
parties to the trade agreements as of the end of the year. Trade revenues are
recognized as the advertisements are broadcast. Trade expenses are recognized as
the services or merchandise is used.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Repair and maintenance costs are charged to expense when
incurred.
(d) Intangible Assets
Intangible assets are recorded at their appraised values and are amortized
using the straight-line method over estimated periods of benefit up to 40 years.
Should events or circumstances occur subsequent to the acquisition of a station
which bring into question the realizable value or impairment of the related
goodwill and intangibles, Secret will evaluate the remaining useful life and
balance of intangibles and make appropriate adjustments. Secret's principal
considerations in determining impairment include the strategic benefit to Secret
of the particular station and the current and expected future operating income
and cash flow levels of that particular station.
(e) Revenue Recognition
Advertising revenues are recognized as advertisements are broadcast.
(g) Income Taxes
The accompanying combined financial statements do not reflect provisions
for federal income taxes which are reported by the partners of Secret.
F-102
<PAGE> 252
WJLB/WMXD, DETROIT
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(h) Statement of Cash Flows
Cash of $1,383,709 was paid for interest during the year ended December 31,
1996. Cash of $184,278 was paid for state income taxes during the year ended
December 31, 1996.
(i) Use of Estimates
The preparation of these combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
(3) PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31, 1996:
<TABLE>
<CAPTION>
ESTIMATED USEFUL
1996 LIVES
----------- ----------------
<S> <C> <C>
Land.................................... $ 25,000 --
Buildings and leasehold improvements.... 526,618 5 -- 31.5 years
Broadcasting equipment.................. 554,611 5 -- 15 years
Furniture and fixtures.................. 189,678 5 years
Business equipment...................... 290,665 5 years
Vehicles................................ 50,507 5 years
-----------
1,637,079
Less: Accumulated depreciation.......... (616,755)
-----------
$ 1,020,324
===========
</TABLE>
(4) INTANGIBLE ASSETS:
Intangible assets consisted of the following at December 31, 1996:
<TABLE>
<CAPTION>
ESTIMATED USEFUL
1996 LIVES
----------- ----------------
<S> <C> <C>
FCC Licenses............................ $42,195,591 25 years
Advertiser relationships................ 3,069,763 7 years
Goodwill................................ 729,704 40 years
-----------
45,995,058
Less: Accumulated amortization.......... (5,182,878)
-----------
$40,812,180
===========
</TABLE>
(5) SALE OF STATIONS:
On August 12, 1996, Secret entered into a definitive agreement to sell
substantially all of the assets of the Stations to Evergreen. The agreement
closed on April 1, 1997. The assets sold included fixed assets and intangible
assets. In addition, Secret entered into a noncompete agreement covering the
Detroit market for three years. In consideration for the assets of the Stations
and the noncompete agreement, Evergreen paid Secret $168,000,000 on the closing
date. While this transaction was pending, Secret entered into a time brokerage
agreement with respect to the Stations which allowed Evergreen to purchase
substantially all of the broadcast time on the Stations. The agreement commenced
September 1, 1996 and expired on April 1, 1997. The revenue related to this
agreement is reflected in the combined statement of operations as LMA Income.
F-103
<PAGE> 253
WJLB/WMXD, DETROIT
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Stations agreed to pay bonuses to certain executives and key employees
if the individuals were employed by the Stations upon the close of the sale.
These bonuses were accrued ratably from the commitment date, October 1, 1996, to
the close date, April 1, 1997. At December 31, 1996, $400,500 is accrued for
these stay bonuses, with the related expense reflected in central office general
and administrative expenses. On April 1, 1997, the Stations paid $801,000 for
stay bonuses.
(6) LONG-TERM DEBT:
Long-term debt consisted of a senior reducing revolving credit facility at
December 31, 1996, which was used to recapitalize debt and to fund working
capital for Secret at August 1, 1994. The debt was allocated to the Stations
based on the ratio of the Stations' fair market value as compared to the total
fair market value of Secret at August 1, 1994. Additional borrowings and
repayments were allocated based on the same ratio if these borrowings and
repayments were related to the general operations of all the Secret stations.
Interest expense for the year ended December 31, 1996, was allocated to the
Stations based on the same ratio.
Borrowings under the revolving loans bear interest, at the option of Secret
at LIBOR or prime, plus a margin. The margin over LIBOR or prime varies from
time to time depending on Secret's ratio of debt to cash flow as defined in the
agreement. The interest rate on the reducing revolver at December 31, 1996,
ranged from 7.00% to 8.50%, with a weighted interest rate of 7.10%.
Amounts outstanding under the reducing revolver are payable in quarterly
installments beginning as early as June 30, 1995, and ending December 31, 2001.
The amounts payable depend on the amounts then outstanding and correspondingly
reduce the amount available to be borrowed. Based on debt outstanding, there
were no amortization payments required to be made in 1996. Amounts outstanding
under the revolving credit/term loan convert on June 30, 1997, to a term loan
payable in quarterly installments ending December 31, 2001. In addition to
scheduled amortization, Secret is required to repay revolving credit borrowings
each calendar year of up to 50% of the excess cash flow for that calendar year
as defined in the agreement, commencing with the year ending December 31, 1995.
Based on financial ratios at December 31, 1996, there is no excess cash flow
repayment due in 1997.
The senior credit facility limits indebtedness, capital expenditures, and
payment of distributions and requires certain financial ratios to be maintained
among other restrictions. At December 31, 1996, Secret was in compliance with
all provisions of its credit agreement. The senior credit facility is secured by
substantially all of the assets of Secret.
The future maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1997.................................... $ 1,252,950
1998.................................... 3,532,252
1999.................................... 4,198,715
2000.................................... 4,865,178
2001.................................... 5,931,518
-----------
$19,780,613
===========
</TABLE>
The fair value of the debt is equal to its carrying value.
On April 1, 1997, Secret repaid all amounts outstanding under its senior
credit facility.
F-104
<PAGE> 254
WJLB/WMXD, DETROIT
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(7) COMMITMENTS AND CONTINGENCIES:
The Stations have entered into operating leases with initial or remaining
non-cancelable terms in excess of one year. The future minimum rental payments
required for all such leases as of December 31, 1996, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1997.................................. $221,372
1998.................................. 221,372
1999.................................. 75,237
2000.................................. 46,009
2001.................................. 46,009
Future years.......................... 251,505
--------
Total minimum payments required......... $861,504
========
</TABLE>
Rent expense was $252,013 for the year ended December 31, 1996.
(8) RELATED PARTY TRANSACTIONS:
Central office general and administrative expenses represent an allocation
of charges incurred by Secret's headquarters for various administrative and
management services, including, but not limited to, salaries, bonuses,
management fees and service fees. The charges are allocated to the Stations
based on the total number of markets in which Secret owns stations. Amounts
charged to the Stations do not necessarily represent the amounts that would have
been incurred had the Stations operated as an unaffiliated entity. However,
management believes that these charges result in a reasonable level of general
and administrative expenses for the Stations.
Included in the central office general and administrative expenses are fees
charged to Secret by the two general partners for management and consulting
services provided to Secret. In addition, Lane Industries, Inc., a related party
to the administrative general partner of Secret, provides certain tax, legal,
financial, risk management and employee benefits services for an annual fee. The
amount allocated to the Stations for all such services provided by the general
partners amounted to $180,405 for the year ended December 31, 1996.
As described in Note 6, a portion of Secret's senior debt and interest
expense has been allocated to the Stations as of December 31, 1996, and for the
year then ended.
The Partners' Capital and Station Equity section of the Balance Sheet
consists of intercompany accounts, capital contributed by the partners and
retained earnings. These accounts reflect the original acquisition of the
Stations and the activity between the Stations and Secret, such as cash
transfers and expense allocations.
(9) DEFERRED SAVINGS PLAN:
Secret maintains a 401(k) savings plan in which the employees of the
Stations participate. Employees must have reached age 21 and have completed one
year of consecutive service to participate in the plan. Employees may contribute
up to 15% of their salaries in accordance with IRS limitations. Secret matches
employee contributions at a rate of 75% (up to 6%) of the employee's salary.
Secret's contribution to the plan related to the Stations was $70,694 for the
year ended December 31, 1996.
(10) NOTE TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
The accompanying unaudited interim combined financial statements have been
prepared in accordance with generally accepted accounting practices for interim
periods. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
F-105
<PAGE> 255
WJLB/WMXD, DETROIT
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
statements. It is suggested that these interim combined financial statements be
read in conjunction with the financial statements and notes thereto.
In the opinion of management, the unaudited interim combined financial
statements reflect all adjustments consisting of normal recurring adjustments
necessary to present fairly the combined financial position of the Stations as
of March 31, 1997, and the interim combined results of operations and cash flows
for all periods presented.
F-106
<PAGE> 256
INDEPENDENT AUDITORS' REPORT
---------------------------------------------
The Board of Directors
Chancellor Broadcasting Company:
We have audited the accompanying combined balance sheets of KYSR Inc. and
KIBB Inc. as of December 31, 1995 and 1996, and the related combined statements
of operations and cash flows for each of the years in the three-year period
ended December 31, 1996. These combined financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of KYSR Inc.
and KIBB Inc. as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Dallas, Texas
March 14, 1997
F-107
<PAGE> 257
KYSR INC. AND KIBB INC.
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Accounts receivable, less allowance for doubtful
accounts of $218 in 1995 and $246 in 1996 and $321 in
1997................................................. $ 6,253 $ 7,283 $ 7,403
Prepaid expenses and other.............................. 412 609 18
Deferred income taxes (note 5).......................... 89 101 101
-------- -------- --------
Total current assets............................ 6,754 7,993 7,522
Property and equipment, net (note 3)...................... 4,172 4,082 4,195
Intangible assets, net (note 4)........................... 116,946 113,644 111,984
Other assets, net......................................... 22 22 22
-------- -------- --------
$127,894 $125,741 $123,723
======== ======== ========
LIABILITIES AND EQUITY
Current liabilities -- accounts payable and accrued
expenses................................................ $ 3,883 $ 3,624 $ 2,082
Deferred income taxes (note 5)............................ 9,683 11,027 11,027
Equity (note 8)........................................... 114,328 111,090 110,614
Commitments and contingencies (note 9)....................
-------- -------- --------
$127,894 $125,741 $123,723
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-108
<PAGE> 258
KYSR INC. AND KIBB INC.
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross revenues.......................... $28,590 $30,571 $33,769 $15,762 $16,784
Less agency commissions and national
rep fees........................... 4,490 4,882 5,462 2,196 2,385
------- ------- ------- ------- -------
Net revenues.................. 24,100 25,689 28,307 13,566 14,399
------- ------- ------- ------- -------
Operating expenses:
Station operating expenses, excluding
depreciation and amortization...... 13,407 12,901 13,378 6,834 7,119
Depreciation and amortization......... 3,640 3,661 3,627 1,826 1,844
Corporate general and
administrative..................... 892 1,094 844 542 302
------- ------- ------- ------- -------
Operating expenses................. 17,939 17,656 17,849 9,202 9,265
------- ------- ------- ------- -------
Operating income................... 6,161 8,033 10,458 4,364 5,134
Interest expense (note 7)............... 6,374 6,374 6,374 3,187 3,178
------- ------- ------- ------- -------
Earnings (loss) before income taxes... (213) 1,659 4,084 1,177 1,956
Income tax expense (benefit) (note 5)... (70) 699 1,694 494 296
------- ------- ------- ------- -------
Net earnings (loss)........... $ (143) $ 960 $ 2,390 $ 683 $ 1,660
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-109
<PAGE> 259
KYSR INC. AND KIBB INC.
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------ -----------------
1994 1995 1996 1996 1997
------ ------ ------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows provided by operating activities:
Net earnings (loss)........................... $ (143) $ 960 $2,390 $ 683 $ 1,660
Adjustments to reconcile net earnings (loss)
to net cash provided by operating
activities:
Depreciation............................... 338 359 325 175 193
Amortization of intangibles................ 3,302 3,302 3,302 1,651 1,651
Deferred tax expense....................... 1,597 1,412 1,332 -- --
Changes in certain assets and liabilities:
Accounts receivable, net................. (1,452) (120) (1,030) (330) (120)
Prepaid expenses and other current
assets................................ 372 (149) (197) (1,468) 591
Accounts payable and accrued expenses.... (345) 265 (259) 2,236 (1,542)
------ ------ ------ ------- -------
Net cash provided by operating
activities.......................... 3,669 6,029 5,863 2,947 2,433
------ ------ ------ ------- -------
Cash used by investing activities -- capital
expenditures.................................. (280) (223) (235) (80) (296)
------ ------ ------ ------- -------
Cash flows used by financing
activities -- distributions to Parent......... (3,389) (5,806) (5,628) (2,867) (2,137)
------ ------ ------ ------- -------
Increase (decrease) in cash..................... -- -- -- -- --
Cash at beginning of period..................... -- -- -- -- --
------ ------ ------ ------- -------
Cash at end of period........................... $ -- $ -- $ -- $ -- $ --
====== ====== ====== ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-110
<PAGE> 260
KYSR INC. AND KIBB INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of KYSR
Inc. and KIBB Inc. (collectively, the "Company"). The Company owns and operates
two commercial radio stations in the Los Angeles market, KYSR-FM and KIBB-FM,
and is wholly owned by Viacom International Inc. ("Viacom" or "Parent"), a
wholly owned subsidiary of Viacom, Inc. Significant intercompany balances and
transactions have been eliminated in combination.
On February 16, 1997, Viacom entered into a stock purchase agreement to
sell all the issued and outstanding shares of capital stock of WAXQ Inc. and
Riverside Broadcasting Co., Inc. in the New York City market, KYSR Inc. and KIBB
Inc. in the Los Angeles market, Viacom Broadcasting East Inc. and WMZQ Inc. in
the Washington, DC market, WLIT Inc. in the Chicago market and WDRQ Inc. in the
Detroit market (collectively, the "Viacom Radio Properties") to Evergreen Media
Corporation of Los Angeles ("Evergreen"), for $1.075 billion in cash ("Proposed
Transaction"). The Proposed Transaction is expected to close after the
expiration or termination of the applicable waiting periods under the HRS Act
and approval by the Federal Communications Commission ("FCC"). Contemporaneous
with this transaction, Evergreen entered into a joint purchase agreement with
Chancellor Broadcasting Company ("Chancellor") under which Chancellor agreed to
acquire the Chicago, Detroit and Los Angeles Viacom Radio Properties referred to
above for $480 million from Evergreen or from Viacom directly.
The accompanying combined financial statements reflect the carve-out
historical results of operations and financial position of KYSR Inc. and KIBB
Inc. These financial statements are not necessarily indicative of the results
that would have occurred if the Company had been a separate stand-alone entity
during the period presented.
The combined financial statements do not include Viacom's corporate assets
or liabilities not specifically identifiable to the Company. Corporate overhead
allocations have been included in the accompanying combined statements of
earnings in corporate general and administrative expense and station operating
expenses.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Repair and maintenance costs are charged to expense when
incurred.
(b) Intangible Assets
Intangible assets consist primarily of broadcast licenses. The Company
amortizes such intangible assets using the straight-line method over 40 years.
The Company continually evaluates the propriety of the carrying amount of
intangible assets as well as the amortization period to determine whether
current events or circumstances warrant adjustments to the carrying value and/or
revised estimates of useful lives. This evaluation consists of the projection of
undiscounted operating income before depreciation, amortization, nonrecurring
charges and interest over the remaining amortization periods of the related
intangible assets. At this time, the Company believes that no significant
impairment of intangible assets has occurred and that no reduction of the
estimated useful lives is warranted.
F-111
<PAGE> 261
KYSR INC. AND KIBB INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Barter Transactions
The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. An asset and
liability are recorded at the fair market value of the goods or services to be
received. Barter revenue is recorded and the liability relieved when commercials
are broadcast and barter expense is recorded and the asset relieved when goods
or services are received or used.
(d) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable earnings. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount more likely than not to be realized. Income
tax expense is the total of tax payable for the period and the change during the
period in deferred tax assets and liabilities.
(f) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
(g) Fair Value
The carrying amount of accounts receivable and accounts payable
approximates fair value because of the short maturity of these instruments.
(h) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of management, credit risk with respect to trade receivables
is limited due to the large number of diversified customers in the Company's
customer base. The Company performs ongoing credit evaluations of its customers
and believes that adequate allowances for any uncollectible trade receivables
are maintained. No one advertiser accounted for more than 10% of net revenues in
1994, 1995, or 1996. Certain
F-112
<PAGE> 262
KYSR INC. AND KIBB INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
advertisers purchase the advertising of the stations through a third party
buying service. Approximately 22%, 20% and 19% of total revenue was derived
through the use of this service in 1994, 1995 and 1996, respectively.
(i) Unaudited Interim Financial Information
In the opinion of management, the unaudited interim combined financial
statements as of and for the six months ended June 30, 1996 and 1997, reflect
all adjustments, consisting of only normal and recurring items, which are
necessary for a fair presentation of the results for the interim periods
presented. The results for the interim periods ended June 30, 1996 and 1997 are
not necessarily indicative of results to be expected for any other interim
period or for the full year.
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1995 and
1996:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1995 1996
----------- ------ ------
<S> <C> <C> <C>
Land.................................................. $2,875 $2,875
Building.............................................. 40 years 474 474
Broadcast facilities.................................. 8-20 years 1,501 1,572
Office equipment and other............................ 5-8 years 725 902
Construction in progress.............................. 36 24
------ ------
5,611 5,847
Accumulated depreciation.............................. 1,439 1,765
------ ------
$4,172 $4,082
====== ======
</TABLE>
(4) INTANGIBLE ASSETS
Intangible assets at December 31, 1995 and 1996 consist of broadcast
licenses which are being amortized over forty years and are presented net of
accumulated amortization of $15,148 and $18,450, respectively.
(5) INCOME TAXES
The Company's results of operations are included in the combined U.S.
federal and certain combined and separate state income tax returns of Viacom
International Inc.
The tax provisions and deferred tax liabilities presented have been
determined as if the Company were a stand-alone business filing separate tax
returns. Current tax liabilities are recorded through the equity account with
Viacom.
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
1994 1995 1996
------- ----- ------
<S> <C> <C> <C>
Current:
Federal................................................ $(1,289) $(551) $ 278
State and local........................................ (378) (162) 84
Deferred federal......................................... 1,597 1,412 1,332
------- ----- ------
$ (70) $ 699 $1,694
======= ===== ======
</TABLE>
F-113
<PAGE> 263
KYSR INC. AND KIBB INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the U.S. Federal statutory tax rate to the Company's
effective tax rate on earnings (loss) before income taxes is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----- ---- ----
<S> <C> <C> <C>
Statutory U.S. tax rate..................................... (35.0)% 35.0% 35.0%
State and local taxes, net of federal tax benefit........... 6.2 6.2 6.1
Other, net.................................................. (8.3) 0.9 0.4
----- ---- ----
Effective tax rate.......................................... (32.9)% 42.1% 41.5%
===== ==== ====
</TABLE>
Deferred tax assets and liabilities are computed by applying the U.S.
federal income tax rate in effect to the gross amounts of temporary differences
and other tax attributes. These temporary differences are primarily the result
of fixed asset basis differences and bad debt expense. Deferred tax assets and
liabilities relating to state income taxes are not material.
(6) DEBT AND INTEREST COST
Viacom has not allocated any portion of its debt or related interest cost
to the Company, and no portion of Viacom's debt is specifically related to the
operations of the Company.
(7) RELATED PARTY TRANSACTIONS
Intercompany balances between the Company and Viacom resulting from normal
trade activity are reflected in Equity in the accompanying combined financial
statements (see note 8).
On January 25, 1990, KYSR, Inc., formerly KXEZ, Inc., issued an
intercompany demand note to Viacom in the amount of $66,400. The note bears
interest at 9.6% per year payable on the last day of each calendar year. The
principal and final interest payment are payable on January 25, 2000. However,
immediately prior to closing of the Proposed Transaction, all debts between the
Company and Viacom will be canceled. As such, the promissory note issued to
Viacom is reflected as an increase to equity and included in intercompany
activity in the amount of $66,400 at December 31, 1995 and 1996 (see note 8).
Viacom provides services for the Company in management, accounting and
financial reporting, human resources, information systems, legal, taxes and
other corporate services. The allocation of these expenses, which is generally
based on revenue dollars, is reflected in the accompanying combined financial
statements as corporate general and administrative expense. Management believes
that the method of allocation of overhead is reasonable.
Viacom has a noncontributory pension plan covering substantially all of its
employees, including the employees of the Company. Costs related to this plan
are allocated to the Company based on payroll dollars and are included in
station operating expenses. The Company recognized expense related to this plan
in the amounts of $70, $56 and $191 for 1994, 1995 and 1996, respectively. The
assets and the related benefit obligation of the plan will not be transferred to
the Company upon consummation of the Proposed Transaction, therefore, such
assets and obligations are not included in the notes to the Company's combined
financial statements.
Viacom utilizes a centralized cash management system. As a result, the
Company carries minimal cash. Disbursements are funded by the Parent upon demand
and cash receipts are transferred to the Parent daily.
The Company, from time to time, enters into transactions with companies
owned by or affiliated with Viacom. Generally, services rendered from such
related parties are charged to the Company at amounts which would be incurred in
transactions between unrelated entities.
F-114
<PAGE> 264
KYSR INC. AND KIBB INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(8) EQUITY
Equity represents Viacom's ownership interest in the recorded net assets of
the Company. All cash transactions and intercompany transactions flow through
the equity account. A summary of the activity is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of period..................... $122,706 $119,174 $114,328
Net earnings (loss)................................ (143) 960 2,390
Net intercompany activity.......................... (3,389) (5,806) (5,628)
-------- -------- --------
Balance at end of period........................... $119,174 $114,328 $111,090
======== ======== ========
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES
The Company has noncancelable operating leases, primarily for office space.
These leases generally contain renewal options for periods ranging from one to
ten years and require the Company to pay all executory costs such as maintenance
and insurance. Rental expense for operating leases (excluding those with lease
terms of one month or less that were not renewed) was approximately $377, $365
and $405 during 1994, 1995 and 1996, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1996
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- ------------------------
<S> <C> <C>
1997............................................................... $ 365
1998............................................................... 366
1999............................................................... 312
2000............................................................... 19
Thereafter......................................................... --
------
$1,062
======
</TABLE>
F-115
<PAGE> 265
INDEPENDENT AUDITORS' REPORT
---------------------------------------------
The Board of Directors
Chancellor Broadcasting Company:
We have audited the accompanying balance sheets of WLIT Inc. as of December
31, 1995 and 1996, and the related statements of earnings and cash flows for
each of the years in the three-year period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of WLIT Inc. as of December 31,
1995 and 1996, and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
March 14, 1997
F-116
<PAGE> 266
WLIT INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Accounts receivable, less allowance for doubtful accounts
of $79 in 1995 and $87 in 1996 and $110 in 1997........ $ 3,110 $ 3,627 $ 3,836
Prepaid expenses and other current assets................. 592 490 200
Deferred income taxes (note 5)............................ 37 44 44
------- ------- -------
Total current assets.............................. 3,739 4,161 4,080
Property and equipment, net (note 3)........................ 461 457 545
Intangible assets, net (note 4)............................. 16,958 16,415 16,143
------- ------- -------
$21,158 $21,033 $20,768
======= ======= =======
LIABILITIES AND EQUITY
Current liabilities -- accounts payable and accrued
expenses.................................................. $ 1,442 $ 1,195 $ 1,376
Deferred income taxes (note 5).............................. 58 53 53
Equity (note 8)............................................. 19,658 19,785 19,339
Commitment and contingencies (note 9).......................
------- ------- -------
$21,158 $21,033 $20,768
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-117
<PAGE> 267
WLIT INC.
STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross revenues................................ $14,367 $16,720 $18,294 $8,080 $10,035
Less agency commissions and national rep
fees..................................... 2,523 2,848 3,071 1,144 1,410
------- ------- ------- ------ -------
Net revenues........................ 11,844 13,872 15,223 6,936 8,625
------- ------- ------- ------ -------
Operating expenses:
Station operating expenses excluding
depreciation and amortization............ 6,555 6,977 7,508 3,839 4,221
Depreciation and amortization............... 655 653 659 327 340
Corporate general and administrative........ 478 630 479 274 172
------- ------- ------- ------ -------
Operating expenses....................... 7,688 8,260 8,646 4,440 4,733
------- ------- ------- ------ -------
Earnings before income taxes............. 4,156 5,612 6,577 2,496 3,892
Income tax expense (note 5)................... 1,804 2,359 2,728 1,048 1,280
------- ------- ------- ------ -------
Net earnings........................ $ 2,352 $ 3,253 $ 3,849 $1,448 $ 2,612
======= ======= ======= ====== =======
</TABLE>
See accompanying notes to financial statements.
F-118
<PAGE> 268
WLIT INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
--------------------------- ----------------------
1994 1995 1996 1996 1997
------- ------- ------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows provided by operating
activities:
Net earnings.......................... $ 2,352 $ 3,253 $ 3,849 $ 1,448 $ 2,612
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation....................... 114 114 116 55 68
Amortization of intangibles........ 541 539 543 272 272
Deferred income taxes.............. (13) 5 (8) -- --
Changes in certain assets and
liabilities:
Accounts receivable, net......... (73) (460) (517) (476) (209)
Prepaid expenses and other
current assets................ (101) (181) 98 (577) 295
Accounts payable and accrued
expenses...................... (384) 173 (247) 1,461 (1,542)
------- ------- ------- ------- -------
Net cash provided by operating
activities.................. 2,436 3,443 3,834 2,183 1,496
------- ------- ------- ------- -------
Cash flows used by investing
activities -- capital expenditures.... (180) (110) (112) (45) (156)
------- ------- ------- ------- -------
Cash flows used by financing
activities -- distributions to
Parent................................ (2,256) (3,333) (3,722) (2,138) (1,340)
------- ------- ------- ------- -------
Increase (decrease) in cash............. -- -- -- -- --
Cash at beginning of period............. -- -- -- -- --
------- ------- ------- ------- -------
Cash at end of period................... $ -- $ -- $ -- $ -- $ --
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-119
<PAGE> 269
WLIT INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying financial statements include the accounts of WLIT Inc.
(the "Company"). The Company owns and operates a commercial radio station in the
Chicago market, WLIT-FM, and is wholly owned by Viacom International Inc.
("Viacom" or "Parent"), a wholly owned subsidiary of Viacom, Inc.
On February 16, 1997, Viacom International Inc. entered into a stock
purchase agreement to sell all the issued and outstanding shares of capital
stock of WAXQ Inc. and Riverside Broadcasting Co., Inc. in the New York City
market, KYSR Inc. and KIBB Inc. in the Los Angeles market, Viacom Broadcasting
East Inc. and WMZQ Inc. in the Washington, DC market, WLIT Inc. in the Chicago
market and WDRQ Inc. in the Detroit market (collectively, the "Viacom Radio
Properties") to Evergreen Media Corporation ("Evergreen") for $1.075 billion in
cash ("Proposed Transaction"). The Proposed Transaction is expected to close
after the expiration or termination of the applicable waiting periods under the
HSR Act and approval by the Federal Communications Commission ("FCC").
Contemporaneous with this transaction, Evergreen entered into a joint purchase
agreement with Chancellor Broadcasting Company ("Chancellor"), under which
Chancellor agreed to acquire the Chicago, Detroit and Los Angeles Viacom Radio
Properties referred to above for $480 million from Evergreen or from Viacom
directly.
The accompanying financial statements reflect the carve-out historical
results of operations and financial position of WLIT Inc. These financial
statements are not necessarily indicative of the results that would have
occurred if the Company had been a separate stand-alone entity during the
periods presented.
The financial statements do not include Viacom's corporate assets or
liabilities not specifically identifiable to the Company. Corporate overhead
allocations have been included in the accompanying statements of earnings in
corporate general and administrative expense and station operating expenses.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Repair and maintenance costs are charged to expense when
incurred.
(b) Intangible Assets
Intangible assets consist primarily of broadcast licenses. The Company
amortizes such intangible assets using the straight-line method over 40 years.
The Company continually evaluates the propriety of the carrying amount of
intangible assets as well as the amortization period to determine whether
current events or circumstances warrant adjustments to the carrying value and/or
revised estimates of useful lives. This evaluation consists of the projection of
undiscounted operating income before depreciation, amortization, nonrecurring
charges and interest over the remaining amortization periods of the related
intangible assets. At this time, the Company believes that no significant
impairment of intangible assets has occurred and that no reduction of the
estimated useful lives is warranted.
(c) Barter Transactions
The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. An asset and
liability are recorded at the fair market value of the goods or services to be
received. Barter revenue is recorded and the liability relieved when commercials
are broadcast and barter expense is recorded and the asset relieved when goods
or services are received or used.
F-120
<PAGE> 270
WLIT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(d) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable earnings. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount more likely than not to be realized. Income
tax expense is the total of tax payable for the period and the change during the
period in deferred tax assets and liabilities.
(f) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
(g) Fair Value
The carrying amount of accounts receivable and accounts payable
approximates fair value because of the short maturity of these instruments.
(h) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of management, credit risk with respect to trade receivables
is limited due to the large number of diversified customers in the Company's
customer base. The Company performs ongoing credit evaluations of its customers
and believes that adequate allowances for any uncollectible trade receivables
are maintained. No one customer accounted for more than 10% of net revenues in
1994, 1995, or 1996.
(i) Unaudited Interim Financial Information
In the opinion of management, the unaudited interim combined financial
statements as of and for the six months ended June 30, 1996 and 1997, reflect
all adjustments, consisting of only normal and recurring items, which are
necessary for a fair presentation of the results for the interim periods
presented. The results for the interim periods ended June 30, 1996 and 1997 are
not necessarily indicative of results to be expected for any other interim
period or for the full year.
F-121
<PAGE> 271
WLIT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1995 and
1996:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1995 1996
----------- ------ ------
<S> <C> <C> <C>
Broadcast facilities.................................. 8-20 years $1,116 $1,141
Office equipment and other............................ 5-8 years 791 868
Construction in progress.............................. 13 13
------ ------
1,920 2,022
Accumulated depreciation.............................. 1,459 1,565
------ ------
$ 461 $ 457
====== ======
</TABLE>
(4) INTANGIBLE ASSETS
Intangible assets at December 31, 1995 and 1996 consist of broadcast
licenses which are being amortized over forty years and are presented net of
accumulated amortization of $5,585 and $6,128, respectively.
(5) INCOME TAXES
The Company's results of operations are included in the U.S. federal and
certain combined and separate state income tax returns of Viacom International
Inc.
The tax provisions and deferred tax liabilities presented have been
determined as if the Company were a stand-alone business filing separate tax
returns. Current tax liabilities are recorded through the equity account with
Viacom.
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Current:
Federal................................................ $1,588 $2,058 $2,391
State and local........................................ 229 296 345
Deferred federal......................................... (13) 5 (8)
------ ------ ------
$1,804 $2,359 $2,728
====== ====== ======
</TABLE>
A reconciliation of the U.S. Federal Statutory tax rate to the Company's
effective tax rate on earnings before income taxes is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. tax rate..................................... 35.0% 35.0% 35.0%
Amortization of intangibles................................. 4.7 3.4 2.9
State and local taxes, net of federal tax benefit........... 3.6 3.4 3.4
Other, net.................................................. 0.2 0.2 0.2
---- ---- ----
Effective tax rate................................ 43.5% 42.0% 41.5%
==== ==== ====
</TABLE>
Deferred tax assets and liabilities are computed by applying the U.S.
federal income tax rate in effect to the gross amounts of temporary differences
and other tax attributes. These temporary differences are primarily the result
of fixed asset basis differences and bad debt expense. Deferred tax assets and
liabilities relating to state income taxes are not material.
F-122
<PAGE> 272
WLIT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) DEBT AND INTEREST COST
Viacom has not allocated any portion of its debt or related interest cost
to the Company, and no portion of Viacom's debt is specifically related to the
operations of the Company. Accordingly, the Company's financial statements
include no charges for interest.
(7) RELATED PARTY TRANSACTIONS
Intercompany balances between the Company and Viacom resulting from normal
trade activity are reflected in Equity in the accompanying financial statements
(see note 8).
Viacom provides services for the Company in management, accounting and
financial reporting, human resources, information systems, legal, tax and other
corporate services. The allocation of these expenses, which is generally based
on revenue dollars, is reflected in the accompanying financial statements as
corporate general and administrative expense. Management believes that the
method of allocation of corporate overhead is reasonable.
Viacom has a noncontributory pension plan covering substantially all of its
employees, including the employees of the Company. Costs related to this plan
are allocated to the Company based on payroll dollars. The Company recognized
expense related to this plan in the amounts of $67, $46 and $126 for 1994, 1995
and 1996, respectively. The assets and the related benefit obligation of the
plan will not be transferred to the Company upon consummation of the Proposed
Transaction, therefore, such assets and obligations are not included in the
notes to the Company's financial statements.
Viacom utilizes a centralized cash management system. As a result, the
Company carries minimal cash. Disbursements are funded by the Parent upon demand
and cash receipts are transferred to the Parent daily.
The Company, from time to time, enters into transactions with companies
owned by or affiliated with Viacom. Generally, services received from such
related parties are charged to the Company at amounts which would be incurred in
transactions between unrelated entities.
(8) EQUITY
Equity represents Viacom's ownership interest in the recorded net assets of
the Company. All cash transactions and intercompany transactions flow through
the equity account. A summary of the activity is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of period........................ $19,642 $19,738 $19,658
Net earnings.......................................... 2,352 3,253 3,849
Net intercompany activity............................. (2,256) (3,333) (3,722)
------- ------- -------
Balance at end of period.............................. $19,738 $19,658 $19,785
======= ======= =======
</TABLE>
F-123
<PAGE> 273
WLIT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(9) COMMITMENTS AND CONTINGENCIES
The Company has noncancelable operating leases, primarily for office space.
These leases generally contain renewal options for periods ranging from 1 to 10
years and require the Company to pay all executory costs such as maintenance and
insurance. Rental expense for operating leases (excluding those with lease terms
of one month or less that were not renewed) was approximately $319, $337 and
$327 during 1994, 1995 and 1996, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1996
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- ------------------------
<S> <C> <C>
1997............................................................... $ 266
1998............................................................... 291
1999............................................................... 298
2000............................................................... 287
2001............................................................... 296
Thereafter......................................................... 103
------
$1,541
======
</TABLE>
F-124
<PAGE> 274
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Evergreen Media Corporation:
We have audited the accompanying balance sheets of WDRQ Inc. as of December
31, 1995 and 1996, and the related statements of earnings and cash flows for
each of the years in the three-year period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of WDRQ Inc. as of December 31,
1995 and 1996, and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
March 14, 1997, except for note 10,
which is as of April 14, 1997
F-125
<PAGE> 275
WDRQ INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1995 1996 1997
------- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Accounts receivable, less allowance
for doubtful accounts of $82 in
1995, $72 in 1996 and $79 in
1997............................... $ 1,541 $ 809 $ 793
Prepaid expenses and other current
assets............................. 80 90 6
Deferred income taxes (note 5)........ 30 26 26
------- ------ ------
Total current assets.......... 1,651 925 825
Property and equipment, net (note 3).... 489 500 606
Intangible assets, net (note 4)......... 8,430 8,174 8,009
------- ------ ------
$10,570 $9,599 $9,440
======= ====== ======
LIABILITIES AND EQUITY
Current liabilities -- accounts payable
and accrued expenses.................. $ 766 $ 792 $ 459
Deferred income taxes (note 5).......... 98 80 80
Equity (note 8)......................... 9,706 8,727 8,901
Commitments and contingencies (note
9)....................................
------- ------ ------
$10,570 $9,599 $9,440
======= ====== ======
</TABLE>
See accompanying notes to financial statements.
F-126
<PAGE> 276
WDRQ INC.
STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------ -----------------
1994 1995 1996 1996 1997
------ ------ ------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross revenues........................................ $7,461 $8,081 $6,743 $3,839 $2,395
Less agency commissions and national rep fees....... 1,227 1,273 1,055 609 296
------ ------ ------ ------ ------
Net revenues................................ 6,234 6,808 5,688 3,230 2,099
------ ------ ------ ------ ------
Operating expenses:
Station operating expenses excluding depreciation
and amortization................................. 4,362 4,412 4,530 2,126 1,986
Depreciation and amortization....................... 300 336 354 173 186
Corporate general and administrative................ 249 308 178 142 42
------ ------ ------ ------ ------
Operating expenses.......................... 4,911 5,056 5,062 2,441 2,214
------ ------ ------ ------ ------
Earnings (loss) before income taxes......... 1,323 1,752 626 789 (115)
Income tax expense (benefit) (note 5)................. 582 737 326 410 (18)
------ ------ ------ ------ ------
Net earnings (loss)......................... $ 741 $1,015 $ 300 $ 379 $ (97)
====== ====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-127
<PAGE> 277
WDRQ INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------- ----------------
1994 1995 1996 1996 1997
----- ------- ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows provided by operating activities:
Net earnings.................................. $ 741 $ 1,015 $ 300 $ 379 $ (97)
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation............................... 44 80 98 45 58
Amortization of intangibles................ 256 256 256 128 128
Deferred income tax (benefit) expense...... (4) 3 (14) -- --
Changes in certain assets and liabilities:
Accounts receivable, net................. (122) (140) 732 91 16
Prepaid expenses and other current
assets................................ 1 9 (10) (794) 84
Accounts payable and accrued expenses.... (217) 73 26 1,034 (333)
----- ------- ------- ------ -----
Net cash provided by operating
activities.......................... 699 1,296 1,388 883 (144)
----- ------- ------- ------ -----
Cash flows used by investing
activities -- capital expenditures............ (38) (138) (109) (50) (192)
----- ------- ------- ------ -----
Cash flows provided by (used in) financing
activities -- contribution by (distribution
to) parent.................................... (661) (1,158) (1,279) (833) 336
----- ------- ------- ------ -----
Increase (decrease) in cash..................... -- -- -- -- --
Cash at beginning of period..................... -- -- -- -- --
----- ------- ------- ------ -----
Cash at end of period........................... $ -- $ -- $ -- $ -- $ --
===== ======= ======= ====== =====
</TABLE>
See accompanying notes to financial statements.
F-128
<PAGE> 278
WDRQ INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying financial statements include the accounts of WDRQ Inc.
(the "Company"). The Company owns and operates a commercial radio station in
Detroit, WDRQ-FM, and is wholly owned by Viacom International Inc. ("Viacom" or
"Parent"), a wholly owned subsidiary of Viacom, Inc.
On February 16, 1997, Viacom entered into a stock purchase agreement to
sell all the issued and outstanding shares of capital stock of WAXQ Inc. and
Riverside Broadcasting Co., Inc. in the New York City market, KYSR Inc. and KIBB
Inc. in the Los Angeles market, Viacom Broadcasting East Inc. and WMZQ Inc. in
the Washington, DC market, WLIT Inc. in the Chicago market and WDRQ Inc. in the
Detroit market (collectively the "Viacom Radio Properties") to Evergreen Media
Corporation of Los Angeles ("Evergreen") for $1.075 billion in cash ("Proposed
Transaction"). The Proposed Transaction is expected to close after the
expiration or termination of the applicable waiting periods under the HSR Act
and approval by the Federal Communications Commission ("FCC"). Contemporaneous
with this transaction, Evergreen entered into a joint purchase agreement with
Chancellor Broadcasting Company ("Chancellor") under which Chancellor agreed to
acquire the Chicago, Detroit and Los Angeles Viacom Radio Properties referred to
above for $480.0 million from Evergreen or from Viacom directly.
The accompanying combined financial statements reflect the carve-out
historical results of operations and financial position of WDRQ Inc. These
financial statements are not necessarily indicative of the results that would
have occurred if the Company had been a separate stand-alone entity during the
periods presented.
The financial statements do not include Viacom's corporate assets or
liabilities not specifically identifiable to the Company. Corporate overhead
allocations have been included in the accompanying statements of earnings in
corporate general and administrative expense and station operating expenses.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Repair and maintenance costs are charged to expense when
incurred.
(b) Intangible Assets
Intangible assets consist primarily of broadcast licenses. The Company
amortizes such intangible assets using the straight-line method over 40 years.
The Company continually evaluates the propriety of the carrying amount of
intangible assets as well as the amortization period to determine whether
current events or circumstances warrant adjustments to the carrying value and/or
revised estimates of useful lives. This evaluation consists of the projection of
undiscounted operating income before depreciation, amortization, nonrecurring
charges and interest over the remaining amortization periods of the related
intangible assets. At this time, the Company believes that no significant
impairment of intangible assets has occurred and that no reduction of the
estimated useful lives is warranted.
(c) Barter Transactions
The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. An asset and
liability are recorded at the fair market value of the goods or services to be
received. Barter revenue is recorded and the liability relieved when commercials
are broadcast and barter expense is recorded and the asset relieved when goods
or services are received or used.
F-129
<PAGE> 279
WDRQ INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(d) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
(e) Income Taxes
Income taxes are accounted for under the asset and liabilities method.
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable earnings. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount more likely than not to be realized. Income
tax expense is the total of tax payable for the period and the change during the
period in deferred tax assets and liabilities.
(f) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
(g) Fair Value
The carrying amount of accounts receivable and accounts payable
approximates fair value because of the short maturity of these instruments.
(h) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of management, credit risk with respect to trade receivables
is limited due to the large number of diversified customers in the Company's
customer base. The Company performs ongoing credit evaluations of its customers
and believes that adequate allowances for any uncollectible trade receivables
are maintained. No one customer accounted for more than 10% of net revenues in
1994, 1995, or 1996.
(i) Unaudited Interim Financial Information
In the opinion of management, the unaudited interim combined financial
statements as of and for the six months ended June 30, 1996 and 1997, reflect
all adjustments, consisting of only normal and recurring items, which are
necessary for a fair presentation of the results for the interim periods
presented. The results for the interim periods ended June 30, 1996 and 1997 are
not necessarily indicative of results to be expected for any other interim
period or for the full year.
F-130
<PAGE> 280
WDRQ INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1995 and
1996:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1995 1996
----------- ------ ------
<S> <C> <C> <C>
Broadcast facilities.................... 8-20 years $ 754 $ 787
Office equipment and other.............. 5-8 years 333 496
Construction in progress................ 110 23
------ ------
1,197 1,306
Accumulated depreciation................ 708 806
------ ------
$ 489 $ 500
====== ======
</TABLE>
(4) INTANGIBLE ASSETS
Intangible assets at December 31, 1995 and 1996 consist of broadcast
licenses which are being amortized over forty years and are presented net of
accumulated amortization of $1,814 and $2,070, respectively.
(5) INCOME TAXES
The Company's results of operations are included in the U.S. federal and
certain combined and separate state income tax returns of Viacom International
Inc.
The tax provisions and deferred tax liabilities presented have been
determined as if the Company were a stand-alone business filing separate tax
returns. Current tax liabilities are recorded through the equity account with
Viacom.
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Federal................................. $549 $689 $319
State and local......................... 37 45 21
Deferred.................................. (4) 3 (14)
---- ---- ----
$582 $737 $326
==== ==== ====
</TABLE>
A reconciliation of the U.S. Federal statutory tax rate to the Company's
effective tax rate on earnings before income taxes is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. tax rate..................................... 35.0% 35.0% 35.0%
Amortization of intangibles................................. 6.8 5.1 14.3
State and local taxes, net of federal tax benefit........... 1.8 1.7 2.1
Other, net.................................................. 0.4 0.3 0.7
---- ---- ----
Effective tax rate........................................ 44.0% 42.1% 52.1%
==== ==== ====
</TABLE>
Deferred tax assets and liabilities are computed by applying the U.S.
federal income tax rate in effect to the gross amounts of temporary differences
and other tax attributes. These temporary differences are primarily the result
of fixed asset basis differences and bad debt expense. Deferred tax assets and
liabilities relating to state income taxes are not material.
F-131
<PAGE> 281
WDRQ INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) DEBT AND INTEREST COST
Viacom has not allocated any portion of its debt or related interest cost
to the Company, and no portion of Viacom's debt is specifically related to the
operations of the Company. Accordingly, the Company's financial statements
include no charges for interest.
(7) RELATED PARTY TRANSACTIONS
Intercompany balances between the Company and Viacom resulting from normal
trade activity are reflected in equity in the accompanying financial statements
(see note 8).
Viacom provides services for the Company in management, accounting and
financial reporting, human resources, information systems, legal, taxes and
other corporate services. The allocation of these expenses, which is generally
based on revenue dollars, is reflected in the accompanying financial statements
as corporate general and administrative expense. Management believes that the
method of allocation of corporate overhead is reasonable.
Viacom has a noncontributory pension plan covering substantially all of its
employees, including the employees of the Company. Costs related to these plans
are allocated to the Company based on payroll dollars and are included in
station operating expenses. The Company recognized expense related to these
costs in the amounts of $31, $33 and $82 for 1994, 1995 and 1996, respectively.
The assets and the related benefit obligation of the plans will not be
transferred to the Company upon consummation of the Proposed Transaction,
therefore, such assets and obligations are not included in the notes to the
Company's financial statements.
Viacom utilizes a centralized cash management system. As a result, the
Company carries minimal cash. Disbursements are funded by the Parent upon demand
and cash receipts are transferred to the Parent daily.
The Company, from time to time, enters into transactions with companies
owned by or affiliated with Viacom. Generally, services received from such
related parties are charged to the Company at amounts which would be incurred in
transactions between unrelated entities.
(8) EQUITY
Equity represents Viacom's ownership interest in the recorded net assets of
the Company. All cash transactions and intercompany transactions flow through
the Equity account. A summary of the activity is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------- -------
<S> <C> <C> <C>
Balance at beginning of period.......... $9,769 $ 9,849 $ 9,706
Net earnings............................ 741 1,015 300
Net intercompany activity............... (661) (1,158) (1,279)
------ ------- -------
Balance at end of period................ $9,849 $ 9,706 $ 8,727
====== ======= =======
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES
The Company has noncancelable operating leases, primarily for office space.
These leases generally contain renewal options for periods ranging from one to
ten years and require the Company to pay all executory costs such as maintenance
and insurance. Rental expense for operating leases (excluding those with lease
terms of one month or less that were not renewed) was approximately $335, $338
and $347 during 1994, 1995 and 1996, respectively.
F-132
<PAGE> 282
WDRQ INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1996
are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1997.................................... $ 336
1998.................................... 346
1999.................................... 355
2000.................................... 364
2001.................................... 323
Thereafter.............................. 183
------
$1,907
======
</TABLE>
The Company is involved with certain claims and lawsuits which are
generally incidental to its business. Management believes that any ultimate
liability resulting from those actions or claims will not have a material
adverse effect on the Company's results of operations, financial position or
cash flows.
(10) SUBSEQUENT EVENT
On April 14, 1997, Evergreen Media Corporation and Chancellor Broadcasting
Company entered into an agreement with ABC Radio ("ABC"), a division of The Walt
Disney Company, whereby ABC will purchase from Evergreen and Chancellor two
radio stations, WDRQ-FM and WJZW-FM for a total of $105 million.
F-133
<PAGE> 283
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of Trefoil Communications, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and cash
flows, present fairly, in all material respects, the financial position of
Trefoil Communications, Inc. and its subsidiaries at December 31, 1995 and 1994,
and the results of their operations and their cash flows for each of the two
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 16 to the financial statements, the Company was sold
to Chancellor Radio Broadcasting Company, formerly Chancellor Broadcasting
Company, on February 14, 1996.
PRICE WATERHOUSE LLP
Los Angeles, California
February 14, 1996
F-134
<PAGE> 284
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Chancellor Broadcasting Company:
We have audited the accompanying consolidated statements of operations,
changes in common stockholders' equity, and cash flows of Trefoil
Communications, Inc. and Subsidiaries for the period January 1, 1996 through
February 13, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of their
operations and their cash flows for the period January 1, 1996 through February
13, 1996, in conformity with generally accepted accounting principles.
As discussed in Note 16 to the financial statements, the Company was sold
to Chancellor Radio Broadcasting Company on February 14, 1996.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
March 24, 1997
F-135
<PAGE> 285
TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
-------- --------
<S> <C> <C>
Current assets:
Cash.................................. $ 9,639 $ 4,857
Receivables, net of allowance for
doubtful accounts of $1,535 and
$1,630, respectively............... 22,468 22,397
Prepaid expenses and other current
assets............................. 1,312 917
-------- --------
Total current assets.......... 33,419 28,171
Property and equipment, at cost, net of
accumulated depreciation and
amortization (Note 4)................. 18,308 17,204
Intangible assets, net of accumulated
amortization of $16,705 and $22,071,
respectively.......................... 184,470 184,197
Other assets............................ 9,751 7,918
-------- --------
$245,948 $237,490
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt..... $ 7,000 $ 6,500
Accounts payable...................... 2,771 2,233
Accrued expenses (Note 4)............. 6,066 5,715
Income taxes payable.................. 298 96
-------- --------
Total current liabilities..... 16,135 14,544
Long-term debt (Note 6)................. 98,000 92,500
Convertible senior notes (Note 8)....... 30,000 30,000
Payable to affiliates (Note 14)......... 16,241 20,613
Deferred income taxes (Note 10)......... 18,877 19,218
Other long-term liabilities (Note 4).... 14,747 19,129
-------- --------
194,000 196,004
Mandatorily redeemable preferred stock
(Note 9):
7.5% Series A cumulative convertible
preferred stock $.10 par value;
authorized, issued and outstanding
70,000 shares...................... 70,000 70,000
Stockholders' equity:
Preferred stock $.10 par value;
authorized 30,000 shares; none
issued and outstanding
Common stock $.10 par value; authorized
50,000 shares; issued and outstanding
10,364 shares......................... 1 1
Additional paid-in capital............ 41,656 41,656
Accumulated deficit................... (59,709) (70,171)
-------- --------
(18,052) (28,514)
Commitments and contingencies (Notes 12
and 15)...............................
-------- --------
$245,948 $237,490
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-136
<PAGE> 286
TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD ENDED
------------------------ FEBRUARY 13,
1994 1995 1996
---------- ---------- ------------
<S> <C> <C> <C>
Gross broadcasting revenues.............................. $109,219 $108,849 $ 9,698
Less agency commissions.................................. 14,332 14,244 1,234
-------- -------- -------
Net revenues................................... 94,887 94,605 8,464
-------- -------- -------
Costs and expenses:
Station operating expenses............................. 75,427 73,720 7,762
Corporate expenses..................................... 3,355 3,139 2,215
Depreciation and amortization.......................... 3,038 2,992 349
Amortization of intangibles............................ 5,961 5,759 672
-------- -------- -------
87,781 85,610 10,998
-------- -------- -------
Operating income (loss)................................ 7,106 8,995 (2,534)
-------- -------- -------
Other income (expenses):
Interest expense....................................... (12,923) (14,703) (1,651)
Gain (loss) on sale of broadcast assets (Note 11)...... 5,462 -- --
Miscellaneous, net..................................... (4) 78 (49)
-------- -------- -------
(7,465) (14,625) (1,700)
-------- -------- -------
Loss before income taxes and extraordinary loss.......... (359) (5,630) (4,234)
Income tax benefit (expense) (Note 10)................... (1,355) 1,287 1,694
-------- -------- -------
Loss before extraordinary loss......................... (1,714) (4,343) (2,540)
Extraordinary loss on early extinguishment of debt....... -- -- (4,451)
-------- -------- -------
Net loss................................................. (1,714) (4,343) (6,991)
Dividends on mandatorily redeemable preferred stock...... (5,619) (6,119) (809)
-------- -------- -------
Loss applicable to common stock.......................... $ (7,333) $(10,462) $(7,800)
======== ======== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-137
<PAGE> 287
TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
$0.10 PAR VALUE ADDITIONAL
---------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------- ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993.................... 10,364 $ 1 $ 41,656 $(52,376) $(10,719)
Net loss.................................... (1,714) (1,714)
Mandatorily redeemable preferred dividend... (5,619) (5,619)
------- ----- -------- -------- --------
Balance, December 31, 1994.................... 10,364 1 41,656 (59,709) (18,052)
Net loss.................................... (4,343) (4,343)
Mandatorily redeemable preferred dividend... (6,119) (6,119)
------- ----- -------- -------- --------
Balance, December 31, 1995.................... 10,364 1 41,656 (70,171) (28,514)
Additional capital contributions............ 156,326 156,326
Net loss.................................... (6,991) (6,991)
Mandatorily redeemable preferred dividend... (809) (809)
------- ----- -------- -------- --------
Balance, February 13, 1996.................... 10,364 $ 1 $197,982 $(77,971) $120,012
======= ===== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-138
<PAGE> 288
TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD ENDED
----------------------- FEBRUARY 13,
1994 1995 1996
---------- --------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................ $ (1,714) $(4,343) $ (6,991)
Adjustments to reconcile net loss to cash provided by
operating activities:
Depreciation of property and equipment............... 3,038 2,992 349
Amortization of intangible and other assets.......... 6,736 6,569 672
(Gain) loss on disposal of assets.................... (5,462) -- --
Deferred income taxes................................ (279) (168) 1,694
Non-cash interest expense............................ 3,180 4,479 81
Non-cash extraordinary loss.......................... -- -- 4,451
Changes in assets and liabilities which increase
(decrease) cash:
Receivables........................................ 263 71 3,379
Prepaid expenses and other current assets.......... (8) 395 (342)
Accounts payable, accrued expenses and income taxes
payable......................................... (2,356) (1,078) 1,568
Other net.......................................... 358 (529) --
-------- ------- ---------
Cash from operating activities.................. 3,756 8,388 4,861
-------- ------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Station acquisitions.................................... -- (5,528) --
Purchase of property and equipment...................... (3,341) (1,642) --
Proceeds from disposal of broadcast assets.............. 22,802 -- --
-------- ------- ---------
Cash from (used in) investing activities........ 19,461 (7,170) --
-------- ------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from affiliate borrowings...................... 6,000 -- --
Additional capital contributions........................ -- -- 156,326
Principal payments of long-term debt.................... (24,000) (6,000) (151,252)
Dividends paid.......................................... -- -- (14,753)
-------- ------- ---------
Cash used in financing activities............... (18,000) (6,000) (9,679)
-------- ------- ---------
Net increase (decrease) in cash........................... 5,217 (4,782) (4,818)
Cash beginning of period.................................. 4,422 9,639 4,857
-------- ------- ---------
Cash end of period........................................ $ 9,639 $ 4,857 $ 39
======== ======= =========
</TABLE>
SEE NOTE 5 FOR NON-CASH DISCLOSURE.
The accompanying notes are an integral part of the financial statements.
F-139
<PAGE> 289
TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY
The accompanying consolidated financial statements of Trefoil
Communications, Inc. (the "Company", formerly Shamrock Holdings, Inc.) include
the accounts of the Company and its subsidiaries. All significant intercompany
transactions and balances have been eliminated. As of December 31, 1995, the
Company's broadcasting subsidiary ("Broadcasting") owned and operated ten radio
properties in major markets across the United States. In August 1995, the
Company's shareholders entered into an agreement to sell their interest in the
Company, see Note 16.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue recognition
Broadcasting revenues are derived primarily from the sale of program time
and commercial announcements to local, regional and national advertisers.
Revenue is recognized when programs and commercial announcements are broadcast.
Barter transactions
The Company trades certain advertising time for various goods and services.
These transactions are recorded at the estimated fair value of the goods or
services received. The related revenue is recognized when commercials are
broadcast; goods or services received are recorded as assets or expenses when
received or used, respectively.
Use of estimates in preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Property and equipment
Expenditures for additions, renewals and betterments are capitalized.
Expenditures for maintenance and repairs are charged to expense as incurred.
Depreciation is computed on the straight-line method based on the estimated
useful lives of the assets.
Intangible assets
Intangible assets represent the purchase price of broadcasting properties
in excess of the fair value of net tangible assets acquired and include value
allocated to FCC broadcasting licenses and goodwill. Intangible assets are
amortized on the straight-line basis over forty years.
The Company evaluates intangible assets for potential impairment by
analyzing the operating results, trends and prospects of the Company's stations,
as well as by comparing them to their competitors. The Company also takes into
consideration recent acquisition patterns within the broadcast industry, the
impact of recently enacted or potential FCC rules and regulations and any other
events or circumstances which might indicate potential impairment.
Income taxes
The Company files a consolidated federal income tax return and combined
California franchise tax return with its subsidiaries. Effective January 1,
1993, the Company prospectively adopted Statement of Financial
F-140
<PAGE> 290
TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." The
adoption of SFAS 109 changed the Company's method of accounting for income taxes
from the deferred method (APB 11) to an asset and liability approach. The asset
and liability approach requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of temporary differences between
the carrying amounts and the tax bases of assets and liabilities.
NOTE 3 -- ACQUISITION
In February 1995, the Company acquired for $5.5 million cash (including
acquisition costs) the broadcast license and assets of a second FM radio station
in Denver, Colorado. The acquisition has been accounted for as a purchase and
resulted in an excess of acquisition costs over fair value of the net assets
acquired of $5 million which has been allocated to intangible assets, primarily
FCC broadcasting licenses and goodwill. Pro forma results for the acquisition of
the Denver station are not presented as they are not materially different from
historical results.
NOTE 4 -- COMPOSITION OF CERTAIN BALANCE SHEET ACCOUNTS
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL LIFE ---------------------------
IN YEARS 1994 1995
----------- ------------ ------------
<S> <C> <C> <C>
PROPERTY AND EQUIPMENT
Land and land improvements............ $ 2,874,000 $ 2,828,000
Buildings and leasehold
improvements....................... 10-40 6,183,000 6,274,000
Transmittal and technical equipment... 4-20 17,872,000 18,703,000
Furniture and fixtures................ 5-10 4,167,000 4,811,000
Automotive............................ 2-5 622,000 645,000
Construction in progress.............. 175,000 138,000
------------ ------------
31,893,000 33,399,000
Less: Accumulated depreciation and
amortization.......................... (13,585,000) (16,195,000)
------------ ------------
$ 18,308,000 $ 17,204,000
============ ============
ACCRUED EXPENSES
Salaries and other employee
compensation....................... $ 3,300,000 $ 2,794,000
Interest.............................. 461,000 383,000
Payable to affiliate.................. 802,000 1,346,000
Other................................. 1,503,000 1,192,000
------------ ------------
$ 6,066,000 $ 5,715,000
============ ============
OTHER LONG-TERM LIABILITIES
Deferred compensation................. $ 3,689,000 $ 3,547,000
Dividends payable on mandatorily
redeemable preferred stock......... 7,825,000 13,944,000
Interest.............................. 1,034,000 1,140,000
Other................................. 2,199,000 498,000
------------ ------------
$ 14,747,000 $ 19,129,000
============ ============
</TABLE>
F-141
<PAGE> 291
TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31, PERIOD ENDED
------------------------ FEBRUARY 13,
1994 1995 1996
---------- ---------- ------------
<S> <C> <C> <C>
Cash paid (received) during the period
for:
Interest.............................. $9,763,000 $9,562,000 $2,034,000
Income taxes.......................... 1,397,000 217,000 --
Station acquisitions:
Property and equipment................ -- 434,000 --
FCC licenses and goodwill............. -- 5,094,000 --
Other assets.......................... -- -- --
Net working capital................... -- -- --
Common stock issued................... -- -- --
</TABLE>
NOTE 6 -- LONG-TERM DEBT
Long-term debt comprises the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
------------ -----------
<S> <C> <C>
Revolving bank credit at varying
interest rates; payable quarterly.
Principal payments in varying amounts
quarterly; final installment due
2003.................................. -- $99,000,000
Bank term loans at varying interest
rates; payable quarterly. Principal
payments in varying amounts quarterly;
final installment due 2000............ $ 95,500,000 --
Revolving bank credit at varying
interest rates; payable quarterly.
Principal payments in varying amounts
quarterly; final installment due
2001.................................. 9,500,000 --
------------ -----------
105,000,000 99,000,000
Less: Current portion................... (7,000,000) (6,500,000)
------------ -----------
$ 98,000,000 $92,500,000
============ ===========
</TABLE>
In August 1995, the Company restructured and amended its existing bank
credit agreement by entering into an eight year, $105 million revolving credit
agreement which extended the final maturity to 2003 and modified quarterly
principal repayments. Costs of $954,000 related to the amended credit agreement
and of $4.8 million incurred when the credit agreement was entered into were
capitalized and are being amortized over 8 years. These costs are included in
other assets in the balance sheet.
Borrowings under the credit agreement are secured by substantially all of
the Company's assets. Interest is charged at varying rates according to
alternatives selected by the Company at the time funds are borrowed. Currently,
interest accrues at floating rates (8.31% and 9.13% at December 31, 1995 and
1994, respectively). As borrowings under the credit agreement are at market
interest rates, the carrying value of the Company's long-term debt reflects its
fair value.
The credit agreement imposes restrictive covenants on the Company with
respect to, among other things, the maintenance of certain financial ratios and
limits on capital expenditures, new indebtedness, investments, disposition of
assets and declaration of cash dividends.
F-142
<PAGE> 292
TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1995, aggregate scheduled mandatory principal reductions of
the Company's bank debt and borrowings from affiliates (Note 14) are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNTS
---- ------------
<S> <C>
1996.................................... $ 6,500,000
1997.................................... 10,000,000
1998.................................... 10,000,000
1999.................................... 15,000,000
2000.................................... 15,000,000
After 2000.............................. 63,113,000
------------
$119,613,000
============
</TABLE>
NOTE 7 -- STOCKHOLDERS' EQUITY
During 1993, the number of authorized shares of common stock was increased
to 50,000 shares, 10,364 of which were outstanding at December 31, 1995. The
Company has reserved 3,658 and 8,535 shares of common stock for issuance upon
the conversion of the convertible senior notes ("Senior Notes", Note 8) and
Series A cumulative convertible preferred stock ("Series A Preferred Stock",
Note 9), respectively.
NOTE 8 -- CONVERTIBLE SENIOR NOTES
On July 30, 1993, the Company issued $30 million in ten-year Senior Notes
to Trefoil Capital Investors, L.P. ("Trefoil"). The notes are convertible into
shares of the Company's common stock at a conversion rate of $8,201 per share,
subject to certain anti-dilution adjustments, and are redeemable by the Company
at any time on or after July 30, 1996, initially at a specified premium to par,
declining to par for redemptions on or after July 30, 2001. Mandatory
redemptions of $7.5 million and $11.25 million are due July 30, 2001 and 2002,
respectively, and any remaining unpaid principal is due in 2003.
Interest accrues at the rate of 7.5% per annum and is payable semi-annually
on January 31 and July 31. Interest is payable in cash, however, through January
31, 1998, the Company may elect to pay interest by issuing additional
paid-in-kind notes ("PIK Notes"). PIK Notes are not convertible and must be
redeemed on a pro rata basis in accordance with the redemption schedule of the
Senior Notes. Interest on the PIK Notes accrues at 10% per annum, which payment
terms are identical to the Senior Notes, including the option to issue
additional PIK Notes for interest obligations.
PIK Notes of $4.9 million were outstanding as of December 31, 1995. Accrued
interest on the Senior Notes as of December 31, 1995 and 1994 has been included
in payable to affiliates and classified as a long-term liability.
Based on the transaction described in Note 16, management considers the
fair market value of the Senior Notes to approximate their carrying value.
NOTE 9 -- MANDATORILY REDEEMABLE PREFERRED STOCK
Concurrent with the sale of the Senior Notes, the Company issued 70,000
shares of Series A Preferred Stock to Trefoil for $70 million.
With respect to dividend rights and rights on liquidation, dissolution and
winding up, Series A Preferred Stock ranks senior to the common stock and senior
to any other series or class of preferred stock which may be issued by the
Company (collectively, "Junior Securities").
F-143
<PAGE> 293
TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In the event of any liquidation, dissolution or winding up of the Company,
holders of Series A Preferred Stock will be entitled to receive in preference to
holders of Junior Securities an amount equal to $1,000 per share plus all
accrued but unpaid dividends.
As long as shares of Series A Preferred Stock remain outstanding, the
holders of such shares are entitled to receive, when, as and if declared by the
Board of Directors, out of assets of the Company legally available therefore,
cumulative cash dividends at an annual rate of 7.5% (if in arrears, compounded
quarterly at a rate of 8.625% per annum with respect to dividends in arrears,
through the date of payment of such arrearages), payable quarterly in arrears on
the last business day of each calendar quarter.
Each share of Series A Preferred Stock is convertible at the option of the
holder into one share of common stock at $8,201 per common share, subject to
certain antidilution adjustments (the "Conversion Price").
The Series A Preferred Stock may be redeemed by the Company any time after
the third anniversary of the issuance date (in integral multiples having an
aggregate stated value of at least $7 million) if (i) all quarterly dividends on
the Series A Preferred Stock have been paid in full, (ii) the Company has
consummated an initial public offering for its common stock and (iii) the market
price of the common stock is equal to at least 165% of the Conversion Price for
at least twenty out of thirty consecutive trading days preceding the notice of
redemption. In any such event, the redemption price per share will be equal to
$1,000, plus accrued and unpaid dividends to the redemption date.
The Company is required to redeem 14,000 shares of the original issue on
July 30, 2003, 28,000 shares on July 30, 2004 and any remaining outstanding
shares in 2005. The number of shares to be redeemed by the Company on any
mandatory redemption date shall be reduced by the number of shares optionally
redeemed by the Company prior to such date, to the extent such shares have not
previously been credited against the Company's mandatory redemption obligations.
If the Company shall fail to redeem shares of Series A Preferred Stock when
required, the annual dividend rate on the outstanding shares of Series A
Preferred Stock will be increased to 9.375% (compounded quarterly with respect
to dividends in arrears at a rate of 10.780% per annum) of the stated value of
such shares plus accrued and unpaid dividends from the date of failure to redeem
through the date of redemption. If less than all of the outstanding shares of
Series A Preferred Stock are to be redeemed, the shares of Series A Preferred
Stock to be redeemed shall be selected pro rata.
Although not declared by the Company's Board of Directors, dividends on the
Series A Preferred Stock have been accrued in the accompanying financial
statements. Based on management intentions, including restrictions on the
payment of dividends imposed by the Company's bank credit agreement, accrued
dividends have been classified as a long-term liability.
Based on the transaction described in Note 16, management considers the
fair market value of the Series A Preferred Stock to approximate their carrying
value.
F-144
<PAGE> 294
TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- INCOME TAXES
All of the Company's revenues were generated in the United States. The
income tax benefit (expense) on income from continuing operations is comprised
of the following:
<TABLE>
<CAPTION>
DECEMBER 31, PERIOD ENDED
------------------------- FEBRUARY 13,
1994 1995 1996
----------- ---------- ------------
<S> <C> <C> <C>
Current:
Federal............................... $ (578,000) $1,025,000 $ 321,000
State................................. (1,056,000) 94,000 29,000
----------- ---------- ----------
(1,634,000) 1,119,000 350,000
Deferred:
Federal............................... (501,000) 168,000 1,150,200
State................................. 780,000 -- 193,800
----------- ---------- ----------
279,000 168,000 1,344,000
----------- ---------- ----------
$(1,355,000) $1,287,000 $1,694,000
=========== ========== ==========
</TABLE>
Deferred tax liabilities (assets) are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
Deferred gain........................... $15,549,000 $15,358,000
Amortization of FCC licenses and other
intangibles........................... 5,519,000 5,687,000
Depreciation............................ 3,194,000 2,741,000
Other................................... 519,000 560,000
----------- -----------
Gross deferred tax liabilities........ 24,781,000 24,346,000
----------- -----------
Net operating loss carryforward......... (878,000) (584,000)
AMT and other credit carryforward....... (3,316,000) (2,943,000)
Deferred compensation and other
deductions............................ (2,586,000) (2,627,000)
----------- -----------
Gross deferred tax assets............. (6,780,000) (6,154,000)
Valuation allowance................... 876,000 1,026,000
----------- -----------
Net deferred tax assets............... (5,904,000) (5,128,000)
----------- -----------
$18,877,000 $19,218,000
=========== ===========
</TABLE>
The Company has a federal net operating loss (NOL) carryover of $1.7
million, subject to various limitations on its utilization. The Company also has
AMT Credit and Investment Tax Credit carryforwards for tax purposes of $2.2
million and $734,000, respectively. The above carryovers expire in the years
2000 through 2003, except the AMT credit which has no expiration. Under SFAS
109, the Company has recorded valuation allowances against the realization of
the federal tax benefits from net operating losses and investment tax credits in
the amounts of $292,000 and $734,000, respectively. The valuation allowances are
based on management's estimates and analysis, which include the impact of tax
laws which may limit the Company's ability to utilize such loss carryforwards
and tax credits.
F-145
<PAGE> 295
TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The principal items causing an effective rate which differs from the
Federal statutory rate are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------- PERIOD ENDED
1994 1995 FEBRUARY 13, 1996
----------- ----------- -----------------
<S> <C> <C> <C>
Federal statutory rate....................... $ 125,000 $ 1,971,000 $1,440,000
Amortization of intangibles.................. (1,703,000) (1,627,000) (190,000)
State taxes, net of federal benefit.......... (180,000) 61,000 214,000
Reduction of tax reserve..................... -- 1,109,000 --
SFAS 109 rate adjustment..................... -- -- --
Recognition of net operating loss
carryover.................................. 504,000 -- --
Other, net................................... (101,000) (227,000) 230,000
----------- ----------- ----------
$(1,355,000) $ 1,287,000 $1,694,000
=========== =========== ==========
</TABLE>
NOTE 11 -- RADIO BROADCASTING DISPOSITIONS
In April 1994, the Company sold the broadcast license and assets of its
radio stations in Cleveland, Ohio for $12.1 million (excluding disposal costs).
This sale resulted in a gain of $670,000, before related income taxes. A portion
of the sale proceeds was utilized to reduce bank debt by $11 million.
In June 1994, the Company sold the broadcast license and assets of its
radio station in Seattle, Washington for $12.0 million (excluding disposal
costs). This sale resulted in a gain of $4.8 million, before related income
taxes. A portion of the sale proceeds was utilized to reduce bank debt by $11
million.
NOTE 12 -- COMMITMENTS
The following are the future minimum rental payments under operating leases
(net of minimum rentals under noncancelable subleases) that have initial or
remaining lease terms in excess of one year:
<TABLE>
<CAPTION>
YEAR AMOUNTS
---- -----------
<S> <C>
1996.................................................... $ 3,290,000
1997.................................................... 3,029,000
1998.................................................... 2,422,000
1999.................................................... 1,701,000
2000.................................................... 1,314,000
After 2000.............................................. 5,604,000
-----------
$17,360,000
===========
</TABLE>
Certain leases contain renewal options with the same lease terms, except
that rentals may be adjusted to current market rates at the time of renewal.
Rental expense under operating leases for the period ended February 13, 1996 and
the years ended December 31, 1995 and 1994 aggregated $0.3 million, $2.9 million
and $3.3 million, respectively.
NOTE 13 -- EMPLOYEE BENEFIT PLANS
The Company maintains an elective Employees' Savings Plan for all employees
not covered by a collective bargaining agreement and who have one or more years
of continuous employment. The Company contributes 50% of the annual
contributions made by employees up to a maximum of 3% of each participating
employee's compensation. Participants are at all times fully vested in their
contributions, and the Company's contribution becomes fully vested to the
participant after seven years of continuous employment. The
F-146
<PAGE> 296
TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's contributions for the period ended February 13, 1996 and the years
ended December 31, 1995 and 1994 aggregated $0, $453,000 and $568,000,
respectively.
The Company also maintains a non-qualified, unfunded incentive compensation
plan for certain key employees providing for payments upon separation of
employment, death or disability. As of December 31, 1995 the liability recorded
for the value of amounts awarded to participants under the plan was
approximately $3.5 million.
NOTE 14 -- AFFILIATE TRANSACTIONS
Both Shamrock Holdings of California ("SHOC") and Trefoil are related
parties of the Company through commonality of certain officers and directors. In
addition to the financing transactions described at Notes 8 and 9, the Company
made payments to SHOC for interest on cash advances, office space rent and an
executive management fee in the aggregate of $20,000, $175,000 and $174,000 for
the period ended February 13, 1996 and the years ended December 31, 1995 and
1994, respectively. In July 1993, the Company entered into an executive
management agreement with Trefoil in consideration for a fee based on the
Company's broadcasting revenues. For the period ended February 13, 1996 and the
years ended December 31, 1995 and 1994, the statement of operations includes in
corporate expenses a charge of $63,000, $544,000 and $544,000, respectively, for
fees payable to Trefoil. In connection with the issuance of the Senior Notes and
the Series A Preferred Stock, the Company paid Trefoil $3 million for financial
advisory services. These costs were capitalized and are being amortized over the
term of the Senior Notes and Series A Preferred Stock. These costs are included
in other assets in the balance sheet.
Payable to affiliates comprises the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
Note payable to affiliate at varying interest rates;
payable quarterly. No stated maturity................... $ 7,898,000 $ 9,007,000
Note payable to affiliate at varying interest rates;
payable quarterly. No stated maturity................... 6,030,000 6,750,000
PIK notes (Note 8)........................................ 2,313,000 4,856,000
----------- -----------
$16,241,000 $20,613,000
=========== ===========
</TABLE>
On December 16, 1994, the Company issued a $6 million promissory note to
Trefoil, $5.75 million of which was used in 1995 for the acquisition of a radio
station in Denver. The note bears interest at LIBOR plus 7% (12.938% at December
31, 1995) and has no stated maturity. Accrued interest is added to the principal
of the note at the end of each calendar quarter and, accordingly, the
outstanding balances at December 31, 1995 and December 31, 1994 include $720,000
and $30,000 of interest expensed in 1995 and 1994, respectively.
On September 29, 1993, the Company issued a $7 million promissory note to
SHOC and used the proceeds to reduce Broadcasting's bank debt. The note bears
interest at LIBOR plus 7% (12.938% at December 31, 1995) and has no stated
maturity. Accrued interest is added to the principal of the note at the end of
each calendar quarter and, accordingly is included in the outstanding balance at
December 31, 1995 and 1994. Interest expense includes for the period ended
February 13, 1996 and the years ended December 31, 1995 and 1994 $129,000,
$1,109,000 and $747,000, respectively.
Based on the transaction described in Note 16, management considers the
fair market value of these notes to approximate their carrying value.
F-147
<PAGE> 297
TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15 -- LITIGATION
The Company is a plaintiff or defendant in several legal actions, the
probable outcome of which are not considered material, either individually or in
the aggregate.
NOTE 16 -- SUBSEQUENT EVENT -- SALE OF THE COMPANY
On February 14, 1996, the Company's shareholders completed the sale of all
issued and outstanding shares of the Company to Chancellor Radio Broadcasting
Company, formerly Chancellor Broadcasting Company, ("Chancellor") for $395
million in cash. A portion of the proceeds was utilized to pay-off bank debt,
convertible senior notes, payable to affiliates and redeem outstanding preferred
stock and pay dividends payable thereon. As of the closing date, the Company,
along with Broadcasting, became wholly-owned subsidiaries of Chancellor. No
accounts in the accompanying financials have been adjusted for the effects of
this transaction; however, the statement of operations for the period ended
February 13, 1996 includes an extraordinary loss on the early extinguishment of
debt of $2.5 million, net of tax of $1.7 million, resulting from the early
extinguishment of bank debt and convertible senior notes discussed above.
F-148
<PAGE> 298
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Colfax Communications, Inc. Radio Group:
We have audited the accompanying combined balance sheets of the Colfax
Communications, Inc. Radio Group (the "Company") as of December 31, 1996, 1995,
and 1994, and the related combined statements of income (loss), changes in
partners' equity and cash flows for each of the three years in the period ended
December 31, 1996. These combined financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In January 1997, substantially all of the assets and liabilities of the
Company were sold.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Colfax
Communications, Inc. Radio Group as of December 31, 1996, 1995, and 1994, and
the results of its operations and its cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
Washington, D.C.
June 30, 1997
F-149
<PAGE> 299
COLFAX COMMUNICATIONS, INC. RADIO GROUP
COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Current assets:
Cash............................................. $ 1,718,589 $ 682,672 $ 216,414
Accounts receivable, net of allowance for
doubtful accounts of $710,813, $441,889, and
$238,801, respectively........................ 15,514,187 7,626,579 8,978,881
Prepaid expenses and other current assets........ 520,358 286,774 343,441
------------ ----------- -----------
Total current assets..................... 17,753,134 8,596,025 9,538,736
Property and equipment at cost, net of
depreciation..................................... 14,508,097 8,675,724 9,608,603
Intangibles and other noncurrent assets at cost,
net of amortization.............................. 147,579,599 32,383,587 37,653,803
------------ ----------- -----------
Total assets............................. $179,840,830 $49,655,336 $56,801,142
============ =========== ===========
Liabilities:
Accounts payable and accrued expenses............ $ 5,116,890 $ 3,224,139 $ 3,883,242
Current maturities of long-term debt............. -- -- 900,000
------------ ----------- -----------
Total current liabilities................ 5,116,890 3,224,139 4,783,242
Long-term debt................................... 55,650,000 39,225,000 7,100,000
------------ ----------- -----------
Total liabilities........................ 60,766,890 42,449,139 11,883,242
------------ ----------- -----------
Commitments (Note 8):
Partners' equity:
Radio Acquisition Associates..................... (1,141,558) (2,783,226) (3,121,671)
Equity Group Holdings............................ 119,013,080 9,888,902 47,558,478
Colfax Communications, Inc....................... 1,202,418 100,521 481,093
Class B Limited Partners......................... -- -- --
------------ ----------- -----------
Total partners' equity................... 119,073,940 7,206,197 44,917,900
------------ ----------- -----------
Total liabilities and partners' equity... $179,840,830 $49,655,336 $56,801,142
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-150
<PAGE> 300
COLFAX COMMUNICATIONS, INC. RADIO GROUP
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Advertising revenues:
Local sponsors.................................... $37,496,454 $23,425,588 $24,147,363
National sponsors................................. 12,885,713 9,151,724 8,221,228
Other............................................. 2,518,200 1,910,483 2,090,737
----------- ----------- -----------
Gross advertising revenues................ 52,900,367 34,487,795 34,459,328
Less -- Commissions............................... (6,785,322) (4,345,062) (4,283,386)
----------- ----------- -----------
Net advertising revenues.................. 46,115,045 30,142,733 30,175,942
----------- ----------- -----------
Operating expenses:
Programming....................................... 7,675,793 5,461,691 9,604,067
Sales and advertising............................. 14,507,662 11,360,597 10,885,717
General and administrative........................ 5,793,377 4,332,286 3,651,832
Engineering....................................... 1,260,447 1,014,375 1,084,282
Depreciation and amortization..................... 4,617,958 6,505,492 7,599,901
----------- ----------- -----------
Total operating expenses.................. 33,855,237 28,674,441 32,825,799
----------- ----------- -----------
Income (loss) from operations............. 12,259,808 1,468,292 (2,649,857)
Interest expense.................................... 4,368,669 655,795 531,387
Loss on sale of fixed assets........................ -- 770,689 --
Other expense (income).............................. (184,289) -- 75,364
----------- ----------- -----------
Net income (loss)......................... $ 8,075,428 $ 41,808 $(3,256,608)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-151
<PAGE> 301
COLFAX COMMUNICATIONS, INC. RADIO GROUP
COMBINED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
RADIO EQUITY CLASS B
ACQUISITION COLFAX GROUP LIMITED
ASSOCIATES COMM., INC. HOLDINGS PARTNERS TOTAL
----------- ----------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1993..................... $(2,464,398) $ 528,938 $ 52,305,936 $-- $ 50,370,476
Capital contributions
from partners......... 368,281 60,023 5,949,744 -- 6,378,048
Capital distributions to
partners.............. (1,678,638) (68,618) (6,826,760) -- (8,574,016)
Net income (loss)........ 653,084 (39,250) (3,870,442) -- (3,256,608)
----------- ---------- ------------ --- ------------
Balance, December 31,
1994..................... (3,121,671) 481,093 47,558,478 -- 44,917,900
Capital contributions
from partners......... -- 5,735 567,746 -- 573,481
Capital distributions to
partners.............. (1,031,464) (372,709) (36,922,819) -- (38,326,992)
Net income (loss)........ 1,369,909 (13,598) (1,314,503) -- 41,808
----------- ---------- ------------ --- ------------
Balance, December 31,
1995..................... (2,783,226) 100,521 9,888,902 -- 7,206,197
Capital contributions
from partners......... 5,104 1,130,725 111,941,654 -- 113,077,483
Capital distributions to
partners.............. (981,106) (82,845) (8,221,217) -- (9,285,168)
Net income (loss)........ 2,617,670 54,017 5,403,741 -- 8,075,428
----------- ---------- ------------ --- ------------
Balance, December 31,
1996..................... $(1,141,558) $1,202,418 $119,013,080 $-- $119,073,940
=========== ========== ============ === ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-152
<PAGE> 302
COLFAX COMMUNICATIONS, INC. RADIO GROUP
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................. $ 8,075,428 $ 41,808 $(3,256,608)
Adjustments to reconcile net loss to net cash
used in operating activities --
Depreciation and amortization............... 4,617,958 6,505,492 7,599,901
Loss on asset disposal...................... -- 770,689 57,398
Restructuring charge........................ -- 737,729 --
Change in assets and liabilities:
(Increase) decrease in accounts
receivable............................. (7,888,416) 1,352,302 (1,664,323)
(Increase) decrease in prepaid expenses
and other current assets............... (233,584) 56,667 170,619
Increase (decrease) in accounts payable
and accrued expenses................... 1,892,751 (1,396,832) 708,448
------------- ------------ -----------
Net cash provided by operating
activities........................... 6,464,137 8,067,855 3,615,435
------------- ------------ -----------
Cash flows from investing activities:
Cash paid for acquisition of intangibles and
other noncurrent assets..................... (126,017,951) (363,174) (12,944)
Payments for additions to property and
equipment................................... (5,907,584) (823,737) (968,929)
Disposal of intangible assets.................. 6,280,000 -- --
Disposal of fixed assets....................... -- 113,825 --
------------- ------------ -----------
Net cash used in investing
activities........................... (125,645,535) (1,073,086) (981,873)
------------- ------------ -----------
Cash flows from financing activities:
Repayment of note payable...................... (5,800,000) (8,000,000) (800,000)
Loan proceeds.................................. 22,225,000 39,225,000 --
Capital contributions from partners............ 113,077,483 573,481 6,378,048
Capital distributions to partners.............. (9,285,168) (38,326,992) (8,190,101)
------------- ------------ -----------
Net cash provided by (used in)
financing activities................. 120,217,315 (6,528,511) (2,612,053)
------------- ------------ -----------
Net increase (decrease) in cash.................. 1,035,917 466,258 21,509
Cash, beginning of period........................ 682,672 216,414 194,905
------------- ------------ -----------
Cash, end of period.............................. $ 1,718,589 $ 682,672 $ 216,414
============= ============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest......... $ 4,391,300 $ 615,900 $ 514,213
============= ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-153
<PAGE> 303
COLFAX COMMUNICATIONS, INC. RADIO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996, 1995, AND 1994
1. BASIS OF PRESENTATION:
The accompanying combined financial statements include the radio station
holdings of Colfax Communications, Inc. ("Colfax"), a Maryland Corporation.
Three of the stations serve the Washington, D.C., market: WGMS-FM (classical
format), WBIG-FM (oldies format), and WTEM(AM) (all-sports format). Two
stations, WBOB-FM (country format) and KQQL(FM) (oldies format), serve the
Minneapolis-St. Paul market. Five of the stations serve the Phoenix market:
KOOL-FM (oldies format), KOY(AM) (nostalgia format), KZON-FM (alternative
format), KISO(AM) (urban adult contemporary format), and KYOT-FM (new adult
contemporary format). Two stations serve the Milwaukee market: WMIL-FM (country
format) and WOKY(AM) (adult standard format). Three stations serve the Boise
market: KIDO(AM) (news/talk format), KLTB(FM) (oldies format), and KARO(FM)
(class rock format). All stations are owned by entities under the common control
of Colfax and its affiliates.
2. DESCRIPTION OF COLFAX COMMUNICATIONS, INC., RADIO GROUP:
Classical Acquisition Limited Partnership
Classical Acquisition Limited Partnership ("CALP") is a Maryland limited
partnership formed to acquire and operate radio stations WGMS(AM) (currently
WTEM(AM)) and WGMS-FM. Radio Acquisition Associates Limited Partnership, a
Maryland limited partnership, had a 98.04 percent general partner interest and
Equity Group Holdings, a District of Columbia general partnership, had a 1.96
percent limited partner interest in CALP prior to the admission of the Class B
Limited Partners as discussed below. Radio Acquisition Associates Limited
Partnership has Colfax as a 1 percent general partner and Equity Group Holdings
as a 99 percent limited partner.
Certain Class B Limited Partners were admitted to the partnership on
January 1, 1993 and on January 1, 1995. The Class B Limited Partners have a
13.25 percent interest in CALP and Equity Group Holdings' limited partnership
interest in CALP was reduced to 1.813 percent effective January 1, 1993. Radio
Acquisition Associates' Limited Partnership general partnership interest was
reduced to 90.687 percent and 84.937 percent effective January 1, 1993 and
January 1, 1995, respectively.
Radio 570 Limited Partnership
Radio 570 Limited Partnership ("Radio 570") is a Maryland limited
partnership formed on December 10, 1991, to operate radio station WTEM-AM
(formerly WGMS-AM). Radio 570 was formed by Colfax as the 1 percent general
partner and Equity Group Holdings as the 99 percent limited partner. WTEM began
broadcasting on May 24, 1992.
Effective January 1, 1993, certain Class B Limited Partners were admitted
to the partnership. On September 15, 1995, a Class B Limited Partner was
redeemed of his partnership interest. As of December 31, 1996 and 1995, the
Class B Limited Partners had a 9.25 percent interest and Equity Group Holdings
had an 89.75 percent Class A Limited Partnership interest.
Radio 100 Limited Partnership
Radio 100 Limited Partnership ("Radio 100") was formed on August 11, 1992,
to acquire and operate radio stations. Radio 100 was formed by Colfax as the 1
percent general partner and Equity Group Holdings as the 99 percent limited
partner.
In 1993, Radio 100 completed its acquisition of two radio stations in
Minnesota for $25,500,000. WBOB-FM (formerly WCTS-FM) and KQQL(FM) began on-air
operations under Radio 100 ownership on May 7, 1993, and February 18, 1993,
respectively.
F-154
<PAGE> 304
COLFAX COMMUNICATIONS, INC. RADIO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Effective January 1, 1993, certain Class B Limited Partners were admitted
to the partnership. The Class B Limited Partners have a 10.25 percent interest
and the Equity Group Holdings Class A Limited Partnership interest was reduced
to 88.75 percent.
Radio 100 of Maryland Limited Partnership
Radio 100 of Maryland Limited Partnership ("Radio 100 of Maryland") was
formed on December 2, 1992 to acquire and operate radio stations. Radio 100 of
Maryland was formed by Colfax as the 1 percent general partner and Equity Group
Holdings as the 99 percent limited partner.
On June 3, 1993, Radio 100 of Maryland acquired WBIG-FM (formerly WJZE-FM)
in Washington, D.C. for $19,500,000.
Effective January 1, 1993, certain Class B Limited Partners were admitted
to the partnership. On September 15, 1995, a Class B Limited Partner was
redeemed of his partnership interest. On October 1, 1995, a Class B Limited
Partner was admitted to the partnership. As of December 31, 1996 and 1995, the
Class B Limited Partners had an 11.25 percent interest and Equity Group Holdings
had an 87.75 percent Class A Limited Partnership interest.
Radio 94 of Phoenix Limited Partnership
Radio 94 of Phoenix Limited Partnership ("Radio 94") was formed on January
3, 1996, to acquire and operate radio stations. Radio 94 was formed by Colfax as
the 1 percent general partner and Equity Group Holdings as the 99 percent
limited partner. On April 1, 1996, Radio 94 acquired KOOL(AM) and KOOL-FM in
Phoenix, Arizona for $35,000,000. Effective April 5, 1996, certain Class B
Limited Partners were admitted to the partnership. The Class B Limited Partners
have an 8.25 percent interest and the Equity Group Holdings Class A Limited
Partnership interest was reduced to 90.75 percent. On October 4, 1996, Radio 94
sold KOOL(AM) to Salem Media of Arizona, Inc.
Radio 95 of Phoenix Limited Partnership
Radio 95 of Phoenix Limited Partnership ("Radio 95") was formed on May 3,
1996, to acquire and operate radio stations. Radio 95 was formed by Colfax as
the 1 percent general partner and Equity Group Holdings as the 99 percent
limited partner. On September 12, 1996, Radio 95 acquired KYOT-FM, KZON-FM,
KOY(AM), and KISO(AM), each in Phoenix, Arizona; KIDO(AM) and KLTB(FM), each in
Boise, Idaho; KARO(FM) in Caldwell, Idaho; WMIL-FM in Waukesha, Wisconsin; and
WOKY(AM) in Milwaukee, Wisconsin, for $95,000,000.
F-155
<PAGE> 305
COLFAX COMMUNICATIONS, INC. RADIO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Sale of Stations
On August 24, 1996, Chancellor Radio Broadcasting Company ("Chancellor"), a
Delaware Corporation, agreed to purchase substantially all of the assets of
CALP, Radio 570, Radio 100, Radio 100 of Maryland, Radio 94 (with the exception
of KOOL(AM)), and Radio 95 (with the exception of KIDO(AM), KLTB(FM), and
KARO(FM)) for total consideration of $365,000,000 plus the net working capital
of the stations. The transaction closed on January 23, 1997. The agreement
stipulates that the purchase price for the assets be allocated among the limited
partnerships as follows:
<TABLE>
<CAPTION>
<S> <C>
CALP........................................................ $ 50,000,000
Radio 570................................................... 21,000,000
Radio 100................................................... 85,000,000
Radio 100 of Maryland....................................... 90,000,000
Radio 94.................................................... 30,000,000
Radio 95.................................................... 89,000,000
------------
$365,000,000
============
</TABLE>
On October 28, 1996, Jacor Broadcasting of Idaho, Inc., an Ohio
corporation, entered into an agreement to purchase substantially all of the
assets of radio stations KIDO(AM), KLTB(FM), and KARO(FM) for $11,000,000. The
transaction closed on January 31, 1997.
Partnership Allocations
The partnerships distribute cash from operations and allocate net profits
or losses to the partners, in general, in accordance with their stated interests
except that no partner shall receive any distribution from a partnership until
such time as the net invested capital of the general partner and Class A Limited
Partner have been distributed, along with a cumulative priority return on the
average net invested capital at an annual rate equal to the prime rate plus one
quarter of one percent compounded monthly.
In accordance with the Company's debt agreement (described below)
distributions to partners may be permitted on a quarterly basis if certain
requirements are met.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Accounting
The accompanying financial statements are prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles.
Barter Transactions
The partnerships enter into barter transactions in which they provide
on-air advertising in exchange for goods and services. Revenues and expenses
from barter transactions are presented in the accompanying statement of revenues
and expenses based on the estimated fair market value of the goods or services
received. Barter revenue approximated $1,925,000, $1,590,000, and $1,870,000 for
the years ended December 31, 1996, 1995, and 1994, respectively; while barter
expense approximated $1,763,000, $1,486,000, and $1,520,000 for the years ended
December 31, 1996, 1995, and 1994, respectively.
Income Taxes
Provision for Federal and state income taxes has not been made in the
accompanying financial statements since the partnerships do not pay Federal and
state income taxes but rather allocate profits and losses to the partners for
inclusion in their respective income tax returns.
F-156
<PAGE> 306
COLFAX COMMUNICATIONS, INC. RADIO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Buildings and Leasehold Improvements
Buildings and leasehold improvements are recorded at cost or appraised
value at acquisition. Depreciation is recorded using the straight-line method
over 31.5 or 40 years as prescribed by the Internal Revenue Code.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are recorded at cost or appraised value
at acquisition. Depreciation is recorded using the straight-line method over the
estimated useful life of the assets, which is typically 5 to 7 years.
Intangible Assets
Intangible assets are recorded at cost or appraised value at acquisition.
Amortization is recorded over their useful lives. The estimated useful lives of
intangible assets as of December 31, 1996, are as follows:
<TABLE>
<CAPTION>
USEFUL LIFE
-----------
<S> <C>
FCC Licenses................................................ 7-25 years
Covenants Not to Compete.................................... 3 years
Employment Agreements....................................... 2 years
Organizational Costs........................................ 5 years
Start-up Costs.............................................. 5 years
</TABLE>
Land
Certain partners have contributed to Radio 570 a parcel of land in
Germantown, Maryland which is being used as the site for a new array of
broadcasting towers. The land has been recorded at its original purchase price
plus costs related to preparing the land for its intended use.
Radio 100 of Maryland acquired a parcel of land and property in Washington,
D.C., in connection with the acquisition of WJZE-FM. This parcel of land was
recorded at its appraised value at acquisition. This land was sold in February
1995.
Radio 100 acquired a parcel of land in Nowthen, Minnesota, through the
purchase of KQQL-FM. This parcel of land was recorded at its appraised value at
acquisition.
Radio 95 acquired various parcels of land located in Phoenix, Milwaukee,
and Boise in connection with its purchase of nine stations during 1996. These
parcels of land were recorded at their estimated market value at acquisition.
Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
In 1995 the Company adopted Statement of Financial Accounting Standard
("SFAS") No. 107, "Disclosure about Fair Value of Financial Instruments," which
requires disclosures of fair value information about financial instruments,
whether or not recognized in the balance sheet.
F-157
<PAGE> 307
COLFAX COMMUNICATIONS, INC. RADIO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying amount reported in the balance sheets for cash, accounts
receivable, accounts payable and accrued liabilities, approximate their fair
value due to the immediate or short-term maturity of such instruments. The
carrying amount reported for long-term debt approximates fair value due to the
debt being priced at floating rates (see Note 7 for additional information).
4. PROPERTY AND EQUIPMENT:
The components of property and equipment at December 31, 1996 and 1995, are
summarized below:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Land.................................... $ 3,719,572 $ 1,901,663 $ 2,233,341
Buildings............................... 1,372,161 26,453 604,927
Construction in progress................ 27,660 27,232 201,404
Furniture, fixtures and equipment....... 11,323,175 8,520,853 7,690,841
Leasehold improvements.................. 835,407 816,031 522,806
----------- ----------- -----------
17,277,975 11,292,232 11,253,319
Less -- Accumulated depreciation........ (2,769,878) (2,616,508) (1,644,716)
----------- ----------- -----------
$14,508,097 $ 8,675,724 $ 9,608,603
=========== =========== ===========
</TABLE>
5. FCC LICENSES AND OTHER NONCURRENT ASSETS:
The components of FCC licenses and other noncurrent assets at December 31,
1996 and 1995, are summarized below:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
FCC licenses............................ $163,988,330 $ 39,505,773 $ 39,505,773
Covenants not to compete................ 1,931,834 8,493,147 8,493,147
Start-up and organization costs......... 2,489,973 2,132,587 2,153,036
Other................................... 1,376,763 958,245 1,891,395
------------ ------------ ------------
169,786,900 51,089,752 52,043,351
Less -- Accumulated amortization........ (22,207,301) (18,706,165) (14,389,548)
------------ ------------ ------------
$147,579,599 $ 32,383,587 $ 37,653,803
============ ============ ============
</TABLE>
6. RELATED-PARTY TRANSACTIONS:
Each partnership is involved in certain transactions with other
partnerships in the radio group related to sharing of services and purchasing.
These transactions are settled on a current basis through adjustments to
partners' equity accounts.
On January 18, 1995, CALP and Radio 100 of Maryland each entered into a 10
year agreement to lease tower space from Colfax Towers, Inc. The annual rental
payment for CALP equaled $31,200 and $30,000 for the years ended December 31,
1996 and 1995, respectively. The annual rental payment for Radio 100 of Maryland
equaled $37,200 and $36,000 for the years ended December 31, 1996 and 1995,
respectively. Colfax Towers, Inc., is owned by the shareholders of Colfax
Communications, Inc.
Employees of Colfax perform activities on behalf of and oversee the
operations of the radio stations included in the radio group. Colfax does not
charge any fees to the radio stations for the performance of such services.
Corporate expenses of $1,240,253, $1,354,296, and $1,144,082 related to those
services are not included in the financial statements of the radio group for the
years ending December 31, 1996, 1995, and 1994, respectively. These corporate
expenses were funded directly by the owners of Colfax Communications, Inc.
F-158
<PAGE> 308
COLFAX COMMUNICATIONS, INC. RADIO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT:
On December 27, 1995, CALP, Radio 570, Radio 100, and Radio 100 of Maryland
entered into a $40 million revolving loan agreement. On April 2, 1996, under an
amendment to the loan agreement, CALP, Radio 570, Radio 100, Radio 100 of
Maryland, and Radio 94 (collectively, the "Borrowers") increased the amount
available under the revolving loan agreement to $60 million. At December 31,
1996, $55,650,000 was outstanding under this agreement. The proceeds were
allocated to each borrower on the basis of each station's capital account as
follows:
<TABLE>
<S> <C>
CALP........................................................ $ 5,702,360
Radio 570................................................... 4,156,587
Radio 100................................................... 16,423,860
Radio 100 of Maryland....................................... 9,214,544
Radio 94.................................................... 20,152,649
-----------
$55,650,000
===========
</TABLE>
The initial proceeds were used to repay the indebtedness of CALP to make
certain permitted distributions to partners of the Borrowers, and for working
capital purposes in the operations of the Borrowers. Borrowings under this
agreement bear interest at floating rates equal to prime and/or LIBOR (as
defined in the loan agreement) plus an applicable margin determined by a
leverage ratio. The expiration date of the loan agreement is December 31, 2002.
Under the loan agreement, the Borrowers are required to maintain a specific
leverage ratio and certain ratios pertaining to cash flow coverage.
In connection with the sale of the stations (discussed in Note 2), the debt
was repaid in full in January 1997.
8. COMMITMENTS:
The Radio Group has entered into various contracts for exclusive radio
broadcasting rights and other programming. In addition, the partnerships lease
office space and have entered into various service contracts, including certain
personal service contracts. These broadcasting rights, leases and service
contracts expire over periods ranging from 1997 to 2012. The minimum future
commitments under these agreements, leases and service contracts are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 3,766,028
1998........................................................ 2,826,433
1999........................................................ 1,178,594
2000........................................................ 1,140,345
2001........................................................ 646,234
Thereafter.................................................. 2,077,616
-----------
$11,635,250
===========
</TABLE>
9. RESTRUCTURING CHARGES:
During 1995, the Radio Group recorded restructuring costs of $737,729 at
certain radio stations. These costs included severance and salary payments to
terminated employees of $357,563, costs related to hiring a new general manager
at one of the radio stations of $135,519 and costs related to a loss on space
vacated by one of the radio stations of $244,647.
F-159
<PAGE> 309
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR
THE LETTER OF TRANSMITTAL IN CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS
PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL DOES
NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, THE
EXCHANGE NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN
ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................. iii
Prospectus Summary..................... 1
Risk Factors........................... 14
The Exchange Offer..................... 22
Use of Proceeds........................ 31
Capitalization......................... 32
Selected Consolidated Historical
Financial Data....................... 33
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 35
Business and Properties................ 42
Management and Board of Directors...... 61
Security Ownership of Certain
Beneficial
Owners............................... 71
Certain Relationships and Related
Transactions......................... 73
Description of the Exchange Notes...... 74
Book-Entry; Delivery and Form.......... 95
Description of Certain Indebtedness.... 96
Description of Capital Stock........... 101
Material Federal Income Tax
Considerations....................... 112
Plan of Distribution................... 113
Legal Matters.......................... 113
Experts................................ 114
Pro Forma Financial Information........ P-1
Index to Financial Statements.......... F-1
</TABLE>
======================================================
======================================================
CHANCELLOR MEDIA CORPORATION OF
LOS ANGELES
OFFER TO EXCHANGE
8 3/4% SENIOR SUBORDINATED
NOTES DUE 2007, SERIES B
FOR ALL OUTSTANDING 8 3/4%
SENIOR SUBORDINATED NOTES
DUE 2007, SERIES A
---------------------------
PROSPECTUS
---------------------------
OCTOBER 16, 1997
======================================================
<PAGE> 310
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law empowers a Delaware
corporation to indemnify any person who is, or is threatened to be made, a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of such corporation) by reason of the fact that such person is or was
an officer or director of such corporation, or is or was serving at the request
of such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided that he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. A Delaware corporation may indemnify officers
and directors in an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation. Where an officer
or director is successful on the merits or otherwise in the defense of any
action referred to above, the corporation must indemnify him against the
expenses which he actually and reasonably incurred in connection therewith.
The Company's Certificate of Incorporation provides that no director of the
Company shall be liable to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit.
The Company's Bylaws provide that the Company shall indemnify every person
who is or was a party or is or was threatened to be made a party to any action
suit, or proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that he is or was a director or officer of the Corporation
or, while a director or officer or employee of the Corporation, is or was
serving at the request of the Corporation as a director, officer, employee,
agent or trustee of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses (including counsel
fees), judgments, fines and amounts paid in settlement actually and reasonable
incurred by him in connection with such action, suit or proceeding, to the full
extent permitted by applicable law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
A. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1+ -- Securities Purchase Agreement, dated as of June 18, 1997,
by and among Chancellor Radio Broadcasting Company,
Credit Suisse First Boston Corporation, BT Securities
Corporation and Morgan Stanley & Co., Inc.
2.9(f) -- Plan of Reorganization and Merger by and between
Evergreen Media Corporation and Broadcasting Partners,
Inc., dated as of January 31, 1995, as amended, including
the Form of Registration Rights Agreement among MLGA Fund
I, L.P., MLGA Fund II, L.P., MLGA/BPI Partners I, L.P.,
MLGAL Partners, Limited Partnership and Evergreen Media
Corporation (see table of contents for a list of omitted
schedules).
</TABLE>
II-1
<PAGE> 311
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.9A(g) -- Agreement dated as of January 31, 1995 among Evergreen
Media Corporation, Broadcasting Partners, Inc., the
holders of the shares of capital stock of Broadcasting
Partners, Inc. and Scott K. Ginsburg, holder of shares of
capital stock of Evergreen Media Corporation.
2.10(f) -- Plan and Agreement of Merger among Evergreen Media
Partners Corporation, Evergreen Media Corporation and
Broadcasting Partners, Inc., dated as of April 12, 1995.
2.11(h) -- Agreement and Plan of Merger by and among Pyramid
Communications, Inc., Evergreen Media Corporation and
Evergreen Media/Pyramid Corporation dated as of July 14,
1995 (see table of contents for list of omitted exhibits
and schedules).
2.11A(i) -- Amendment to Plan and Agreement of Merger by and among
Pyramid Communications, Inc., Evergreen Media Corporation
and Evergreen Media/Pyramid Corporation dated September
7, 1995.
2.11B(i) -- Amendment to Plan and Agreement of Merger by and among
Pyramid Communications, Inc., Evergreen Media Corporation
and Evergreen Media/Pyramid Corporation dated January 11,
1996.
2.12(j) -- Purchase Agreement between Fairbanks Communications, Inc.
and Evergreen Media Corporation dated October 12, 1995
(see table of contents for list of omitted exhibits and
schedules).
2.13(n) -- Option Agreement dated as of January 9, 1996 between
Chancellor Broadcasting Company and Evergreen Media
Corporation (including Form of Advertising Brokerage
Agreement and Form of Asset Purchase Agreement).
2.14(o) -- Asset Purchase Agreement dated April 4, 1996 between
American Radio Systems Corporation and Evergreen Media
Corporation of Buffalo (see table of contents for list of
omitted exhibits and schedules).
2.15(o) -- Asset Purchase Agreement dated April 11, 1996 between
Mercury Radio Communications, L.P. and Evergreen Media
Corporation of Los Angeles, Evergreen Media/Pyramid
Holdings Corporation, WHTT (AM) License Corp. and WHTT
(FM) License Corp. (see table of contents for list of
omitted exhibits and schedules).
2.16(o) -- Asset Purchase Agreement dated April 19, 1996 between
Crescent Communications L.P. and Evergreen Media
Corporation of Los Angeles (see table of contents for
list of omitted exhibits and schedules).
2.17(p) -- Asset Purchase Agreement dated June 13, 1996 between
Evergreen Media Corporation of Los Angeles and Greater
Washington Radio, Inc. (see table of contents for list of
omitted exhibits and schedules).
2.18(p) -- Asset Exchange Agreement dated June 13, 1996 among
Evergreen Media Corporation of Los Angeles, Evergreen
Media Corporation of the Bay State, WKLB License Corp.,
Greater Media Radio, Inc. and Greater Washington Radio,
Inc. (see table of contents for list of omitted exhibits
and schedules).
2.19(p) -- Purchase Agreement dated June 27, 1996 between WEDR,
Inc., Seller and Evergreen Media Corporation of Los
Angeles, Buyer. (See table of contents for list of
omitted schedules)
2.20(p) -- Time Brokerage Agreement dated July 10, 1996 by and
between Evergreen Media Corporation of Detroit, as
Licensee, and Kidstar Interactive Media Incorporated, as
Time Broker.
</TABLE>
II-2
<PAGE> 312
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.21(p) -- Asset Purchase Agreement dated July 15, 1996 by and among
Century Chicago Broadcasting L.P., an Illinois limited
partnership, ("Seller"), Century Broadcasting
Corporation, a Delaware Corporation ("Century"),
Evergreen Media Corporation of Los Angeles, a Delaware
Corporation ("Parent"), and Evergreen Media Corporation
of Chicago, a Delaware Corporation ("Buyer").
2.22(p) -- Asset Purchase Agreement dated August 12, 1996 by and
among Chancellor Broadcasting Company, Shamrock
Broadcasting, Inc. and Evergreen Media Corporation of the
Great Lakes.
2.23(p) -- Asset Purchase Agreement dated as of August 12, 1996
between Secret Communications Limited Partnership and
Evergreen Media Corporation of Los Angeles (WQRS-FM).
(See table of contents for list of omitted exhibits and
schedules)
2.24(p) -- Asset Purchase Agreement dated as of August 12, 1996
between Secret Communications Limited Partnership and
Evergreen Media Corporation of Los Angeles. (See table of
contents for list of omitted schedules)
2.25(q) -- Letter of intent dated August 27, 1996 between EZ
Communications, Inc. and Evergreen Media Corporation.
2.26(q) -- Asset Purchase Agreement dated September 19, 1996 between
Beasley-FM Acquisition Corp., WDAS License Limited
Partnership and Evergreen Media Corporation of Los
Angeles.
2.27(q) -- Asset Purchase Agreement dated September 19, 1996 between
The Brown Organization and Evergreen Media Corporation of
Los Angeles.
2.28(r) -- Stock Purchase Agreement by and between Viacom
International Inc. and Evergreen Media Corporation of Los
Angeles, dated February 16, 1997 (See table of contents
for omitted schedules and exhibits).
2.29(r) -- Agreement and Plan of Merger, by and among Evergreen
Media Corporation, Chancellor Broadcasting Company and
Chancellor Radio Broadcasting Company, dated as of
February 19, 1997.
2.30(r) -- Stockholders Agreement, by and among Chancellor
Broadcasting Company, Evergreen Media Corporation, Scott
K. Ginsburg (individually and as custodian for certain
shares held by his children), HM2/Chancellor, L.P.,
Hicks, Muse, Tate & First Equity Fund II, L.P., HM2/HMW,
L.P., The Chancellor Business Trust, HM2/HMD Sacramento
GP, L.P., Thomas O. Hicks, as Trustee of the William Cree
Hicks 1992 Irrevocable Trust, Thomas O. Hicks, as Trustee
of the Catherine Forgave Hicks 1993 Irrevocable Trust,
Thomas O. Hicks, as Trustee of the John Alexander Hicks
1984 Trust, Thomas O. Hicks, as Trustee of the Mack
Hardin Hicks 1984 Trust, Thomas O. Hicks, as Trustee of
Robert Bradley Hicks 1984 Trust, Thomas O. Hicks, as
Trustee of the Thomas O. Hicks, Jr. 1984 Trust, Thomas O.
Hicks and H. Rand Reynolds, as Trustees for the Muse
Children's GS Trust, and Thomas O. Hicks, dated as of
February 19, 1997.
2.31(r) -- Joint Purchase Agreement, by and among Chancellor Radio
Broadcasting Company, Chancellor Broadcasting Company,
Evergreen Media Corporation of Los Angeles, and Evergreen
Media Corporation, dated as of February 19, 1997.
</TABLE>
II-3
<PAGE> 313
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.32(s) -- Asset Exchange Agreement, by and among EZ Communications,
Inc., Professional Broadcasting Incorporated, EZ
Philadelphia, Inc., Evergreen Media Corporation of Los
Angeles, Evergreen Media Corporation of Charlotte,
Evergreen Media Corporation of the East, Evergreen Media
Corporation of Carolinaland, WBAV/WBAV-FM/WPEG License
Corp. and WRFX License Corp., dated as of December 5,
1996 (See table of contents for list of omitted
schedules).
2.33(s) -- Asset Purchase Agreement, by and among EZ Communications,
Inc., Professional Broadcasting Incorporated, EZ
Charlotte, Inc., Evergreen Media Corporation of Los
Angeles, Evergreen Media Corporation of the East and
Evergreen Media Corporation of Carolinaland, dated as of
December 5, 1996 (See table of contents for list of
omitted schedules).
2.34(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: WGCI-AM and WGCI-FM), dated as of April
4, 1997 (see table of contents for list of omitted
schedules and exhibits).
2.35(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: KKBQ-AM and KKBQ-FM), dated as of April
4, 1997 (see table of contents for list of omitted
schedules and exhibits)
2.36(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: KHKS-FM), dated as of April 4, 1997 (see
table of contents for list of omitted schedules and
exhibits).
2.41(y) -- Amended and Restated Agreement and Plan of Merger among
Chancellor Broadcasting Company, Chancellor Radio
Broadcasting Company, Evergreen Media Corporation,
Evergreen Mezzanine Holdings Corporation and Evergreen
Media Corporation of Los Angeles, dated as of February
19, 1997, amended and restated as of July 31, 1997.
2.42(gg) -- Option Agreement, by and among Evergreen Media
Corporation, Chancellor Broadcasting Company, Bonneville
International Corporation and Bonneville Holding Company,
dated as of August 6, 1997.
3.3(ff) -- Certificate of Incorporation of Evergreen Media
Corporation of Los Angeles.
3.3A** -- Amendment to Certificate of Incorporation of Evergreen
Media Corporation of Los Angeles, filed September 5,
1997.
3.4(ff) -- Bylaws of Chancellor Media Corporation of Los Angeles.
4.10(t) -- Second Amended and Restated Loan Agreement dated as of
April 25, 1997 among Evergreen Media Corporation of Los
Angeles, the financial institutions whose names appear as
Lenders on the signature pages thereof (the "Lenders"),
Toronto Dominion Securities, Inc., as Arranging Agent,
The Bank of New York and Bankers Trust Company, as
Co-Syndication Agents, NationsBank of Texas, N.A. and
Union Bank of California, as Co-Documentation Agents, and
Toronto Dominion (Texas), Inc., as Administrative Agent
for the Lenders, together with certain collateral
documents attached thereto as exhibits, including
Assignment of Partnership Interests, Assignment of Trust
Interests, Borrower's Pledge Agreement, Parent Company
Guaranty, Stock Pledge Agreement, Subsidiary.
4.11(z) -- First Amendment to Second Amended and Restated Loan
Agreement, dated June 26, 1997, among Evergreen Media
Corporation of Los Angeles, the Lenders, the Agents and
the Administrative Agent.
</TABLE>
II-4
<PAGE> 314
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4.15(aa) -- Indenture, dated as of February 14, 1996, governing the
9 3/8% Senior Subordinated Notes due 2004 of Chancellor
Radio Broadcasting Company.
4.16(bb) -- First Supplemental Indenture, dated as of February 14,
1996, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of
Chancellor Radio Broadcasting Company.
4.17(cc) -- Indenture, dated as of February 26, 1996, governing the
12 1/4% Subordinated Exchange Debentures due 2008 of
Chancellor Radio Broadcasting Company.
4.18(dd) -- Indenture, dated as of January 23, 1997, governing the
12% Subordinated Exchange Debentures due 2009 of
Chancellor Radio Broadcasting Company.
4.19(ee) -- Indenture, dated as of June 24, 1997, governing the
8 3/4% Senior Subordinated Notes due 2004 of Chancellor
Radio Broadcasting Company.
4.25** -- Second Amendment to Second Amended and Restated Loan
Agreement, dated August 7, 1997, among Evergreen Media
Corporation of Los Angeles, the Lenders, the Agents and
the Administrative Agent.
4.26(hh) -- Second Supplemental Indenture, dated as of April 15,
1997, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of
Chancellor Radio Broadcasting Company.
4.27** -- Third Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of
Chancellor Radio Broadcasting Company.
4.28** -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated June 24, 1997, governing the
8 3/4% Senior Subordinated Notes due 2007 of Chancellor
Radio Broadcasting Company.
4.29** -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated February 26, 1997, governing
the 12 1/4% Subordinated Exchange Debentures due 2008 of
Chancellor Radio Broadcasting Company.
4.30** -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated January 23, 1997, governing
the 12% Subordinated Exchange Debentures due 2009 of
Chancellor Radio Broadcasting Company.
5.1+ -- Opinion of Latham & Watkins.
8.1+ -- Tax Matters Opinion of Latham & Watkins.
10.23(f) -- Evergreen Media Corporation Stock Option Plan for
Non-employee Directors.
10.26(n) -- Employment Agreement dated February 9, 1996 by and
between Evergreen Media Corporation and Kenneth J.
O'Keefe.
10.28(o) -- 1995 Stock Option Plan for executive officers and key
employees of Evergreen Media Corporation.
10.30** -- First Amendment to Employment Agreement dated March 1,
1997 by and between Evergreen Media Corporation and
Kenneth J. O'Keefe.
10.31** -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and Scott K. Ginsburg.
10.32** -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and James de Castro.
10.33** -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and Matthew E. Devine.
</TABLE>
II-5
<PAGE> 315
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.34** -- Second Amendment to Employment Agreement dated September
4, 1997 by and among Evergreen Media Corporation,
Evergreen Media Corporation of Los Angeles and Kenneth J.
O'Keefe.
10.35(ii) -- Employment Agreement dated February 14, 1996 by and among
Chancellor Broadcasting Company, Chancellor Radio
Broadcasting Company and Steven Dinetz.
10.36(jj) -- Chancellor Broadcasting Company 1996 Stock Award Plan.
10.37(kk) -- Chancellor Holdings Corp. 1994 Director Stock Option
Plan.
10.38(ll) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Steven Dinetz.
10.39(mm) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Eric W. Neumann.
10.40(nn) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Marvin Dinetz.
10.41(oo) -- Stock Option Grant Letter dated February 14, 1997 from
Chancellor Broadcasting Company to Carl M. Hirsch.
10.42+ -- Registration Rights Agreement, dated June 24, 1997, by
and among Chancellor Radio Broadcasting Company and the
initial purchasers of the 8 3/4% Senior Subordinated
Notes due 2007.
12.1** -- Chancellor Media Corporation of Los Angeles Computation
of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends.
16.1+ -- Letter from KPMG Peat Marwick LLP to the Securities and
Exchange Commission dated September 29, 1997.
21.1** -- Subsidiaries of Chancellor Media Corporation of Los
Angeles.
23.1+ -- Consent of Latham & Watkins (included as part of their
opinion listed as Exhibit 5.1).
23.2+ -- Consent of KPMG Peat Marwick LLP, independent
accountants.
23.3+ -- Consent of KPMG Peat Marwick LLP, independent
accountants.
23.4+ -- Consent of Price Waterhouse LLP, independent accountants.
23.5+ -- Consent of Arthur Andersen LLP, independent accountants.
23.6+ -- Consent of Coopers & Lybrand L.L.P., independent
accountants.
23.7+ -- Consent of Coopers & Lybrand L.L.P., independent
accountants.
23.8+ -- Consent of Price Waterhouse LLP, independent accountants.
23.9+ -- Consent of Arthur Andersen LLP, independent accountants.
23.10+ -- Consent of Latham & Watkins (included as part of their
opinion listed as Exhibit 8.1).
24.1** -- Powers of Attorney (included on signature pages)
25.1** -- Statement of Eligibility on Form T-1 of U.S. Trust
Company of Texas, N.A. under the Indenture.
99.1+ -- Letter Of Transmittal for the Exchange Offer.
99.2+ -- Notice of Guaranteed Delivery for the Exchange Offer.
99.3** -- Independent Auditors' Report on Financial Statement
Schedule.
99.3(a)** -- Evergreen Media Corporation of Los Angeles Schedule
II -- Valuation and Qualifying Accounts for the years
ended December 31, 1994, 1995 and 1996.
</TABLE>
II-6
<PAGE> 316
B. Financial Statements
1. Consolidated Financial Statements of Evergreen Media Corporation of
Los Angeles and Subsidiaries as of December 31, 1995 and 1996 and
June 30, 1997 and for the years ended December 31, 1994, 1995 and
1996 and for the six months ended June 30, 1996 and 1997.
2. Consolidated Financial Statements of Chancellor Radio Broadcasting
Company and Subsidiaries as of December 31, 1995 and 1996 and for the
years ended December 31, 1994, 1995 and 1996.
3. Consolidated Financial Statements of Chancellor Radio Broadcasting
Company and Subsidiaries as of December 31, 1996 and June 30, 1997
and for the six months ended June 30, 1996 and 1997.
4. Combined Financial Statements of Riverside Broadcasting Co., Inc. and
WAXQ Inc. as of December 31, 1995 and 1996 and June 30, 1997 and for
the years ended December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1996 and 1997.
5. Combined Financial Statements of WMZQ Inc. and Viacom Broadcasting
East, Inc. as of December 31, 1995 and 1996 and June 30, 1997 and for
the years ended December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1996 and 1997.
6. Financial Statements of KKSF-FM/KDFC-FM and AM (A Division of the
Brown Organization) as of December 31, 1995 and 1996 and for the
years ended December 31, 1995 and 1996.
7. Financial Statements of WDAS-AM/FM (Station owned and operated by
Beasley FM Acquisition Corp.) as of December 31, 1996 and March 31,
1997 and for the year ended December 31, 1996 and the three months
ended March 31, 1996 and 1997.
8. Financial Statements of Century Chicago Broadcasting, L.P. as of
December 31, 1996 and March 31, 1997 and for the year ended December
31, 1996 and the three months ended March 31, 1996 and 1997.
9. Combined Financial Statements of WJLB/WMXD, Detroit as of December
31, 1996 and March 31, 1997 and for the year ended December 31, 1996
and the three months ended March 31, 1996 and 1997.
10. Combined Financial Statements of KYSR Inc. and KIBB Inc. as of
December 31, 1995 and 1996 and June 30, 1997 and for the years ended
December 31, 1994, 1995 and 1996 and the six months ended June 30,
1996 and 1997.
11. Financial Statements of WLIT, Inc. as of December 31, 1995 and 1996
and June 30, 1997 and for the years ended December 31, 1994, 1995 and
1996 and the six months ended June 30, 1996 and 1997.
12. Financial Statements of WDRQ, Inc. as of December 31, 1995 and 1996
and June 30, 1997 and for the years ended December 31, 1994, 1995 and
1996 and the six months ended June 30, 1996 and 1997.
13. Consolidated Financial Statements of Trefoil Communications, Inc. and
Subsidiaries as of December 31, 1994 and 1995 and for the years ended
December 31, 1994 and 1995 and for the period ended February 13,
1996.
14. Combined Financial Statements of Colfax Communications, Inc. Radio
Group as of December 31, 1994, 1995 and 1996 and for the years ended
December 31, 1994, 1995 and 1996.
- ---------------
** Previously filed.
+ Filed herewith.
(a) Incorporated by reference to the identically numbered exhibit to
Evergreen's Registration Statement on Form S-1, as amended (Reg. No.
33-60036).
II-7
<PAGE> 317
(f) Incorporated by reference to the identically numbered exhibit to
Evergreen's Registration Statement on Form S-4, as amended (Reg. No.
33-89838).
(g) Incorporated by reference to Exhibit No. 4.8 to Evergreen's Registration
Statement on Form S-4, as amended (Reg. No. 33-89838).
(h) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated July 14, 1995.
(i) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated January 17, 1996.
(j) Incorporated by reference to the identically numbered exhibit to
Evergreen's Quarterly Report on Form 10-Q for the quarterly period ending
September 30, 1995.
(k) Incorporated by reference to the identically numbered exhibit to
Evergreen's Registration Statement on Form S-1, as amended (Reg. No.
33-69752).
(n) Incorporated by reference to the identically numbered exhibit to
Evergreen's Annual Report on Form 10-K for the fiscal year ended December
31, 1995.
(o) Incorporated by reference to the identically numbered exhibit to
Evergreen's Quarterly Report on Form 10-Q for the quarterly period ending
March 31, 1996.
(p) Incorporated by reference to the identically numbered exhibit to
Evergreen's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1996.
(q) Incorporated by reference to the identically numbered exhibit to
Evergreen's Registration Statement on Form S-3, as amended (Reg. No.
333-12453).
(r) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated February 16, 1997 and filed
March 9, 1997.
(s) Incorporated by reference to the identically numbered exhibit to
Evergreen's Annual Report on Form 10-K for the fiscal year ended December
31, 1996.
(t) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated April 1, 1997 and filed May 9,
1997.
(y) Incorporated by reference to the identically numbered exhibit of
Evergreen's Registration Statement on Form S-4, filed August 1, 1997.
(z) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated July 7, 1997 and filed July
31, 1997.
(aa) Incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company, as filed on February 29, 1996.
(bb) Incorporated by reference to Exhibit 4.5 to the Annual Report on Form 10-K
of Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company
and Chancellor Broadcasting Licensee Company for the fiscal year ended
December 31, 1995.
(cc) Incorporated by reference to Exhibit 4.6 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company, as filed on February 29, 1996.
(dd) Incorporated by reference to Exhibit 4.7 to the Current Report on Form 8-K
of Chancellor Radio Broadcasting Company, as filed on February 6, 1997.
(ee) Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company as filed on July 17, 1997.
(ff) Incorporated by reference to the identically-numbered exhibit to EMCLA's
Registration Statement on Form S-4 (Reg. No. 333-32259), dated July 29,
1997, as amended.
(gg) Incorporated by reference to the identically-numbered exhibit to the
Quarterly Report on Form 10-Q of Evergreen and EMCLA for the quarterly
period ending June 30, 1997.
(hh) Incorporated by reference to Exhibit 4.8 to the Quarterly Report on Form
10-Q of Chancellor and CRBC for the quarterly period ending March 31, 1997.
II-8
<PAGE> 318
(ii) Incorporated by reference to Exhibit 10.6 to Chancellor's Registration
Statement on Form S-1 (Reg. No. 333-02782) filed February 9, 1996.
(jj) Incorporated by reference to Exhibit 4.22 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(kk) Incorporated by reference to Exhibit 4.23 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September 5,
1997.
(ll) Incorporated by reference to Exhibit 4.24 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(mm) Incorporated by reference to Exhibit 4.25 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September 5,
1997.
(nn) Incorporated by reference to Exhibit 4.26 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September 5,
1997.
(oo) Incorporated by reference to Exhibit 4.27 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September 5,
1997.
The Company hereby agrees to furnish supplementarily a copy of any omitted
schedule or exhibit to the Commission upon request.
ITEM 22. UNDERTAKINGS.
A. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described under Item 20 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expense incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted against the registrant by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
B. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's Annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's Annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
D. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
E. (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145, the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with
II-9
<PAGE> 319
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-10
<PAGE> 320
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Irving, State of Texas,
on October 16, 1997.
CHANCELLOR MEDIA CORPORATION
OF LOS ANGELES
By: /s/ MATTHEW E. DEVINE
----------------------------------
Matthew E. Devine
Senior Vice President and
Chief Financial Officer
POWERS OF ATTORNEY
Each person whose signature appears below constitutes and appoints Matthew
E. Devine and Scott K. Ginsburg as his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for such person and
in his name, place and stead, in any and all capacities, to sign any or all
further amendment (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF 1933, AS
AMENDED, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
* Chairman of the Board October 16, 1997
- -----------------------------------------------------
Thomas O. Hicks
* President, Chief Executive October 16, 1997
- ----------------------------------------------------- Officer and Director
Scott K. Ginsburg (Principal Executive
Officer)
* Chief Operating Officer and October 16, 1997
- ----------------------------------------------------- Director
James E. de Castro
/s/ MATTHEW E. DEVINE Senior Vice President and October 16, 1997
- ----------------------------------------------------- Chief Financial Officer
Matthew E. Devine (Principal Financial Officer
and Principal Accounting
Officer)
* Director October 16, 1997
- -----------------------------------------------------
Thomas J. Hodson
* Director October 16, 1997
- -----------------------------------------------------
Perry J. Lewis
* Director October 16, 1997
- -----------------------------------------------------
Eric C. Neuman
* Director October 16, 1997
- -----------------------------------------------------
John H. Massey
</TABLE>
II-11
<PAGE> 321
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
* Director October 16, 1997
- -----------------------------------------------------
Jeffrey A. Marcus
* Director October 16, 1997
- -----------------------------------------------------
Lawrence D. Stuart, Jr.
Director
- -----------------------------------------------------
Steven Dinetz
Director
- -----------------------------------------------------
Vernon E. Jordan, Jr.
*By:/s/ MATTHEW E. DEVINE October 16, 1997
-------------------------------------------------
Matthew E. Devine
Attorney-in-Fact
</TABLE>
II-12
<PAGE> 322
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each
co-registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Irving,
State of Texas, on October 16, 1997.
THE CO-REGISTRANTS LISTED ON
ATTACHMENT A HERETO
By: /s/ MATTHEW E. DEVINE
----------------------------------
Matthew E. Devine
Vice President
of Each Co-Registrant
POWERS OF ATTORNEY
Each person whose signature appears below constitutes and appoints Matthew
E. Devine and Scott K. Ginsburg as his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for such person and
in his name, place and stead, in any and all capacities, to sign any or all
further amendment (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF 1933, AS
AMENDED, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
* Chief Executive Officer, October 16, 1997
- ----------------------------------------------------- President and Director of
Scott K. Ginsburg Each Co-Registrant
(Principal Executive Officer
of Each Co-Registrant)
/s/ MATTHEW E. DEVINE Vice President of Each October 16, 1997
- ----------------------------------------------------- Co-Registrant (Principal
Matthew E. Devine Financial Officer and
Principal Accounting Officer
of Each Co-Registrant)
*By: /s/ MATTHEW E. DEVINE October 16, 1997
------------------------------------------------
Matthew E. Devine
Attorney-in-Fact
</TABLE>
II-13
<PAGE> 323
ATTACHMENT A
<TABLE>
<CAPTION>
NAME
<S> <C> <C> <C>
Evergreen Media Corporation of Chicago FM
WLUP-FM License Corp.
Evergreen Media Corporation of the Bay Area
KIOI License Corp.
Evergreen Media Corporation of Illinois
WRCX License Corp.
Evergreen Media Corporation of Chicago AM
WMVP-AM License Corp.
Evergreen Media Corporation of Dade County
WVCG License Corp.
Evergreen Media/Pyramid Corporation
Evergreen Media/Pyramid Holdings Corporation
Broadcast Architecture, Inc.
Evergreen Media Corporation of Massachusetts
WJMN License Corp.
Evergreen Media Corporation of the Nation's
Capital
WWRC License Corp.
Evergreen Media Partners Corporation
Evergreen Media Corporation of Gotham
Evergreen Media Corporation of New York
WYNY License Corp.
Evergreen Media Corporation of Detroit
WKQI/WDOZ/WNIC License Corp.
Evergreen Media Corporation of Chicagoland
WEJM/WEJM-FM/WVAZ License Corp.
Evergreen Media Corporation of Charlotte
WIOQ License Corp.
Evergreen Media Corporation of Dallas
KSKY License Corp.
Evergreen Media Corporation of San Francisco
KMEL License Corp.
Evergreen Media Corporation of Houston
Evergreen Media of Houston Limited Partnership
(through its general partner, Evergreen Media
Corporation of Houston)
KTRH License Limited Partnership (through its
general partner, Evergreen Media Corporation of
Houston)
KLOL License Limited Partnership (through its
general partner, Evergreen Media Corporation of
Houston)
Evergreen Media Corporation of Tiburon
KKSF License Corp.
KDFC (AM) License Corp.
KDFC (FM) License Corp.
Evergreen Media Corporation of Washington, D.C.
Evergreen Media Corporation of St. Louis
WTOP License Limited Partnership (through its
general partner, Evergreen Media Corporation of
Washington, D.C.)
WASH License Limited Partnership (through its
general partner, Evergreen Media Corporation of
Washington, D.C.)
Evergreen Media Corporation of the Motor City
</TABLE>
II-14
<PAGE> 324
ATTACHMENT A -- (CONTINUED)
<TABLE>
<CAPTION>
NAME
<S> <C> <C> <C>
WJLB License Corp.
Evergreen Media Corporation of Michigan
WMXD License Corp.
WAXQ Inc.
WAXQ License Corp.
WMZQ Inc.
WMZQ License Corp.
Evergreen Media Corporation of the Liberty City
WDAS (FM) License Corp.
WDAS (AM) License Corp.
Riverside Broadcasting Co. Inc.
WLTW License Corp.
Evergreen Media Corporation of the Great Lakes
WWWW/WDFN License Corp.
VBE, Inc.
Evergreen Media Corporation of the Capital City
WGAY License Corp.
Evergreen Media Corporation of Chicago
WPNT License Corp.
Chancellor Broadcasting Licensee Company
Trefoil Communications, Inc.
Shamrock Broadcasting, Inc.
Shamrock Radio Licenses, Inc.
Shamrock Broadcasting of Texas, Inc.
Shamrock Broadcasting Licenses of Denver, Inc.
KIBB Inc.
KYSR Inc.
WLIT Inc.
WDRQ Inc.
Radio 100 L.L.C. (through its sole member,
Chancellor Media Corporation of Los Angeles)
Evergreen Media Corporation of Pennsylvania
WJJZ License Corp.
Evergreen Media Corporation of Miami
WEDR License Corp.
Evergreen Media Corporation of Boston
WXKS (AM) License Corp.
WXKS (FM) License Corp.
Evergreen Media Corporation of the Windy City
WNUA License Corp.
Evergreen Media Corporation of Philadelphia
Evergreen Media Corporation of the Keystone State
KYLD License Corp.
WYXR License Corp.
WUSL License Corp.
Evergreen Media Corporation of Rochester
KKBT License Corp.
</TABLE>
II-15
<PAGE> 325
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1+ -- Securities Purchase Agreement, dated as of June 18, 1997,
by and among Chancellor Radio Broadcasting Company,
Credit Suisse First Boston Corporation, BT Securities
Corporation and Morgan Stanley & Co., Inc.
2.9(f) -- Plan of Reorganization and Merger by and between
Evergreen Media Corporation and Broadcasting Partners,
Inc., dated as of January 31, 1995, as amended, including
the Form of Registration Rights Agreement among MLGA Fund
I, L.P., MLGA Fund II, L.P., MLGA/BPI Partners I, L.P.,
MLGAL Partners, Limited Partnership and Evergreen Media
Corporation (see table of contents for a list of omitted
schedules).
2.9A(g) -- Agreement dated as of January 31, 1995 among Evergreen
Media Corporation, Broadcasting Partners, Inc., the
holders of the shares of capital stock of Broadcasting
Partners, Inc. and Scott K. Ginsburg, holder of shares of
capital stock of Evergreen Media Corporation.
2.10(f) -- Plan and Agreement of Merger among Evergreen Media
Partners Corporation, Evergreen Media Corporation and
Broadcasting Partners, Inc., dated as of April 12, 1995.
2.11(h) -- Agreement and Plan of Merger by and among Pyramid
Communications, Inc., Evergreen Media Corporation and
Evergreen Media/Pyramid Corporation dated as of July 14,
1995 (see table of contents for list of omitted exhibits
and schedules).
2.11A(i) -- Amendment to Plan and Agreement of Merger by and among
Pyramid Communications, Inc., Evergreen Media Corporation
and Evergreen Media/Pyramid Corporation dated September
7, 1995.
2.11B(i) -- Amendment to Plan and Agreement of Merger by and among
Pyramid Communications, Inc., Evergreen Media Corporation
and Evergreen Media/Pyramid Corporation dated January 11,
1996.
2.12(j) -- Purchase Agreement between Fairbanks Communications, Inc.
and Evergreen Media Corporation dated October 12, 1995
(see table of contents for list of omitted exhibits and
schedules).
2.13(n) -- Option Agreement dated as of January 9, 1996 between
Chancellor Broadcasting Company and Evergreen Media
Corporation (including Form of Advertising Brokerage
Agreement and Form of Asset Purchase Agreement).
2.14(o) -- Asset Purchase Agreement dated April 4, 1996 between
American Radio Systems Corporation and Evergreen Media
Corporation of Buffalo (see table of contents for list of
omitted exhibits and schedules).
2.15(o) -- Asset Purchase Agreement dated April 11, 1996 between
Mercury Radio Communications, L.P. and Evergreen Media
Corporation of Los Angeles, Evergreen Media/Pyramid
Holdings Corporation, WHTT (AM) License Corp. and WHTT
(FM) License Corp. (see table of contents for list of
omitted exhibits and schedules).
2.16(o) -- Asset Purchase Agreement dated April 19, 1996 between
Crescent Communications L.P. and Evergreen Media
Corporation of Los Angeles (see table of contents for
list of omitted exhibits and schedules).
2.17(p) -- Asset Purchase Agreement dated June 13, 1996 between
Evergreen Media Corporation of Los Angeles and Greater
Washington Radio, Inc. (see table of contents for list of
omitted exhibits and schedules).
</TABLE>
<PAGE> 326
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.18(p) -- Asset Exchange Agreement dated June 13, 1996 among
Evergreen Media Corporation of Los Angeles, Evergreen
Media Corporation of the Bay State, WKLB License Corp.,
Greater Media Radio, Inc. and Greater Washington Radio,
Inc. (see table of contents for list of omitted exhibits
and schedules).
2.19(p) -- Purchase Agreement dated June 27, 1996 between WEDR,
Inc., Seller and Evergreen Media Corporation of Los
Angeles, Buyer. (See table of contents for list of
omitted schedules)
2.20(p) -- Time Brokerage Agreement dated July 10, 1996 by and
between Evergreen Media Corporation of Detroit, as
Licensee, and Kidstar Interactive Media Incorporated, as
Time Broker.
2.21(p) -- Asset Purchase Agreement dated July 15, 1996 by and among
Century Chicago Broadcasting L.P., an Illinois limited
partnership, ("Seller"), Century Broadcasting
Corporation, a Delaware Corporation ("Century"),
Evergreen Media Corporation of Los Angeles, a Delaware
Corporation ("Parent"), and Evergreen Media Corporation
of Chicago, a Delaware Corporation ("Buyer").
2.22(p) -- Asset Purchase Agreement dated August 12, 1996 by and
among Chancellor Broadcasting Company, Shamrock
Broadcasting, Inc. and Evergreen Media Corporation of the
Great Lakes.
2.23(p) -- Asset Purchase Agreement dated as of August 12, 1996
between Secret Communications Limited Partnership and
Evergreen Media Corporation of Los Angeles (WQRS-FM).
(See table of contents for list of omitted exhibits and
schedules)
2.24(p) -- Asset Purchase Agreement dated as of August 12, 1996
between Secret Communications Limited Partnership and
Evergreen Media Corporation of Los Angeles. (See table of
contents for list of omitted schedules)
2.25(q) -- Letter of intent dated August 27, 1996 between EZ
Communications, Inc. and Evergreen Media Corporation.
2.26(q) -- Asset Purchase Agreement dated September 19, 1996 between
Beasley-FM Acquisition Corp., WDAS License Limited
Partnership and Evergreen Media Corporation of Los
Angeles.
2.27(q) -- Asset Purchase Agreement dated September 19, 1996 between
The Brown Organization and Evergreen Media Corporation of
Los Angeles.
2.28(r) -- Stock Purchase Agreement by and between Viacom
International Inc. and Evergreen Media Corporation of Los
Angeles, dated February 16, 1997 (See table of contents
for omitted schedules and exhibits).
2.29(r) -- Agreement and Plan of Merger, by and among Evergreen
Media Corporation, Chancellor Broadcasting Company and
Chancellor Radio Broadcasting Company, dated as of
February 19, 1997.
</TABLE>
<PAGE> 327
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.30(r) -- Stockholders Agreement, by and among Chancellor
Broadcasting Company, Evergreen Media Corporation, Scott
K. Ginsburg (individually and as custodian for certain
shares held by his children), HM2/Chancellor, L.P.,
Hicks, Muse, Tate & First Equity Fund II, L.P., HM2/HMW,
L.P., The Chancellor Business Trust, HM2/HMD Sacramento
GP, L.P., Thomas O. Hicks, as Trustee of the William Cree
Hicks 1992 Irrevocable Trust, Thomas O. Hicks, as Trustee
of the Catherine Forgave Hicks 1993 Irrevocable Trust,
Thomas O. Hicks, as Trustee of the John Alexander Hicks
1984 Trust, Thomas O. Hicks, as Trustee of the Mack
Hardin Hicks 1984 Trust, Thomas O. Hicks, as Trustee of
Robert Bradley Hicks 1984 Trust, Thomas O. Hicks, as
Trustee of the Thomas O. Hicks, Jr. 1984 Trust, Thomas O.
Hicks and H. Rand Reynolds, as Trustees for the Muse
Children's GS Trust, and Thomas O. Hicks, dated as of
February 19, 1997.
2.31(r) -- Joint Purchase Agreement, by and among Chancellor Radio
Broadcasting Company, Chancellor Broadcasting Company,
Evergreen Media Corporation of Los Angeles, and Evergreen
Media Corporation, dated as of February 19, 1997.
2.32(s) -- Asset Exchange Agreement, by and among EZ Communications,
Inc., Professional Broadcasting Incorporated, EZ
Philadelphia, Inc., Evergreen Media Corporation of Los
Angeles, Evergreen Media Corporation of Charlotte,
Evergreen Media Corporation of the East, Evergreen Media
Corporation of Carolinaland, WBAV/WBAV-FM/WPEG License
Corp. and WRFX License Corp., dated as of December 5,
1996 (See table of contents for list of omitted
schedules).
2.33(s) -- Asset Purchase Agreement, by and among EZ Communications,
Inc., Professional Broadcasting Incorporated, EZ
Charlotte, Inc., Evergreen Media Corporation of Los
Angeles, Evergreen Media Corporation of the East and
Evergreen Media Corporation of Carolinaland, dated as of
December 5, 1996 (See table of contents for list of
omitted schedules).
2.34(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: WGCI-AM and WGCI-FM), dated as of April
4, 1997 (see table of contents for list of omitted
schedules and exhibits).
2.35(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: KKBQ-AM and KKBQ-FM), dated as of April
4, 1997 (see table of contents for list of omitted
schedules and exhibits)
2.36(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: KHKS-FM), dated as of April 4, 1997 (see
table of contents for list of omitted schedules and
exhibits).
2.41(y) -- Amended and Restated Agreement and Plan of Merger among
Chancellor Broadcasting Company, Chancellor Radio
Broadcasting Company, Evergreen Media Corporation,
Evergreen Mezzanine Holdings Corporation and Evergreen
Media Corporation of Los Angeles, dated as of February
19, 1997, amended and restated as of July 31, 1997.
2.42(gg) -- Option Agreement, by and among Evergreen Media
Corporation, Chancellor Broadcasting Company, Bonneville
International Corporation and Bonneville Holding Company,
dated as of August 6, 1997.
3.3(ff) -- Certificate of Incorporation of Evergreen Media
Corporation of Los Angeles.
3.3A** -- Amendment to Certificate of Incorporation of Evergreen
Media Corporation of Los Angeles, filed September 5,
1997.
</TABLE>
<PAGE> 328
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
3.4(ff) -- Bylaws of Chancellor Media Corporation of Los Angeles.
4.10(t) -- Second Amended and Restated Loan Agreement dated as of
April 25, 1997 among Evergreen Media Corporation of Los
Angeles, the financial institutions whose names appear as
Lenders on the signature pages thereof (the "Lenders"),
Toronto Dominion Securities, Inc., as Arranging Agent,
The Bank of New York and Bankers Trust Company, as
Co-Syndication Agents, NationsBank of Texas, N.A. and
Union Bank of California, as Co-Documentation Agents, and
Toronto Dominion (Texas), Inc., as Administrative Agent
for the Lenders, together with certain collateral
documents attached thereto as exhibits, including
Assignment of Partnership Interests, Assignment of Trust
Interests, Borrower's Pledge Agreement, Parent Company
Guaranty, Stock Pledge Agreement, Subsidiary.
4.11(z) -- First Amendment to Second Amended and Restated Loan
Agreement, dated June 26, 1997, among Evergreen Media
Corporation of Los Angeles, the Lenders, the Agents and
the Administrative Agent.
4.15(aa) -- Indenture, dated as of February 14, 1996, governing the
9 3/8% Senior Subordinated Notes due 2004 of Chancellor
Radio Broadcasting Company.
4.16(bb) -- First Supplemental Indenture, dated as of February 14,
1996, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of
Chancellor Radio Broadcasting Company.
4.17(cc) -- Indenture, dated as of February 26, 1996, governing the
12 1/4% Subordinated Exchange Debentures due 2008 of
Chancellor Radio Broadcasting Company.
4.18(dd) -- Indenture, dated as of January 23, 1997, governing the
12% Subordinated Exchange Debentures due 2009 of
Chancellor Radio Broadcasting Company.
4.19(ee) -- Indenture, dated as of June 24, 1997, governing the
8 3/4% Senior Subordinated Notes due 2004 of Chancellor
Radio Broadcasting Company.
4.25** -- Second Amendment to Second Amended and Restated Loan
Agreement, dated August 7, 1997, among Evergreen Media
Corporation of Los Angeles, the Lenders, the Agents and
the Administrative Agent.
4.26(hh) -- Second Supplemental Indenture, dated as of April 15,
1997, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of
Chancellor Radio Broadcasting Company.
4.27** -- Third Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of
Chancellor Radio Broadcasting Company.
4.28** -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated June 24, 1997, governing the
8 3/4% Senior Subordinated Notes due 2007 of Chancellor
Radio Broadcasting Company.
4.29** -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated February 26, 1997, governing
the 12 1/4% Subordinated Exchange Debentures due 2008 of
Chancellor Radio Broadcasting Company.
4.30** -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated January 23, 1997, governing
the 12% Subordinated Exchange Debentures due 2009 of
Chancellor Radio Broadcasting Company.
5.1+ -- Opinion of Latham & Watkins.
8.1+ -- Tax Matters Opinion of Latham & Watkins.
10.23(f) -- Evergreen Media Corporation Stock Option Plan for
Non-employee Directors.
</TABLE>
<PAGE> 329
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.26(n) -- Employment Agreement dated February 9, 1996 by and
between Evergreen Media Corporation and Kenneth J.
O'Keefe.
10.28(o) -- 1995 Stock Option Plan for executive officers and key
employees of Evergreen Media Corporation.
10.30** -- First Amendment to Employment Agreement dated March 1,
1997 by and between Evergreen Media Corporation and
Kenneth J. O'Keefe.
10.31** -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and Scott K. Ginsburg.
10.32** -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and James de Castro.
10.33** -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and Matthew E. Devine.
10.34** -- Second Amendment to Employment Agreement dated September
4, 1997 by and among Evergreen Media Corporation,
Evergreen Media Corporation of Los Angeles and Kenneth J.
O'Keefe.
10.35(ii) -- Employment Agreement dated February 14, 1996 by and among
Chancellor Broadcasting Company, Chancellor Radio
Broadcasting Company and Steven Dinetz.
10.36(jj) -- Chancellor Broadcasting Company 1996 Stock Award Plan.
10.37(kk) -- Chancellor Holdings Corp. 1994 Director Stock Option
Plan.
10.38(ll) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Steven Dinetz.
10.39(mm) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Eric W. Neumann.
10.40(nn) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Marvin Dinetz.
10.41(oo) -- Stock Option Grant Letter dated February 14, 1997 from
Chancellor Broadcasting Company to Carl M. Hirsch.
10.42+ -- Registration Rights Agreement, dated June 24, 1997, by
and among Chancellor Radio Broadcasting Company and the
initial purchasers of the 8 3/4% Senior Subordinated
Notes due 2007.
12.1** -- Chancellor Media Corporation of Los Angeles Computation
of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends.
16.1+ -- Letter from KPMG Peat Marwick LLP to the Securities and
Exchange Commission dated September 29, 1997.
21.1** -- Subsidiaries of Chancellor Media Corporation of Los
Angeles.
23.1+ -- Consent of Latham & Watkins (included as part of their
opinion listed as Exhibit 5.1).
23.2+ -- Consent of KPMG Peat Marwick LLP, independent
accountants.
23.3+ -- Consent of KPMG Peat Marwick LLP, independent
accountants.
23.4+ -- Consent of Price Waterhouse LLP, independent accountants.
23.5+ -- Consent of Arthur Andersen LLP, independent accountants.
23.6+ -- Consent of Coopers & Lybrand L.L.P., independent
accountants.
23.7+ -- Consent of Coopers & Lybrand L.L.P., independent
accountants.
</TABLE>
<PAGE> 330
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
23.8+ -- Consent of Price Waterhouse LLP, independent accountants.
23.9+ -- Consent of Arthur Andersen LLP, independent accountants.
23.10+ -- Consent of Latham & Watkins (included as part of their
opinion listed as Exhibit 8.1).
24.1** -- Powers of Attorney (included on signature pages)
25.1** -- Statement of Eligibility on Form T-1 of U.S. Trust
Company of Texas, N.A. under the Indenture.
99.1+ -- Letter Of Transmittal for the Exchange Offer.
99.2+ -- Notice of Guaranteed Delivery for the Exchange Offer.
99.3** -- Independent Auditors' Report on Financial Statement
Schedule.
99.3(a)** -- Evergreen Media Corporation of Los Angeles Schedule
II -- Valuation and Qualifying Accounts for the years
ended December 31, 1994, 1995 and 1996.
</TABLE>
- ---------------
** Previously filed.
+ Filed herewith.
(a) Incorporated by reference to the identically numbered exhibit to
Evergreen's Registration Statement on Form S-1, as amended (Reg. No.
33-60036).
(f) Incorporated by reference to the identically numbered exhibit to
Evergreen's Registration Statement on Form S-4, as amended (Reg. No.
33-89838).
(g) Incorporated by reference to Exhibit No. 4.8 to Evergreen's Registration
Statement on Form S-4, as amended (Reg. No. 33-89838).
(h) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated July 14, 1995.
(i) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated January 17, 1996.
(j) Incorporated by reference to the identically numbered exhibit to
Evergreen's Quarterly Report on Form 10-Q for the quarterly period ending
September 30, 1995.
(k) Incorporated by reference to the identically numbered exhibit to
Evergreen's Registration Statement on Form S-1, as amended (Reg. No.
33-69752).
(n) Incorporated by reference to the identically numbered exhibit to
Evergreen's Annual Report on Form 10-K for the fiscal year ended December
31, 1995.
(o) Incorporated by reference to the identically numbered exhibit to
Evergreen's Quarterly Report on Form 10-Q for the quarterly period ending
March 31, 1996.
(p) Incorporated by reference to the identically numbered exhibit to
Evergreen's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1996.
(q) Incorporated by reference to the identically numbered exhibit to
Evergreen's Registration Statement on Form S-3, as amended (Reg. No.
333-12453).
(r) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated February 16, 1997 and filed
March 9, 1997.
(s) Incorporated by reference to the identically numbered exhibit to
Evergreen's Annual Report on Form 10-K for the fiscal year ended December
31, 1996.
(t) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated April 1, 1997 and filed May 9,
1997.
(y) Incorporated by reference to the identically numbered exhibit of
Evergreen's Registration Statement on Form S-4, filed August 1, 1997.
<PAGE> 331
(z) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated July 7, 1997 and filed July
31, 1997.
(aa) Incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company, as filed on February 29, 1996.
(bb) Incorporated by reference to Exhibit 4.5 to the Annual Report on Form 10-K
of Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company
and Chancellor Broadcasting Licensee Company for the fiscal year ended
December 31, 1995.
(cc) Incorporated by reference to Exhibit 4.6 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company, as filed on February 29, 1996.
(dd) Incorporated by reference to Exhibit 4.7 to the Current Report on Form 8-K
of Chancellor Radio Broadcasting Company, as filed on February 6, 1997.
(ee) Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company as filed on July 17, 1997.
(ff) Incorporated by reference to the identically-numbered exhibit to EMCLA's
Registration Statement on Form S-4 (Reg. No. 333-32259), dated July 29,
1997, as amended.
(gg) Incorporated by reference to the identically-numbered exhibit to the
Quarterly Report on Form 10-Q of Evergreen and EMCLA for the quarterly
period ending June 30, 1997.
(hh) Incorporated by reference to Exhibit 4.8 to the Quarterly Report on Form
10-Q of Chancellor and CRBC for the quarterly period ending March 31, 1997.
(ii) Incorporated by reference to Exhibit 10.6 to Chancellor's Registration
Statement on Form S-1 (Reg. No. 333-02782) filed February 9, 1996.
(jj) Incorporated by reference to Exhibit 4.22 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(kk) Incorporated by reference to Exhibit 4.23 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September 5,
1997.
(ll) Incorporated by reference to Exhibit 4.24 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(mm) Incorporated by reference to Exhibit 4.25 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September 5,
1997.
(nn) Incorporated by reference to Exhibit 4.26 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September 5,
1997.
(oo) Incorporated by reference to Exhibit 4.27 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September 5,
1997.
<PAGE> 1
EXHIBIT 1.1
CHANCELLOR RADIO BROADCASTING COMPANY
$200,000,000
8-3/4% SENIOR SUBORDINATED NOTES DUE 2007
PURCHASE AGREEMENT
June 18, 1997
CREDIT SUISSE FIRST BOSTON
CORPORATION
BT SECURITIES CORPORATION
MORGAN STANLEY & CO. INCORPORATED
c/o Credit Suisse First Boston
Corporation
Eleven Madison Avenue
New York, New York 10010
Ladies and Gentlemen:
Chancellor Radio Broadcasting Company (the "Company"), a
Delaware corporation and subsidiary of Chancellor Broadcasting Company, a
Delaware corporation ("Chancellor"), and each subsidiary guarantor named on the
signature page hereto (the "Guarantors" and, together with the Company, the
"Issuers"), hereby confirm their agreement with you (the "Initial Purchasers"),
as set forth below.
1. The Securities. Subject to the terms and conditions
herein contained, the Company proposes to issue and sell to the Initial
Purchasers $200,000,000 aggregate principal amount of its 8-3/4% Senior
Subordinated Notes due 2007, Series A (the "Notes" and, together with the
guarantee of each Guarantor (the "Guarantee"), the "Securities"). The Notes are
to be issued under an indenture (the "Indenture") to be dated as of June 24,
1997 by and among the Company, the Guarantors and U.S. Trust Company of Texas,
N.A., as trustee (the "Trustee").
The Notes will be offered and sold to the Initial Purchasers
without being registered under the Securities Act of 1933, as amended (the
"Act"), in reliance on exemptions therefrom.
<PAGE> 2
-2-
In connection with the sale of the Notes, the Company has
prepared a final offering memorandum dated June 18, 1997 (the "Memorandum")
setting forth or including a description of the terms of the Notes, the terms
of the offering of the Notes, a description of the Company and any material
developments relating to the Company occurring after the date of the most
recent historical financial statements included therein.
The Initial Purchasers and their direct and indirect
transferees of the Notes will be entitled to the benefits of the Registration
Rights Agreement, substantially in the form attached hereto as Exhibit A (the
"Registration Rights Agreement"), pursuant to which the Company has agreed,
among other things, to file with the Securities and Exchange Commission (the
"Commission") under the circumstances set forth therein (i) a registration
statement (the "Registration Statement") under the Act relating to the
Company's 8-3/4% Senior Subordinated Notes due 2007, Series B (the "Exchange
Notes"), to be offered in exchange for the Notes or (ii) a shelf registration
statement pursuant to Rule 415 under the Act relating to the resale of the
Notes by holders thereof or, if applicable, relating to the resale of debt
securities of the Company substantially identical to the Exchange Notes (the
"Private Exchange Notes") by the Initial Purchasers pursuant to an exchange of
the Notes for Private Exchange Notes.
2. Representations and Warranties of the Company and the
Guarantors. Each of the Company and the Guarantors represents and warrants to
and agrees with the Initial Purchasers that:
(a) The Memorandum and any amendment or supplement thereto as
of the date thereof does not and as of the Closing Date (as defined in Section
3 below) will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this Section 2(a) do not apply to
statements or omissions made in reliance upon and in conformity with
information relating to any of the Initial Purchasers furnished to the Company
in writing by or on behalf of such Initial Purchasers expressly for use in the
Memorandum or any amendment or supplement thereto.
(b) Each of the Company and the Guarantors has been duly
incorporated, is validly existing and is in good standing as a corporation
under the laws of its jurisdiction of incorporation, with all requisite
corporate power and authority to own
<PAGE> 3
-3-
its properties and conduct its businesses as now conducted as described in the
Memorandum, and is duly qualified to do business as a foreign corporation and
is in good standing in all other jurisdictions where the ownership or leasing
of its properties or the conduct of its businesses requires such qualification,
except where the failure to be so qualified would not have a material adverse
effect on the business, condition (financial or other) or results of operations
of the Company and the Guarantors, taken as a whole (a "Material Adverse
Effect"). As of the Closing Date, the Company will have the authorized, issued
and outstanding capitalization set forth in the Memorandum under the caption
"Description of Capital Stock - The Company"; the outstanding shares of capital
stock of each of the Company and the Guarantors have been duly authorized and
validly issued, are fully paid and nonassessable and were not issued in
violation of any preemptive or similar rights; and except as disclosed in the
Memorandum under the caption "Description of Indebtedness - Credit Agreement",
all of the outstanding shares of capital stock of each of the Company and the
Guarantors are owned free and clear of all liens, encumbrances, equities and
claims or restrictions on transferability (other than those imposed by the Act
and the securities or "Blue Sky" laws of certain jurisdictions) or voting. The
Company does not own, directly or indirectly, any shares of stock or any other
equity or long-term debt securities or have any equity interest in any firm,
partnership, joint venture or other entity other than interests in its
subsidiaries or as described in the Memorandum.
(c) No holder of securities of the Company or the Guarantors
will be entitled to have such securities registered under the registration
statements required to be filed by the Company pursuant to the Registration
Rights Agreement, other than as expressly permitted thereby.
(d) The Company has all requisite corporate power and
authority to execute, deliver and perform each of its obligations under the
Notes, the Exchange Notes and the Private Exchange Notes. The Notes, when
issued, will be in the form contemplated by the Indenture and conform in all
material respects to the description thereof in the Memorandum. The Notes, the
Exchange Notes and the Private Exchange Notes have each been duly authorized by
the Company and, when executed by the Company and authenticated by the Trustee
in accordance with the provisions of the Indenture and, in the case of the
Notes, delivered to and paid for by the Initial Purchasers in accordance with
the terms of this Agreement, will be entitled to the benefits of the Indenture
and will constitute valid and legally
<PAGE> 4
-4-
binding obligations of the Company, enforceable against the Company in
accordance with their terms, except that the enforcement thereof may be subject
to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally, and (ii) general principles of equity and the
discretion of the court before which any proceeding therefor may be brought
(regardless of whether such enforcement is considered in a proceeding in equity
or at law), and except insofar as the usury waiver contained therein may be
unenforceable. Each of the Company and the Guarantors has all requisite
corporate power and authority to execute, deliver and perform its respective
obligations under the Indenture; the Indenture has been duly authorized by the
Company and the Guarantors and, when executed and delivered by the Company and
the Guarantors (assuming the due authorization, execution and delivery by the
Trustee), will constitute a valid and legally binding obligation of the Company
and the Guarantors, enforceable against the Company and the Guarantors in
accordance with its terms, except that the enforcement thereof may be subject
to (i) bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and (ii) general principles of equity and the
discretion of the court before which any proceeding therefor may be brought
(regardless of whether such enforcement is considered in a proceeding in equity
or at law), and except insofar as the usury waiver contained therein may be
unenforceable.
(e) The Guarantees have been duly authorized by each Guarantor
and, when executed by the Guarantors and authenticated by the Trustee in
accordance with the provisions of the Indenture will, upon the execution,
authentication and delivery of the Notes and payment therefor in accordance
with the terms of this Agreement, by entitled to the benefits of the Indenture
and will constitute a valid and legally binding obligation of the Guarantors
enforceable in accordance with its terms, except that the enforcement thereof
may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws now or hereafter in effect
relating to creditor's rights and remedies generally, and (ii) general
principles of equity and the discretion of the court before which any
proceeding therefor may be brought (regardless of whether such enforcement is
considered in a proceeding in equity or at law), and except insofar as the
usury waiver contained therein may be unenforceable.
<PAGE> 5
-5-
(f) Each of the Company and the Guarantors has all requisite
corporate power and authority to execute and deliver this Agreement, to issue
and deliver the Securities and to consummate the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by each
of the Issuers. No consent, approval, authorization or order of any court or
governmental agency or body (including, without limitation, the Federal
Communications Commission (the "FCC")) is required for the performance of this
Agreement, the Notes, the Guarantee, the Indenture or any of the transactions
contemplated hereby by the Company and by the Guarantors, to the extent a party
thereto, except such as have been obtained and such as may be required under
state securities or "Blue Sky" laws in connection with the purchase and initial
resale of the Securities by the Initial Purchasers and except as contemplated
by the Registration Rights Agreement. None of the Company or the Guarantors is
(i) in violation of its certificate of incorporation or bylaws (or similar
organizational document), (ii) in violation of any statute, judgment, decree,
order, rule or regulation applicable to the Company or the Guarantors, which
violation would have a Material Adverse Effect, or (iii) in default in the
performance or observance of any obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement, note,
lease, license, franchise agreement, permit, certificate, contract or other
agreement or instrument to which the Company and or the Guarantors is a party
or to which the Company or the Guarantors is subject, which violation or
default would have a Material Adverse Effect.
(g) Each of the Company and the Guarantors has all requisite
corporate power and authority to enter into the Registration Rights Agreement.
The Registration Rights Agreement has been duly authorized by each of the
Company and the Guarantors and, when executed and delivered by the Company and
the Guarantors, will constitute a valid and legally binding obligation of the
Company and the Guarantors, enforceable against each of the Company and the
Guarantors in accordance with its terms, except that (A) the enforcement
thereof may be subject to (i) bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles of equity
and the discretion of the court before which any proceeding therefor may be
brought (regardless of whether such enforcement is considered in a proceeding
in equity or at law) and (B) any rights to indemnity or contribution thereunder
may be limited by federal and state securities laws and public policy
considerations.
<PAGE> 6
-6-
(h) The execution, delivery and performance by the Company and
the Guarantors of this Agreement, the Notes, the Guarantee, the Indenture and
the Registration Rights Agreement and the consummation by Chancellor, the
Company and the Guarantors of the transactions contemplated hereby and thereby
will not conflict with or constitute or result in a breach or violation by the
Company of any of (i) the terms or provisions of, or constitute a default by
the Company or any Guarantor under, any contract, indenture, mortgage, deed of
trust, loan agreement, note, lease, license, franchise agreement or other
agreement or instrument to which the Company or any Guarantor is a party or to
which any of them or their respective properties is subject (each a "Contract"
or collectively, the "Contracts"), which conflict, breach, violation or default
would have a Material Adverse Effect, (ii) the certificate of incorporation or
bylaws (or similar organizational document) of the Company or any Guarantor, as
the same will be in effect on the Closing Date, or (iii) (assuming compliance
with all applicable state securities and "Blue Sky" laws and assuming the
accuracy of the representations and warranties of the Initial Purchasers in
Section 8 hereof) any statute, judgment, decree, order, rule or regulation of
any court or governmental agency or other body applicable to the Company or or
any Guarantor or any of their properties, which conflict, breach, violation or
default would have a Material Adverse Effect.
(i) The audited consolidated financial statements of the
Company and its consolidated subsidiaries included in the Memorandum present
fairly, in all material respects, the consolidated financial position, results
of operations and cash flows of the Company and its consolidated subsidiaries
at the dates and for the periods to which they relate and have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis, except as otherwise stated therein. The unaudited
consolidated financial statements and the related notes included in the
Memorandum present fairly, in all material respects, the consolidated financial
position, results of operations and cash flows of the Company and its
consolidated subsidiaries at the dates and for the periods to which they
relate, subject to year-end audit adjustments and the more detailed note
requirements for audited statements, and have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis, except
as otherwise stated therein. To the Company's knowledge, Coopers & Lybrand
L.L.P., which has examined certain of such consolidated financial statements as
set forth in its reports included in the Memorandum are independent public
<PAGE> 7
-7-
accountants under Rule 101 of the AICPA's Code of Professional Conduct, and its
rulings and interpretations.
(j) The audited financial statements and schedules of "Trefoil
Communications, Inc." (as defined in the Memorandum) included in the Memorandum
present fairly, in all material respects, the consolidated financial position,
results of operations and cash flows of Trefoil Communications, Inc. and its
consolidated subsidiaries at the dates and for the periods to which they relate
and have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis, except as otherwise stated therein.
To the Company's knowledge, Price Waterhouse LLP, which has examined certain of
such consolidated financial statements of Trefoil Communications, Inc. and its
consolidated subsidiaries as set forth in its reports included in the
Memorandum, are independent public accountants under Rule 101 of the AICPA's
Code of Professional Conduct, and its rulings and interpretations.
(k) The audited combined financial statements and schedules of
Colfax Communications, Inc. ("Colfax") included in the Memorandum present
fairly, in all material respects, the financial position, results of operations
and cash flows of Colfax at the dates and for the periods to which they relate
and have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis, except as otherwise stated therein.
To the Company's knowledge, Arthur Andersen LLP, which has examined certain of
such financial statements of Colfax as set forth in its reports included in the
Memorandum, are independent public accountants under Rule 101 of the AICPA's
Code of Professional Conduct, and its rulings and interpretations.
(l) The audited financial statements of WDRQ Inc., the
combined financial statements of KYSR, Inc. and KIBB Inc. and the financial
statements of WLIT Inc. (such stations, collectively, the "Chancellor-Viacom
Stations") included in the Memorandum present fairly, in all material respects,
the financial position, results of operations and cash flows of the Chancellor-
Viacom Stations at the dates and for the periods to which they relate and have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis, except as otherwise stated therein. The
unaudited combined financial statements and the related notes included in the
Memorandum present fairly, in all material respects (on the basis stated
therein, the financial position, results of operations and cash flows of the
Chancellor-Viacom Stations at the dates and for the periods to which they
relate, subject to
<PAGE> 8
-8-
year-end audit adjustments, and have been prepared in accordance with generally
accepted principles applied on a consistent basis, except as otherwise stated
therein.) To the knowledge of the Company, KPMG Peat Marwick, which has
examined certain of such financial statements of the Chancellor-Viacom Stations
as set forth in its reports included in the Memorandum, are independent public
accountants under Rule 101 of the AICPA's Code of Professional Conduct, and its
rulings and interpretations.
(m) The pro forma consolidated financial information
(including the notes thereto) included in the Memorandum (A) presents the
information shown therein under the applicable requirements of Regulation S-X
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"); (B) have been prepared in accordance with the applicable
requirements of Regulation S-X promulgated under the Exchange Act; (C) have
been prepared in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements; and (D) have been properly computed
on the bases described therein. The assumptions used in the preparation of the
pro forma financial statements and other pro forma condensed consolidated
financial information included in the Memorandum are reasonable and the
adjustments used therein are reasonably appropriate to give effect to the
transactions or circumstances referred to therein.
(n) Except as described in the Memorandum, there is not
pending or, to the knowledge of the Company or any Guarantor, threatened, any
action, suit, proceeding, inquiry or investigation to which the Company or any
Guarantor is a party, or to which the property of the Company or any Guarantor
is subject, before or brought by any court or governmental agency or body
(including, without limitation, the FCC), that would have a Material Adverse
Effect.
(o) Each of the Company and the Guarantors owns or possesses
licenses or other rights to use all material patents, trademarks, service
marks, trade names, copyrights and know-how necessary to conduct the businesses
now or proposed to be operated by it as described in the Memorandum, and
neither the Company nor any Guarantor has received any notice of infringement
of or conflict with (or knows of any such infringement of or conflict with)
asserted rights of others with respect to any patents, trademarks, service
marks, trade names, copyrights or know-how which, if such assertion of
infringement or conflict were sustained, would have a Material Adverse Effect.
<PAGE> 9
-9-
(p) Each of the Company and the Guarantors has obtained, or
has applied for, all licenses, permits, franchises and other governmental
authorizations necessary to conduct the businesses now or proposed to be
operated by it as described in the Memorandum, the lack of which would have a
Material Adverse Effect.
(q) Subsequent to the respective dates as of which information
is given in the Memorandum and except as described therein or contemplated
thereby, (i) neither the Company nor any Guarantor has incurred any material
liabilities or obligations, direct or contingent, or entered into any material
transactions, not in the ordinary course of business and (ii) the Company has
not purchased any of its outstanding capital stock, nor declared, paid or
otherwise made any dividend or distribution of any kind on its capital stock.
(r) Except as described in the Memorandum, neither the Company
nor any Guarantor is in default under any Contract, has received a notice or
claim of any such default or has knowledge of any breach of any Contract by the
other party or parties thereto, except such defaults or breaches as would not
have a Material Adverse Effect.
(s) Each of the Company and the Guarantors has filed all
necessary federal, state and foreign income and franchise tax returns, except
where the failure to so file such returns would not have a Material Adverse
Effect, and each has paid all taxes shown as due thereon; and other than tax
deficiencies which the Company or any Guarantor is contesting in good faith and
for which adequate reserves have been provided, there is no tax deficiency that
has been asserted against the Company or any Guarantor that would have a
Material Adverse Effect.
(t) Neither the Company nor any Guarantor nor any agent acting
on their behalf has taken or will take any action that might cause this
Agreement or the issuance and sale of the Securities to violate Regulation G,
T, U or X of the Board of Governors of the Federal Reserve System, in each case
as in effect, or as the same may hereafter be in effect, on the Closing Date.
(u) Each of the Company and the Guarantors has good and
marketable title to all real property and good title to all personal property
described in the Memorandum as being owned by it and good and marketable title
to a leasehold estate in the real and personal property described in the
Memorandum as being leased by it (except for those leases of real property in
which
<PAGE> 10
-10-
the Company has good title and that would be marketable but for the requirement
that the landlord consent to an assignment or sublease of the lease), free and
clear of all liens, charges, encumbrances or restrictions, except, in each
case, as described in the Memorandum or to the extent the failure to have such
title or the existence of such liens, charges, encumbrances or restrictions
would not have a Material Adverse Effect.
(v) Except for the Company's existing credit agreement and
except as described in the Memorandum, there are no consensual encumbrances or
restrictions on the ability of the Guarantors (i) to pay dividends or make any
other distributions on its capital stock or to pay any indebtedness owed to the
Company; (ii) to make any loans or advances to, or investments in, the Company;
or (iii) to transfer any of its property or assets to the Company or the
Guarantors or any other subsidiary of the Company or the Guarantors.
(w) Neither the Company nor any Guarantor is an "investment
company" or an affiliated person of, or "promoter" or "principal underwriter"
for, an "investment company," as such terms are defined in the Investment
Company Act of 1940, as amended, and the rules and regulations thereunder.
(x) Neither the Company, any Guarantor nor, to their
knowledge, any of their directors, officers or controlling persons has taken,
directly or indirectly, any action designed, or that might reasonably be
expected, to cause or result, under the Act or otherwise, in, or that has
constituted, stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Notes.
(y) Each of the Company and the Guarantors is in compliance
with all provisions of Section 517.075 of Florida Statutes, as amended,
relating to issuers doing business with Cuba.
(z) The Notes, the Guarantees, the Exchange Notes, the Private
Exchange Notes, the Indenture and the Registration Rights Agreement will
conform in all material respects to the descriptions thereof in the Memorandum.
(aa) Neither the Company nor any Guarantor or any of their
respective Affiliates (as defined in Rule 501(b) of Regulation D under the Act)
has directly, or through any agent, (i) sold, offered for sale, solicited
offers to buy or otherwise negotiated in respect of, any "security" (as defined
in
<PAGE> 11
-11-
the Act) that is or could be integrated with the sale of the Notes in a manner
that would require the registration under the Act of the Notes or (ii) engaged
in any form of general solicitation or general advertising (as those terms are
used in Regulation D under the Act) in connection with the offering of the
Notes or in any manner involving a public offering within the meaning of
Section 4(2) of the Act. Assuming the accuracy of the representations and
warranties of the Initial Purchasers in Section 8 hereof, the Company has not
been informed by counsel that it is necessary in connection with the offer,
sale and delivery of the Notes to the Initial Purchasers in the manner
contemplated by this Agreement to register any of the Notes under the Act or to
qualify the Indenture under the Trust Indenture Act of 1939, as amended (the
"TIA").
(bb) No securities of the Company or any subsidiary are of the
same class (within the meaning of Rule 144A under the Act) as the Notes and
listed on a national securities exchange registered under Section 6 of the
Exchange Act, or quoted in a U.S. automated inter-dealer quotation system.
(cc) The statistical and market-related data included in the
Memorandum are based on or derived from sources that the Company believes to be
reliable and accurate in all material respects.
(dd) The information set forth in the Memorandum under the
caption "Summary - Recent Developments - Evergreen Merger" is true and accurate
in all material respects as of the date hereof; and to the knowledge of the
Company, the representations and warranties of Evergreen Media Corporation
contained in the Merger Agreement (as defined in the Memorandum) were true and
accurate in all material respects as of the date of the Merger Agreement.
Any certificate signed by any officer of the Company or any
subsidiary and delivered to any Initial Purchaser or to counsel for the Initial
Purchasers shall be deemed a representation and warranty by the Company to
each Initial Purchaser as to the matters covered thereby.
3. Purchase, Sale and Delivery of the Securities. On the
basis of the representations, warranties, agreements and covenants herein
contained and subject to the terms and conditions herein set forth, the Issuers
agree to issue and sell to the Initial Purchasers, and the Initial Purchasers,
acting severally and not jointly, agree to purchase from the Issuers the Notes
in the respective amounts set forth in Schedule I hereto
<PAGE> 12
-12-
at 97.25% of their principal amount. One or more certificates in definitive
form for the Notes that the Initial Purchasers have agreed to purchase
hereunder, and in such denomination or denominations and registered in such
name or names as the Initial Purchasers request upon notice to the Company at
least 36 hours prior to the Closing Date, shall be delivered by or on behalf of
the Issuers to the Initial Purchasers, against payment by or on behalf of the
Initial Purchasers of the purchase price therefor by wire transfer (same day
funds) to such account or accounts as the Company shall specify prior to the
Closing Date, or by such means as the parties hereto shall agree prior to the
Closing Date. Such delivery of and payment for the Notes shall be made at the
offices of Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005,
at 9:00 A.M., New York time, on June 24, 1997, or at such other place, time or
date as the Initial Purchasers, on the one hand, and the Company, on the other
hand, may agree upon, such time and date of delivery against payment being
herein referred to as the "Closing Date." The Company will make such
certificate or certificates for the Notes available for checking and packaging
by the Initial Purchasers at the offices of Credit Suisse First Boston
Corporation in New York, New York, or at such other place as Credit Suisse
First Boston Corporation may designate, at least 24 hours prior to the Closing
Date.
4. Offering by the Initial Purchasers. The Initial
Purchasers propose to make an offering of the Notes at the price and upon the
terms set forth in the Memorandum, as soon as practicable after this Agreement
is entered into and as in the judgment of the Initial Purchasers is advisable.
5. Covenants of the Issuers. Each of the Issuers,
jointly and severally, covenants and agrees with the Initial Purchasers that:
(a) None of the Issuers will amend or supplement the
Memorandum or any amendment or supplement thereto of which the Initial
Purchasers shall not previously have been advised and furnished a copy for a
reasonable period of time prior to the proposed amendment or supplement and as
to which the Initial Purchasers shall not have given its consent, which will
not be unreasonably withheld. The Issuers will promptly, upon the reasonable
request of the Initial Purchasers or counsel for the Initial Purchasers, make
any amendments or supplements to the Memorandum that may be necessary or
advisable in connection with the resale of the Notes by the Initial Purchasers.
<PAGE> 13
-13-
(b) Each of the Issuers will cooperate with the Initial
Purchasers in arranging for the qualification of the Notes for offering and
sale under the securities or "Blue Sky" laws of which jurisdictions as the
Initial Purchasers may designate and will continue such qualifications in
effect for as long as may be reasonably necessary to complete the resale of the
Notes; provided, however, that in connection therewith, none of the Issuers
shall be required to qualify as a foreign corporation or to execute a general
consent to service of process in any jurisdiction or subject itself to taxation
in any such jurisdiction where it is not so subject.
(c) If, at any time prior to the completion of the
distribution by the Initial Purchasers of the Securities, any event occurs or
information becomes known as a result of which the Memorandum as then amended
or supplemented would include any untrue statement of a material fact, or omit
to state a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, or if for any
other reason it is necessary at any time to amend or supplement the Memorandum
to comply with applicable law, the Issuers will promptly notify the Initial
Purchasers thereof and will prepare, at the expense of the Issuers, an
amendment or supplement to the Memorandum that corrects such statement or
omission or effects such compliance.
(d) Each of the Issuers will, without charge, provide to the
Initial Purchasers and to counsel for the Initial Purchasers as many copies of
the Memorandum or any amendment or supplement thereto as the Initial Purchasers
may reasonably request.
(e) The Company will apply the net proceeds from the sale of
the Notes substantially as set forth under "Use of Proceeds" in the Memorandum.
(f) For so long as the Securities remain outstanding (but in
no event longer than five years), the Issuers will furnish to the Initial
Purchasers copies of all reports and other communications (financial or
otherwise) furnished by the Issuers to the Trustee or to the holders of the
Securities and, as soon as available, copies of any reports or financial
statements furnished to or filed by the Company with the Commission or any
national securities exchange on which any class of securities of the Company
may be listed.
(g) Prior to the Closing Date, the Issuers will furnish to the
Initial Purchasers, as soon as they have been
<PAGE> 14
-14-
prepared, a copy of any unaudited interim financial statements of the Company
for any period subsequent to the period covered by the most recent financial
statements appearing in the Memorandum.
(h) Neither the Company nor any Guarantor or any of their
respective Affiliates will sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any "security" (as defined in the Act) that
could be integrated with the sale of the Notes in a manner which would require
the registration under the Act of the Notes.
(i) The Issuers will not engage in any form of general
solicitation or general advertising (as those terms are used in Regulation D
under the Act) in connection with the offering of the Notes or in any manner
involving a public offering within the meaning of Section 4(2) of the Act.
(j) The Issuers will use their reasonable best efforts to (i)
assist the Initial Purchasers in permitting the Notes to be designated PORTAL
securities in accordance with the rules and regulations adopted by the NASD
relating to trading in the Private Offerings, Resales and Trading through
Automated Linkages market (the "PORTAL Market") and (ii) permit the Notes to be
eligible for clearance and settlement through The Depository Trust Company.
6. Expenses. The Issuers, jointly and severally, agree
to pay the following costs and expenses and all other costs and expenses
incident to the performance of their respective obligations under this
Agreement, whether or not the transactions contemplated herein are consummated
or this Agreement is terminated pursuant to Section 11 hereof, including all
costs and expenses incident to (i) the printing, word processing or other
production of documents with respect to the transactions contemplated hereby,
including any costs of printing the Memorandum and any amendment or supplement
thereto, and any "Blue Sky" memoranda, (ii) all arrangements relating to the
delivery to the Initial Purchasers of copies of the foregoing documents, (iii)
the fees and disbursements of the counsel, the accountants and any other
experts or advisors retained by the Issuers, (iv) preparation (including
printing), issuance and delivery to the Initial Purchasers of the Securities
(including Trustee's fees), (v) the qualification of the Notes under state
securities and "Blue Sky" laws, including filing fees and reasonable fees and
disbursements of counsel for the Initial Purchasers relating thereto, (vi) fees
and expenses of the Trustee including fees and expenses of counsel and (vii)
all expenses
<PAGE> 15
-15-
and listing fees incurred in connection with the application for quotation of
the Notes on the PORTAL Market. If the sale of the Securities provided for
herein is not consummated because any condition to the obligations of the
Initial Purchasers set forth in Section 7 hereof is not satisfied, because this
Agreement is terminated or because of any failure, refusal or inability on the
part of the Company or any Guarantor to perform all obligations and satisfy all
conditions on their part to be performed or satisfied hereunder (other than
solely by reason of a default by the Initial Purchasers of their obligations
hereunder after all conditions hereunder have been satisfied in accordance
herewith), the Company and the Guarantors agree to promptly reimburse the
Initial Purchasers upon demand for all reasonable out-of-pocket expenses
(including reasonable fees and disbursements of Cahill Gordon & Reindel,
counsel for the Initial Purchasers) that shall have been incurred by the
Initial Purchasers in connection with the proposed purchase and sale of the
Notes.
7. Conditions of the Initial Purchasers' Obligations.
The obligation of the Initial Purchasers to purchase and pay for the Securities
shall, in their sole discretion, be subject to the following conditions on or
prior to the Closing Date:
(a) The Initial Purchasers shall have received opinions in
form and substance satisfactory to the Initial Purchasers, dated the Closing
Date, of (i) Weil, Gotshal & Manges LLP, counsel for the Issuers, substantially
in the form of Exhibit B-1 hereto and (ii) Leibowitz & Associates, regulatory
counsel for the Issuers, substantially in the form of Exhibit B-2 hereto. In
rendering such opinions, Weil, Gotshal & Manges LLP and Liebowitz & Associates
shall have received and may rely upon such certificates and other documents and
information as they may reasonably request to pass upon such matters.
(b) The Initial Purchasers shall have received an opinion,
dated the Closing Date, of Cahill Gordon & Reindel, counsel for the Initial
Purchasers, with respect to certain legal matters relating to this Agreement,
and such other related matters as the Initial Purchasers may require. In
rendering such opinion, Cahill Gordon & Reindel shall have received and may
rely upon such certificates and other documents and information as they may
reasonably request to pass upon such matters. In addition, in rendering their
opinion, Cahill Gordon & Reindel may state that their opinion is limited to
matters of New York, Delaware corporate and federal law.
<PAGE> 16
-16-
(c) The Initial Purchasers shall have received from each of
Coopers & Lybrand L.L.P., Arthur Andersen LLP and KPMG Peat Marwick, dated,
respectively, on or about the date hereof and as of the Closing Date, customary
comfort letters addressed to the Initial Purchasers, in form and substance
reasonably satisfactory to the Initial Purchasers and counsel for the Initial
Purchasers.
(d) The representations and warranties of the Company and the
Guarantors contained in this Agreement shall be true and correct in all
material respects as of the date hereof and as of the Closing Date; the Company
and the Guarantors shall have complied in all material respects with all
covenants and agreements and satisfied all conditions on its part to be
performed or satisfied hereunder at or prior to the Closing Date; and
subsequent to the date of the most recent financial statements in the
Memorandum, there shall have been no material adverse change in the business,
condition (financial or other), results of operations or prospects of the
Company and the Guarantors, taken as a whole, except as set forth in, or
contemplated by, the Memorandum.
(e) The issuance and sale of the Securities by the Company and
the Guarantors hereunder shall not be enjoined (temporarily or permanently) on
the Closing Date and no restraining order or other injunctive order shall have
been issued or any action, suit or proceeding shall have been commenced with
respect to this Agreement or any other transactions hereby, before any court or
governmental authority (including, without limitation, the FCC).
(f) Subsequent to the date as of which information is given in
the Memorandum, except as described in or as contemplated by the Memorandum,
none of the Company or any Guarantor shall have incurred any liabilities or
obligations, direct or contingent (other than in the ordinary course of
business) that are material to the Company and the Guarantors, taken as a
whole, or entered into any transactions not in the ordinary course of business
that are material to the business, condition (financial or other), results of
operations or prospects of the Company and the Guarantors, taken as a whole,
and, other than as contemplated by the Memorandum, there shall not have been
any change in the capital stock or long-term indebtedness of the Company or any
Guarantor that is material to the business, condition (financial or other),
results of operations or prospects of the Company and the Guarantors, taken as
a whole.
<PAGE> 17
-17-
(g) Subsequent to the date as of which information is given in
the Memorandum, the conduct of the business and operations of the Company or
any of its subsidiaries has not been interfered with by strike, fire, flood,
hurricane, accident or other calamity (whether or not insured) or by any court
or governmental action, order or decree, and, except as otherwise stated
therein, the properties of the Company or any of its subsidiaries have not
sustained any loss or damage (whether or not insured) as a result of any such
occurrence, except any such interference, loss or damage which would not have a
Material Adverse Effect.
(h) The Initial Purchasers shall have received a certificate
of the Company, dated the Closing Date, signed on behalf of the Company by its
President and Chief Executive Officer and Senior Vice President and Chief
Financial Officer of the Company, to the effect that:
(i) The representations and warranties of the Company and
the Guarantors in this Agreement are true and correct in all material
respects as if made on and as of the Closing Date (other than to the
extent any such representation or warranty is expressly made to a
certain date), and the Company and each Guarantor has performed in all
material respects all covenants and agreements and satisfied, in all
material respects, all conditions on their part to be performed or
satisfied hereunder, to the extent a party thereto, at or prior to the
Closing Date;
(ii) At the Closing Date, since the date hereof or since
the date of the most recent financial statement in the Memorandum, no
event or events have occurred, nor has any information become known
that, individually or in the aggregate, would have a Material Adverse
Effect;
(iii) The issuance and sale of the Securities by the
Company and the Guarantors hereunder has not been enjoined
(temporarily or permanently); and
(iv) Subsequent to the respective dates as of which
information is given in the Memorandum, except in each case as
described in or as contemplated by the Memorandum, neither the Company
nor any of the Guarantors has incurred any liabilities or obligations,
direct or contingent, that are material to the Company and the
Guarantors, taken as a whole, or entered into any transactions that,
individually or in the aggregate, would have a Material Adverse
Effect; and there has been no change in the capital stock or long-term
<PAGE> 18
-18-
indebtedness of the Company or the Guarantors that individually or in
the aggregate would have a Material Adverse Effect.
(i) On the Closing Date, the Initial Purchasers shall have
received the Registration Rights Agreement executed by the Company and the
Guarantors and such agreement shall be in full force and effect on the Closing
Date.
(j) On or before the Closing Date, the Initial Purchasers and
counsel for the Initial Purchasers shall have received such further documents,
opinions, certificates and schedules or instruments relating to the business,
corporate, legal and financial affairs of the Issuers as they shall have
heretofore reasonably requested from the Issuers.
All such opinions, certificates, letters, schedules, documents
or instruments delivered pursuant to this Agreement will comply with the
provisions hereof only if they are reasonably satisfactory in all material
respects to the Initial Purchasers and counsel for the Initial Purchasers. The
Company shall furnish to the Initial Purchasers such conformed copies of such
opinions, certificates, letters, schedules, documents and instruments in such
quantities as the Initial Purchasers shall reasonably request.
8. Offering of Notes; Restrictions on Transfer. (a) Each
of the Initial Purchasers represents and warrants that it is a QIB. Each of the
Initial Purchasers agrees with the Issuers that (i) it has not and will not
solicit offers for, or offer or sell, the Securities by any form of general
solicitation or general advertising (as those terms are used in Regulation D
under the Act) or in any manner involving a public offering within the meaning
of Section 4(2) of the Act; and (ii) it has and will solicit offers for the
Securities only from, and will offer the Securities only to (A) in the case of
offers inside the United States, persons whom it reasonably believes to be QIBs
or, if any such person is buying for one or more institutional accounts for
which such person is acting as fiduciary or agent, only when such person has
represented to it that each such account is a QIB, to whom notice has been
given that such sale or delivery is being made in reliance on Rule 144A, and,
in each case, in transactions under Rule 144A and (B) in the case of offers
outside the United States, to persons other than U.S. persons ("foreign
purchasers," which term shall include dealers or other professional fiduciaries
in the United States acting on a discretionary basis for foreign beneficial
owners (other than an estate or trust)); provided,
<PAGE> 19
-19-
however, that, in the case of this clause (B), in purchasing such Securities
such persons are deemed to have represented and agreed as provided under the
caption "Transfer Restrictions" contained in the Memorandum.
(b) Each of the Initial Purchasers represents and warrants (as
to itself only) with respect to offers and sales outside the United States that
(i) it has complied and will comply with all applicable laws and regulations in
each jurisdiction in which it acquires, offers, sells or delivers Securities or
has in its possession or distributes the Memorandum or any such other material,
in all cases at its own expense; (ii) the Securities have not been and will not
be offered or sold within the United States or to, or for the account or
benefit of, U.S. persons except in accordance with Regulation S under the Act
or pursuant to an exemption from the registration requirements of the Act;
(iii) it has offered the Securities and will offer and sell the Securities (A)
as part of its distribution at any time and (B) otherwise until 40 days after
the later of the commencement of the offering and the Closing Date, only in
accordance with Rule 903 of Regulation S and, accordingly, neither it nor any
persons acting on its behalf have engaged or will engage in any directed
selling efforts (within the meaning of Regulation S) with respect to the
Securities, and any such persons have complied and will comply with the
offering restrictions requirement of Regulation S; and (iv) it agrees that, at
or prior to confirmation of sales of the Securities, it will have sent to each
distributor, dealer or person receiving a selling concession, fee or other
remuneration that purchases Notes from it during the restricted period a
confirmation or notice to substantially the following effect:
"The Securities covered hereby have not been registered under the
United States Securities Act of 1933 (the "Securities Act") and may
not be offered and sold within the United States or to, or for the
account or benefit of, U.S. persons (i) as part of the distribution of
the Securities at any time or (ii) otherwise until 40 days after the
later of the commencement of the offering and the closing date of the
offering, except in either case in accordance with Regulation S (or
Rule 144A if available) under the Securities Act. Terms used above
have the meaning given to them in Regulation S."
Terms used in this Section 8(b) and not defined in this Agreement have the
meanings given to them in Regulation S.
<PAGE> 20
-20-
(c) Each of the Initial Purchasers represents and warrants (as
to itself only) that the source of funds being used by it to acquire the
Securities does not include the assets of any "employee benefit plan" (within
the meaning of Section 3 of ERISA) or any "plan" (within the meaning of Section
4975 of the Code).
9. Indemnification and Contribution. (a) The Issuers
agree, jointly and severally, to indemnify and hold harmless each Initial
Purchaser, and each person, if any, who controls any Initial Purchaser within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, against
any losses, claims, damages or liabilities to which any Initial Purchaser or
such controlling person may become subject under the Act, the Exchange Act or
otherwise, insofar as any such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of
any material fact contained in the Memorandum or any amendment or
supplement thereto or any application or other document, or any
amendment or supplement thereto, executed by the Company or the
Guarantors or based upon written information furnished by or on behalf
of the Issuers filed in any jurisdiction in order to qualify the
Securities under the securities or "Blue Sky" laws thereof or filed
with any securities association or securities exchange (each an
"Application"); or
(ii) the omission or alleged omission to state, in the
Memorandum or any amendment or supplement thereto or any Application,
a material fact required to be stated therein or necessary to make the
statements therein not misleading,
and will reimburse, as incurred, the Initial Purchasers and each such
controlling person for any legal or other expenses incurred by the Initial
Purchasers or such controlling person in connection with investigating,
defending against or appearing as a third-party witness in connection with any
such loss, claim, damage, liability or action; provided, however, the Issuers
will not be liable in any such case to the extent that any such loss, claim,
damage, or liability arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in the Memorandum
or any amendment or supplement thereto or any Application in reliance upon and
in conformity with written information concerning the Initial Purchasers
furnished to the Issuers by or on behalf of
<PAGE> 21
-21-
any Initial Purchaser through Credit Suisse First Boston Corporation ("CSFB")
specifically for use therein. This indemnity agreement will be in addition to
any liability that the Issuers may otherwise have to the indemnified parties.
The Issuers shall not be liable under this Section 9 for any settlement of any
claim or action effected without its prior written consent, which shall not be
unreasonably withheld.
The Initial Purchasers shall not, without the prior written
consent of the Company, effect any settlement or compromise of any pending or
threatened proceeding in respect of which the Company or any Guarantor is or
could have been a party, or indemnity could have been sought hereunder by the
Company or any Guarantor, unless such settlement (A) includes an unconditional
written release of the Company or such Guarantor, in form and substance
reasonably satisfactory to the Company, from all liability on claims that are
the subject matter of such proceeding and (B) does not include any statement as
to an admission of fault, culpability or failure to act by or on behalf of the
Company or any Guarantor.
(b) Each of the Initial Purchasers agrees, severally and not
jointly, to indemnify and hold harmless each of the Company and the Guarantors,
their respective directors, officers and each person, if any, who controls the
Company or any Guarantor within the meaning of Section 15 of the Act or Section
20 of the Exchange Act against any losses, claims, damages or liabilities to
which the Company, the Guarantors or any such director, officer or controlling
person may become subject under the Act, the Exchange Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in any Memorandum or any amendment or
supplement thereto or any Application, or (ii) the omission or the alleged
omission to state therein a material fact required to be stated in any
Memorandum or any amendment or supplement thereto or any Application, or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information concerning such Initial Purchaser through
CSFB, furnished to the Issuers by or on behalf of such Initial Purchaser
specifically for use therein; and subject to the limitation set forth
immediately preceding this clause, will reimburse, as incurred, any legal or
other expenses incurred by the Company, the Guarantors or any such director,
officer or controlling person in connection with investigating
<PAGE> 22
-22-
or defending against or appearing as a third party witness in connection with
any such loss, claim, damage, liability or action in respect thereof. This
indemnity agreement will be in addition to any liability that the Initial
Purchasers may otherwise have to the indemnified parties. The Initial
Purchasers shall not be liable under this Section 9 for any settlement of any
claim or action effected without its consent, which shall not be unreasonably
withheld.
Neither the Company nor any Guarantor shall without the prior
written consent of the Initial Purchasers, effect any settlement or compromise
of any pending or threatened proceeding in respect of which any Initial
Purchaser is or could have been a party, or indemnity could have been sought
hereunder by any Initial Purchaser, unless such settlement (A) includes an
unconditional written release of the Initial Purchasers, in form and substance
reasonably satisfactory to the Initial Purchasers, from all liability on claims
that are the subject matter of such proceeding and (B) does not include any
statement as to an admission of fault, culpability or failure to act by or on
behalf of any Initial Purchaser.
(c) Promptly after receipt by an indemnified party under
paragraphs (a) or (b) of this Section 9 of notice of the commencement of any
action for which such indemnified party is entitled to indemnification under
this Section 9, such indemnified party will, if a claim in respect thereof is
to be made against the indemnifying party under this Section 9, notify the
indemnifying party of the commencement thereof in writing; but the omission to
so notify the indemnifying party (i) will not relieve it from any liability
under paragraph (a) or (b) above unless and to the extent such failure results
in the forfeiture by the indemnifying party of substantial rights and defenses
and (ii) will not, in any event, relieve the indemnifying party from any
obligations to any indemnified party other than the indemnification obligation
provided in paragraphs (a) and (b) above. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party; provided, however,
that if (i) the use of counsel chosen by the indemnifying party to represent
the indemnified party would present such counsel with a conflict of interest,
or (ii) the indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified party within
a reasonable
<PAGE> 23
-23-
time after receipt by the indemnifying party of notice of the institution of
such action, then, in each such case, the indemnifying party shall not have the
right to direct the defense of such action on behalf of such indemnified party
or parties and such indemnified party or parties shall have the right to select
separate counsel to defend such action on behalf of such indemnified party or
parties. After notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof and approval by such indemnified
party of counsel appointed to defend such action, the indemnifying party will
not be liable to such indemnified party under this Section 9 for any legal or
other expenses, other than reasonable costs of investigation, subsequently
incurred by such indemnified party in connection with the defense thereof,
unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the immediately preceding sentence (it being
understood, however, that in connection with such action the indemnifying party
shall not be liable for the expenses of more than one separate counsel (in
addition to local counsel) in any one action or separate but substantially
similar actions in the same jurisdiction arising out of the same general
allegations or circumstances, designated by the Initial Purchasers in the case
of paragraph (a) of this Section 9 or the Company or any Guarantor in the case
of paragraph (b) of this Section 9, representing the indemnified parties under
such paragraph (a) or paragraph (b), as the case may be, who are parties to
such action or actions) or (ii) the indemnifying party has authorized in
writing the employment of counsel for the indemnified party at the expense of
the indemnifying party. After such notice from the indemnifying party to such
indemnified party, the indemnifying party will not be liable for the costs and
expenses of any settlement of such action effected by such indemnified party
without the prior written consent of the indemnifying party (which consent
shall not be unreasonably withheld), unless such indemnified party waived in
writing its rights under this Section 9, in which case the indemnified party
may effect such a settlement without such consent.
(d) In circumstances in which the indemnity agreement provided
for in the preceding paragraphs of this Section 9 is available by its terms,
but is held to be unenforceable, each indemnifying party, in order to provide
for just and equitable contribution, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages
or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect (i) the relative benefits received by the indemnifying
party or parties on
<PAGE> 24
-24-
the one hand and the indemnified party on the other from the offering of the
Notes or (ii) if the allocation provided by the foregoing clause (i) is not
permitted by applicable law, not only such relative benefits but also the
relative fault of the indemnifying party or parties on the one hand and the
indemnified party on the other in connection with the statements or omissions
or alleged statements or omissions that resulted in such losses, claims,
damages or liabilities (or actions in respect thereof). The relative benefits
received by the Issuers on the one hand and the Initial Purchasers on the other
shall be deemed to be in the same proportion as the total proceeds from the
offering (before deducting expenses) received by the Issuers bear to the total
discounts and commissions received by the Initial Purchasers. The relative
fault of the parties shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Issuers on the one hand, or the Initial Purchasers on the
other, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission or alleged
statement or omission, and any other equitable considerations appropriate in
the circumstances. The Issuers and the Initial Purchasers agree that it would
not be just and equitable if the amount of such contribution were determined by
pro rata or per capita allocation or by any other method of allocation that
does not take into account the equitable considerations referred to in the
first sentence of this paragraph (d). Notwithstanding any other provision of
this paragraph (d), the Initial Purchasers shall not be obligated to make
contributions hereunder that in the aggregate exceed the total discounts,
commissions and other compensation received by the Initial Purchasers under
this Agreement, less the aggregate amount of any damages that the Initial
Purchasers have otherwise been required to pay by reason of the untrue or
alleged untrue statements or the omissions or alleged omissions to state a
material fact, and no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes of
this paragraph (d), each person, if any, who controls the Initial Purchasers
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
shall have the same rights to contribution as the Initial Purchasers, and each
director of the Company, each officer of the Company and each Guarantor and
each person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20 of the Exchange Act, shall have the same rights to
contribution as the Company and the Guarantors.
<PAGE> 25
-25-
10. Survival Clause. The respective representations,
warranties, agreements, covenants, indemnities and other statements of the
Issuers, their respective officers and the Initial Purchasers set forth in this
Agreement or made by or on behalf of them pursuant to this Agreement shall
remain in full force and effect, regardless of (a) any investigation made by or
on behalf of the Issuers, any of their respective officers or directors, the
Initial Purchasers or any controlling person referred to in Section 9 hereof
and (b) delivery of and payment for the Securities. The respective agreements,
covenants, indemnities and other statements set forth in Sections 6, 9 and 15
hereof shall remain in full force and effect, regardless of any termination or
cancellation of this Agreement.
11. Termination. (a) This Agreement may be terminated in
the sole discretion of the Initial Purchasers by notice to the Issuers given
prior to the Closing Date in the event that the Issuers shall have failed,
refused or been unable to perform all obligations and satisfy all conditions on
its part to be performed or satisfied hereunder at or prior thereto or, if at
or prior to the Closing Date:
(i) trading in securities generally on the New York Stock
Exchange, American Stock Exchange or the Nasdaq National Market shall
have been suspended or materially limited;
(ii) a general moratorium on commercial banking activities
in New York shall have been declared by either federal, state or other
governmental authorities;
(iii) there shall have occurred an outbreak or escalation
of hostilities or other international or domestic calamity, crisis or
change in political, financial or economic conditions, the effect of
which on or markets of the United States is such as to make it, in the
sole judgment of the Initial Purchasers, impracticable or inadvisable
to commence or continue the offering or the delivery of the Securities
as contemplated by the Memorandum, as amended as of the date hereof;
or
(iv) any securities of the Company shall have been
downgraded or placed on any "watch list" for possible downgrading by
any nationally recognized statistical rating organization.
<PAGE> 26
-26-
(b) Termination of this Agreement pursuant to this Section 11
shall be without liability of any party to any other party except as provided
in Section 10 hereof.
12. Information Supplied by the Initial Purchasers. The
statements set forth in the last paragraph on the front cover page, the legend
concerning over-allotments, stabilizing transactions, syndicate short covering
transactions and penalty bids on page iii, and in the third paragraph under the
caption "Plan of Distribution" in the Memorandum and the last two paragraphs
under the caption "Plan of Distribution" in the Memorandum (to the extent such
statements relate to the Initial Purchasers) constitute the only information
furnished on behalf of each Initial Purchaser to the Issuers for the purposes
of Sections 2(a) and 9 hereof.
13. Notices. All communications hereunder shall be in
writing and, if sent to the Initial Purchasers, shall be mailed, delivered or
telecopied to Credit Suisse First Boston Corporation, Eleven Madison Avenue,
New York, New York 10010, Attention: Corporate Finance Department; if sent to
the Company, shall be mailed, delivered or telecopied to the Company or any
Guarantor at Chancellor Radio Broadcasting Company, 12655 North Central
Expressway, Suite 405, Dallas, Texas 75243, Attention: Jacques Kerrest.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; and one
business day after being timely delivered to a next-day air courier; and when
receipt is acknowledged by addressee, if telecopied.
14. Successors. This Agreement shall inure to the benefit
of and be binding upon the Initial Purchasers, each of the Issuers and their
respective successors and legal representatives, and nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any other
person any legal or equitable right, remedy or claim under or in respect of
this Agreement, or any provisions herein contained; this Agreement and all
conditions and provisions hereof being intended to be and being for the sole
and exclusive benefit of such persons and for the benefit of no other person
except that (i) the indemnities of the Issuers contained in Section 9 of this
Agreement shall also be for the benefit of any person or persons who control
the Initial Purchasers within the meaning of Section 15 of the Act or Section
20 of the Exchange Act and (ii) the indemnities of the Initial Purchasers
contained in
<PAGE> 27
-27-
Section 9 of this Agreement shall also be for the benefit of the directors of
the Issuers, its officers and any person or persons who control the Issuers
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act.
No purchaser of Notes from the Initial Purchasers will be deemed a successor
because of such purchase.
15. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF
THIS AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY THEREIN, WITHOUT GIVING
EFFECT TO ANY PROVISIONS THEREOF RELATING TO CONFLICTS OF LAW.
16. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
<PAGE> 28
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement between the Company,
the Guarantors and the Initial Purchasers.
Very truly yours,
CHANCELLOR RADIO BROADCASTING
COMPANY
By:
-----------------------------------
Name:
Title:
The Guarantors:
TREFOIL COMMUNICATIONS, INC.
By:
-----------------------------------
Name:
Title:
SHAMROCK BROADCASTING, INC.
By:
-----------------------------------
Name:
Title:
SHAMROCK RADIO LICENSES, INC.
By:
-----------------------------------
Name:
Title:
SHAMROCK BROADCASTING OF TEXAS, INC.
By:
-----------------------------------
Name:
Title:
<PAGE> 29
SHAMROCK BROADCASTING LICENSES
OF DENVER, INC.
By:
-----------------------------------
Name:
Title:
CHANCELLOR BROADCASTING
LICENSEE COMPANY
By:
-----------------------------------
Name:
Title:
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above
written.
CREDIT SUISSE FIRST BOSTON
CORPORATION
By:
---------------------------
Name:
Title:
BT SECURITIES CORPORATION
By:
---------------------------
Name:
Title:
MORGAN STANLEY & CO. INCORPORATED
By:
---------------------------
Name:
Title:
<PAGE> 30
SCHEDULE I
<TABLE>
<CAPTION>
Initial Purchasers Principal Amount of Notes
- ------------------ -------------------------
<S> <C>
Credit Suisse First Boston Corporation $110,000,000
BT Securities Corporation 50,000,000
Morgan Stanley & Co.
Incorporated 40,000,000
------------
Total $200,000,000
============
</TABLE>
<PAGE> 31
SCHEDULE II
SUBSIDIARY GUARANTORS
<PAGE> 32
EXHIBIT A
[REGISTRATION RIGHTS AGREEMENT]
<PAGE> 33
EXHIBIT B-1
Form of Opinion of Weil, Gotshal & Manges LLP
<PAGE> 34
EXHIBIT B-2
Form of Opinion of Leibowitz & Associates
(Capitalized terms used herein have the meanings provided therefor in
the Purchase Agreement to which this form of opinion is an Exhibit.)
(1) Except for such Federal Communications Commission ("FCC")
approvals that have already been obtained, which approvals to our knowledge are
in full force and effect, no FCC approval, authorization, consent or license is
required under the Communications Laws:
(i) to issue and sell the Securities as contemplated in the
Agreement; or
(ii) to issue the Exchange Notes and the Private Exchange Notes in
the manner contemplated in the Registration Rights Agreement; or
The execution, delivery and performance in accordance with its terms
of the Agreement and the Registration Rights Agreement by the Company will not
violate the Communications Laws, so long as (x) foreign governments, foreign
nationals and/or their agents do not acquire an ownership interest in
Chancellor Radio Broadcasting Company ("Chancellor") that exceeds an aggregate
of twenty-five percent (25%) of the Chancellor capital stock that is issued and
outstanding and (y) no person with attributable media interests that are
incompatible with the media interests of Chancellor under the FCC's Multiple
Ownership Rules or Cross-Ownership Rules acquires stock representing five
percent (5%) or more of the aggregate voting power of Chancellor's shareholders
and (z) no person who lacks requisite character to own broadcast stations,
e.g., a convicted felon or a person who has engaged in serious
broadcast-related misconduct, acquires stock representing five percent (5%) or
more of the aggregate voting power of Chancellor's shareholders.
(2) The following radio broadcast stations constitute all of the radio
broadcast stations owned by Chancellor as of [date of Memorandum] and are
hereafter collectively referred to as the "Stations."
<PAGE> 35
[Chart to reflect stations at closing]
Chancellor holds all necessary authorizations, approvals, consents, orders,
licenses, certificates and permits under the Communications Laws to own and
operate the Stations except possibly for authorizations, approvals, consents,
orders, licenses, certificates and permits that if not so held would not have a
material adverse effect on the financial condition, business or properties of
Chancellor, taken as a whole (all such held material authorizations, approvals,
consents, orders, licenses, certificates and permits collectively referred to
as "FCC Material Licenses"). To our knowledge, all of the FCC Material Licenses
are valid and in full force and effect. The stations referred to in this
Paragraph (2) are collectively referred to as the "Stations".
(3) Except as set forth in the Memorandum and to our knowledge, there
are no proceedings pending or threatened in writing under the Communications
Laws that are specifically directed against Chancellor, or the Stations before
or by the FCC or any court having jurisdiction over matters arising under the
Communications Laws, relating to any invalidity, revocation, or modification of
any FCC Material Licenses, wherein an unfavorable ruling, decision, or finding
would materially and adversely change the financial condition, business or
properties of Chancellor taken as a whole. To our knowledge, the Stations are
operating in compliance with their respective FCC Material Licenses, except
possibly for noncompliance that would not have a material adverse effect on the
financial condition, business or properties of Chancellor taken as a whole.
(4) The statements in the Memorandum under the captions (a) "RISK
FACTORS -- Government Regulation" and (b) "BUSINESS -- Federal Regulation of
Radio Broadcasting," insofar as such statements constitute a summary of
material Communications Laws and material proceedings, fairly and in all
material respects present the information contained under such captions in
light of the circumstances in which such statements are made, and to the extent
they constitute matters of law and legal conclusions under the Communications
Laws, fairly and in all material respects accurately present the information
contained under such captions in light of the circumstances in which such
statements are made.
(5) To our knowledge, no event has occurred that permits, or with
notice or lapse of time or both would permit, the revocation or non-renewal of
any of the FCC Material Licenses, assuming the filing of timely license renewal
applications and the timely payment of all applicable filing and regulatory
fees to the FCC, or which might result in any other material impairment of the
rights of Chancellor in the FCC Material Licenses.
<PAGE> 1
EXHIBIT 5.1
[LATHAM & WATKINS LETTERHEAD]
October 16, 1997
Chancellor Media Corporation of Los Angeles
433 East Las Colinas Boulevard
Suite 1130
Irving, Texas 75039
Re: Chancellor Media Corporation of Los Angeles Registration
Statement on Form S-4 (File No. 333-36451)
Ladies and Gentlemen:
In connection with the registration of $200.0 million aggregate
principal amount of 8 3/4% Senior Subordinated Notes due 2007, Series B (the
"Exchange Notes"), under the Securities Act of 1933, as amended (the "Act"), by
Chancellor Media Corporation of Los Angeles, a Delaware corporation (the
"Company"), and the related guarantees of the Exchange Notes issued by
subsidiaries of the Company (the "Guarantees") listed a "Co-Registrants" on the
Registration Statement (as defined below), on Form S-4 filed with the
Securities and Exchange Commission (the "Commission") on September 26, 1997
(File No. 333-36451), as amended by Amendment No. 1 filed with the Commission
on October 16, 1997 (collectively, the "Registrtion Statement"), you have
requested our opinion with respect to the matters set forth below. Capitalized
terms used herein but not otherwise defined here in have the meanings ascribed
to them in the Registration Statement.
<PAGE> 2
Chancellor Media Corporation of Los Angeles
October 16, 1997
Page 2
In our capacity as counsel in connection with such registration,
we are familiar with the proceedings taken by the Company and the Guarantors in
connection with the authorization of the Exchange Notes and proceedings
proposed to be taken in connection with the issuance of the Exchange Notes and
the Guarantees, respectively, and for the purposes of this opinion, have
assumed such proceedings will be timely completed in the manner presently
proposed. In addition, we have made such legal and factual examinations and
inquiries, including an examination of originals or copies, certified or
otherwise identified to our satisfaction of such documents, corporate records
and instruments, as we have deemed necessary or appropriate for purposes of
this opinion.
In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity to authentic original documents of all documents submitted to us as
copies.
We are opining herein as to the effect on the subject transaction only
of the internal laws of the state of New York, and we express no opinion with
respect to the applicability thereto, or the effect thereon, of the laws of any
other jurisdiction or as to any matters of municipal law or the laws of any
other local agencies within the state.
Subject to the foregoing and the other matters set forth herein, it is
our opinion that upon issuance thereof in the manner described in the
Registration Statement:
1. The Exchange Notes have been duly authorized by all necessary
corporate action of the Company, and when executed,
authenticated and delivered by or on behalf of the Company in
exchange for the Company's 8 3/4% Senior Subordinated Notes due
2007, Series A in accordance with the terms of the Indenture,
will constitute legally valid and binding obligations of the
Company, enforceable against the Company in accordance with
their terms.
2. Each of the Guarantees has been duly authorized by all
necessary corporate action of the respective Guarantors, and
when executed in accordance with the terms of the Indenture and
upon due execution, authentication and delivery of the Exchange
Notes by or on behalf of the Company, will be legally valid and
binding obligations of the respective Guarantors, enforceable
against the Guarantors in accordance with their terms.
The opinions rendered in paragraphs 1 and 2 are subject to the following
exceptions, limitations and qualifications: (i) the effect of bankruptcy,
insolvency, fraudulent transfer, fraudulent conveyance, reorganization,
moratorium or other similar laws now or hereafter in effect relating to or
affecting the rights and remedies of creditors; (ii) the effect of
<PAGE> 3
Chancellor Media Corporation of Los Angeles
October 16, 1997
Page 3
general principles of equity, whether enforcement is considered in a proceeding
in equity or law, and the discretion of the court before which any proceeding
therefor may be brought; (iii) the unenforceability under certain circumstances
under law or court decisions of provisions providing for the indemnification of
or contribution to a party with respect to a liability where such
indemnification or contribution is contrary to public policy; and (iv) we
express no opinion concerning the enforceability of any waiver of rights or
defenses contained in the Indenture.
To the extent that the obligations of the Company under the Indenture
may be dependent upon such matters, we assume for purposes of this opinion that
the Trustee is duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization; that the Trustee is duly qualified to
engage in the activities contemplated by the Indenture; that the Indenture has
been duly authorized, executed and delivered by the Trustee and constitutes the
legally valid, binding and enforceable obligation of the Trustee enforceable
against the Trustee in accordance with its terms; that the Trustee is in
compliance, generally and with respect to acting as a trustee under the
Indenture, with all applicable laws and regulations; and that the Trustee has
the requisite organizational and legal power and authority to perform its
obligations under the Indenture.
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement and the reference to our firm under the
heading "Legal Matters" in the Registration Statement.
Very truly yours,
/S/ LATHAM & WATKINS
<PAGE> 1
EXHIBIT 8.1
[LATHAM & WATKINS LETTERHEAD]
October 16, 1997
Chancellor Media Corporation of Los Angeles
433 East Las Collinas Boulevard
Irving, Texas 75039
Re: Registration Statement on Form S-4 (File No. 333-36451)
Dear Sir or Madam:
You have requested our opinion concerning the material federal income
tax consequences of the exchange of 8 3/4% Senior Subordinated Notes due 2007,
Series B of Chancellor Media Corporation of Los Angeles (the "Company") which
have been registered under the Securities Act of 1933, as amended, for
outstanding 8 3/4% Senior Subordinated Notes due 2007, Series A of the Company,
in connection with the Registration Statement on Form S-4 filed herewith (the
"Registration Statement").
The facts, as we understand them, and upon which with your permission
we rely in rendering the opinion expressed herein, are set forth in the
Registration Statement. Based on such facts, it is our opinion that the
material federal income tax consequences are accurately set forth under the
heading "Material Federal Income Tax Considerations" in the Registration
Statement. No opinion is expressed as to any matter not discussed therein.
This opinion is based on various statutory provisions, regulations
promulgated thereunder and interpretations thereof by the Internal Revenue
Service and the courts having jurisdiction over such matters all of which are
subject to change either prospectively or retroactively. Also, any variation
or difference in the facts from those set forth in the Registration Statement
may affect the conclusions stated herein.
<PAGE> 2
[LATHAM & WATKINS LETTERHEAD]
Chancellor Media Corporation of Los Angeles
October 16, 1997
Page 2
This opinion is rendered to you solely for use in connection with the
Registration Statement. We consent to your filing this opinion as an exhibit to
the Registration Statement, and to the reference to our firm under the headings
"Material Federal Income Tax Considerations" and "Legal Matter."
Very truly yours,
/s/ LATHAM & WATKINS
<PAGE> 1
EXHIBIT 10.42
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of June 24, 1997
Among
CHANCELLOR RADIO BROADCASTING COMPANY
as Issuer
THE GUARANTORS NAMED HEREIN
and
CREDIT SUISSE FIRST BOSTON CORPORATION
BT SECURITIES CORPORATION
MORGAN STANLEY & CO. INCORPORATED
as Initial Purchasers
================================================================================
$200,000,000
8-3/4% SENIOR SUBORDINATED NOTES DUE 2007
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement"), dated
as of June 24, 1997, is being entered into among Chancellor Radio Broadcasting
Company, a Delaware corporation (the "Company"), each of the subsidiaries of
the Company listed on the signature pages hereto (the "Guarantors" and,
together with the Company, the "Issuers") and Credit Suisse First Boston
Corporation, BT Securities Corporation and Morgan Stanley & Co. Incorporated
(collectively, the "Initial Purchasers").
This Agreement is being entered into in connection with the
Purchase Agreement, dated as of June 18, 1997, among the Company, the
Guarantors and the Initial Purchasers (the "Purchase Agreement"), which
provides for the sale by the Company to the Initial Purchasers of $200,000,000
aggregate principal amount of the Company's 8-3/4% Senior Subordinated Notes
Due 2007 (the "Notes"). In order to induce the Initial Purchasers to enter into
the Purchase Agreement, the Issuers have agreed to provide the registration
rights set forth in this Agreement for the benefit of the Initial Purchasers
and their direct and indirect transferees. The execution and delivery of this
Agreement is a condition to the obligation of the Initial Purchasers to
purchase the Notes under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the
following meanings:
Additional Interest: See Section 4(a) hereof.
Advice: See the last paragraph of Section 5 hereof.
Agreement: See the first introductory paragraph hereto.
Applicable Period: See Section 2(b) hereof.
Closing Date: The Closing Date as defined in the Purchase
Agreement.
Company: See the first introductory paragraph hereto.
<PAGE> 3
-2-
Effectiveness Date: The 180th day after the Issue Date.
Effectiveness Period: See Section 3(a) hereof.
Event Date: See Section 4(b) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
Exchange Notes: See Section 2(a) hereof.
Exchange Offer: See Section 2(a) hereof.
Exchange Registration Statement: See Section 2(a) hereof.
Filing Date: The 120th day after the Issue Date.
Guarantors: See the first introductory paragraph hereto.
Holder: Any holder of a Registrable Note or Registrable Notes.
Indemnified Person: See Section 7(c) hereof.
Indemnifying Person: See Section 7(c) hereof.
Indenture: The Indenture, dated as of June 24, 1997 among the
Company, the Guarantors and U.S. Trust Company of Texas, N.A., as trustee,
pursuant to which the Notes are being issued, as amended or supplemented from
time to time in accordance with the terms thereof.
Initial Purchasers: See the first introductory paragraph
hereto.
Inspectors: See Section 5(o) hereof.
Issue Date: The date on which the Notes were sold to the
Initial Purchasers pursuant to the Purchase Agreement.
Issuers: See the first introductory paragraph hereto.
NASD: See Section 5(t) hereof.
<PAGE> 4
-3-
Notes: See the second introductory paragraph hereto.
Participant: See Section 7(a) hereof.
Participating Broker-Dealer: See Section 2(b) hereof.
Person: An individual, corporation, partnership, limited
liability company, trust, or joint venture, or a governmental agency or
political subdivision thereof or other legal entity.
Private Exchange: See Section 2(b) hereof.
Private Exchange Notes: See Section 2(b) hereof.
Prospectus: The prospectus included in any Registration
Statement (including, without limitation, any prospectus subject to completion
and a prospectus that includes any information previously omitted from a
prospectus filed as part of an effective registration statement in reliance
upon Rule 430A promulgated under the Securities Act), as amended or
supplemented by any prospectus supplement, and all other amendments and
supplements to the Prospectus, with respect to the terms of the offering of any
portion of the Registrable Notes covered by such Registration Statement
including post-effective amendments, and all material incorporated by reference
or deemed to be incorporated by reference in such Prospectus.
Purchase Agreement: See the second introductory paragraph
hereto.
Records: See Section 5(o) hereof.
Registrable Notes: Each Note upon original issuance of the
Notes and at all times subsequent thereto, each Exchange Note as to which
Section 2(c)(v) hereof is applicable upon original issuance and at all times
subsequent thereto and each Private Exchange Note upon original issuance
thereof and at all times subsequent thereto, until in the case of any such
Note, Exchange Note or Private Exchange Note, as the case may be, the earliest
to occur of (i) a Registration Statement (other than, with respect to any
Exchange Note as to which Section 2(c)(v) hereof is applicable, the Exchange
Registration Statement) covering such Note, Exchange Note or Private Exchange
Note, as the case may be, has been declared effective by the SEC and such Note
(unless such Note was not tendered for exchange by the Holder thereof),
Exchange Note or Private Exchange Note, as the
<PAGE> 5
-4-
case may be, has been disposed of in accordance with such effective
Registration Statement, (ii) such Note, Exchange Note or Private Exchange Note,
as the case may be, is sold in compliance with Rule 144 or may be sold pursuant
to Rule 144(k), (iii) such note has been exchanged for an Exchange Note or
Exchange Notes pursuant to an Exchange Offer and is entitled to be resold
without complying with the prospectus delivery requirements of the Securities
Act (iv) such Note, Exchange Note or Private Exchange Note, as the case may be,
ceases to be outstanding for purposes of the Indenture.
Registration Statement: Any registration statement of the
Company and the Guarantors, including, but not limited to, the Exchange
Registration Statement and any registration statement filed with the SEC
pursuant to the provisions of this Agreement, including post-effective
amendments, all exhibits, and all material incorporated by reference or deemed
to be incorporated by reference in such registration statement.
Rule 144: Rule 144 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than
Rule 144A) or regulation hereafter adopted by the SEC providing for offers and
sales of securities made in compliance therewith resulting in offers and sales
by subsequent holders that are not affiliates of an issuer of such securities
being free of the registration and prospectus delivery requirements of the
Securities Act.
Rule 144A: Rule 144A promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than
Rule 144) or regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and
the rules and regulations of the SEC promulgated thereunder.
Shelf Notice: See Section 2(c) hereof.
Shelf Registration: See Section 3(a) hereof.
TIA: The Trust Indenture Act of 1939, as amended.
<PAGE> 6
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Trustee: The trustee under the Indenture and, if existent, the
trustee under any indenture governing the Exchange Notes and Private Exchange
Notes (if any).
Underwritten registration or underwritten offering: A
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.
2. Exchange Offer
(a) The Company agrees to file with the SEC no later than
the Filing Date an offer to exchange (the "Exchange Offer") any and all of the
Registrable Notes (other than the Private Exchange Notes, if any) for a like
aggregate principal amount of debt securities of the Company that are identical
in all material respects to the Notes (the "Exchange Notes") (and that are
entitled to the benefits of the Indenture or a trust indenture that is
identical in all material respects to the Indenture (other than such changes to
the Indenture or any such identical trust indenture as are necessary to comply
with any requirements of the SEC to effect or maintain the qualification
thereof under the TIA) and that, in either case, has been qualified under the
TIA), except that the Exchange Notes (other than Private Exchange Notes, if
any) shall have been registered pursuant to an effective Registration Statement
under the Securities Act and shall contain no restrictive legend thereon. The
Exchange Offer shall be registered under the Securities Act on an appropriate
form (the "Exchange Registration Statement") and shall comply with all
applicable tender offer rules and regulations under the Exchange Act. The
Issuers agree to use their reasonable best efforts to (x) cause the Exchange
Registration Statement to be declared effective under the Securities Act on or
before the Effectiveness Date; (y) keep the Exchange Offer open for at least 20
business days (or longer if required by applicable law) after the date that
notice of the Exchange Offer is mailed to Holders; and (z) consummate the
Exchange Offer on or before the 225th day following the Issue Date. If after
such Exchange Registration Statement is declared effective by the SEC, the
Exchange Offer or the issuance of the Exchange Notes thereunder is interfered
with by any stop order, injunction or other order or requirement of the SEC or
any other governmental agency or court, such Exchange Registration Statement
shall be deemed not to have become effective for purposes of this Agreement.
<PAGE> 7
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Each Holder who participates in the Exchange Offer will be
required to represent that any Exchange Notes received by it will be acquired
in the ordinary course of its business, that at the time of the consummation of
the Exchange Offer such Holder will have no arrangement or understanding with
any Person to participate in the distribution of the Exchange Notes in
violation of the provisions of the Securities Act and that such Holder is not
an affiliate of the Company or any Guarantor within the meaning of the
Securities Act and is not acting on behalf of any persons or entities who could
not truthfully make the foregoing representations. In addition, each
broker-dealer that desires to participate in the Exchange Offer and to receive
Exchange Notes will be required to represent that the Notes being tendered by
such broker-dealer were acquired in ordinary trading or market-making
activities and not in transactions directly with any Issuer or an Affiliate
thereof (a "Participating Broker-Dealer"). A broker-dealer that is not able to
make the foregoing representation will not be permitted to participate in the
Exchange Offer.
Upon consummation of the Exchange Offer in accordance with
this Section 2, the provisions of this Agreement shall continue to apply
mutatis mutandis, solely with respect to Registrable Notes that are Private
Exchange Notes and Exchange Notes held by Participating Broker-Dealers, the
Company shall have no further obligation to register Registrable Notes (other
than Private Exchange Notes and other than in respect of any Exchange Notes as
to which clause 2(c)(v) hereof applies) pursuant to Section 3 hereof. No
securities other than the Exchange Notes shall be included in the Exchange
Registration Statement.
(b) The Company shall include within the Prospectus
contained in the Exchange Registration Statement a section entitled "Plan of
Distribution," reasonably acceptable to the Initial Purchasers, which shall
contain a summary statement of the publicly disseminated positions taken or
policies made by the Staff of the SEC with respect to the potential
"underwriter" status of any broker-dealer that is the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act) of Exchange Notes received by
such broker-dealer. Such "Plan of Distribution" section shall also expressly
permit the use of the Prospectus by all Persons subject to the prospectus
delivery requirements of the Securities Act, including all Participating
Broker-Dealers, and include a statement describing the means by which
Participating Broker-Dealers may resell the Exchange Notes.
<PAGE> 8
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The Issuers shall use their best reasonable efforts to keep
the Exchange Registration Statement effective and to amend and supplement the
Prospectus contained therein, in order to permit such Prospectus to be lawfully
delivered by all Persons subject to the prospectus delivery requirements of the
Securities Act for such period of time as is necessary to comply with
applicable law in connection with any resale of the Exchange Notes; provided,
however, that such period shall not exceed 180 days after the consummation of
the Exchange Offer (or such longer period if extended pursuant to the last
paragraph of Section 5 hereof) (the "Applicable Period").
If, prior to consummation of the Exchange Offer, the Initial
Purchasers hold any Notes acquired by them and having, or that are reasonably
likely to be determined to have, the status of an unsold allotment in the
initial distribution, the Issuers shall, upon the request of the Initial
Purchasers, simultaneously with the delivery of the Exchange Notes in the
Exchange Offer, issue and deliver to the Initial Purchasers in exchange (the
"Private Exchange") for such Notes held by the Initial Purchasers a like
principal amount of debt securities of the Company that are identical in all
material respects to the Exchange Notes (the "Private Exchange Notes") (and
that are issued pursuant to the same indenture as the Exchange Notes) except
for the placement of a restrictive legend on such Private Exchange Notes. The
Private Exchange Notes shall bear the same CUSIP number as the Exchange Notes.
Interest on the Exchange Notes and the Private Exchange Notes
will accrue from the last interest payment date on which interest was paid on
the Notes surrendered in exchange therefor or, if no interest has been paid on
the Notes, from the Issue Date.
In connection with the Exchange Offer, the Issuers shall:
(1) mail to each Holder a copy of the Prospectus forming
part of the Exchange Registration Statement, together with an
appropriate letter of transmittal and related documents;
(2) utilize the services of a depositary for the Exchange
Offer with an address in the Borough of Manhattan, The City of New
York;
(3) permit Holders to withdraw tendered Notes at any time
prior to the close of business, New York time, on the last business
day on which the Exchange Offer shall remain open; and
<PAGE> 9
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(4) otherwise comply in all material respects with all
applicable laws, rules and regulations.
As soon as practicable after the close of the Exchange Offer
or the Private Exchange, as the case may be, the Issuers shall:
(1) accept for exchange all Notes tendered and not
validly withdrawn pursuant to the Exchange Offer or the Private
Exchange;
(2) deliver to the Trustee for cancellation all Notes so
accepted for exchange; and
(3) cause the Trustee to authenticate and deliver
promptly to each Holder of Notes, Exchange Notes or Private Exchange
Notes, as the case may be, equal in principal amount to the Notes of
such Holder so accepted for exchange.
The Exchange Notes and the Private Exchange Notes may be
issued under (i) the Indenture or (ii) an indenture identical in all material
respects to the Indenture, which in either event shall provide that (1) the
Exchange Notes shall not be subject to the transfer restrictions set forth in
the Indenture and (2) the Private Exchange Notes shall be subject to the
transfer restrictions set forth in the Indenture. The Indenture or such
indenture shall provide that the Exchange Notes, the Private Exchange Notes and
the Notes shall vote and consent together on all matters as one class and that
none of the Exchange Notes, the Private Exchange Notes or the Notes will have
the right to vote or consent as a separate class on any matter.
(c) If, (i) because of any change in law or in currently
prevailing interpretations of the Staff of the SEC, the Company is not
permitted to effect an Exchange Offer, (ii) the Exchange Offer is not
consummated within 225 days of the Issue Date, (iii) any holder of Private
Exchange Notes so requests at any time after the consummation of the Private
Exchange, (iv) the Holders of not less than a majority in aggregate principal
amount of the Registrable Notes determine that the interests of the Holders
would be materially adversely affected by consummation of the Exchange Offer or
(v) in the case of any Holder that participates in the Exchange Offer, such
Holder does not receive Exchange
<PAGE> 10
-9-
Notes on the date of the exchange that may be sold without restriction under
state and federal securities laws (other than due solely to the status of such
Holder as an affiliate of the Issuers or as an "underwriter" within the meaning
of the Securities Act), then the Company shall promptly deliver to the Holders
and the Trustee written notice thereof (the "Shelf Notice") to the Trustee and
in the case of clauses (i), (ii) and (iv), all Holders, in the case of clause
(iii), the Holders of the Private Exchange Notes and in the case of clause (v),
the affected Holder, and shall file a Shelf Registration pursuant to Section 3
hereof.
3. Shelf Registration
If a Shelf Notice is delivered as contemplated by Section 2(c)
hereof, then:
Shelf Registration. The Issuers shall as promptly as
reasonably practicable file with the SEC a Registration Statement for an
offering to be made on a continuous basis pursuant to Rule 415 covering all of
the Registrable Notes (the "Shelf Registration"). If the Issuers shall not have
yet filed an Exchange Registration Statement, the Company shall use its
reasonable best efforts to file with the SEC the Shelf Registration on or prior
to the Filing Date. The Shelf Registration shall be on Form S-1 or another
appropriate form permitting registration of such Registrable Notes for resale
by Holders in the manner or manners designated by them (including, without
limitation, one or more underwritten offerings). The Issuers shall not permit
any securities other than the Registrable Notes to be included in the Shelf
Registration.
The Issuers shall use their reasonable best efforts to cause
the Shelf Registration to be declared effective under the Securities Act on or
prior to the Effectiveness Date and to keep the Shelf Registration continuously
effective under the Securities Act until the date that is two years from the
Issue Date, subject to extension pursuant to the last paragraph of Section 5
hereof (the "Effectiveness Period"), or such shorter period ending when all
Registrable Notes covered by the Shelf Registration have been sold in the
manner set forth and as contemplated in the Shelf Registration.
(b) Withdrawal of Stop Orders. If the Shelf Registration
ceases to be effective for any reason at any time during the Effectiveness
Period (other than because of the sale of all of the securities registered
thereunder), the
<PAGE> 11
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Issuers shall use its best efforts to obtain the prompt withdrawal of any order
suspending the effectiveness thereof.
(c) Supplements and Amendments. The Issuers shall
promptly supplement and amend the Shelf Registration if required by the rules,
regulations or instructions applicable to the registration form used for such
Shelf Registration, if required by the Securities Act, or if reasonably
requested by the Holders of a majority in aggregate principal amount of the
Registrable Notes covered by such Registration Statement or by any underwriter
of such Registrable Notes.
4. Additional Interest
(a) The Issuers and the Initial Purchasers agree that the
Holders of Registrable Notes will suffer damages if the Issuers fails to
fulfill its obligations under Section 2 or Section 3 hereof and that it would
not be feasible to ascertain the extent of such damages with precision.
Accordingly, the Issuers agree to pay, as liquidated damages, additional
interest on the Notes ("Additional Interest") under the circumstances and to
the extent set forth below:
(i) if neither the Exchange Registration Statement nor the Shelf
Registration has been filed on or prior to the Filing Date, then,
commencing on the 121st day after the Issue Date, Additional Interest
shall accrue on the Notes over and above the stated interest at a rate
of 0.50% per annum for the first 90 days immediately following the
Filing Date, such Additional Interest rate increasing by an additional
0.50% per annum at the beginning of each subsequent 90-day period;
(ii) if neither the Exchange Registration Statement nor the Shelf
Registration is declared effective by the SEC on or prior to the
Effectiveness Date, then, commencing on the 181st day after the Issue
Date, Additional Interest shall accrue on the Notes included or that
should have been included in such Registration Statement over and
above the stated interest at a rate of 0.50% per annum for the first
90 days immediately following the Effectiveness Date, such Additional
Interest rate increasing by an additional 0.50% per annum at the
beginning of each subsequent 90-day period; and
<PAGE> 12
-11-
(iii) if (A) the Company has not exchanged Exchange Notes for all
Notes validly tendered in accordance with the terms of the Exchange
Offer on or prior to the 225th day after the Issue Date or (B) the
Exchange Registration Statement ceases to be effective at any time
prior to the time that the Exchange Offer is consummated or (C) if
applicable, the Shelf Registration has been declared effective and
such Shelf Registration ceases to be effective at any time during the
Effectiveness Period, then Additional Interest shall accrue (over and
above any interest otherwise payable on such Notes) at a rate of 0.50%
per annum on (x) the 226th day after the Issue Date with respect to
the Notes validly tendered and not exchanged by the Company, in the
case of (A) above, or (y) the day the Exchange Registration Statement
ceases to be effective in the case of (B) above, or (z) the day such
Shelf Registration ceases to be effective, in the case of (C) above,
such Additional Interest rate increasing by an additional 0.50% per
annum at the beginning of each such subsequent 90-day period (it being
understood and agreed that, notwithstanding any provision to the
contrary, so long as any Note that is the subject of a Shelf Notice is
then covered by an effective Shelf Registration Statement, no
Additional Interest shall accrue on such Note);
provided, however, that the Additional Interest rate on any affected Note may
not exceed at any one time in the aggregate 1.0% per annum; and provided,
further, that (1) upon the filing of the Exchange Registration Statement or a
Shelf Registration (in the case of clause (i) of this Section 4(a)), (2) upon
the effectiveness of the Exchange Registration Statement or the Shelf
Registration (in the case of clause (ii) of this Section 4(a)), or (3) upon the
exchange of Exchange Notes for all Notes tendered and not validly withdrawn (in
the case of clause (iii)(A) of this Section 4(a)), or upon the effectiveness of
the Exchange Registration Statement that had ceased to remain effective (in the
case of (iii)(B) of this Section 4(a)), or upon the effectiveness of the Shelf
Registration that had ceased to remain effective (in the case of (iii)(C) of
this Section 4(a)), Additional Interest on the affected Notes as a result of
such clause (or the relevant subclause thereof), as the case may be, shall
cease to accrue.
(b) The Issuers shall notify the Trustee within one
business day after each and every date on which an event occurs in respect of
which Additional Interest is required to be paid (an "Event Date"). Any amounts
of Additional Interest due pursuant to clauses (a)(i), (a)(ii) or (a)(iii)
<PAGE> 13
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of this Section 4 shall be payable to the Holders of affected Notes as of the
relevant record date in cash semi-annually on the same original interest
payment dates as the Notes (as set forth in the Indenture) commencing with the
first such date occurring after any such Additional Interest commences to
accrue. The amount of Additional Interest will be determined by multiplying the
applicable Additional Interest rate by the principal amount of the affected
Registrable Notes of such Holders, multiplied by a fraction, the numerator of
which is the number of days such Additional Interest rate was applicable during
such period (determined on the basis of a 360-day year comprised of twelve
30-day months and, in the case of a partial month, the actual number of days
elapsed), and the denominator of which is 360.
5. Registration Procedures
In connection with the filing of any Registration Statement
pursuant to Sections 2 or 3 hereof, the Issuers shall effect such
registration(s) to permit the sale of the securities covered thereby in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto and in connection with any Registration Statement filed by the
Issuers hereunder, the Issuers shall:
(a) Prepare and file with the SEC on or prior to the
Filing Date a Registration Statement or Registration Statements as prescribed
by Sections 2 or 3 hereof and use their reasonable best efforts to cause each
such Registration Statement to become effective and remain effective as
provided herein; provided, however, that, if (1) such filing is made pursuant
to Section 3 hereof, or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, before filing any Registration
Statement or Prospectus or any amendments or supplements thereto, the Issuers
shall furnish to and afford the Holders of the Registrable Notes covered by
such Registration Statement (in the case of a Registration Statement filed
pursuant to Section 3 hereof) or each such Participating Broker-Dealer (in the
case where a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 hereof is required to be delivered by Participating
Broker-Dealers), as the case may be, their counsel and the managing
underwriters, if any, a reasonable opportunity to review copies of all such
documents (including copies of any documents to be incorporated by
<PAGE> 14
-13-
reference therein and all exhibits thereto) proposed to be filed (in each case
at least five business days prior to such filing). The Issuers shall not file
any Registration Statement or Prospectus or any amendments or supplements
thereto if the Holders of a majority in aggregate principal amount of the
Registrable Notes covered by such Registration Statement, or any such
Participating Broker-Dealer, as the case may be, their counsel, or the managing
underwriters, if any, shall reasonably object.
(b) Prepare and file with the SEC such amendments and
post-effective amendments to each Shelf Registration or Exchange Registration
Statement, as the case may be, as may be necessary to keep such Registration
Statement continuously effective for the Effectiveness Period or the Applicable
Period or until consummation of the Exchange Offer, as the case may be; cause
the related Prospectus to be supplemented by any Prospectus supplement required
by applicable law and, as so supplemented, to be filed pursuant to Rule 424 (or
any similar provisions then in force) promulgated under the Securities Act; and
comply with the provisions of the Securities Act and the Exchange Act
applicable to them with respect to the disposition of all securities covered by
such Registration Statement as so amended or in such Prospectus as so
supplemented and with respect to the subsequent resale of any securities being
sold by a Participating Broker-Dealer covered by any such Prospectus; the
Issuers shall be deemed not to have used their best efforts to keep a
Registration Statement effective during the Applicable Period if they
voluntarily take any action that would result in selling Holders of the
Registrable Notes covered thereby or Participating Broker-Dealers seeking to
sell Exchange Notes not being able to sell such Registrable Notes or such
Exchange Notes during that period, unless such action is required by applicable
law or unless the Issuers comply with this Agreement, including without
limitation, the provisions of paragraph 5(k) hereof and the last paragraph of
this Section 5.
(c) If (1) a Shelf Registration is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, notify the selling Holders of
Registrable Notes, or each such Participating Broker-Dealer, as the case may
be, their counsel and the managing underwriters, if any, promptly (but in any
event
<PAGE> 15
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within two business days), and confirm such notice in writing, (i) when a
Prospectus or any Prospectus supplement or post-effective amendment has been
filed, and, with respect to a Registration Statement or any post-effective
amendment, when the same has become effective under the Securities Act
(including in such notice a written statement that any Holder may, upon
request, obtain, at the sole expense of the Issuers, one conformed copy of such
Registration Statement or post-effective amendment, including financial
statements and schedules, documents incorporated or deemed to be incorporated
by reference and exhibits), (ii) of the issuance by the SEC of any stop order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus or the
initiation of any proceedings for that purpose, (iii) if at any time when a
prospectus is required by the Securities Act to be delivered in connection with
sales of the Registrable Notes or resales of Exchange Notes by Participating
Broker-Dealers upon written notice by any such Participating Broker-Dealer of a
resale the representations and warranties of the Company contained in any
agreement (including any underwriting agreement), contemplated by Section 5(n)
hereof cease to be true and correct, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of a Registration Statement or any of the Registrable Notes
or the Exchange Notes to be sold by any Participating Broker-Dealer for offer
or sale in any jurisdiction, or the initiation or threatening of any proceeding
for such purpose, (v) of the happening of any event, the existence of any
condition or any information becoming known that makes any statement made in
such Registration Statement or related Prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material
respect or that requires the making of any changes in or amendments or
supplements to such Registration Statement, Prospectus or documents so that, in
the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the Prospectus, it will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading and (vi) of the
determination by the Issuers that a post-effective amendment to a Registration
Statement would be appropriate.
<PAGE> 16
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(d) Use their reasonable best efforts to prevent the
issuance of any order suspending the effectiveness of a Registration Statement
or of any order preventing or suspending the use of a Prospectus or suspending
the qualification (or exemption from qualification) of any of the Registrable
Notes or the Exchange Notes for sale in any jurisdiction, and, if any such
order is issued, to use its reasonable best efforts to obtain the withdrawal of
any such order at the earliest possible moment.
(e) If a Shelf Registration is filed pursuant to Section
3 and if requested by the managing underwriter or underwriters, if any, or the
Holders of a majority in aggregate principal amount of the Registrable Notes
being sold in connection with an underwritten offering, (i) promptly
incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriter or underwriters, if any, such Holders,
or counsel for any of them, reasonably request to be included therein, and (ii)
make all required filings of such prospectus supplement or such post-effective
amendment as soon as practicable after the Issuers have received notification
of the matters to be incorporated in such prospectus supplement or
post-effective amendment.
(f) If (1) a Shelf Registration is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, furnish to each selling Holder of
Registrable Notes and to each such Participating Broker-Dealer who so requests
and to their respective counsel and each managing underwriter, if any, at the
sole expense of the Issuers, one conformed copy of the Registration Statement
or Registration Statements and each post-effective amendment thereto, including
financial statements and schedules, and, if requested, all documents
incorporated or deemed to be incorporated therein by reference and all
exhibits.
(g) If (1) a Shelf Registration is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, deliver to each selling Holder of
Registrable Notes, or each such Participating
<PAGE> 17
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Broker-Dealer, as the case may be, their respective counsel, and the
underwriters, if any, at the sole expense of the Company, as many copies of the
Prospectus or Prospectuses (including each form of preliminary prospectus) and
each amendment or supplement thereto and any documents incorporated by
reference therein as such Persons may reasonably request; and, subject to the
last paragraph of this Section 5, the Issuers hereby consent to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders of Registrable Notes or each such Participating Broker-Dealer, as the
case may be, and the underwriters or agents, if any, and dealers if any, in
connection with the offering and sale of the Registrable Notes covered by, or
the sale by Participating Broker-Dealers of the Exchange Notes pursuant to,
such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Notes or
any delivery of a Prospectus contained in the Exchange Registration Statement
by any Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, use their reasonable best efforts to register or qualify
such Registrable Notes (and to cooperate with selling Holders of Registrable
Notes or each such Participating Broker-Dealer, as the case may be, the
managing underwriter or underwriters, if any, and their respective counsel in
connection with the registration or qualification (or exemption from such
registration or qualification) of such Registrable Notes) for offer and sale
under the securities or Blue Sky laws of such jurisdictions within the United
States as any selling Holder, Participating Broker-Dealer, or the managing
underwriter or underwriters reasonably request in writing; provided, however,
that where Exchange Notes held by Participating Broker-Dealers or Registrable
Notes are offered other than through an underwritten offering, the Issuers
agree to cause its counsel to perform Blue Sky investigations and file
registrations and qualifications required to be filed pursuant to this Section
5(h); keep each such registration or qualification (or exemption therefrom)
effective during the period such Registration Statement is required to be kept
effective and do any and all other acts or things reasonably necessary or
advisable to enable the disposition in such jurisdictions of the Exchange Notes
held by Participating Broker-Dealers or the Registrable Notes covered by the
applicable Registration Statement; provided, however, that neither the Company
nor any Guarantor shall not be required to (A) qualify generally to do business
in any jurisdiction where it is not then so
<PAGE> 18
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qualified, (B) take any action that would subject it to general service of
process in any such jurisdiction where it is not then so subject or (C) subject
itself to taxation in any such jurisdiction where it is not then so subject.
(i) If a Shelf Registration is filed pursuant to Section
3 hereof, cooperate with the selling Holders of Registrable Notes and the
managing underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Notes to be
sold, which certificates shall not bear any restrictive legends and shall be in
a form eligible for deposit with The Depository Trust Company; and enable such
Registrable Notes to be in such denominations and registered in such names as
the managing underwriter or underwriters, if any, or Holders may reasonably
request.
(j) Use their reasonable best efforts to cause the
Registrable Notes covered by the Registration Statement to be registered with
or approved by such other governmental agencies or authorities as may be
necessary to enable the Holders thereof or the underwriter or underwriters, if
any, to dispose of such Registrable Notes, except as may be required solely as
a consequence of the nature of a selling Holder's business, in which case the
Issuers will cooperate in all reasonable respects with the filing of such
Registration Statement and the granting of such approvals.
(k) If (1) a Shelf Registration is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, upon the occurrence of any event
contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof, as promptly as
practicable prepare and (subject to Section 5(a) hereof) file with the SEC, at
the sole expense of the Issuers, a supplement or post-effective amendment to
the Registration Statement or a supplement to the related Prospectus or any
document incorporated or deemed to be incorporated therein by reference, or
file any other required document so that, as thereafter delivered to the
purchasers of the Registrable Notes being sold thereunder or to the purchasers
of the Exchange Notes to whom such Prospectus will be delivered by a
Participating Broker-Dealer, any such Prospectus will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
<PAGE> 19
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(l) Use their reasonable best efforts to cause the
Registrable Notes covered by a Registration Statement or the Exchange Notes, as
the case may be, to be rated with the appropriate rating agencies, if so
requested by the Holders of a majority in aggregate principal amount of
Registrable Notes covered by such Registration Statement or the Exchange Notes,
as the case may be, or the managing underwriter or underwriters, if any.
(m) Prior to the effective date of the first Registration
Statement relating to the Registrable Notes, (i) provide the Trustee with
certificates for the Registrable Notes or Exchange Notes, as the case may be,
in a form eligible for deposit with The Depository Trust Company and (ii)
provide a CUSIP number for the Registrable Notes or Exchange Notes, as the case
may be.
(n) In connection with any underwritten offering of
Registrable Notes pursuant to a Shelf Registration, enter into an underwriting
agreement as is customary in underwritten offerings of debt securities similar
to the Notes and take all such other actions as are reasonably requested by the
managing underwriter or underwriters in order to expedite or facilitate the
registration or the disposition of such Registrable Notes and, in such
connection, (i) make such representations and warranties to, and covenants
with, the underwriters with respect to the business of the Issuers (including
any acquired business, properties or entities, if applicable) and the
Registration Statement, Prospectus and documents, if any, incorporated or
deemed to be incorporated by reference therein, in each case, as are
customarily made by issuers to underwriters in underwritten offerings of debt
securities similar to the Notes, and confirm the same in writing if and when
requested; (ii) obtain the written opinion of counsel to the Issuers and
written updates thereof in form, scope and substance reasonably satisfactory to
the managing underwriter or underwriters, addressed to the underwriters
covering the matters customarily covered in opinions requested in underwritten
offerings of debt securities similar to the Notes and such other matters as may
be reasonably requested by the managing underwriter or underwriters; (iii)
obtain "cold comfort" letters and updates thereof in form, scope and substance
reasonably satisfactory to the managing underwriter or underwriters from the
independent certified public accountants of the Issuers (and, if
<PAGE> 20
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necessary, any other independent certified public accountants of any subsidiary
of the Issuers or of any business acquired by the Company for which financial
statements and financial data are, or are required to be, included or
incorporated by reference in the Registration Statement), addressed to each of
the underwriters, such letters to be in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
underwritten offerings of debt securities similar to the Notes and such other
matters as reasonably requested by the managing underwriter or underwriters;
and (iv) if an underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable than those set
forth in Section 7 hereof (or such other provisions and procedures acceptable
to Holders of a majority in aggregate principal amount of Registrable Notes
covered by such Registration Statement and the managing underwriter or
underwriters or agents) with respect to all parties to be indemnified pursuant
to said Section. The above shall be done at each closing under such
underwriting agreement or as and to the extent required thereunder.
(o) If (1) a Shelf Registration is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, make available for inspection by
any selling Holder of such Registrable Notes being sold, or each such
Participating Broker-Dealer, as the case may be, any underwriter participating
in any such disposition of Registrable Notes, if any, and any attorney,
accountant or other agent retained by any such selling Holder or each such
Participating Broker-Dealer, as the case may be, or underwriter (collectively,
the "Inspectors"), at the offices where normally kept, during reasonable
business hours, all financial and other records, pertinent corporate documents
and instruments of the Issuers and their subsidiaries (collectively, the
"Records") as shall be reasonably necessary to enable them to exercise any
applicable due diligence responsibilities, and cause the respective officers,
directors and employees of the Issuers and their subsidiaries to supply all
information reasonably requested by any such Inspector in connection with such
Registration Statement. Records that the Issuers determine, in good faith, to
be confidential and any Records that it notifies the Inspectors are
confidential shall not be disclosed by the Inspectors unless (i) the disclosure
of such Records is
<PAGE> 21
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necessary to avoid or correct a misstatement or omission in such Registration
Statement, (ii) the release of such Records is ordered pursuant to a subpoena
or other final order from a court of competent jurisdiction, (iii) disclosure
of such information is, in the reasonable, good faith opinion of counsel for
any Inspector, necessary in connection with any action, claim, suit or
proceeding, directly or indirectly, involving such Inspector and arising out
of, based upon, relating to, or involving this Agreement, or any transactions
contemplated hereby or arising hereunder, or (iv) the information in such
Records has been made generally available to the public other than in violation
of any obligation of confidentiality, hereunder or otherwise. Each selling
Holder of such Registrable Securities and each such Participating Broker-Dealer
will be required to agree that information obtained by it as a result of such
inspections shall be deemed confidential and shall not be used by it for any
purpose other than the sale or exchange of Notes pursuant to an Exchange Offer
or Shelf Registration. Each selling Holder of such Registrable Notes and each
such Participating Broker-Dealer will be required to further agree that it
will, upon learning that disclosure of such Records is sought in a court of
competent jurisdiction, promptly give notice to the Issuers and allow the
Issuers to undertake appropriate action to prevent disclosure of the Records
deemed confidential at the Issuers' sole expense.
(p) Provide an indenture trustee for the Registrable
Notes or the Exchange Notes, as the case may be, and cause the Indenture or the
trust indenture provided for in Section 2(a) hereof, as the case may be, to be
qualified under the TIA not later than the effective date of the Exchange Offer
or the first Registration Statement relating to the Registrable Notes; and in
connection therewith, cooperate with the trustee under any such indenture and
the Holders of the Registrable Notes, to effect such changes to such indenture
as may be required for such indenture to be so qualified in accordance with the
terms of the TIA; and execute, and use their reasonable best efforts to cause
such trustee to execute, all documents as may be required to effect such
changes, and all other forms and documents required to be filed with the SEC to
enable such indenture to be so qualified in a timely manner.
(q) Comply with all applicable rules and regulations of
the SEC and make generally available to its securityholders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder
<PAGE> 22
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(or any similar rule promulgated under the Securities Act) no later than 45
days after the end of any 12-month period (or 90 days after the end of any
12-month period if such period is a fiscal year) (i) commencing at the end of
any fiscal quarter in which Registrable Notes are sold to underwriters in a
firm commitment or best efforts underwritten offering and (ii) if not sold to
underwriters in such an offering, commencing on the first day of the first
fiscal quarter of the Company after the effective date of a Registration
Statement, which statements shall cover said 12-month periods.
(r) If an Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Registrable Notes by Holders to the Company
(or to such other Person as directed by the Issuers) in exchange for the
Exchange Notes or the Private Exchange Notes, as the case may be, the Issuers
shall mark, or cause to be marked, on such Registrable Notes that such
Registrable Notes are being cancelled in exchange for the Exchange Notes or the
Private Exchange Notes, as the case may be; in no event shall such Registrable
Notes be marked as paid or otherwise satisfied.
(s) Reasonably cooperate with each seller of Registrable
Notes covered by any Registration Statement and each underwriter, if any,
participating in the disposition of such Registrable Notes and their respective
counsel in connection with any filings required to be made with the National
Association of Securities Dealers, Inc. (the "NASD").
(t) Use their reasonable best efforts to take all other
steps necessary or advisable to effect the registration of the Registrable
Notes covered by a Registration Statement contemplated hereby.
The Company may require each seller of Registrable Notes as to
which any Registration is being effected to furnish to the Issuers such
information regarding such seller and the distribution of such Registrable
Notes as the Issuers may, from time to time, reasonably request and, in such
event, shall have no further obligation. The Issuers may exclude from such
registration the Registrable Notes of any seller who unreasonably fails to
furnish such information within a reasonable time after receiving such request.
Each seller as to which any Shelf Registration is being effected agrees to
furnish promptly to the Issuers all information required to be disclosed in
order to make the information previously furnished to the Issuers by such
seller not materially misleading.
<PAGE> 23
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Each Holder of Registrable Notes and each Participating
Broker-Dealer agrees by acquisition of such Registrable Notes or Exchange Notes
to be sold by such Participating Broker-Dealer, as the case may be, that, upon
actual receipt of any notice from the Issuers of the happening of any event of
the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v) or 5(c)(vi) hereof,
such Holder will forthwith discontinue disposition of such Registrable Notes
covered by such Registration Statement or Prospectus or Exchange Notes to be
sold by such Holder or Participating Broker-Dealer, as the case may be, until
such Holder's or Participating Broker-Dealer's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 5(k) hereof, or
until it is advised in writing (the "Advice") by the Issuers that the use of
the applicable Prospectus may be resumed and has received copies of any
amendments or supplements thereto. In the event the Issuers shall give any such
notice, each of the Effectiveness Period and the Applicable Period shall be
extended by the number of days during such periods from and including the date
of the giving of such notice to and including the date when each seller of
Registrable Notes covered by such Registration Statement or Exchange Notes to
be sold by such Participating Broker-Dealer, as the case may be, shall have
received (x) the copies of the supplemented or amended Prospectus contemplated
by Section 5(k) hereof or (y) the Advice.
6. Registration Expenses
(a) All fees and expenses incident to the performance of
or compliance with this Agreement by the Issuers shall be borne by the Issuers
whether or not the Exchange Offer or a Shelf Registration is filed or becomes
effective, including, without limitation, (i) all registration and filing fees
(including, without limitation, (A) fees with respect to filings required to be
made with the NASD in connection with an underwritten offering and (B) fees and
expenses of compliance with state securities or Blue Sky laws (including,
without limitation, reasonable fees and disbursements of counsel in connection
with Blue Sky qualifications of the Registrable Notes or Exchange Notes and
determination of the eligibility of the Registrable Notes or Exchange Notes for
investment under the laws of such jurisdictions (x) where the holders of
Registrable Notes are located, in the case of the Exchange Notes, or (y) as
provided in Section 5(h) hereof, in the case of Registrable Notes or Exchange
Notes to be sold by a Participating Broker-Dealer during the Applicable
Period)), (ii) printing expenses, including, without limitation, expenses of
printing certificates
<PAGE> 24
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for Registrable Notes or Exchange Notes in a form eligible for deposit with The
Depository Trust Company and of printing prospectuses if the printing of
prospectuses is requested by the managing underwriter or underwriters, if any,
by the Holders of a majority in aggregate principal amount of the Registrable
Notes included in any Registration Statement or sold by any Participating
Broker-Dealer, as the case may be, (iii) messenger, telephone and delivery
expenses, (iv) fees and disbursements of counsel for the Issuers and fees and
disbursements of special counsel for the sellers of Registrable Notes (subject
to the provisions of Section 6(b) hereof), (v) fees and disbursements of all
independent certified public accountants referred to in Section 5(n)(iii)
hereof (including, without limitation, the expenses of any special audit and
"cold comfort" letters required by or incident to such performance), (vi)
rating agency fees, if any, and any fees associated with making the Registrable
Notes or Exchange Notes eligible for trading through The Depository Trust
Company, (vii) Securities Act liability insurance, if the Company desires such
insurance, (viii) fees and expenses of all other Persons retained by the
Issuers, (ix) internal expenses of the Issuers (including, without limitation,
all salaries and expenses of officers and employees of the Issuers performing
legal or accounting duties), (x) the expense of any annual audit, (xi) the fees
and expenses incurred in connection with the listing of the securities to be
registered on any securities exchange, if applicable and (xii) the expenses
relating to printing, word processing and distributing all Registration
Statements, underwriting agreements, securities sales agreements, indentures
and any other documents necessary in order to comply with this Agreement.
(b) The Issuers shall (i) reimburse the Holders of the
Registrable Notes being registered in a Shelf Registration for the reasonable
fees and disbursements of not more than one counsel (in addition to appropriate
local counsel) chosen by the Holders of a majority in aggregate principal
amount of the Registrable Notes to be included in such Registration Statement
and (ii) reimburse out-of-pocket expenses (other than legal expenses or selling
commissions or discounts) of Holders of Registrable Notes incurred in
connection with the registration and sale of the Registrable Notes pursuant to
a Shelf Registration or in connection with the exchange of Registrable Notes
pursuant to the Exchange Offer.
<PAGE> 25
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7. Indemnification
(a) The Issuers agree, jointly and severally, to
indemnify and hold harmless each Holder of Registrable Notes offered pursuant
to a Shelf Registration Statement and each Participating Broker-Dealer selling
Exchange Notes during the Applicable Period, the affiliates, directors,
officers, agents, representatives and employees of each such Person or its
affiliates, and each other Person, if any, who controls any such Person or its
affiliates within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act (each, a "Participant"), against any and all
losses, claims, damages and liabilities (including, without limitation, the
reasonable legal fees and other expenses actually incurred in connection with
any suit, action or proceeding or any claim asserted) caused by, arising out of
or based upon
(i) any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement pursuant to
which the offering of such Registrable Notes or Exchange Notes, as the
case may be, is registered (or any amendment thereto) or related
Prospectus (or any amendments or supplements thereto) or any related
preliminary prospectus, or
(ii) the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading;
and will reimburse, as incurred, each Participant and each such controlling
person for any legal or other expenses incurred by the Participant or such
controlling person in connection with investigating, defending against or
appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action; provided, however, that the Issuers will not be
required to indemnify a Participant if (i) such losses, claims, damages or
liabilities are caused by any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
relating to any Participant furnished to the Issuers in writing by or on behalf
of such Participant expressly for use therein or (ii) if such Participant sold
to the person asserting the claim the Registrable Notes or Exchange Notes that
are the subject of such claim and such untrue statement or omission or alleged
untrue statement or omission was contained or made in any preliminary
prospectus and corrected in the Prospectus or any amendment or supplement
thereto, and the Prospectus does not contain any other untrue statement or
omission or alleged
<PAGE> 26
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untrue statement or omission of a material fact that was the subject matter of
the related proceeding and it is established by the Issuers in the related
proceeding that such Participant failed to deliver or provide a copy of the
Prospectus (as amended or supplemented) to such Person with or prior to the
confirmation of the sale of such Registrable Notes or Exchange Notes sold to
such Person unless such failure to deliver or provide a copy of the Prospectus
(as amended or supplemented) was a result of noncompliance by the Issuers with
Section 5 of this Agreement.
(b) Each Participant agrees, severally and not jointly,
to indemnify and hold harmless each of the Issuers, their directors and
officers and each Person who controls each of the Issuers within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act to the same
extent as the foregoing indemnity from the Issuers to each Participant, but
only (i) with reference to information relating to such Participant furnished
to the Issuers in writing by or on behalf of such Participant expressly for use
in any Registration Statement or Prospectus, any amendment or supplement
thereto or any preliminary prospectus or (ii) with respect to any untrue
statement or representation made by such Participant in writing to the Company.
The liability of any Participant under this paragraph shall in no event exceed
the proceeds received by such Participant from sales of Registrable Notes or
Exchange Notes giving rise to such obligations.
(c) If any suit, action, proceeding (including any
governmental or regulatory investigation), claim or demand shall be brought or
asserted against any Person in respect of which indemnity may be sought
pursuant to either of the two preceding paragraphs, such Person (the
"Indemnified Person") shall promptly notify the Person against whom such
indemnity may be sought (the "Indemnifying Person") in writing, and the
Indemnifying Person, upon request of the Indemnified Person, shall retain
counsel reasonably satisfactory to the Indemnified Person to represent the
Indemnified Person and any others the Indemnifying Person may reasonably
designate in such proceeding and shall pay the reasonable fees and expenses
actually incurred by such counsel related to such proceeding; provided,
however, that the failure to so notify the Indemnifying Person shall not
relieve it of any obligation or liability that it may have hereunder or
otherwise (unless and only to the extent that such failure directly results in
the forfeiture of any substantial rights or defenses by the Indemnifying Person
and the Indemnifying
<PAGE> 27
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Person was not otherwise aware of such action or claim). In any such
proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless (i) the Indemnifying Person and the Indemnified
Person shall have mutually agreed in writing to the contrary, (ii) the
Indemnifying Person shall have failed within a reasonable period of time to
retain counsel reasonably satisfactory to the Indemnified Person or (iii) the
named parties in any such proceeding (including any impleaded parties) include
both the Indemnifying Person and the Indemnified Person and representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that, unless there
exists a conflict among Indemnified Persons, the Indemnifying Person shall not,
in connection with any one such proceeding or separate but substantially
similar related proceeding in the same jurisdiction arising out of the same
general allegations, be liable for the fees and expenses of more than one
separate firm (in addition to any local counsel) for all Indemnified Persons
and that all such fees and expenses shall be reimbursed promptly as they are
incurred. Any such separate firm for the Participants and such control Persons
of Participants shall be designated in writing by Participants who sold a
majority in interest of Registrable Notes and Exchange Notes sold by all such
Participants and any such separate firm for the Issuers, its directors, its
officers and such control Persons of the Issuers shall be designated in writing
by the Issuers. The Indemnifying Person shall not be liable for any settlement
of any proceeding effected without its prior written consent, but if settled
with such consent or if there be a final non-appealable judgment for the
plaintiff for which the Indemnified Person is entitled to indemnification
pursuant to this Agreement, the Indemnifying Person agrees to indemnify and
hold harmless each Indemnified Person from and against any loss or liability by
reason of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time an Indemnified Person shall have requested an Indemnifying
Person to reimburse the Indemnified Person for reasonable fees and expenses
actually incurred by counsel as contemplated by the third sentence of this
paragraph, the Indemnifying Person agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such Indemnifying
Person of the aforesaid request and (ii) such Indemnifying Person shall not
have reimbursed the Indemnified Person in accordance
<PAGE> 28
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with such request prior to the date of such settlement; provided, however, that
the Indemnifying Person shall not be liable for any settlement effected without
its consent pursuant to this sentence if the Indemnifying Person is contesting,
in good faith, the request for reimbursement. No Indemnifying Person shall,
without the prior written consent of the Indemnified Person, effect any
settlement or compromise of any pending or threatened proceeding in respect of
which any Indemnified Person is or could have been a party, and indemnity could
have been sought hereunder by such Indemnified Person, unless such settlement
(A) includes an unconditional written release of such Indemnified Person, in
form and substance reasonably satisfactory to such Indemnified Person, from all
liability on claims that are the subject matter of such proceeding and (B) does
not include any statement as to an admission of fault, culpability or failure
to act by or on behalf of any Indemnified Person.
(d) If the indemnification provided for in the first and
second paragraphs of this Section 7 is for any reason available by its terms,
but is held to be unenforceable, then each Indemnifying Person under such
paragraphs, in lieu of indemnifying such Indemnified Person thereunder and in
order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such Indemnified Person as a result of such losses,
claims, damages or liabilities in such proportion as is appropriate to reflect
(i) the relative benefits received by the Indemnifying Person or Persons on the
one hand and the Indemnified Person or Persons on the other from the offering
of the Notes or (ii) if the allocation provided by the foregoing clause (i) is
not permitted by applicable law, not only such relative benefits but also the
relative fault of the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof). The relative
fault of the parties shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Issuers on the one hand or such Participant or such other
Indemnified Person, as the case may be, on the other, the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission, and any other equitable considerations appropriate
in the circumstances.
<PAGE> 29
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(e) The parties agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation (even if the Participants were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an Indemnified Person as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any reasonable legal or other expenses actually incurred by such
Indemnified Person in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 7, in no event
shall a Participant be required to contribute any amount in excess of the
amount by which proceeds received by such Participant from sales of Registrable
Notes or Exchange Notes, as the case may be, exceeds the amount of any damages
that such Participant has otherwise been required to pay or has paid by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
(f) The indemnity and contribution agreements contained
in this Section 7 will be in addition to any liability that the Indemnifying
Persons may otherwise have to the Indemnified Persons referred to above.
8. Rule 144 and 144A
Each of the Issuers covenants that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act and
the rules and regulations adopted by the SEC thereunder in a timely manner in
accordance with the requirements of the Securities Act and the Exchange Act
and, if at any time the Issuers are not required to file such reports, it will,
upon the request of any Holder of Registrable Notes, make publicly available
annual reports and such information, documents and other reports of the type
specified in Sections 13 and 15(d) of the Exchange Act. Each of the Issuers
further covenants for so long as any Registrable Notes remain outstanding, to
make available to any Holder or beneficial owner of Registrable Notes in
connection with any sale thereof and any prospective purchaser of such
Registrable Notes from such Holder or beneficial owner the information required
by Rule
<PAGE> 30
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144A(d)(4) under the Securities Act in order to permit resales of such
Registrable Notes pursuant to Rule 144A.
9. Underwritten Registrations
If any of the Registrable Notes covered by any Shelf
Registration are to be sold in an underwritten offering, the investment banker
or investment bankers and manager or managers that will manage the offering
will be selected by the Holders of a majority in aggregate principal amount of
such Registrable Notes included in such offering and reasonably acceptable to
the Issuers.
No Holder of Registrable Notes may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Notes on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
10. Miscellaneous
(a) No Inconsistent Agreements. None of the Issuers has
entered, as of the date hereof, and none of the Issuers will, after the date of
this Agreement, enter into any agreement with respect to any of its securities
that is inconsistent with the rights granted to the Holders of Registrable
Notes in this Agreement or otherwise conflicts with the provisions hereof. None
of the Issuers has entered and none of the Issuers will enter into any
agreement with respect to any of its securities that will grant to any Person
piggy-back registration rights with respect to a Registration Statement.
(b) Adjustments Affecting Registrable Notes. None of the
Issuers will, directly or indirectly, take any action with respect to the
Registrable Notes as a class that would adversely affect the ability of the
Holders of Registrable Notes to include such Registrable Notes in a
registration undertaken pursuant to this Agreement.
(c) Amendments and Waivers. The provisions of this
Agreement may not be amended, modified or supplemented, and waivers or consents
to departures from the provisions hereof may not be given, otherwise than with
the prior written consent of the Holders of not less than a majority in
<PAGE> 31
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aggregate principal amount of the then outstanding Registrable Notes.
Notwithstanding the foregoing, a waiver or consent to depart from the
provisions hereof with respect to a matter that relates exclusively to the
rights of Holders of Registrable Notes whose securities are being sold pursuant
to a Registration Statement and that does not directly or indirectly affect,
impair, limit or compromise the rights of other Holders of Registrable Notes
may be given by Holders of at least a majority in aggregate principal amount of
the Registrable Notes being sold by such Holders pursuant to such Registration
Statement; provided, however, that the provisions of this sentence may not be
amended, modified or supplemented except in accordance with the provisions of
the immediately preceding sentence.
(d) Notices. All notices and other communications
(including without limitation any notices or other communications to the
Trustee) provided for or permitted hereunder shall be made in writing by
hand-delivery, registered first-class mail, next-day air courier or facsimile:
1. if to a Holder of the Registrable Notes or any
Participating Broker-Dealer, at the most current address of such
Holder or Participating Broker-Dealer, as the case may be, set forth
on the records of the registrar under the Indenture, with a copy in
like manner to the Initial Purchasers as follows:
CREDIT SUISSE FIRST BOSTON CORPORATION
BT SECURITIES CORPORATION
MORGAN STANLEY & CO. INCORPORATED
c/o Credit Suisse First
Boston Corporation
Eleven Madison Avenue
New York, New York
Facsimile No: (212) 325-8020
Attention: Corporate Finance Department
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Facsimile No: (212) 269-5420
Attention: William M. Hartnett, Esq.
2. if to the Initial Purchasers, at the addresses
specified in Section 10(d)(1);
<PAGE> 32
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3. if to the Company, as follows:
CHANCELLOR RADIO BROADCASTING COMPANY
12655 North Central Expressway
Suite 405
Dallas, Texas 75243
Facsimile No: (972) 239-6220
Attention: Jacques Kerrest
with copies to:
Weil, Gotshal & Manges LLP
100 Crescent Court
Suite 1300
Dallas, Texas 75201-6950
Facsimile No: (214) 746-7777
Attention: Jeremy W. Dickens, Esq.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; one
business day after being timely delivered to a next-day air courier; and when
receipt is acknowledged by the addressee, if sent by facsimile.
Copies of all such notices, demands or other communications
shall be concurrently delivered by the Person giving the same to the Trustee at
the address and in the manner specified in such Indenture.
(e) Successors and Assigns. This Agreement shall inure to
the benefit of and be binding upon the successors and assigns of each of the
parties hereto; provided, however, that this Agreement shall not inure to the
benefit of or be binding upon a successor or assign of a Holder unless and to
the extent such successor or assign holds Registrable Notes.
(f) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
<PAGE> 33
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(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED
TO CONTRACTS MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
(i) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their best efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
(j) Notes Held by the Issuers or their Affiliates.
Whenever the consent or approval of Holders of a specified percentage of
Registrable Notes is required hereunder, Registrable Notes held by the Issuers
or their affiliates (as such term is defined in Rule 405 under the Securities
Act) shall not be counted in determining whether such consent or approval was
given by the Holders of such required percentage.
(k) Third Party Beneficiaries. Holders of Registrable
Notes and Participating Broker-Dealers are intended third party beneficiaries
of this Agreement and this Agreement may be enforced by such Persons.
(l) Entire Agreement. This Agreement, together with the
Purchase Agreement and the Indenture, is intended by the parties as a final and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and therein and any and all
prior oral or written agreements, representations, or warranties, contracts,
understandings, correspondence, conversations and memoranda between the Initial
Purchasers on the one hand and the Issuers on the other, or between or among
any agents, representatives, parents, subsidiaries, affiliates, predecessors in
interest or successors in interest with respect to the subject matter hereof
and thereof are merged herein and replaced hereby.
<PAGE> 34
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
THE COMPANY:
CHANCELLOR RADIO BROADCASTING COMPANY
By:
-----------------------------------
Name:
Title:
THE GUARANTORS:
TREFOIL COMMUNICATIONS, INC.
By:
-----------------------------------
Name:
Title:
SHAMROCK BROADCASTING, INC.
By:
-----------------------------------
Name:
Title:
SHAMROCK RADIO LICENSES, INC.
By:
-----------------------------------
Name:
Title:
SHAMROCK BROADCASTING OF TEXAS, INC.
By:
-----------------------------------
Name:
Title:
<PAGE> 35
SHAMROCK BROADCASTING LICENSES OF DENVER, INC.
By:
-----------------------------------
Name:
Title:
CHANCELLOR BROADCASTING LICENSEE COMPANY
By:
-----------------------------------
Name:
Title:
THE INITIAL PURCHASERS:
CREDIT SUISSE FIRST BOSTON
CORPORATION
By:
------------------------------
Name:
Title:
BT SECURITIES CORPORATION
By:
------------------------------
Name:
Title:
MORGAN STANLEY & CO. INCORPORATED
By:
------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 16.1
[Letterhead of KPMG Peat Marwick L.L.P.]
September 29, 1997
Securities and Exchange Commission
Washington, D.C. 20549
Ladies and Gentlemen:
We were previously principal accountants for Evergreen Media Corporation and
Evergreen Media Corporation of Los Angeles (names subsequently changed to
Chancellor Media Corporation and Chancellor Media Corporation of Los Angeles,
respectively) and, under the date of January 31, 1997, except for note 2(c),
which is as of February 19, 1997, we reported on the consolidated financial
statements of Evergreen Media Corporation and subsidiaries and the consolidated
financial statements of Evergreen Media Corporation of Los Angeles and
subsidiaries as of December 31, 1995 and 1996 and for each of the years in the
three-year period ended December 31, 1996. On September 23, 1997, our
appointment as principal accountants was terminated. We have read the
statements of Chancellor Media Corporation and Chancellor Media Corporation of
Los Angeles (collectively, the "Companies") included under Item 4 of their Form
8-K dated September 29, 1997, and we agree with such statements, except that we
are not in a position to agree or disagree with the Companies' stated reason
for changing principal auditors, or with the Companies' statement that the
change was approved by the board of directors, or with the statements made by
the Companies in the third paragraph of Item 4 of the aforementioned Form 8-K.
/s/ KPMG Peat Marwick L.L.P.
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Chancellor Media Corporation of Los Angeles:
We consent to the use of our reports herein on the following financial
statements: 1) the consolidated balance sheets of Evergreen Media Corporation of
Los Angeles and subsidiaries as of December 31, 1995 and 1996 and the related
consolidated statements of operations, stockholder's equity and cash flows for
each of the years in the three-year period ended December 31, 1996; 2) the
combined balance sheets of WMZQ Inc. and Viacom Broadcasting East, Inc. as of
December 31, 1995 and 1996 and the related combined statements of earnings and
cash flows for each of the years in the three-year period ended December 31,
1996; 3) the combined balance sheets of Riverside Broadcasting Co., Inc. and
WAXQ Inc. as of December 31, 1995 and 1996 and the related combined statements
of earnings and cash flows for each of the years in the three-year period ended
December 31, 1996; 4) the balance sheets of KKSF-FM/KDFC-FM and AM (A Division
of the Brown Organization) as of December 31, 1995 and 1996 and the related
statements of earnings and division equity and cash flows for the years then
ended; (5) the balance sheets of WLIT Inc. as of December 31, 1995 and 1996 and
the related statements of earnings and cash flows for each of the years in the
three-year period ended December 31, 1996; (6) the combined balance sheets of
KYSR Inc. and KIBB Inc. as of December 31, 1995 and 1996 and the related
combined statements of operations and cash flows for each of the years in the
three-year period ended December 31, 1996; and (7) the balance sheets of WDRQ
Inc. as of December 31, 1995 and 1996 and the related statements of earnings and
cash flows for each of the years in the three-year period ended December 31,
1996. We also consent to the reference of our firm under the headings "Experts"
and "Selected Consolidated Historical Financial Data" in the Registration
Statement.
KPMG Peat Marwick LLP
Dallas, Texas
October 16, 1997
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Chancellor Media Corporation of Los Angeles:
We consent to the use of our report dated March 28, 1997, relating to the
balance sheets of WDAS-AM/FM (station owned and operated by Beasley FM
Acquisition Corp.) as of December 31, 1996 and the related statements of
earnings and station equity and cash flows for the year ended December 31, 1996,
and the reference to our firm under the heading "Experts" in the Registration
Statement.
KPMG Peat Marwick LLP
St. Petersburg, Florida
October 16, 1997
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 (No. 333-36451) of Chancellor Media
Corporation of Los Angeles of our report dated May 2, 1997 relating to the
financial statements of Century Chicago Broadcasting, L.P., which appears in
such Prospectus. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Chicago, Illinois
October 16, 1997
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated May 8, 1997, (and to all references to our Firm) included in this
Registration Statement on Form S-4 dated September 26, 1997, as amended on
October 16, 1997 of Chancellor Media Corporation of Los Angeles.
Arthur Andersen LLP
Chicago, Illinois
October 16, 1997
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation of Los Angeles:
We consent to the inclusion in this Registration Statement on Form S-4 of
Chancellor Media Corporation of Los Angeles of our report dated February 13,
1997, except for Note 15 as to which the date is February 19, 1997, on our
audits of the consolidated financial statements of Chancellor Radio Broadcasting
Company and Subsidiaries as of December 31, 1995 and 1996 and for each of the
three years in the period ended December 31, 1996. We also consent to the
reference to our firm under the caption "Experts".
Coopers & Lybrand L.L.P.
Dallas, Texas
October 16, 1997
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation of Los Angeles:
We consent to the inclusion in this Registration Statement on Form S-4 of
Chancellor Media Corporation of Los Angeles of our report dated March 24, 1997,
on our audit of the consolidated statements of operations, changes in common
stockholders' equity and cash flows of Trefoil Communications, Inc. and
Subsidiaries for the period January 1, 1996 through February 13, 1996. We also
consent to the reference to our firm under the caption "Experts".
Coopers & Lybrand L.L.P.
Dallas, Texas
October 16, 1997
<PAGE> 1
EXHIBIT 23.8
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Chancellor Media Corporation of Los
Angeles of our report dated February 14, 1996 relating to the consolidated
financial statements of Trefoil Communications, Inc., which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
Price Waterhouse LLP
Los Angeles, California
October 16, 1997
<PAGE> 1
EXHIBIT 23.9
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation of Los Angeles:
As independent public accountants, we hereby consent to the use of our report
dated March 31, 1997 (and to all references to our Firm) included in this
Registration Statement on Form S-4 dated October 16, 1997 of Chancellor Media
Corporation of Los Angeles.
Arthur Andersen LLP
Washington, D.C.
October 16, 1997
<PAGE> 1
LETTER OF TRANSMITTAL
OFFER TO EXCHANGE
8 3/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B
FOR ALL OUTSTANDING
8 3/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A
OF
CHANCELLOR MEDIA CORPORATION
OF LOS ANGELES
(AS SUCCESSOR BY MERGER TO CHANCELLOR RADIO BROADCASTING COMPANY)
PURSUANT TO THE PROSPECTUS DATED OCTOBER 16, 1997
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON NOVEMBER 17,
1997, UNLESS EXTENDED (THE "EXPIRATION DATE").
TO: U.S. TRUST COMPANY OF TEXAS, N.A., THE EXCHANGE AGENT
<TABLE>
<C> <C> <C>
By Overnight Courier: Telephone Transmission: By Registered or Certified
U.S. Trust Company of Texas, (212) 420-6504 (fax) Mail:
N.A. Confirm by Telephone: U.S. Trust Company of Texas,
ATTN: Corporate Trust (800) 225-2398 N.A.
770 Broadway -- 13th Floor By Hand Delivery: ATTN: Corporate Trust
New York, New York 10003-9598 U.S. Trust Company of Texas, P.O. Box 841 Cooper Station
N.A. New York, New York 10276
ATTN: Corporate Trust
111 Broadway -- Lower Level
New York, New York 10006-1906
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE FACSIMILE
NUMBER LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS
ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
The undersigned acknowledges receipt of the Prospectus dated October 16,
1997 (the "Prospectus") of Chancellor Media Corporation of Los Angeles, a
Delaware corporation (the "Company"), and this Letter of Transmittal (the
"Letter of Transmittal"), which together constitute (i) the Company's offer (the
"Exchange Offer") to exchange $1,000 principal amount of its 8 3/4% Senior
Subordinated Notes due 2007, Series B (the "Exchange Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement of which the Prospectus is a part, for each
$1,000 principal amount of its outstanding 8 3/4% Senior Subordinated Notes due
2007, Series A (the "Original Notes"), of which $200,000,000 principal amount is
outstanding. Capitalized terms used but not defined herein have the meanings
given to them in the Prospectus. The Original Notes were issued on June 24, 1997
by Chancellor Radio Broadcasting Company ("CRBC") and were assumed by the
Company upon the merger of CRBC with and into the Company on September 5, 1997.
See "Business and Properties -- Recent Developments -- The Chancellor Merger" in
the Prospectus.
All holders of Original Notes who wish to tender their Original Notes must,
prior to the Expiration Date: (1) complete, sign, date and mail or otherwise
deliver this Letter of Transmittal to the Exchange Agent, in person or to the
address set forth above, or in lieu thereof, indicate assent to the terms of the
Letter of Transmittal by posting an Agent's Message (as defined in the
instructions) through the Automated Tender Offer Program ("ATOP") of The
Depository Trust Company ("DTC"); and (2) tender his or her Original Notes or,
if a tender of Original Notes is to be made by book-entry transfer to the
account maintained by the
<PAGE> 2
Exchange Agent at DTC (the "Book-Entry Transfer Facility"), confirm such
book-entry transfer (a "Book-Entry Confirmation"), in each case in accordance
with the procedures for tendering described in the Instructions to this Letter
of Transmittal. Holders of Original Notes whose certificates are not immediately
available, or who are unable to deliver their certificates or Book-Entry
Confirmation and all other documents required by this Letter of Transmittal to
be delivered to the Exchange Agent on or prior to the Expiration Date, must
tender their Original Notes according to the guaranteed delivery procedures set
forth under the caption "The Exchange Offer -- Procedures for Tendering Original
Notes" in the Prospectus. (See Instruction 1).
The term "Holder" with respect to the Exchange Offer means any person in
whose name the Original Notes are registered on the books of the Company or any
other person who has obtained a properly completed bond power from the
registered holder. The undersigned has completed, executed and delivered this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer. The Instructions included with this Letter
must be followed in their entirety. Questions and requests for assistance or for
additional copies of the Prospectus or this Letter may be directed to the
Exchange Agent, at the address listed above, or to Chancellor Media Corporation
of Los Angeles, 433 East Las Colinas Boulevard, Suite 1130, Irving, TX 75039
(telephone: (972) 869-9020).
<PAGE> 3
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING
THE INSTRUCTIONS TO THIS LETTER OF TRANSMITTAL, CAREFULLY
BEFORE CHECKING ANY BOX BELOW
Capitalized terms used in this Letter of Transmittal and not defined herein
shall have the respective meanings ascribed to them in the Prospectus.
List in Box 1 below the Original Notes of which you are the holder. If the
space provided in Box 1 is inadequate, list the certificate numbers and
principal amount of Original Notes on a separate SIGNED schedule and affix that
schedule to this Letter of Transmittal.
<TABLE>
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF 8 3/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A
- ---------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
AGGREGATE TENDERED(2)
PRINCIPAL (MUST BE IN
NAMES AND ADDRESS(ES) OF AMOUNT INTEGRAL
REGISTERED HOLDER(S) CERTIFICATE REPRESENTED BY MULTIPLES
(PLEASE FILL IN, IF BLANK) NUMBER(S)(1) CERTIFICATE(S)(1) OF $1,000)
- ---------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
TOTAL
- ---------------------------------------------------------------------------------------------------------------------------
(1) Need not be completed by holders tendering by book-entry transfer (see below).
(2) Unless otherwise indicated in the column labeled "Principal Amount Tendered," any tendering Holder of 8 3/4% Senior
Subordinated Notes due 2007, Series A will be deemed to have tendered the entire aggregate principal amount
represented by the column labeled "Aggregate Principal Amount Represented by Certificate(s)". If the space provided
above is inadequate, list the certificate numbers and principal amounts on a separate signed schedule and affix the
list to this Letter of Transmittal. The minimum permitted tender is $1,000 in principal amount of 8 3/4% Senior
Subordinated Notes due 2007, Series A. All other tenders must be in integral multiples of $1,000.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 4
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company the principal amount of Original Notes indicated
above. Subject to, and effective upon, the acceptance for exchange of the
principal amount of Original Notes tendered in accordance with this Letter of
Transmittal, the undersigned sells, assigns and transfers to, or upon the order
of, the Company all right, title and interest in and to the Original Notes
tendered hereby. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent its agent and attorney-in-fact (with full knowledge that the
Exchange Agent also acts as the agent of the Company) with respect to the
tendered Original Notes, with full power of substitution, to: (i) deliver
certificates for such Original Notes; (ii) deliver Original Notes and all
accompanying evidence of transfer and authenticity to or upon the order of the
Company upon receipt by the Exchange Agent, as the undersigned's agent, of the
Exchange Notes to which the undersigned is entitled upon the acceptance by the
Company of the Original Notes tendered under the Exchange Offer; and (iii)
receive all benefits and otherwise exercise all rights of beneficial ownership
of such Original Notes, all in accordance with the terms of the Exchange Offer.
The power of attorney granted in this paragraph shall be deemed to be
irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, exchange, assign and transfer the Original Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim, when the same are acquired by the Company. The
undersigned will, upon request, execute and deliver any additional documents
deemed by the Company to be necessary or desirable to complete the exchange,
assignment and transfer of the Original Notes tendered.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance upon interpretations contained in letters issued to third parties by
the staff of the Securities and Exchange Commission that the Exchange Notes
issued in exchange for the Original Notes pursuant to the Exchange Offer may be
offered for resale, resold and otherwise transferred by Holders thereof (other
than any such Holder that is an "affiliate" of CRBC or the Company within the
meaning of Rule 405 under the Securities Act), without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the ordinary course of such Holders'
business and such Holders have no arrangement with any person to participate in
distribution of such Exchange Notes. If the undersigned is not a broker-dealer,
the undersigned represents that it is not engaged in, and does not intend to
engage in, a distribution of Exchange Notes. If the undersigned is a
broker-dealer that will receive Exchange Notes for its own account in exchange
for Original Notes that were acquired as a result of market-marking activities
or other trading activities, it acknowledges that it will deliver a prospectus
in connection with any resale of such Exchange Notes; however, by so
acknowledging and by delivering a prospectus, the undersigned will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
By tendering Original Notes, the Transferor certifies (a) that it is not an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act, that it is not a broker-dealer that owns Original Notes acquired directly
from Chancellor Radio Broadcasting Company ("CRBC", predecessor entity to the
Company) or an affiliate or CRBC or the Company, that it is acquiring the
Exchange Notes offered hereby in the ordinary course of such Transferor's
business and that such Transferor has no arrangement with any person to
participate in the distribution of such Exchange Notes or (b) that it is an
"affiliate" (as so defined) of CRBC, the Company or of the Initial Purchasers,
and that it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable to it.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Original Notes when, as and if the Company has given
oral or written notice thereof to the Exchange Agent, at which time the
undersigned's right to withdraw such tender will terminate.
If any tendered Original Notes are not accepted for exchange pursuant to
the Exchange Offer for any reason, certificates for any such unaccepted Original
Notes will be returned, without expense, to the undersigned at the address shown
below or at a different address as may be indicated herein under "Special
Issuance Instructions" as promptly as practicable after the Expiration Date.
<PAGE> 5
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, legal
representatives, successors, assigns, executors and administrators. Tenders may
be withdrawn only in accordance with the procedures set forth in the
Instructions contained in this Letter of Transmittal.
The undersigned understands that tenders of Original Notes pursuant to the
procedures described under the caption "The Exchange Offer-Procedures for
Tendering Original Notes" in the Prospectus and in the instructions hereto will
constitute a binding agreement between the undersigned and the Company upon the
terms and subject to the conditions of the Exchange Offer.
Unless otherwise indicated under "Special Issuance Instructions," the
Exchange Agent will issue the certificates representing the Exchange Notes
issued in exchange for the Original Notes accepted for exchange and will return
any Original Notes not tendered or not exchanged, in the name(s) of the
undersigned. Similarly, unless otherwise indicated under "Special Delivery
Instructions," the Exchange Agent will send the certificates representing the
Exchange Notes issued in exchange for the Original Notes accepted for exchange
and any certificates for Original Notes not tendered or not exchanged (and
accompanying documents, as appropriate) will be returned to, the undersigned at
the address shown below the undersigned's signature(s). In the event that both
"Special Issuance Instructions" and "Special Delivery Instructions" are
completed, the Exchange Agent will issue the certificates representing the
Exchange Notes issued in exchange for the Original Notes accepted for exchange
in the name(s) of, and will return any Original Notes not tendered or not
exchanged and will send said certificates to, the person(s) so indicated. The
undersigned recognizes that the Company has no obligation pursuant to the
"Special Issuance Instructions" and "Special Delivery Instructions" to transfer
any Original Notes from the name of the registered holder(s) thereof if the
Company does not accept for exchange any of the Original Notes so tendered.
Holders of Original Notes who wish to tender their Original Notes and (i)
whose Original Notes are not immediately available, or (ii) who cannot deliver
their Original Notes, this Letter of Transmittal or any other documents required
hereby to the Exchange Agent prior to the Expiration Date (or who cannot comply
with the book-entry transfer procedure on a timely basis) may tender their
Original Notes according to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery
Procedures." See Instruction 1 regarding the completion of this Letter of
Transmittal, printed below.
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND
COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS (AS HEREINAFTER
DEFINED) ONLY):
Name of Tendering Institution
------------------------------------------------
Account Number
---------------------------------------------------------------
Transaction Code Number
------------------------------------------------------
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING
(FOR USE BY ELIGIBLE INSTITUTIONS ONLY):
Name(s) of Registered Original Noteholder(s)
--------------------------------
Date of Execution of Notice of Guaranteed Delivery
--------------------------
Window Ticket Number (if available)
-----------------------------------------
Name of Institution which Guaranteed Delivery
------------------------------
Account Number (if delivered by book-entry transfer)
------------------------
<PAGE> 6
PLEASE SIGN HERE WHETHER OR NOT
ORIGINAL NOTES ARE BEING PHYSICALLY TENDERED HEREBY
X
- ---------------------------------------------------------------------------
Date
X
- ---------------------------------------------------------------------------
Signature(s) of Registered Holder(s) Date or Authorized Date
Signatory
Area Code and Telephone Number:
------------------------------------
The above lines must be signed by the registered holder(s) of Original
Notes as their name(s) appear(s) on the Original Notes or by person(s)
authorized to become registered holder(s) by a properly completed bond power
from the registered holder(s), a copy of which must be transmitted with this
Letter of Transmittal. If Original Notes to which this Letter of Transmittal
relate are held of record by two or more joint holders, then all such holders
must sign this Letter of Transmittal. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, then such person must
(i) set forth his or her full title below and (ii) unless waived by the Company,
submit evidence satisfactory to the Company of such person's authority so to
act. See Instruction 4 regarding the completion of this Letter of Transmittal,
printed below.
Name(s):
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Print)
Capacity:
-----------------------------------------------------------------------
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
Signature(s) Guaranteed by an Eligible Institution (as hereinafter defined):
(If required by Instruction 4)
- --------------------------------------------------------------------------------
(Authorized Signature)
- --------------------------------------------------------------------------------
(Title)
- --------------------------------------------------------------------------------
(Name of Firm)
Dated:
------------------------------------------
<PAGE> 7
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5, AND 6)
To be completed ONLY (i) if checks for the Original Notes in a principal
amount not exchanged, or Exchange Notes issued in exchange for Original Notes
accepted for exchange, are to be issued in the name of someone other than the
undersigned, or (ii) if Original Notes tendered by book-entry transfer which are
not exchanged are to be returned by credit to an account maintained at DTC.
ISSUE CERTIFICATE(S) TO:
Name
---------------------------------------------------------------------------
(Please Print)
Address
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Including Zip Code)
- --------------------------------------------------------------------------------
(Tax Identification or Social Security No.)
Credit Original Notes not exchanged and delivered by book-entry transfer to the
DTC account set forth below:
- --------------------------------------------------------------------------------
DTC Account Number
SPECIAL DELIVERY INSTRUCTIONS 6
(SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certificates for Original Notes in a principal amount
not exchanged, or Exchange Notes issued in exchange for Original Notes issued in
exchange for Original Notes accepted for exchange, are to be sent to someone
other than the undersigned, or to the undersigned at an address other than that
shown above.
MAIL TO:
Name
---------------------------------------------------------------------------
(Please Print)
Address
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Including Zip Code)
- --------------------------------------------------------------------------------
(Tax Identification or Social Security No.)
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND ORIGINAL NOTES. The tendered
Original Notes or any confirmation of a book-entry transfer (a "Book-Entry
Confirmation"), as well as a properly completed and duly executed copy of this
Letter of Transmittal or facsimile hereof, or an Agent's Message (as defined
below) in lieu thereof, and any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent at its address set forth
herein prior to 5:00 p.m., New York City time, on the Expiration Date. The
method of delivery of the tendered Original Notes, this Letter of Transmittal,
or an Agent's Message (as defined below) in lieu thereof, and all other required
documents to the Exchange Agent is at the election and risk of the Holder and,
except as otherwise provided below, the delivery will be deemed made only when
actually received or confirmed by the Exchange Agent. Instead of delivery by
mail, it is recommended that the Holder use an overnight or hand delivery
service. In all cases, sufficient time should be allowed to assure timely
delivery. No Letter of Transmittal or Original Notes should be sent to the
Company.
The Exchange Agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may utilize DTC's ATOP to tender.
Accordingly, participants in DTC's ATOP may, in lieu of physically completing
and signing the Letter of Transmittal and delivering it to the Exchange Agent,
electronically transmit their acceptance of the Exchange Offer by causing the
DTC to transfer the Original Notes to the Exchange Agent in accordance with the
DTC's ATOP procedures for transfer. The DTC will then send an Agent's Message to
the Exchange Agent.
The term "Agent's Message" means a message transmitted by DTC received by
the Exchange Agent and forming part of the Book-Entry Confirmation, which states
that the DTC has received an express acknowledgment from a participant in DTC's
ATOP that is tendering Original Notes which are the subject of such book entry
confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal (or, in the case of an Agent's Message
relating to guaranteed delivery, that such participant has received and agrees
to be bound by the applicable Notice of Guaranteed Delivery), and that the
agreement may be enforced against such participant.
Holders who wish to tender their Original Notes and (i) whose Original
Notes are not immediately available, (ii) who cannot deliver their Original
Notes or any other documents required hereby to the Exchange Agent prior to the
Expiration Date or (iii) who are unable to complete the procedure for book-entry
transfer on a timely basis, must tender their Original Notes according to the
guaranteed delivery procedures set forth in the Prospectus. Pursuant to such
procedure: (i) such tender must be made by or through an Eligible Institution
(as hereinafter defined); (ii) prior to the Expiration Date, the Exchange Agent
must have received from the Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery (by facsimile transmission, mail or hand delivery) setting forth the
name and address of the Holder of the Original Note, and the principal amount of
Original Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three business days after the date of execution of the
Notice of Guaranteed Delivery, the certificate(s) for all physically tendered
Original Notes, or a Book-Entry Confirmation, and any other required documents
by the Letter of Transmittal will be deposited by the Eligible Institution (as
hereinafter defined) with the Exchange Agent; and (iii) the certificate(s) for
all physically tendered Original Notes, in proper form for transfer, or a Book-
Entry Confirmation, and, as the case may be, all other documents required by the
Letter of Transmittal, are received by the Exchange Agent within three business
days after the date of execution of the Notice of Guaranteed Delivery, all as
provided in the Prospectus under the caption "The Exchange Offer-Guaranteed
Delivery Procedures." Any Holder of Original Notes who wishes to tender his
Original Notes pursuant to the guaranteed delivery procedures described above
must ensure that the Exchange Agent receives the Notice of Guaranteed Delivery
prior to 5:00 p.m., New York City time, on the Expiration Date. Upon request of
the Exchange Agent, a Notice of Guaranteed Delivery will be sent to Holders who
wish to tender their Original Notes according to the guaranteed delivery
procedures set forth above.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of the Original Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination
<PAGE> 9
shall be final and binding. The Company reserves the absolute right to reject
any and all tenders of any particular Original Notes not properly tendered or to
not accept any particular Original Notes which acceptance might, in the judgment
of the Company or its counsel, be unlawful. The Company also reserves the
absolute right in its sole discretion to waive any defects or irregularities or
conditions of the Exchange Offer as to any particular Original Note either
before or after the Expiration Date (including the right to waive the
ineligibility of any Holder who seeks to tender the Original Notes in the
Exchange Offer). The interpretation of the terms and conditions of the Exchange
Offer as to any particular Original Note either before or after the Expiration
Date (including the Letter of Transmittal and instructions thereto) by the
Company shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Original Notes for exchange must be
cured within such reasonable period of time as the Company shall determine.
Neither the Company, the Exchange Agent nor any other person shall be under any
duty to give notification of any defect or irregularity with respect to any
tender of the Original Notes for exchange, nor shall any of them incur any
liability for failure to give such notification.
2. TENDER BY HOLDER. Only a Registered Holder of Original Notes may tender
such Original Notes in the Exchange Offer. Any beneficial owner whose Original
Notes are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender Original Notes should contact
the Registered Holder promptly and instruct such Registered Holder to tender
Original Notes on such beneficial owner's behalf. If such beneficial owner
wishes to tender such Original Notes himself, such beneficial owner must, prior
to completing and executing this Letter of Transmittal and delivering such
Original Notes in such beneficial owner's name, either make appropriate
arrangements to register ownership of the Original Notes in such beneficial
owner's name or obtain a properly completed bond power from the Registered
Holder of the Original Notes. The transfer of registered ownership may take
considerable time and may not be able to be completed prior to the Expiration
Date.
3. PARTIAL TENDERS; WITHDRAWALS. Tenders of Original Notes will be accepted
only in integral multiples of $1,000. If less than the entire principal amount
of any Original Notes is tendered, the tendering Holder should fill in the
principal amount tendered in the third column of the box entitled "Description
of 8 3/4% Senior Subordinated Notes due 2007, Series A" above. The entire
principal amount of Original Notes delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated. If the entire principal
amount of all Original Notes is not tendered, then Original Notes for the
principal amount of Original Notes not tendered and a certificate or
certificates representing Exchange Notes issued in exchange for any Original
Notes accepted will be sent to the Holder at his or her registered address,
unless a different address is provided in the appropriate box on this Letter of
Transmittal, promptly after the Original Notes are accepted for exchange.
If not yet accepted, a tender pursuant to the Exchange Offer may be
withdrawn prior to the Expiration Date. For a withdrawal to be effective, (i) a
written or facsimile notice of withdrawal must be received by the Exchange Agent
at its address set forth herein or (ii) holders must comply with the appropriate
procedures of DTC's ATOP system. Any such notice of withdrawal must (i) specify
the name of the person having tendered the Original Notes to be withdrawn, (ii)
identify the Original Notes to be withdrawn (including the serial number or
numbers and the principal amount of Original Notes to be withdrawn), (iii) be
signed by the Holder in the same manner as the original signature on the Letter
of Transmittal by which such Original Notes were tendered and (iv) specify the
name in which such Original Notes are to be registered, if different from that
of the withdrawing Holder. If Original Notes have been tendered pursuant to the
procedure for book-entry described above, any notice of withdrawal must specify,
in lieu of certificate numbers, the name and number of the account at DTC to be
credited with the withdrawn Original Notes and otherwise comply with the
procedures of such facility. Any questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties. Any
Original Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer. Any Original Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the Holder thereof without cost to such Holder (or, in the case of
Original Notes tendered by book-entry transfer into the Exchange Agent's account
at DTC pursuant to the book-entry transfer procedures described above, such
Original Notes will be credited to an account
<PAGE> 10
maintained with DTC for the Original Notes) as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Original Notes may be retendered by following one of the procedures
described in "Exchange Offer -- Procedures for Tendering Original Notes" set
forth in the Prospectus.
4. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal (or facsimile hereof) is
signed by the Registered Holder(s) of the Original Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the
Original Notes without alteration, enlargement or any change whatsoever.
If this Letter of Transmittal (or facsimile hereof) is signed by the
Registered Holder or Holders of Original Notes tendered and the certificate or
certificates for Exchange Notes issued in exchange therefor is to be issued (or
any untendered principal amount of Original Notes is to be reissued) to the
Registered holder, the said holder need not and should not endorse any tendered
Original Notes, nor provide a separate bond power. In any other case, such
holder must either properly endorse the Original Notes tendered or transmit a
properly completed separate bond power with this Letter of Transmittal, with the
signatures on the endorsement or bond power guaranteed by an Eligible
Institution (as hereinafter defined).
If the Letter of Transmittal is signed by a person or persons other than
the Registered Holder or Holders of Original Notes, such Original Notes must be
endorsed or accompanied by a properly completed bond power, in either case
signed exactly as the names of the Registered Holder or Holders that appear on
the original Notes with the signature thereon guaranteed by an Eligible
Institution.
If the Letter of Transmittal or any Original Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such person should so indicate when signing and, unless waived by the
Company, proper evidence satisfactory to the Company of their authority to so
act must be submitted with the Letter of Transmittal.
Endorsements on Original Notes or signatures on bond powers required by
this Instruction 4 must be guaranteed by an Eligible Institution.
Except as otherwise provided below, signatures on this Letter of
Transmittal must be guaranteed unless the Original Notes surrendered for
exchange pursuant thereto are tendered (i) by a Registered Holder of the
Original Notes who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution (as defined below). In the event
that signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantees must be by a firm
(an "Eligible Institution") that is a member of a recognized signature guarantee
medallion program (an "Eligible Program") within the meaning of Rule 17Ad-15
under the Exchange Act. If the Exchange Notes and/or Original Notes not
exchanged are to be delivered to an address other than that of the Registered
Holder appearing on the note register for the Original Notes, the signature on
the Letter of Transmittal must be guaranteed by an Eligible Institution. If the
Original Notes are registered in the name of a person other than the person
signing the Letter of Transmittal, the Original Notes surrendered for exchange
must be endorsed by, or accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Company in its
sole discretion, duly executed by the registered Holder with the signature
thereon guaranteed by an Eligible Institution.
5. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering Holders should
indicate, in the applicable box or boxes, the name and address to which Exchange
Notes or substitute Original Notes for principal amounts not tendered or not
accepted for exchange are to be issued or sent, if different from the name and
address of the person signing this Letter of Transmittal. In the case of
issuance in a different owner, the taxpayer identification or social security
number of the person named must also be indicated.
6. TAX IDENTIFICATION NUMBER. Under federal income tax laws, payments that
may be made by the Company on account of Exchange Notes issued pursuant to the
Exchange Offer may be subject to back-up withholding at a rate of 31%. In order
to prevent back-up withholding, each tendering holder must provide his or her
correct TIN by completing the "Substitute Form W-9" referred to above,
certifying that the TIN
<PAGE> 11
provided is correct (or that the holder is awaiting a TIN) and that: (i) the
holder has not been notified by the Internal Revenue Service that he or she is
subject to back-up withholding as a result of failure to report all interest or
dividends; or (ii) the Internal Revenue Service has notified the holder that he
or she is no longer subject to back-up withholding; or (iii) certify in
accordance with the Guidelines that such holder is exempt from back-up
withholding. If the Exchange Notes are in more than one name or are not in the
name of the actual owner, consult the enclosed Guidelines for information on
which TIN to report.
7. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Original Notes pursuant to the Exchange Offer. If,
however, certificates representing Exchange Notes or Original Notes for
principal amounts not tendered or accepted for exchange are to be delivered to,
or are to be registered or issued in the name of, any person other than the
registered holder of the Original Notes tendered, or if tendered Original Notes
are registered in the name of any person other than the person signing this
Letter of Transmittal, or if a transfer tax is imposed for any reason other than
the exchange of Original Notes pursuant to the Exchange Offer, then the amount
of any such transfer taxes (whether imposed on the registered holder or on any
other persons) will be payable by the tendering holder. If satisfactory evidence
of payment of such taxes or exemption therefrom is not submitted with this
Letter of Transmittal, or in the Agent's Message in lieu thereof, the amount of
such transfer taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Original Notes listed in this Letter of
Transmittal.
8. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend,
waive or modify specified conditions in the Exchange Offer in the case of any
Original Notes tendered.
9. MUTILATED, LOST, STOLEN OR DESTROYED ORIGINAL NOTES. Any tendering
Holder whose Original Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated herein for further
instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance and requests for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Exchange Agent at the address
specified in the Prospectus. Holders may also contact their broker, dealer,
commercial bank, trust company or other nominee for assistance concerning the
Exchange Offer.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF, IF APPLICABLE),
OR AN AGENT'S MESSAGE IN LIEU THEREOF, TOGETHER WITH CERTIFICATES FOR ALL
PHYSICALLY TENDERED ORIGINAL NOTES, OR A BOOK ENTRY CONFIRMATION, OR THE NOTICE
OF GUARANTEED DELIVERY, AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE
EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
<PAGE> 12
IMPORTANT TAX INFORMATION
Under current federal income tax law, a Holder whose tendered Original
Notes are accepted for exchange is required to provide the Company (as payer),
through the Exchange Agent, with such Holder's correct taxpayer identification
number ("TIN") on Substitute Form W-9 or otherwise establish a basis for
exemption from backup withholding for payments made on account of the Exchange
Notes. If such Holder is an individual, the TIN is such Holder's social security
number. If the Exchange Agent is not provided with the correct taxpayer
identification number, the Holder may be subject to a $50 penalty imposed by the
Internal Revenue Service.
Certain Holders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. Exempt Holders should indicate their exempt status on Substitute
Form W-9. A foreign individual may qualify as an exempt recipient by submitting
to the Exchange Agent a properly completed Internal Revenue Service Form W-8
(which the Exchange Agent will provide upon request) signed under penalty or
perjury, attesting to the Holder's exempt status. See the enclosed Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions.
If backup withholding applies, the Company is required to withhold 31% of
any payment made to the Holder or other payee. Backup withholding is not an
additional federal income tax. Rather, the federal income tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a Holder with
respect to payments made on account of the Exchange Notes the Holder is required
to provide the Exchange Agent with either: (i) the Holder's correct TIN by
completing the form below, certifying that the TIN provided on Substitute Form
W-9 is correct (or that such Holder is awaiting a TIN) and that (A) the Holder
has not been notified by the Internal Revenue Service that he or she is subject
to backup withholding as a result of failure to report all interest or dividends
or (B) the Internal Revenue Service has notified the Holder that he or she is no
longer subject to backup withholding; or (ii) an adequate basis for exemption.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The Holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the record owner of the
Exchange Notes. If the Exchange Notes are held in more than one name or are not
held in the name of the actual owner, consult the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional guidance on which number to report.
<PAGE> 13
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
PAYER'S NAME:
- -------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE --------------------------------------
FORM W-9 BOX AT RIGHT AND CERTIFY BY SIGNING AND Social Security Number
DATING BELOW OR
--------------------------------------
Employer Identification Number
------------------------------------------------------------------------------------
DEPARTMENT OF THE TREASURY PART 2 -- Certification -- Under Penalties of Perjury, I PART 3 --
INTERNAL REVENUE SERVICE certify that: Awaiting TIN [ ]
PAYER'S REQUEST FOR TAXPAYER (1) The number shown on this form is my correct Taxpayer
IDENTIFICATION NUMBER (TIN) Identification Number (or I am waiting for a number to
be issued to me) and
(2) I am not subject to backup withholding either because
I have not been notified by the Internal Revenue Service
(the "IRS") that I am subject to backup withholding as
a result of a failure to report all interest or
dividends, or the IRS has notified me that I am no
longer subject to backup withholding.
------------------------------------------------------------------------------------
Certificate instruction -- You must cross out item (2) in Part 2 above if you have
been notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding you received
another notification from the IRS stating that you are no longer subject to backup
withholding, do not cross out times (2).
SIGNATURE ---------------------------------- DATE----------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number within (60) days, 31% of all reportable
payments made to me thereafter will be withheld until I provide a number.
Signature
----------------------------------------------------- Date
<PAGE> 1
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES
NOTICE OF GUARANTEED DELIVERY
OF 8 3/4% ORIGINAL NOTES DUE 2007
(AS SUCCESSOR BY MERGER TO CHANCELLOR RADIO BROADCASTING COMPANY)
PURSUANT TO THE PROSPECTUS DATED OCTOBER 16, 1997.
THIS FORM, OR ONE SUBSTANTIALLY EQUIVALENT HERETO, MUST BE USED BY A HOLDER OF
8 3/4% SENIOR SUBORDINATED NOTES DUE 2007 (THE "ORIGINAL NOTES") OF CHANCELLOR
MEDIA CORPORATION OF LOS ANGELES, A DELAWARE CORPORATION (THE "COMPANY"), WHO
WISHES TO EXCHANGE ITS ORIGINAL NOTES PURSUANT TO THE COMPANY'S EXCHANGE OFFER,
AS DEFINED IN THE PROSPECTUS (THE "PROSPECTUS"), DATED OCTOBER 16, 1997 AND (I)
WHOSE ORIGINAL NOTES ARE NOT IMMEDIATELY AVAILABLE, (II) WHO CANNOT DELIVER HIS
ORIGINAL NOTES OR ANY OTHER DOCUMENTS REQUIRED BY THE LETTER OF TRANSMITTAL ON
OR BEFORE THE EXCHANGE OFFER EXPIRATION DATE (AS DEFINED IN THE PROSPECTUS) OR
(III) WHO CANNOT COMPLETE THE PROCEDURE FOR BOOK ENTRY TRANSFER ON A TIMELY
BASIS. SUCH FORM MAY BE DELIVERED BY FACSIMILE TRANSMISSION, IF APPLICABLE, MAIL
OR HAND DELIVERY TO THE EXCHANGE AGENT. SEE "THE EXCHANGE OFFER -- GUARANTEED
DELIVERY PROCEDURES" IN THE PROSPECTUS.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON NOVEMBER
17, 1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). ORIGINAL NOTES TENDERED IN
THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
TO: U.S. TRUST COMPANY OF TEXAS, N.A., THE EXCHANGE AGENT
<TABLE>
<S> <C> <C>
By Overnight Courier: Telephone Transmission: By Registered or Certified Mail:
U.S. Trust Company of Texas, N.A. (212) 420-6504 (fax) U.S. Trust Company of Texas, N.A.
ATTN: Corporate Trust (800) 225-2398 ATTN: Corporate Trust
770 Broadway -- 13th Floor P.O. Box 841 Cooper Station
New York, New York 10003-9598 By Hand Delivery: New York, New York 10276
U.S. Trust Company of
Texas, N.A.
ATTN: Corporate Trust
111 Broadway -- Lower Level
New York, New York 10006-1906
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN TO THE ONE
LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE LETTER
OF TRANSMITTAL FOR GUARANTEE OF SIGNATURES.
<PAGE> 2
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
LADIES AND GENTLEMEN:
The undersigned hereby represents that he owns the Original Notes tendered
and hereby tenders to the Company upon the terms and subject to the conditions
set forth in the Prospectus and the related Letter of Transmittal, receipt of
which is hereby acknowledged, the principal amount of Original Notes specified
below pursuant to the guaranteed delivery procedures set forth under the caption
"The Exchange Offer -- Guaranteed Delivery Procedures" in the Prospectus. The
undersigned hereby tenders the Original Notes listed below:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
ORIGINAL NOTES CERTIFICATE NUMBERS
(IF AVAILABLE) PRINCIPAL AMOUNT TENDERED
================================================================================
================================================================================
</TABLE>
If Original Notes will be tendered by book entry transfer:
Name of Tendering Institution:
- --------------------------------------------------------------------------------
Account No.
- ----------------------------------------------------------------------------, at
The Depository Trust Company
SIGN HERE
- --------------------------------------------------------------------------------
Signature(s)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Name(s) (Please Print)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
Zip Code
- --------------------------------------------------------------------------------
Area Code and Telephone No.
Date:
- --------------------------------------------------------------------------------
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member of a recognized signature guarantee medallion
program within the meaning of Rule 17A(d)-15 under the Securities Exchange Act
of 1934, as amended, hereby guarantees (a) that the above-named person(s) own(s)
the above-described securities tendered hereby and (b) that delivery to the
Exchange Agent of certificates tendered hereby, in proper form for transfer, or
delivery of such certificates pursuant to the procedure for book-entry transfer,
in either case with delivery of a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) and any other required documents, is being
made within three business days after the date of execution of a Notice of
Guaranteed Delivery of the above-named person.
SIGN HERE
- --------------------------------------------------------------------------------
Name of Firm
- --------------------------------------------------------------------------------
Authorized Signature
- --------------------------------------------------------------------------------
Name (Please print)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
Zip Code
- --------------------------------------------------------------------------------
Area Code and Telephone No.
Date:
- --------------------------------------------------------------------------------
DO NOT SEND ORIGINAL NOTES WITH THIS FORM. ACTUAL SURRENDER OF ORIGINAL
NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A COPY OF THE PREVIOUSLY
EXECUTED LETTER OF TRANSMITTAL.
<PAGE> 4
INSTRUCTIONS
1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other documents
required by this Notice of Guaranteed Delivery must be received by the Exchange
Agent at its address set forth on the cover hereof prior to the Exchange Offer
Expiration Date. The method of delivery of this Notice of Guaranteed Delivery
and all other required documents to the Exchange Agent is at the election and
risk of the Holder but, except as otherwise provided below, the delivery will be
deemed made only when actually received by the Exchange Agent. If such delivery
is by mail, it is recommended that the Holder use properly insured, registered
mail with return receipt requested. For a full description of the guaranteed
delivery procedures, see the Prospectus under the caption "The Exchange
Offer -- Guaranteed Delivery Procedures." In all cases, sufficient time should
be allowed to assure timely delivery. No Notice of Guaranteed Delivery should be
sent to the Company.
2. SIGNATURE ON THIS NOTICE OF GUARANTEED DELIVERY; GUARANTEE OF
SIGNATURES. If this Notice of Guaranteed Delivery is signed by the registered
Holder(s) of the Original Notes referred to herein, the signature must
correspond with the name(s) as written on the face of the Original Notes without
alteration, enlargement or any change whatsoever.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing, and, unless waived by the Company, evidence satisfactory
to the Company of their authority so to act must be submitted with this Notice
of Guaranteed Delivery.
If this Notice of Guaranteed Delivery is signed by a participant of the
Book-Entry Transfer Facility whose name appears on a security position listing
as the owner of the Original Notes, the signature must correspond with the name
shown on the security position listing as the owner of the Original Notes.
If this Notice of Guaranteed Delivery is signed by a person other than the
Registered Holder(s) of any Original Notes listed or a participant of the
Book-Entry Transfer Facility, this Notice of Guaranteed Delivery must be
accompanied by appropriate bond powers, signed as the name of the Registered
Holder(s) appears on the Original Notes or signed as the name of the participant
shown on the Book-Entry Transfer Facility's security position listing.
3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
Exchange Offer or the procedure for tendering as well as requests for assistance
or for additional copies of the Prospectus and the Letter of Transmittal, may be
directed to the Exchange Agent. Holders may also contact their broker, dealer,
commercial bank, trust company, or other nominee for assistance concerning the
Exchange Offer.
